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, 2019

or

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

Commission File Number: 001-35435

 Proto Labs, Inc.

(Exact name of registrant as specified in its charter)

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

(763) 479-3680

(Registrant’s telephone number, including area code)

                   Not Applicable

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

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

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

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

Large accelerated filer	☑	Accelerated filer	☐
Non-accelerated filer	☐
Smaller reporting company	☐	Emerging growth company	☐

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

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

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 26,848,544 shares of Common Stock, par value $0.001 per share, were outstanding at April 25, 2019. 

Proto Labs, Inc.

TABLE OF CONTENTS

Item	Description	Page
PART I
1.	Financial Statements	1
2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	17
3.	Quantitative and Qualitative Disclosures about Market Risk	26
4.	Controls and Procedures	27
PART II
1.	Legal Proceedings	28
1A.	Risk Factors	28
2.	Unregistered Sales of Equity Securities and Use of Proceeds	28
3.	Defaults Upon Senior Securities	28
4.	Mine Safety Disclosures	28
5.	Other Information	28
6.	Exhibits	29

i

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,
	2019			2018
	(Unaudited)
Assets
Current assets
Cash and cash equivalents	$	85,350		$	85,046
Short-term marketable securities		35,045			46,750
Accounts receivable, net of allowance for doubtful accounts of $939 and $919 as of March 31, 2019 and December 31, 2018, respectively		61,535			59,155
Inventory		9,356			10,087
Prepaid expenses and other current assets		8,613			8,567
Income taxes receivable		2,852			5,757
Total current assets		202,751			215,362
Property and equipment, net		234,211			228,001
Goodwill		128,752			128,752
Other intangible assets, net		18,979			19,850
Long-term marketable securities		18,262			23,579
Operating lease assets		11,965			-
Other long-term assets		3,676			3,441
Total assets	$	618,596		$	618,985
Liabilities and shareholders' equity
Current liabilities
Accounts payable	$	16,672		$	17,411
Accrued compensation		10,129			18,130
Accrued liabilities and other		11,027			16,702
Current operating lease liabilities		3,021			-
Income taxes payable		594			491
Total current liabilities		41,443			52,734
Long-term operating lease liabilities		9,107			-
Long-term deferred tax liabilities		20,549			20,162
Other long-term liabilities		4,702			4,592
Total liabilities		75,801			77,488
Shareholders' equity
Preferred stock, $0.001 par value, authorized 10,000,000 shares; issued and outstanding 0 shares as of each of March 31, 2019 and December 31, 2018		-			-
Common stock, $0.001 par value, authorized 150,000,000 shares; issued and outstanding 26,846,981 and 26,984,747 shares as of March 31, 2019 and December 31, 2018, respectively		27			27
Additional paid-in capital		259,611			258,502
Retained earnings		291,173			291,460
Accumulated other comprehensive loss		(8,016	)		(8,492	)
Total shareholders' equity		542,795			541,497
Total liabilities and shareholders' equity	$	618,596		$	618,985

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

1

Proto Labs, Inc.

Consolidated Statements of Comprehensive Income

(In thousands, except share and per share amounts)

(Unaudited)

	Three Months Ended
	March 31,
	2019		2018
Statements of Operations:
Revenue	$	113,452	$	107,745
Cost of revenue		54,592		49,837
Gross profit		58,860		57,908
Operating expenses
Marketing and sales		18,577		16,572
Research and development		8,013		6,665
General and administrative		12,822		12,943
Total operating expenses		39,412		36,180
Income from operations		19,448		21,728
Other income, net		213		178
Income before income taxes		19,661		21,906
Provision for income taxes		4,150		3,855
Net income	$	15,511	$	18,051
Net income per share:
Basic	$	0.58	$	0.67
Diluted	$	0.57	$	0.66
Shares used to compute net income per share:
Basic		26,963,366		26,879,388
Diluted		27,177,039		27,197,099
Comprehensive Income (net of tax)
Comprehensive income	$	15,987	$	20,444

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

2

Proto Labs, Inc.

Consolidated Statements of Shareholders' Equity

(In thousands, except share amounts)

	Common Stock					Additional						Accumulated Other
						Paid-In			Retained			Comprehensive
	Shares			Amount		Capital			Earnings			Loss			Total
Balance at January 1, 2019		26,984,747		$	27	$	258,502		$	291,460		$	(8,492	)	$	541,497
Common shares issued on exercise of options and other, net of shares withheld for tax obligations		19,950			-		(420	)		-			-			(420	)
Stock-based compensation expense		-			-		3,040			-			-			3,040
Repurchases of common stock		(157,716	)		-		(1,511	)		(15,798	)		-			(17,309	)
Net income		-			-		-			15,511			-			15,511
Other comprehensive income
Foreign currency translation adjustment		-			-		-			-			476			476
Comprehensive income																15,987
Balance at March 31, 2019		26,846,981		$	27	$	259,611		$	291,173		$	(8,016	)	$	542,795

	Common Stock				Additional				Accumulated Other
					Paid-In		Retained		Comprehensive
	Shares		Amount		Capital		Earnings		Loss			Total
Balance at January 1, 2018		26,828,651	$	27	$	241,725	$	224,697	$	(5,234	)	$	461,215
Common shares issued on exercise of options and other, net of shares withheld for tax obligations		102,895		-		2,250		-		-			2,250
Stock-based compensation expense		-		-		2,307		-		-			2,307
Repurchases of common stock		-		-		-		-		-			-
Revenue recognition transition adjustment		-		-		-		1,460		-			1,460
Net income		-		-		-		18,051		-			18,051
Other comprehensive income
Foreign currency translation adjustment		-		-		-		-		2,393			2,393
Comprehensive income													20,444
Balance at March 31, 2018		26,931,546	$	27	$	246,282	$	244,208	$	(2,841	)	$	487,676

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

3

Proto Labs, Inc.

Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)

	Three Months Ended
	March 31,
	2019			2018
Operating activities
Net income	$	15,511		$	18,051
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		7,439			6,259
Stock-based compensation expense		3,040			2,307
Deferred taxes		379			612
Amortization of held-to-maturity securities		16			163
Other		236			106
Changes in operating assets and liabilities:
Accounts receivable		(2,386	)		(4,013	)
Inventories		739			807
Prepaid expenses and other		(211	)		(1,707	)
Income taxes		3,006			2,387
Accounts payable		(805	)		2,291
Accrued liabilities and other		(8,962	)		(1,118	)
Net cash provided by operating activities		18,002			26,145
Investing activities
Purchases of property, equipment and other capital assets		(12,735	)		(25,513	)
Cash used for acquisitions, net of cash acquired		-			(90	)
Purchases of other assets and investments		(4,000	)		-
Purchases of marketable securities		-			(3,389	)
Proceeds from maturities of marketable securities		17,006			13,551
Net cash provided by (used in) investing activities		271			(15,441	)
Financing activities
Payments on debt		-			(5,000	)
Proceeds from exercises of stock options		174			2,880
Purchases of shares withheld for tax obligations		(594	)		(628	)
Repurchases of common stock		(17,309	)		-
Net cash used in financing activities		(17,729	)		(2,748	)
Effect of exchange rate changes on cash and cash equivalents		(240	)		432
Net increase in cash and cash equivalents		304			8,388
Cash and cash equivalents, beginning of period		85,046			36,707
Cash and cash equivalents, end of period	$	85,350		$	45,095

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

4

Note 1 – Basis of Presentation

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

The preparation of the financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, expenses, and the related disclosures at the date of the financial statements and during the reporting period. Actual results could materially differ from these estimates. For further information, refer to the audited Consolidated Financial Statements and Notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018 as filed with the Securities and Exchange Commission (SEC) on February 22, 2019.

The accompanying Consolidated Balance Sheet as of December 31, 2018 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 22, 2019 as referenced above.

Note 2 – Recent Accounting Pronouncements

Recently Adopted Accounting Pronouncements

During the first quarter of 2019, the Company adopted the Financial Accounting Standards Board (FASB) Accounting Standards Update (ASU) 2016-02, Leases (ASC 842), which introduces the balance sheet recognition of lease assets and lease liabilities by lessees for those leases classified as operating leases under previous guidance. The Company has adopted the new lease standard using the new transition option issued under the amendments in ASU 2018-11, Leases, which allowed the Company to continue to apply the legacy guidance in Accounting Standards Codification (ASC) 840, Leases, in the comparative periods presented in the year of adoption. The Company elected the package of practical expedients permitted under the transition guidance within the new standard, which among other things, allowed the Company to carry forward the historical lease classification. The Company made an accounting policy election to keep leases with an initial term of 12 months or less off of the balance sheet. The Company will recognize those lease payments in the Consolidated Statements of Comprehensive Income on a straight-line basis over the lease term. The impact of the adoption was an increase to the Company’s operating lease assets and liabilities on January 1, 2019 of $13.1 million.

5

Recently Issued Accounting Pronouncements

In January 2017, the FASB issued ASU 2017-04, Intangibles – Goodwill and Other, which is intended to simplify the subsequent measurement of goodwill. This guidance will be effective for impairment tests in fiscal years beginning after December 15, 2019 and interim periods within those fiscal years with early adoption permitted. The Company does not expect the impact to be material.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses, which is intended to provide financial statement users with more decision-useful information about the expected credit losses on financial instruments held by a reporting entity at each reporting date. This guidance will be effective for fiscal years beginning after December 15, 2020 and interim periods within those fiscal years with early adoption permitted. The Company is evaluating the impact of future adoption of this guidance on its consolidated 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 potentially dilutive common shares been issued and reduced by the number of shares the Company could have repurchased from the proceeds from issuance of the potentially dilutive shares. Potentially dilutive shares of common stock include stock options, restricted stock units and restricted stock awards granted under stock-based compensation plans and shares committed to be purchased under the employee stock purchase plan. Performance stock units are excluded from the calculation of dilutive potential common shares until the performance conditions have been satisfied.

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

	Three Months Ended
	March 31,
(in thousands, except share and per share amounts)	2019		2018
Net income	$	15,511	$	18,051
Basic - weighted-average shares outstanding:		26,963,366		26,879,388
Effect of dilutive securities:
Employee stock options and other		213,673		317,711
Diluted - weighted-average shares outstanding:		27,177,039		27,197,099
Net income per share:
Basic	$	0.58	$	0.67
Diluted	$	0.57	$	0.66

6

Note 4 – Goodwill and Other Intangible Assets

There were no changes in the carrying amount of Goodwill during the three months ended March 31, 2019.

Intangible Assets other than goodwill at March 31, 2019 and December 31, 2018 were as follows:

	March 31, 2019							December 31, 2018							Useful		Weighted Average
(in thousands)	Gross		Accumulated Amortization			Net		Gross		Accumulated Amortization			Net		Life (in years)		Useful Life Remaining (in years)
Intangible Assets with finite lives:
Marketing assets	$	930	$	(457	)	$	473	$	930	$	(434	)	$	496		10.0		5.1
Non-compete agreement		270		(210	)		60		270		(206	)		64		2.0 - 5.0		3.8
Trade secrets		250		(246	)		4		250		(233	)		17		5.0		0.1
Trade names		1,080		(675	)		405		1,080		(540	)		540		2.0		0.8
Software technology		12,229		(1,309	)		10,920		12,229		(997	)		11,232		10.0		8.8
Customer relationships		10,070		(2,953	)		7,117		10,070		(2,569	)		7,501		6.0 - 9.0		4.6
Total intangible assets	$	24,829	$	(5,850	)	$	18,979	$	24,829	$	(4,979	)	$	19,850

Amortization expense for intangible assets was $0.9 million and $0.8 million for the three months ended March 31, 2019 and 2018, respectively.

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

(in thousands)	Estimated Amortization Expense
Remaining 2019	$	2,580
2020		2,895
2021		2,895
2022		2,895
2023		2,691
Thereafter		5,023
Total estimated amortization expense	$	18,979

7

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 that requires classification based on observable and unobservable inputs when measuring fair value. There are three levels of inputs that may be used to measure fair value:

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

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

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

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

The following table summarizes financial assets as of March 31, 2019 and December 31, 2018 measured at fair value on a recurring basis: 

	March 31, 2019						December 31, 2018
(in thousands)	Level 1		Level 2		Level 3		Level 1		Level 2		Level 3
Financial Assets:
Cash and cash equivalents
Money market mutual fund	$	9,155	$	-	$	-	$	8,943	$	-	$	-
Total	$	9,155	$	-	$	-	$	8,943	$	-	$	-

Note 6 – Marketable Securities

The Company invests in short-term and long-term agency, municipal, corporate and other debt securities. The securities are categorized as held-to-maturity and are recorded at amortized cost. Categorization as held-to-maturity is based on the Company’s ability and intent to hold these securities to maturity. The following table summarizes information regarding the Company’s short-term and long-term marketable securities as of March 31, 2019 and December 31, 2018:

	March 31, 2019
(in thousands)	Cost		Unrealized Gains		Unrealized Losses			Fair Value
U.S. municipal securities	$	10,825	$	7	$	(6	)	$	10,826
Corporate debt securities		24,513		52		(27	)		24,538
U.S. government agency securities		14,505		-		(40	)		14,465
Certificates of deposit/time deposits		3,464		10		(10	)		3,464
Total marketable securities	$	53,307	$	69	$	(83	)	$	53,293

8

	December 31, 2018
(in thousands)	Cost		Unrealized Gains		Unrealized Losses			Fair Value
U.S. municipal securities	$	17,509	$	1	$	(33	)	$	17,477
Corporate debt securities		31,769		-		(96	)		31,673
U.S. government agency securities		16,843		-		(88	)		16,755
Certificates of deposit/time deposits		4,208		-		(25	)		4,183
Total marketable securities	$	70,329	$	1	$	(242	)	$	70,088

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 and certificates of deposit 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. In reaching this conclusion, the Company considered the credit quality of the issuers of the debt securities as well as the Company’s intent 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, 2019 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)	2019
Due in one year or less	$	35,045
Due after one year through five years		18,262
Total marketable securities	$	53,307

Note 7 – Inventory

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

The Company’s inventory consisted of the following as of the dates indicated:

	March 31,			December 31,
(in thousands)	2019			2018
Raw materials	$	9,132		$	9,560
Work in process		412			792
Total inventory		9,544			10,352
Allowance for obsolescence		(188	)		(265	)
Inventory, net of allowance	$	9,356		$	10,087

9

Note 8 – Leases

The Company’s significant accounting policies are disclosed in Note 2 to the Consolidated Financial Statements included in its Annual Report on Form 10-K for the year ended December 31, 2018. Significant changes to the Company’s accounting policies as a result of adopting ASC 842 are discussed below.

The Company accounts for leases in accordance with ASC 842. The Company adopted the standard as of January 1, 2019, using the alternative transition method provided under ASC 842, which allowed the Company to initially apply the new lease standard at the adoption date (the "effective date method"). Under the effective date method, comparative periods are presented in accordance with ASC 840 and do not include any retrospective adjustments to reflect the adoption of ASC 842. The Company elected the package of practical expedients permitted under the transition guidance within the new standard. The Company did not elect the hindsight practical expedient. The Company recorded a net increase of $13.1 million to its operating lease assets and liabilities on January 1, 2019. The adoption did not result in a cumulative-effect adjustment to the opening balance of retained earnings. The adoption of ASC 842 did not have a material impact on the Company's consolidated statements of comprehensive income, shareholders' equity or cash flows as of the adoption date.

The Company has operating leases for office space, manufacturing facilities and certain company vehicles and equipment. The leases have remaining lease terms of one year to 10 years. Leases with an initial term of 12 months or less are not recorded on the balance sheet; we recognize lease expense for these leases on a straight-line basis over the lease term. For purposes of calculating operating lease liabilities, lease terms may be deemed to include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. As of March 31, 2019, the operating lease liability does not include any options to extend or terminate leases. The Company currently has no finance leases.

The Company determines if an arrangement is a lease at inception. Operating leases are included in operating lease assets, current operating lease liabilities and long-term operating lease liabilities in the Consolidated Balance Sheets and are recognized based on the present value of lease payments over the lease term at commencement date. The majority of the Company’s leases do not provide an implicit rate of return, therefore, the Company uses its incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. Lease agreements that contain non-lease components, with the exception of certain real estate leases, are accounted for as a single lease component.

Supplemental balance sheet information related to leases was as follows:

(in thousands)	March 31, 2019
Operating lease assets	$	11,965
Current operating lease liabilities	$	3,021
Long-term operating lease liabilities		9,107
Total operating lease liabilities	$	12,128

Lease expense is recognized on a straight line basis over the lease term, with variable payments recognized in the period those payments are incurred. The components of lease expense for the periods reported were as follows:

(in thousands)	Three Months Ended March 31, 2019
Operating lease cost	$	1,070
Variable lease cost		239
Total lease cost	$	1,309

10

Maturities of operating lease liabilities as of March 31, 2019 (in accordance with ASC 842) were as follows:

(in thousands)	Operating Leases
Year Ending December 31,
2019 (excluding three months ended March 31, 2019)	$	2,706
2020		2,627
2021		2,307
2022		2,256
2023		1,028
After 2023		2,098
Total future minimum lease payments		13,022
Less interest		(894	)
Present value of lease liabilities	$	12,128

As of March 31, 2019, we have no operating leases that have not yet commenced.

Weighted average remaining lease term and discount rate was as follows: 

	March 31, 2019
Weighted Average Remaining Lease Term (Years)		5.38
Weighted Average Discount Rate		2.6	%

Supplemental cash flow information related to leases was as follows:

(in thousands)	Three Months Ended March 31, 2019
Cash paid for amounts included in the measurement of operating lease liabilities:
Operating cash flows for operating leases	$	1,197
Lease assets obtained in exchange for new operating lease liabilities		13,049

Note 9 – Stock-Based Compensation

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

11

Employee Stock Purchase Plan

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

Stock-Based Compensation Expense

Stock-based compensation expense was $3.0 million and $2.3 million for the three months ended March 31, 2019 and 2018, respectively.

Stock Options

The following table summarizes stock option activity during the three months ended March 31, 2019:

				Weighted-
				Average
	Stock Options			Exercise Price
Options outstanding at December 31, 2018		252,616		$	64.71
Granted		30,046			104.99
Exercised		(3,010	)		57.85
Forfeited		(680	)		96.20
Options outstanding at March 31, 2019		278,972		$	69.04
Exercisable at March 31, 2019		157,602		$	56.70

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

The weighted-average grant date fair value of options that were granted during the three months ended March 31, 2019 was $47.76.

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The following table provides the assumptions used in the Black-Scholes pricing model valuation of options during the three months ended March 31, 2019 and 2018:

	Three Months Ended March 31,
	2019			2018
Risk-free interest rate		2.58	%		2.52	%
Expected life (years)		6.25			6.25
Expected volatility		42.74	%		42.22	%
Expected dividend yield		0	%		0	%

As of March 31, 2019, there was $4.3 million of unrecognized compensation expense related to unvested stock options, which is expected to be recognized over a weighted-average period of 3.0 years.

Restricted Stock

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

The following table summarizes restricted stock activity during the three months ended March 31, 2019:

				Weighted-
				Average
				Grant Date
	Restricted			Fair Value
	Stock			Per Share
Restricted stock at December 31, 2018		323,921		$	79.85
Granted		27,476			105.03
Restrictions lapsed		(22,420	)		71.40
Forfeited		(3,692	)		108.51
Restricted stock at March 31, 2019		325,285		$	82.35

As of March 31, 2019, there was $21.3 million of unrecognized compensation expense related to non-vested restricted stock, which is expected to be recognized over a weighted-average period of 3.0 years. 

Performance Stock

Performance stock units (PSUs) are expressed in terms of a target number of PSUs, with anywhere between 0 percent and 150 percent of that target number capable of being earned and vesting at the end of a three-year performance period depending on the Company’s performance in the final year of the performance period and the award recipient’s continued employment.

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The following table summarizes performance stock activity during the three months ended March 31, 2019: 

			Weighted-
			Average
			Grant Date
	Performance		Fair Value
	Stock		Per Share
Performance stock at December 31, 2018		52,140	$	76.54
Granted		21,434		104.99
Restrictions lapsed		-		-
Performance change		-		-
Forfeited		-		-
Performance stock at March 31, 2019		73,574	$	84.83

As of March 31, 2019, there was $4.0 million of unrecognized compensation expense related to non-vested performance stock, which is expected to be recognized over a weighted-average period of 2.3 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, 2019 and 2018: 

	Three Months Ended March 31,
	2019			2018
Risk-free interest rate		2.33	%		1.48	%
Expected life (months)		6.00			6.00
Expected volatility		37.36	%		24.49	%
Expected dividend yield		0	%		0	%

Note 10 – Accumulated Other Comprehensive 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, 2019 and 2018:

	Three Months Ended
	March 31,
(in thousands)	2019			2018
Foreign currency translation adjustments
Balance at beginning of period	$	(8,492	)	$	(5,234	)
Other comprehensive income before reclassifications		476			2,393
Amounts reclassified from accumulated other comprehensive income		-			-
Net current-period other comprehensive income		476			2,393
Balance at end of period	$	(8,016	)	$	(2,841	)

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Note 11 – Income Taxes

The Company is subject to income tax in multiple jurisdictions and the use of estimates is required to determine the provision for income taxes. For the three months ended March 31, 2019 and 2018, the Company recorded an income tax provision of $4.2 million and $3.9 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, 2019 was 21.1 percent compared to 17.6 percent in the same period of the prior year. The effective tax rate increased by 3.5 percent for the three months ended March 31, 2019 when compared to the same period in 2018 primarily due to a decrease for tax benefits from the vesting of restricted stock and exercise of stock options.

The effective income tax rate for the three months ended March 31, 2019 differs from the U.S. federal statutory rate of 21.0 percent due primarily to the mix of income earned in domestic and foreign tax jurisdictions and deductions for which the Company qualifies.

The Company had reserves against unrecognized tax benefits totaling $4.3 million and $4.1 million as of March 31, 2019 and December 31, 2018, respectively, all of which, if recognized, would affect the Company’s effective tax rate. The Company recognizes interest and penalties related to income tax matters in income tax expense, and reports the liability in current or long-term income taxes payable as appropriate.

Note 12 – Segment Reporting

The Company’s reportable segments are based on the internal reporting used by the Company’s Chief Executive Officer, who is the chief operating decision maker (CODM), to assess operating performance and make decisions about the allocation of resources. The Corporate Unallocated and Japan category includes non-reportable segments, as well as research and development and general and administrative costs that the Company does not allocate directly to its operating segments.

Intercompany transactions primarily relate to intercontinental activity and have been eliminated and are excluded from the reported amounts. The difference between income from operations and pre-tax income relates to foreign currency-related gains and losses and interest income on cash balances and investments, which are not allocated to business segments. 

Beginning in 2019, the Company's CODM made a decision to view certain research and development costs by geographic region. As a result, costs previously included in the Corporate Unallocated and Japan category have been included in the respective geographic regions.  All periods presented have been restated to reflect this change.

Revenue and income from operations by reportable segment for the three months ended March 31, 2019 and 2018 were as follows:

	Three Months Ended March 31,
(in thousands)	2019		2018
Revenue:
United States	$	87,811	$	84,167
Europe		21,254		19,945
Japan		4,387		3,633
Total revenue	$	113,452	$	107,745

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	Three Months Ended March 31,
(in thousands)	2019			2018
Income from Operations:
United States	$	26,310		$	28,843
Europe		4,221			3,361
Corporate Unallocated and Japan		(11,083	)		(10,476	)
Total Income from Operations	$	19,448		$	21,728

Total long-lived assets at March 31, 2019 and December 31, 2018 were as follows:

	March 31,		December 31,
(in thousands)	2019		2018
Total long-lived assets:
United States	$	191,296	$	185,979
Europe		35,465		34,577
Japan		7,450		7,445
Total Assets	$	234,211	$	228,001

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

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited consolidated financial statements and related notes appearing elsewhere in this Quarterly Report on Form 10-Q and our Annual Report on Form 10-K for the year ended December 31, 2018.

Forward-Looking Statements

Statements contained in this report regarding matters that are not historical or current facts are “forward-looking statements” within the meaning of The Private Securities Litigation Reform Act of 1995. In some cases, you can identify forward-looking statements by the following words: “may,” “will,” “could,” “would,” “should,” “expect,” “intend,” “plan,” “anticipate,” “believe,” “estimate,” “predict,” “project,” “potential,” “continue,” “ongoing” or the negative of these terms or other comparable terminology, although not all forward-looking statements contain these words. These statements involve known and unknown risks, uncertainties and other factors that may cause our results to be materially different than those expressed or implied in such statements. Certain of these risk factors and others are described in Item 1A. “Risk Factors” of our most recent 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 the world’s largest and fastest digital manufacturer of custom prototypes and on-demand production parts. We manufacture prototypes and low-volume production parts for companies worldwide, who are under increasing pressure to bring their finished products to market faster than their competition. We utilize injection molding, computer numerical control (CNC) machining, 3D printing and sheet metal fabrication to manufacture custom parts for our customers. Our proprietary technology eliminates most of the time-consuming and expensive skilled labor conventionally required to quote and manufacture parts. Our customers conduct nearly all of their business with us over the Internet. We target our products to the millions of product developers and engineers who use three-dimensional computer-aided design (3D CAD) software to design products across a diverse range of end-markets.

Our primary manufacturing product lines currently include Injection Molding, CNC Machining, 3D Printing and Sheet Metal. We continually seek to expand the range of sizes and geometric complexity of the parts we can make with these processes, to extend the variety of materials we are able to support and to identify additional manufacturing processes to which we can apply our technology in order to better serve the evolving preferences and needs of product developers and engineers.

Injection Molding

Our Injection Molding product line uses our 3D CAD-to-CNC machining technology for the automated design and manufacture of molds, which are then used to produce custom plastic and liquid silicone rubber injection-molded parts and over-molded and insert-molded injection-molded parts on commercially available equipment. Our Injection Molding product line works best for on-demand production, bridge tooling, pilot runs and functional prototyping. Our affordable aluminum molds and quick turnaround times help reduce design risk and limit overall production costs for product developers and engineers. Prototype quantities typically range from 25 to 100 parts. Because we retain possession of the molds, customers who need short-run production often come back to Protolabs’ Injection Molding product line for additional quantities. They do so to support pilot production for product testing, while their tooling for high-volume production is being prepared, because they need on-demand manufacturing due to disruptions in their manufacturing process, because their product requires limited annual quantity or because they need end-of-life production support. In 2017, we launched an on-demand manufacturing injection molding product offering. This product offering utilizes our existing processes, but is designed to fulfill the needs of customers with on-going production needs, typically in annual volumes of less than 10,000 parts.

CNC Machining

Our CNC Machining product line uses commercially available CNC machines to offer milling and turning. CNC milling is a manufacturing process that cuts plastic and metal blocks into one or more custom parts based on the 3D CAD model uploaded by the product developer or engineer. CNC turning with live tooling combines both lathe and mill capabilities to machine parts with cylindrical features from metal rod stock. Our efficiencies derive from the automation of the programming of these machines and a proprietary fixturing process.

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

3D Printing

Our 3D Printing product line includes stereolithography, selective laser sintering, direct metal laser sintering, Multi Jet Fusion and PolyJet processes, which offer customers a wide-variety of high-quality, precision rapid prototyping and low-volume production. These processes create parts with a high level of accuracy, detail, strength and durability. Industrial 3D Printing is best suited for functional prototypes, complex designs and end-use applications produced in small quantities, typically in the range of one to 50 parts.

Sheet Metal

Our Sheet Metal product line includes quick-turn and e-commerce-enabled custom sheet metal parts, which provides customers with prototype and low-volume production parts. The rapid prototype sheet metal process is most often used when form, fit and function are all a priority. Our manufacturing process uses customer 3D CAD models uploaded by the product developer or engineer to fabricate quick-turn prototype sheet metal or short-run production parts. The Sheet Metal product line is well suited to produce quantities in the range of one to 500 parts.

Key Financial Measures and Trends

Revenue

Our operations are comprised of three geographic operating segments in the United States, Europe and Japan. Revenue is derived from our Injection Molding, CNC Machining, 3D Printing and Sheet Metal product lines. Injection Molding revenue consists of sales of custom injection molds and injection-molded parts. CNC Machining revenue consists of sales of CNC-machined custom parts. 3D Printing revenue consists of sales of 3D-printed parts. Sheet Metal revenue consists of sales of fabricated sheet metal custom parts. Our historical and current efforts to increase revenue have been directed at expanding the breadth of our product offerings, gaining new customers and selling to our existing customer base by increasing marketing and selling activities, including:

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

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

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

● the introduction of our Sheet Metal product line through our acquisition of RAPID in 2017; and

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

During the three months ended March 31, 2019, we served 20,573 unique product developers and engineers who purchased our products through our web-based customer interface, an increase of 9.3% over the same period in 2018.

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 percentage of revenue. Our gross profit and gross margin are affected by many factors, including our mix of revenue by product line and geography, pricing, sales volume and manufacturing costs, the costs associated with increasing production capacity, and foreign exchange rates.

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Operating Expenses

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

Our recent 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 injection-molded, CNC-machined, CNC-turned, 3D-printed and sheet metal custom parts for prototyping and low-volume production. In order to achieve our goals, we anticipate continued substantial investments in technology and personnel, resulting in increased operating expenses.

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

Research and development. Research and development expense consists primarily of personnel and outside service costs related to the development of new processes and product lines, enhancement of existing product lines, development of software for internal use, maintenance of internally developed software, quality assurance and testing. Costs for internal use software are evaluated by project and capitalized where appropriate under ASC 350-40, Intangibles — Goodwill and Other, Internal-Use Software. We expect research and development expense to increase in the future as we seek to enhance and expand our product line offerings and supporting business systems.

General and administrative. General and administrative expense consists primarily of employee compensation, benefits, stock-based compensation, professional service fees related to accounting, tax and legal and other related overhead. We expect general and administrative expense to increase in the future as we continue to grow and expand as a global organization.

Other Income, net

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

Provision for Income Taxes

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

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Results of Operations

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

	Three Months Ended March 31,								Change
(dollars in thousands)	2019				2018				$			%
Revenue	$	113,452	100.0		$	107,745	100.0	%	$	5,707			5.3
Cost of revenue		54,592	48.1			49,837	46.3			4,755			9.5
Gross profit		58,860	51.9			57,908	53.7			952			1.6
Operating expenses:
Marketing and sales		18,577	16.4			16,572	15.4			2,005			12.1
Research and development		8,013	7.1			6,665	6.2			1,348			20.2
General and administrative		12,822	11.3			12,943	12.0			(121	)		(0.9	)
Total operating expenses		39,412	34.8			36,180	33.6			3,232			8.9
Income from operations		19,448	17.1			21,728	20.2			(2,280	)		(10.5	)
Other income, net		213	0.2			178	0.2			35			19.7
Income before income taxes		19,661	17.3			21,906	20.4			(2,245	)		(10.2	)
Provision for income taxes		4,150	3.6			3,855	3.6			295			7.7
Net income	$	15,511	13.7	%	$	18,051	16.8	%	$	(2,540	)		(14.1	)%

Stock-based compensation expense included in the statements of operations data above for the three months ended March 31, 2019 and 2018 was as follows:

	Three Months Ended March 31,
(dollars in thousands)	2019		2018
Stock options and restricted stock	$	2,779	$	2,153
Employee stock purchase plan		261		154
Total stock-based compensation expense	$	3,040	$	2,307
Cost of revenue	$	421	$	287
Operating expenses:
Marketing and sales		549		377
Research and development		423		314
General and administrative		1,647		1,329
Total stock-based compensation expense	$	3,040	$	2,307

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Comparison of Three Months Ended March 31, 2019 and 2018

Revenue

Revenue by reportable segment and the related changes for the three months ended March 31, 2019 and 2018 were as follows:

	Three Months Ended March 31,
	2019					2018					Change
(dollars in thousands)	$		% of Total Revenue			$		% of Total Revenue			$		%
Revenue
United States	$	87,811		77.4	%	$	84,167		78.1	%	$	3,644		4.3	%
Europe		21,254		18.7			19,945		18.5			1,309		6.6
Japan		4,387		3.9			3,633		3.4			754		20.8
Total revenue	$	113,452		100.0	%	$	107,745		100.0	%	$	5,707		5.3	%

Our revenue increased $5.7 million, or 5.3%, for the three months ended March 31, 2019 compared to the same period in 2018. By reportable segment, revenue in the United States increased $3.6 million, or 4.3%, for the three months ended March 31, 2019 compared to the same period in 2018. Revenue in Europe increased $1.3 million, or 6.6%, and revenue in Japan increased $0.8 million, or 20.8%, in each case for the three months ended March 31, 2019 compared to the same period in 2018.

Our revenue growth during the three months ended March 31, 2019 was the result of an increase in the volume of the product developers and engineers we served. During the three months ended March 31, 2019, we served 20,573 unique product developers and engineers, an increase of 9.3% over the same period in 2018.

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 of existing customer accounts. Our marketing personnel focus on marketing activities that result in the greatest number of customer leads to support sales activity. International revenue was negatively impacted by $1.7 million during the three months ended March 31, 2019 compared to the same period in 2018 as a result of foreign currency movements, primarily the weakening of the British Pound and Euro relative to the United States Dollar.

Revenue by product line and the related changes for the three months ended March 31, 2019 and 2018 were as follows:

	Three Months Ended March 31,
	2019					2018					Change
(dollars in thousands)	$		% of Total Revenue			$		% of Total Revenue			$			%
Revenue
Injection Molding	$	55,311		48.8	%	$	51,343		47.7	%	$	3,968			7.7	%
CNC Machining		37,872		33.4			36,731		34.1			1,141			3.1
3D Printing		14,480		12.8			12,325		11.4			2,155			17.5
Sheet Metal		5,025		4.4			6,241		5.8			(1,216	)		(19.5	)
Other Revenue		764		0.6			1,105		1.0			(341	)		(30.9	)
Total revenue	$	113,452		100.0	%	$	107,745		100.0	%	$	5,707			5.3	%

By product line, our revenue growth was driven by a 7.7% increase in Injection Molding revenue, a 3.1% increase in CNC Machining revenue, a 17.5% increase in 3D Printing revenue, which was partially offset by a 19.5% decrease in Sheet Metal and a 30.9% decrease in Other Revenue, in each case for the three months ended March 31, 2019 compared to the same period in 2018.

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Cost of Revenue, Gross Profit and Gross Margin

Cost of Revenue. Cost of revenue increased $4.8 million, or 9.5%, for the three months ended March 31, 2019 compared to the same period in 2018, which was faster than the rate of revenue increase of 5.3% for the three months ended March 31, 2019 compared to the same period in 2018. The increase in cost of revenue resulted from the growth of the business, and was due to raw material and production cost increases of $0.3 million, an increase in direct labor headcount resulting in personnel and related cost increases of $3.1 million and equipment and facility-related cost increases of $1.4 million to support increased sales volumes.

Gross Profit and Gross Margin. Gross profit increased from $57.9 million in the three months ended March 31, 2018 to $58.9 million in the three months ended March 31, 2019 primarily due to an increase in revenue. Gross margin decreased from 53.7% in the three months ended March 31, 2018 to 51.9% in the three months ended March 31, 2019 due to the timing and mix of revenue, with the RAPID acquisition and CNC facility relocation in the United States being the primary drivers of the reduction in gross margin.

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

Marketing and Sales. Marketing and sales expenses increased $2.0 million, or 12.1%, during the three months ended March 31, 2019 compared to the same period in 2018 due primarily to an increase in headcount resulting in personnel and related cost increases of $1.5 million as well as marketing program cost increases of $0.5 million.

Research and Development. Our research and development expenses increased $1.3 million, or 20.2%, during the three months ended March 31, 2019 compared to the same period in 2018 due to an increase in headcount resulting in personnel and related cost increases of $1.2 million, as well as an increase in operating costs of $0.2 million, which were partially offset by a decrease in professional services costs of $0.1 million.

General and Administrative. Our general and administrative expenses decreased $0.1 million, or 0.9%, during the three months ended March 31, 2019 compared to the same period in 2018 due to personnel and related cost decreases of $0.4 million, decreases in professional services costs of $0.3 million and a decrease in amortization cost of $0.2 million, which were partially offset by stock based compensation cost increases of $0.3 million and administrative cost increases of $0.5 million. 

Other Income, net. We recognized other income, net of $0.2 million for the three months ended March 31, 2019, which was consistent with other income, net of $0.2 million for the three months ended March 31, 2018. Other income, net for the three months ended March 31, 2019 primarily consisted of $0.6 million in interest income on investments, which was partially offset by a $0.4 million loss on foreign currency. Other income, net for the three months ended March 31, 2018 primarily consisted of $0.3 million in interest income on investments, which was partially offset by a $0.1 million loss on foreign currency.

Provision for Income Taxes. Our effective tax rate of 21.1% for the three months ended March 31, 2019 increased 3.5% compared to 17.6% for the same period in 2018. The increase in the effective tax rate is primarily due to a decrease for tax benefits from the vesting of restricted stock and exercise of stock options. Our income tax provision increased by $0.3 million to $4.2 million for the three months ended March 31, 2019 compared to our income tax provision of $3.9 million for the three months ended March 31, 2018.

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Liquidity and Capital Resources

Cash Flows

The following table summarizes our cash flows during the three months ended March 31, 2019 and 2018:

	Three Months Ended March 31,
(dollars in thousands)	2019			2018
Net cash provided by operating activities	$	18,002		$	26,145
Net cash provided by (used in) investing activities		271			(15,441	)
Net cash used in financing activities		(17,729	)		(2,748	)
Effect of exchange rates on cash and cash equivalents		(240	)		432
Net increase in cash and cash equivalents	$	304		$	8,388

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Sources of Liquidity

Historically, we have primarily financed our operations and capital expenditures through cash flow from operations. We had cash and cash equivalents of $85.4 million as of March 31, 2019, an increase of $0.3 million from December 31, 2018. The increase in our cash was primarily due to cash generated through operations and proceeds from maturities of marketable securities, which were partially offset by investing activity and repurchases of common stock.

Cash Flows from Operating Activities

Cash flows from operating activities were $18.0 million during the three months ended March 31, 2019 and primarily consisted of net income of $15.5 million, adjusted for certain non-cash items, including depreciation and amortization of $7.4 million, stock-based compensation expense of $3.0 million and deferred taxes of $0.4 million, which were partially offset by changes in operating assets and liabilities and other items totaling $8.3 million. Cash flows from operating activities decreased $8.1 million during the three months ended March 31, 2019 compared to the same period in 2018, primarily due to decreases in net income of $2.5 million and changes in operating assets and liabilities of $7.3 million driven by timing of cash receipts and payments, including annual incentive payments, a decrease in deferred taxes of $0.2 million and a decrease in amortization of held-to-maturity securities of $0.1 million, which were partially offset by increases in depreciation and amortization of $1.2 million driven by an increase in capital investments, an increase in stock-based compensation expense of $0.7 million, and an increase in other adjustments of $0.1 million primarily due to changes in foreign currency.

Cash flows from operating activities were $26.1 million during the three months ended March 31, 2018 and primarily consisted of net income of $18.1 million, adjusted for certain non-cash items, including depreciation and amortization of $6.3 million, stock-based compensation expense of $2.3 million, deferred taxes of $0.6 million and amortization of held-to-maturity securities of $0.2 million.

Cash Flows from Investing Activities

Cash provided by investing activities was $0.3 million during the three months ended March 31, 2019, consisting of $17.0 million in proceeds from maturities of marketable securities, which were partially offset by $12.7 million for the purchases of property, equipment and other capital assets and $4.0 million for purchases of other assets and investments.

Cash used in investing activities was $15.4 million during the three months ended March 31, 2018, consisting of $25.5 million for the purchases of property, equipment and other capital assets and $3.4 million for the purchases of marketable securities, and $0.1 million in cash used for acquisitions, which were partially offset by $13.6 million in proceeds from maturities of marketable securities.

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Cash Flows from Financing Activities

Cash used in financing activities was $17.7 million during the three months ended March 31, 2019, consisting of $17.3 million in repurchases of common stock and $0.6 million in purchases of shares withheld for tax obligations, which were partially offset by $0.2 million in proceeds from the exercise of stock options.

Cash used in financing activities was $2.7 million during the three months ended March 31, 2018, consisting of $5.0 million in payments on debt and $0.6 million in purchases of shares withheld for tax obligations, which was partially offset by $2.9 million in proceeds from the exercise of stock options.

Off-Balance Sheet Arrangements

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

Critical Accounting Policies and Use of Estimates

We have adopted various accounting policies to prepare the Consolidated Financial Statements in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP). Our significant accounting policies are disclosed in Note 2 to the Consolidated Financial Statements included in our Annual Report on Form 10-K for the year ended December 31, 2018. See Note 8 to the Consolidated Financial Statements appearing in Part I, Item 1 in this Quarterly Report on Form 10-Q for significant changes to the Company’s accounting policies as a result of adopting ASC 842.

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 and incur production costs and operating expenses in British Pounds, Euros and Japanese Yen.

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

We have not used forward contracts or currency borrowings to hedge our exposure to foreign currency risk. Foreign currency risk can be assessed by estimating the change in results of operations or financial position resulting from a hypothetical 10% adverse change in foreign exchange rates. We believe such a change would generally not have a material impact on our financial position, but could have a material impact on our results of operations. We recognized foreign currency losses of $0.4 million and $0.1 million during the three months ended March 31, 2019 and 2018, respectively.

26

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.   

27

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

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

Item 1A. Risk Factors

Part I, Item 1A. “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2018 includes a discussion of our risk factors. The information presented below updates, and should be read in conjunction with, the risk factors and information disclosed in our Form 10-K. Except as presented below, there have been no material changes from the risk factors described in our Form 10-K.

Political and economic uncertainty arising from the outcome of the United Kingdom’s referendum on its membership in the European Union could adversely affect our business and results of operations.

On June 23, 2016, the United Kingdom (UK) held a referendum in which voters approved a withdrawal from the European Union (EU), commonly referred to as “Brexit.”  The timing of the UK’s exit from the EU remains uncertain; the EU has extended the deadline for the UK to exit the EU until October 31, 2019. The terms of the withdrawal are subject to ongoing negotiation that has created significant uncertainty about the future relationship between the UK and the EU. It is possible that the level of economic activity in this region will be adversely impacted and that there will be increased regulatory and legal complexities, including those relating to tax, trade, security and employees. In addition, Brexit could lead to economic uncertainty, including significant volatility in global stock markets and currency exchange rates, which may adversely impact our business. To mitigate the potential impact of Brexit on the import and export of goods to and from the UK, the Company is establishing business processes with shipping entities, including obtaining Authorized Economic Operator certification. In addition, the Company is increasing inventory in the UK and EU in an effort to maintain inventory required to meet customer demand in the event of disruption in shipments. Although the specific terms and the timeframe of the negotiations are unknown, it is possible that these changes could adversely affect our business and results of operations.

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

On February 9, 2017, we announced that our board of directors had authorized the repurchase of shares of our common stock from time to time on the open market or in privately negotiated purchases, at an aggregate purchase price of up to $50 million. The timing and amount of any share repurchases will be determined by our management based on market conditions and other factors. The term of the program runs through December 31, 2021.

The common stock repurchase does not obligate us to repurchase any dollar amount or number of shares. During the three months ended March 31, 2019, we repurchased 157,716 shares of our common stock at a total purchase price of $17.3 million under this program. Common stock repurchase activity through March 31, 2019 was as follows:

Period	Total Number of Shares Purchased		Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs		Maximum Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs (in thousands) (1)
January 1, 2019 through January 31, 2019		10,000	$	104.98		10,000	$	32,316
February 1, 2019 through February 28, 2019		90,100	$	111.14		90,100	$	22,302
March 1, 2019 through March 31, 2019		57,616	$	108.31		57,616	$	16,062
		157,716	$	109.72		157,716	$	16,062

(1) Effective February 9, 2017 the Board of Directors authorized the repurchase of shares of the Company’s common stock from time to time on the open market or in privately negotiated purchases, at an aggregate purchase price of up to $50 million. The term of the program runs through December 31, 2021.

Item 3. Defaults Upon Senior Securities

No matters to disclose.

Item 4. Mine Safety Disclosures

No matters to disclose.

Item 5. Other Information

No matters to disclose.

28

Item 6. Exhibits

The following documents are filed as part of this report:

Exhibit Number	Description of Exhibit
3.1(1)	Third Amended and Restated Articles of Incorporation of Proto Labs, Inc.
3.2(2)	Articles of Amendment to Third Amended and Restated Articles of Incorporation of Proto Labs, Inc. dated May 20, 2015
3.3(3)	Second Amended and Restated By-Laws of Proto Labs, Inc., as amended through November 8, 2016
31.1	Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act
31.2	Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act
32.1	Certification of the Chief Executive Officer and the Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act
101.INS	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 3.1 to the Company’s Form 8-K (File No. 001-35435), filed with the Commission on May 21, 2015, and incorporated by reference herein.
(3)	Previously filed as Exhibit 3.2 to the Company's Form 8-K (File No. 001-35435), filed with the Commission on November 8, 2016 and incorporated by reference herein.

29

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: April 30, 2019	/s/ Victoria M. Holt
	Victoria M. Holt
	President and Chief Executive Officer (Principal Executive Officer)

Date: April 30, 2019	/s/ John A. Way
	John A. Way
	Chief Financial Officer (Principal Financial Officer)

30

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: April 30, 2019	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: April 30, 2019	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, 2019 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: April 30, 2019

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, 2019 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: April 30, 2019

By:	/s/ John A. Way
Name:	John A. Way
Title:	Chief Financial Officer

XML

Document And Entity Information - shares	3 Months Ended
	Mar. 31, 2019	Apr. 25, 2019
Document Information [Line Items]
Entity Registrant Name	Proto Labs Inc
Entity Central Index Key	0001443669
Trading Symbol	prlb
Current Fiscal Year End Date	--12-31
Entity Filer Category	Large Accelerated Filer
Entity Current Reporting Status	Yes
Entity Emerging Growth Company	false
Entity Small Business	false
Entity Common Stock, Shares Outstanding (in shares)		26,848,544
Document Type	10-Q
Document Period End Date	Mar. 31, 2019
Document Fiscal Year Focus	2019
Document Fiscal Period Focus	Q1
Amendment Flag	false

XML

Consolidated Balance Sheets (Current Period Unaudited) - USD ($) $ in Thousands	Mar. 31, 2019	Dec. 31, 2018
Current assets
Cash and cash equivalents	$ 85,350	$ 85,046
Short-term marketable securities	35,045	46,750
Accounts receivable, net of allowance for doubtful accounts of $939 and $919 as of March 31, 2019 and December 31, 2018, respectively	61,535	59,155
Inventory	9,356	10,087
Prepaid expenses and other current assets	8,613	8,567
Income taxes receivable	2,852	5,757
Total current assets	202,751	215,362
Property and equipment, net	234,211	228,001
Goodwill	128,752	128,752
Other intangible assets, net	18,979	19,850
Long-term marketable securities	18,262	23,579
Operating lease assets	11,965
Other long-term assets	3,676	3,441
Total assets	618,596	618,985
Current liabilities
Accounts payable	16,672	17,411
Accrued compensation	10,129	18,130
Accrued liabilities and other	11,027	16,702
Current operating lease liabilities	3,021
Income taxes payable	594	491
Total current liabilities	41,443	52,734
Long-term operating lease liabilities	9,107
Long-term deferred tax liabilities	20,549	20,162
Other long-term liabilities	4,702	4,592
Total liabilities	75,801	77,488
Shareholders' equity
Preferred stock, $0.001 par value, authorized 10,000,000 shares; issued and outstanding 0 shares as of each of March 31, 2019 and December 31, 2018
Common stock, $0.001 par value, authorized 150,000,000 shares; issued and outstanding 26,846,981 and 26,984,747 shares as of March 31, 2019 and December 31, 2018, respectively	27	27
Additional paid-in capital	259,611	258,502
Retained earnings	291,173	291,460
Accumulated other comprehensive loss	(8,016)	(8,492)
Total shareholders' equity	542,795	541,497
Total liabilities and shareholders' equity	$ 618,596	$ 618,985

XML

Consolidated Balance Sheets (Current Period Unaudited) (Parentheticals) - USD ($) $ in Thousands	Mar. 31, 2019	Dec. 31, 2018
Allowance for doubtful accounts	$ 939	$ 919
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)	26,846,981	26,984,747
Common stock, shares outstanding (in shares)	26,846,981	26,984,747

XML

Consolidated Statements of Comprehensive Income (Unaudited) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2019	Mar. 31, 2018
Statements of Operations:
Revenue	$ 113,452	$ 107,745
Cost of revenue	54,592	49,837
Gross profit	58,860	57,908
Operating expenses
Marketing and sales	18,577	16,572
Research and development	8,013	6,665
General and administrative	12,822	12,943
Total operating expenses	39,412	36,180
Income from operations	19,448	21,728
Other income, net	213	178
Income before income taxes	19,661	21,906
Provision for income taxes	4,150	3,855
Net income	$ 15,511	$ 18,051
Net income per share:
Basic (in dollars per share)	$ 0.58	$ 0.67
Diluted (in dollars per share)	$ 0.57	$ 0.66
Shares used to compute net income per share:
Basic (in shares)	26,963,366	26,879,388
Diluted (in shares)	27,177,039	27,197,099
Comprehensive Income (net of tax)
Comprehensive income	$ 15,987	$ 20,444

XML

Consolidated Statements of Shareholders' Equity - USD ($) $ in Thousands	Common Stock [Member]	Additional Paid-in Capital [Member]	Retained Earnings [Member]	AOCI Attributable to Parent [Member]	Total
Balance (in shares) at Dec. 31, 2017	26,828,651
Balance at Dec. 31, 2017	$ 27	$ 241,725	$ 224,697	$ (5,234)	$ 461,215
Common shares issued on exercise of options and other, net of shares withheld for tax obligations (in shares)	102,895
Common shares issued on exercise of options and other, net of shares withheld for tax obligations		2,250			2,250
Stock-based compensation expense		2,307			2,307
Repurchases of common stock (in shares)
Repurchases of common stock
Net income			18,051		18,051
Foreign currency translation adjustment				2,393	2,393
Comprehensive income					20,444
Balance (in shares) at Mar. 31, 2018	26,931,546
Balance at Mar. 31, 2018	$ 27	246,282	244,208	(2,841)	487,676
Other comprehensive income
Foreign currency translation adjustment				2,393	2,393
Comprehensive income					20,444
Balance (in shares) at Mar. 31, 2018	26,931,546
Balance at Mar. 31, 2018	$ 27	246,282	244,208	(2,841)	487,676
Revenue recognition transition adjustment			1,460		$ 1,460
Balance (in shares) at Dec. 31, 2018	26,984,747				26,984,747
Balance at Dec. 31, 2018	$ 27	258,502	291,460	(8,492)	$ 541,497
Common shares issued on exercise of options and other, net of shares withheld for tax obligations (in shares)	19,950
Common shares issued on exercise of options and other, net of shares withheld for tax obligations		(420)			(420)
Stock-based compensation expense		3,040			3,040
Repurchases of common stock (in shares)	(157,716)
Repurchases of common stock		(1,511)	(15,798)		(17,309)
Net income			15,511		15,511
Foreign currency translation adjustment				476	476
Comprehensive income					$ 15,987
Balance (in shares) at Mar. 31, 2019	26,846,981				26,846,981
Balance at Mar. 31, 2019	$ 27	259,611	291,173	(8,016)	$ 542,795
Other comprehensive income
Foreign currency translation adjustment				476	476
Comprehensive income					$ 15,987
Balance (in shares) at Mar. 31, 2019	26,846,981				26,846,981
Balance at Mar. 31, 2019	$ 27	$ 259,611	$ 291,173	$ (8,016)	$ 542,795

XML

Consolidated Statements of Cash Flows (Unaudited) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2019	Mar. 31, 2018
Operating activities
Net income	$ 15,511	$ 18,051
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	7,439	6,259
Stock-based compensation expense	3,040	2,307
Deferred taxes	379	612
Amortization of held-to-maturity securities	16	163
Other	236	106
Changes in operating assets and liabilities:
Accounts receivable	(2,386)	(4,013)
Inventories	739	807
Prepaid expenses and other	(211)	(1,707)
Income taxes	3,006	2,387
Accounts payable	(805)	2,291
Accrued liabilities and other	(8,962)	(1,118)
Net cash provided by operating activities	18,002	26,145
Investing activities
Purchases of property, equipment and other capital assets	(12,735)	(25,513)
Cash used for acquisitions, net of cash acquired		(90)
Purchases of other assets and investments	(4,000)
Purchases of marketable securities		(3,389)
Proceeds from maturities of marketable securities	17,006	13,551
Net cash provided by (used in) investing activities	271	(15,441)
Financing activities
Payments on debt		(5,000)
Proceeds from exercises of stock options	174	2,880
Purchases of shares withheld for tax obligations	(594)	(628)
Repurchases of common stock	(17,309)
Net cash used in financing activities	(17,729)	(2,748)
Effect of exchange rate changes on cash and cash equivalents	(240)	432
Net increase in cash and cash equivalents	304	8,388
Cash and cash equivalents, beginning of period	85,046	36,707
Cash and cash equivalents, end of period	$ 85,350	$ 45,095

XML

Note 1 - Basis of Presentation

3 Months Ended

Mar. 31, 2019

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. (Protolabs, the Company, we, us or our) have been prepared in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP) for interim financial information and with the instructions to Form

10

-Q and Article 

10

of Regulation S-

X.

In the opinion of management, the accompanying financial statements reflect all adjustments necessary for a fair presentation of the Company’s statements of financial position, results of operations and cash flows for the periods presented. Except as otherwise disclosed herein, these adjustments consist of normal, recurring items. Operating results for interim periods are

not

necessarily indicative of results that

may

be expected for the fiscal year as a whole.

The preparation of the financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, expenses, and the related disclosures at the date of the financial statements and during the reporting period. Actual results could materially differ from these estimates. For further information, refer to the audited Consolidated Financial Statements and Notes thereto included in the Company’s Annual Report on Form

10

-K for the year ended

December 

31,

2018

as filed with the Securities and Exchange Commission (SEC) on

February 

22,

2019.

The accompanying Consolidated Balance Sheet as of

December 

31,

2018

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 

22,

2019

as referenced above.

XML

Note 2 - Recent Accounting Pronouncements

3 Months Ended

Mar. 31, 2019

Notes to Financial Statements

Significant Accounting Policies [Text Block]

Note

2

– Recent Accounting Pronouncements

Recently Adopted Accounting Pronouncements

During the

first

quarter of

2019,

the Company adopted the Financial Accounting Standards Board (FASB) Accounting Standards Update (ASU) 

2016

-

02,

Leases

(ASC

842

), which introduces the balance sheet recognition of lease assets and lease liabilities by lessees for those leases classified as operating leases under previous guidance. The Company has adopted the new lease standard using the new transition option issued under the amendments in ASU

2018

-

11,

Leases

, which allowed the Company to continue to apply the legacy guidance in Accounting Standards Codification (ASC)

840,

Leases

, in the comparative periods presented in the year of adoption. The Company elected the package of practical expedients permitted under the transition guidance within the new standard, which among other things, allowed the Company to carry forward the historical lease classification. The Company made an accounting policy election to keep leases with an initial term of

12

months or less off of the balance sheet. The Company will recognize those lease payments in the Consolidated Statements of Comprehensive Income on a straight-line basis over the lease term. The impact of the adoption was an increase to the Company’s operating lease assets and liabilities on

January 1, 2019

of

$13.1

million.

Recently Issued Accounting Pronouncements

In

January 2017,

the FASB issued ASU

2017

-

04,

Intangibles – Goodwill and Other

, which is intended to simplify the subsequent measurement of goodwill. This guidance will be effective for impairment tests in fiscal years beginning after

December 15, 2019

and interim periods within those fiscal years with early adoption permitted. The Company does

not

expect the impact to be material.

In

June 2016,

the FASB issued ASU

2016

-

13,

Financial Instruments – Credit Losses

, which is intended to provide financial statement users with more decision-useful information about the expected credit losses on financial instruments held by a reporting entity at each reporting date. This guidance will be effective for fiscal years beginning after

December 15, 2020

and interim periods within those fiscal years with early adoption permitted. The Company is evaluating the impact of future adoption of this guidance on its consolidated financial statements, but does

not

expect the impact to be material.  

XML

Note 3 - Net Income Per Common Share

3 Months Ended

Mar. 31, 2019

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 potentially dilutive common shares been issued and reduced by the number of shares the Company could have repurchased from the proceeds from issuance of the potentially dilutive shares. Potentially dilutive shares of common stock include stock options, restricted stock units and restricted stock awards granted under stock-based compensation plans and shares committed to be purchased under the employee stock purchase plan. Performance stock units are excluded from the calculation of dilutive potential common shares until the performance conditions have been satisfied.

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

	Three Months Ended
	March 31,
(in thousands, except share and per share amounts)	2019		2018
Net income	$	15,511	$	18,051
Basic - weighted-average shares outstanding:		26,963,366		26,879,388
Effect of dilutive securities:
Employee stock options and other		213,673		317,711
Diluted - weighted-average shares outstanding:		27,177,039		27,197,099
Net income per share:
Basic	$	0.58	$	0.67
Diluted	$	0.57	$	0.66

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Note 4 - Goodwill and Other Intangible Assets

3 Months Ended

Mar. 31, 2019

Notes to Financial Statements

Goodwill and Intangible Assets Disclosure [Text Block]

Note

4

– Goodwill and Other Intangible Assets

There were

no

changes in the carrying amount of Goodwill during the

three

months ended

March 31, 2019.

Intangible Assets other than goodwill at

March 31, 2019

and

December 31, 2018

were as follows:

	March 31, 2019							December 31, 2018							Useful		Weighted Average
(in thousands)	Gross		Accumulated Amortization			Net		Gross		Accumulated Amortization			Net		Life (in years)		Useful Life Remaining (in years)
Intangible Assets with finite lives:
Marketing assets	$	930	$	(457	)	$	473	$	930	$	(434	)	$	496		10.0		5.1
Non-compete agreement		270		(210	)		60		270		(206	)		64		2.0 - 5.0		3.8
Trade secrets		250		(246	)		4		250		(233	)		17		5.0		0.1
Trade names		1,080		(675	)		405		1,080		(540	)		540		2.0		0.8
Software technology		12,229		(1,309	)		10,920		12,229		(997	)		11,232		10.0		8.8
Customer relationships		10,070		(2,953	)		7,117		10,070		(2,569	)		7,501		6.0 - 9.0		4.6
Total intangible assets	$	24,829	$	(5,850	)	$	18,979	$	24,829	$	(4,979	)	$	19,850

Amortization expense for intangible assets was

$0.9

million and

$0.8

million for the

three

months ended

March 31, 2019

and

2018,

respectively.

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

(in thousands)	Estimated Amortization Expense
Remaining 2019	$	2,580
2020		2,895
2021		2,895
2022		2,895
2023		2,691
Thereafter		5,023
Total estimated amortization expense	$	18,979

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Note 5 - Fair Value Measurements

3 Months Ended

Mar. 31, 2019

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 that requires classification based on observable and unobservable inputs when measuring fair value. There are

three

levels of inputs that

may

be used to measure fair value:

Level

1—Quoted

prices in active markets for identical assets or liabilities.

Level

2—Observable

inputs other than Level

1

prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are

not

active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level

3—Unobservable

inputs that are supported by little or

no

market activity and that are significant to the fair value of the assets or liabilities.

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

1

inputs.

The following table summarizes financial assets as of

March 31, 2019

and

December 31, 2018

measured at fair value on a recurring basis: 

	March 31, 2019						December 31, 2018
(in thousands)	Level 1		Level 2		Level 3		Level 1		Level 2		Level 3
Financial Assets:
Cash and cash equivalents
Money market mutual fund	$	9,155	$	-	$	-	$	8,943	$	-	$	-
Total	$	9,155	$	-	$	-	$	8,943	$	-	$	-

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Note 6 - Marketable Securities

3 Months Ended

Mar. 31, 2019

Notes to Financial Statements

Investment [Text Block]

Note

6

– Marketable Securities

The Company invests in short-term and long-term agency, municipal, corporate and other debt securities. The securities are categorized as held-to-maturity and are recorded at amortized cost. Categorization as held-to-maturity is based on the Company’s ability and intent to hold these securities to maturity. The following table summarizes information regarding the Company’s short-term and long-term marketable securities as of

March 31, 2019

and

December 31, 2018:

	March 31, 2019
(in thousands)	Cost		Unrealized Gains		Unrealized Losses			Fair Value
U.S. municipal securities	$	10,825	$	7	$	(6	)	$	10,826
Corporate debt securities		24,513		52		(27	)		24,538
U.S. government agency securities		14,505		-		(40	)		14,465
Certificates of deposit/time deposits		3,464		10		(10	)		3,464
Total marketable securities	$	53,307	$	69	$	(83	)	$	53,293

	December 31, 2018
(in thousands)	Cost		Unrealized Gains		Unrealized Losses			Fair Value
U.S. municipal securities	$	17,509	$	1	$	(33	)	$	17,477
Corporate debt securities		31,769		-		(96	)		31,673
U.S. government agency securities		16,843		-		(88	)		16,755
Certificates of deposit/time deposits		4,208		-		(25	)		4,183
Total marketable securities	$	70,329	$	1	$	(242	)	$	70,088

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 and certificates of deposit 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. In reaching this conclusion, the Company considered the credit quality of the issuers of the debt securities as well as the Company’s intent 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, 2019

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)	2019
Due in one year or less	$	35,045
Due after one year through five years		18,262
Total marketable securities	$	53,307

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Note 7 - Inventory

3 Months Ended

Mar. 31, 2019

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 consisted of the following as of the dates indicated:

	March 31,			December 31,
(in thousands)	2019			2018
Raw materials	$	9,132		$	9,560
Work in process		412			792
Total inventory		9,544			10,352
Allowance for obsolescence		(188	)		(265	)
Inventory, net of allowance	$	9,356		$	10,087

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Note 8 - Leases

3 Months Ended

Mar. 31, 2019

Notes to Financial Statements

Lessee, Operating Leases [Text Block]

Note

8

– Leases

The Company’s significant accounting policies are disclosed in Note

2

to the Consolidated Financial Statements included in its Annual Report on Form

10

-K for the year ended

December 31, 2018.

Significant changes to the Company’s accounting policies as a result of adopting ASC

842

are discussed below.

The Company accounts for leases in accordance with ASC

842.

The Company adopted the standard as of 

January 1, 2019,

using the alternative transition method provided under ASC

842,

which allowed the Company to initially apply the new lease standard at the adoption date (the "effective date method"). Under the effective date method, comparative periods are presented in accordance with ASC

840

and do

not

include any retrospective adjustments to reflect the adoption of ASC

842.

The Company elected the package of practical expedients permitted under the transition guidance within the new standard. The Company did

not

elect the hindsight practical expedient. The Company recorded a net increase of

$13.1

million to its operating lease assets and liabilities on

January 1, 2019.

The adoption did

not

result in a cumulative-effect adjustment to the opening balance of retained earnings. The adoption of ASC

842

did

not

have a material impact on the Company's consolidated statements of comprehensive income, shareholders' equity or cash flows as of the adoption date.

The Company has operating leases for office space, manufacturing facilities and certain company vehicles and equipment. The leases have remaining lease terms of

one

year to

10

years. Leases with an initial term of

12

months or less are

not

recorded on the balance sheet; we recognize lease expense for these leases on a straight-line basis over the lease term. For purposes of calculating operating lease liabilities, lease terms

may

be deemed to include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. As of

March 31, 2019,

the operating lease liability does

not

include any options to extend or terminate leases. The Company currently has

no

finance leases.

The Company determines if an arrangement is a lease at inception. Operating leases are included in operating lease assets, current operating lease liabilities and long-term operating lease liabilities in the Consolidated Balance Sheets and are recognized based on the present value of lease payments over the lease term at commencement date. The majority of the Company’s leases do

not

provide an implicit rate of return, therefore, the Company uses its incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. Lease agreements that contain non-lease components, with the exception of certain real estate leases, are accounted for as a single lease component.

Supplemental balance sheet information related to leases was as follows:

(in thousands)	March 31, 2019
Operating lease assets	$	11,965
Current operating lease liabilities	$	3,021
Long-term operating lease liabilities		9,107
Total operating lease liabilities	$	12,128

Lease expense is recognized on a straight line basis over the lease term, with variable payments recognized in the period those payments are incurred. The components of lease expense for the periods reported were as follows:

(in thousands)	Three Months Ended March 31, 2019
Operating lease cost	$	1,070
Variable lease cost		239
Total lease cost	$	1,309

Maturities of operating lease liabilities as of

March 31, 2019 (

in accordance with ASC

842

) were as follows:

(in thousands)	Operating Leases
Year Ending December 31,
2019 (excluding three months ended March 31, 2019)	$	2,706
2020		2,627
2021		2,307
2022		2,256
2023		1,028
After 2023		2,098
Total future minimum lease payments		13,022
Less interest		(894	)
Present value of lease liabilities	$	12,128

As of

March 31, 2019,

we have

no

operating leases that have

not

yet commenced.

Weighted average remaining lease term and discount rate was as follows: 

	March 31, 2019
Weighted Average Remaining Lease Term (Years)		5.38
Weighted Average Discount Rate		2.6	%

Supplemental cash flow information related to leases was as follows:

(in thousands)	Three Months Ended March 31, 2019
Cash paid for amounts included in the measurement of operating lease liabilities:
Operating cash flows for operating leases	$	1,197
Lease assets obtained in exchange for new operating lease liabilities		13,049

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Note 9 - Stock-based Compensation

3 Months Ended

Mar. 31, 2019

Notes to Financial Statements

Share-based Payment Arrangement [Text Block]

Note

9

– Stock-Based Compensation

Under the Company’s

2012

Long-Term Incentive Plan, as amended (the

2012

Plan), the Company has the ability to grant stock options, stock appreciation rights (SARs), restricted stock, restricted stock units, other stock-based awards and cash incentive awards. Awards under the

2012

Plan have a maximum term of

ten

years from the date of grant. The compensation committee

may

provide that the vesting or payment of any award will be subject to the attainment of specified performance measures in addition to the satisfaction of any continued service requirements and the compensation committee will determine whether such measures have been achieved. The per-share exercise price of stock options and SARs granted under the

2012

Plan generally

may

not

be less than the fair market value of a share of our common stock on the date of the grant.

Employee Stock Purchase Plan

The Company’s

2012

Employee Stock Purchase Plan (ESPP) allows eligible employees to purchase a variable number of shares of the Company’s common stock each offering period at a discount through payroll deductions of up to

15

percent of their eligible compensation, subject to plan limitations. The ESPP provides for

six

-month offering periods with a single purchase period ending

May 

15

and

November 

15,

respectively. At the end of each offering period, employees are able to purchase shares at

85

percent of the lower of the fair market value of the Company’s common stock on the

first

trading day of the offering period or on the last trading day of the offering period.

Stock-Based Compensation Expense

Stock-based compensation expense was

$3.0

million and

$2.3

million for the

three

months ended

March 31, 2019

and

2018,

respectively.

Stock Options

The following table summarizes stock option activity during the

three

months ended

March 31, 2019:

				Weighted-
				Average
	Stock Options			Exercise Price
Options outstanding at December 31, 2018		252,616		$	64.71
Granted		30,046			104.99
Exercised		(3,010	)		57.85
Forfeited		(680	)		96.20
Options outstanding at March 31, 2019		278,972		$	69.04
Exercisable at March 31, 2019		157,602		$	56.70

The outstanding options generally have a term of

ten

years. For employees, options granted become exercisable ratably over the vesting period, which is generally a period from

four

to

five

years, beginning on the

first

anniversary of the grant date, subject to the employee’s continuing service to the Company. For directors, options generally become exercisable in full on the

first

anniversary of the grant date.

The weighted-average grant date fair value of options that were granted during the

three

months ended

March 31, 2019

was

$47.76.

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

three

months ended

March 31, 2019

and

2018:

	Three Months Ended March 31,
	2019			2018
Risk-free interest rate		2.58	%		2.52	%
Expected life (years)		6.25			6.25
Expected volatility		42.74	%		42.22	%
Expected dividend yield		0	%		0	%

As of

March 31, 2019,

there was

$4.3

 million of unrecognized compensation expense related to unvested stock options, which is expected to be recognized over a weighted-average period of

3.0

years.

Restricted Stock

Restricted stock awards are share-settled awards and restrictions lapse ratably over the vesting period, which is generally a period from

four

to

five

years, beginning on the

first

anniversary of the grant date, subject to the employee's continuing service to the Company. For directors, restrictions generally lapse in full on the

first

anniversary of the grant date. 

The following table summarizes restricted stock activity during the

three

months ended

March 31, 2019:

				Weighted-
				Average
				Grant Date
	Restricted			Fair Value
	Stock			Per Share
Restricted stock at December 31, 2018		323,921		$	79.85
Granted		27,476			105.03
Restrictions lapsed		(22,420	)		71.40
Forfeited		(3,692	)		108.51
Restricted stock at March 31, 2019		325,285		$	82.35

As of

March 31, 2019,

there was

$21.3

million of unrecognized compensation expense related to non-vested restricted stock, which is expected to be recognized over a weighted-average period of

3.0

years. 

Performance Stock

Performance stock units (PSUs) are expressed in terms of a target number of PSUs, with anywhere between

0

percent and

150

percent of that target number capable of being earned and vesting at the end of a

three

-year performance period depending on the Company’s performance in the final year of the performance period and the award recipient’s continued employment.

The following table summarizes performance stock activity during the

three

months ended

March 31, 2019: 

			Weighted-
			Average
			Grant Date
	Performance		Fair Value
	Stock		Per Share
Performance stock at December 31, 2018		52,140	$	76.54
Granted		21,434		104.99
Restrictions lapsed		-		-
Performance change		-		-
Forfeited		-		-
Performance stock at March 31, 2019		73,574	$	84.83

As of

March 31, 2019,

there was

$4.0

million of unrecognized compensation expense related to non-vested performance stock, which is expected to be recognized over a weighted-average period of

2.3

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, 2019

and

2018:

 

	Three Months Ended March 31,
	2019			2018
Risk-free interest rate		2.33	%		1.48	%
Expected life (months)		6.00			6.00
Expected volatility		37.36	%		24.49	%
Expected dividend yield		0	%		0	%

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Note 10 - Accumulated Other Comprehensive Loss

3 Months Ended

Mar. 31, 2019

Notes to Financial Statements

Disclosure of Reclassification Amount [Text Block]

Note

1

0

– Accumulated Other Comprehensive 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, 2019

and

2018:

	Three Months Ended
	March 31,
(in thousands)	2019			2018
Foreign currency translation adjustments
Balance at beginning of period	$	(8,492	)	$	(5,234	)
Other comprehensive income before reclassifications		476			2,393
Amounts reclassified from accumulated other comprehensive income		-			-
Net current-period other comprehensive income		476			2,393
Balance at end of period	$	(8,016	)	$	(2,841	)

XML

Note 11 - Income Taxes

3 Months Ended

Mar. 31, 2019

Notes to Financial Statements

Income Tax Disclosure [Text Block]

Note

1

1

– Income Taxes

The Company is subject to income tax in multiple jurisdictions and the use of estimates is required to determine the provision for income taxes. For the

three

months ended

March 31, 2019

and

2018,

the Company recorded an income tax provision of

$4.2

 million and

$3.9

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, 2019

was

21.1

 percent compared to

17.6

percent in the same period of the prior year. The effective tax rate increased by

3.5

percent for the

three

months ended

March 31, 2019

when compared to the same period in

2018

primarily due to a decrease for tax benefits from the vesting of restricted stock and exercise of stock options.

The effective income tax rate for the

three

months ended

March 31, 2019

differs from the U.S. federal statutory rate of

21.0

percent due primarily to the mix of income earned in domestic and foreign tax jurisdictions and deductions for which the Company qualifies.

The Company had reserves against unrecognized tax benefits totaling

$4.3

million and

$4.1

million as of

March 31, 2019

and

December 31, 2018,

respectively, all of which, if recognized, would affect the Company’s effective tax rate. The Company recognizes interest and penalties related to income tax matters in income tax expense, and reports the liability in current or long-term income taxes payable as appropriate.

XML

Note 12 - Segment Reporting

3 Months Ended

Mar. 31, 2019

Notes to Financial Statements

Segment Reporting Disclosure [Text Block]

Note

1

2

– Segment Reporting

The Company’s reportable segments are based on the internal reporting used by the Company’s Chief Executive Officer, who is the chief operating decision maker (CODM), to assess operating performance and make decisions about the allocation of resources. The Corporate Unallocated and Japan category includes non-reportable segments, as well as research and development and general and administrative costs that the Company does

not

allocate directly to its operating segments.

Intercompany transactions primarily relate to intercontinental activity and have been eliminated and are excluded from the reported amounts. The difference between income from operations and pre-tax income relates to foreign currency-related gains and losses and interest income on cash balances and investments, which are

not

allocated to business segments. 

Beginning in

2019,

the Company's CODM made a decision to view certain research and development costs by geographic region. As a result, costs previously included in the Corporate Unallocated and Japan category have been included in the respective geographic regions.  All periods presented have been restated to reflect this change.

Revenue and income from operations by reportable segment for the

three

months ended

March 31, 2019

and

2018

were as follows:

	Three Months Ended March 31,
(in thousands)	2019		2018
Revenue:
United States	$	87,811	$	84,167
Europe		21,254		19,945
Japan		4,387		3,633
Total revenue	$	113,452	$	107,745

	Three Months Ended March 31,
(in thousands)	2019			2018
Income from Operations:
United States	$	26,310		$	28,843
Europe		4,221			3,361
Corporate Unallocated and Japan		(11,083	)		(10,476	)
Total Income from Operations	$	19,448		$	21,728

Total long-lived assets at

March 31, 2019

and

December 31, 2018 

were as follows:

	March 31,		December 31,
(in thousands)	2019		2018
Total long-lived assets:
United States	$	191,296	$	185,979
Europe		35,465		34,577
Japan		7,450		7,445
Total Assets	$	234,211	$	228,001

XML

Significant Accounting Policies (Policies)

3 Months Ended

Mar. 31, 2019

Accounting Policies [Abstract]

New Accounting Pronouncements, Policy [Policy Text Block]

Recently Adopted Accounting Pronouncements

During the

first

quarter of

2019,

the Company adopted the Financial Accounting Standards Board (FASB) Accounting Standards Update (ASU) 

2016

-

02,

Leases

(ASC

842

), which introduces the balance sheet recognition of lease assets and lease liabilities by lessees for those leases classified as operating leases under previous guidance. The Company has adopted the new lease standard using the new transition option issued under the amendments in ASU

2018

-

11,

Leases

, which allowed the Company to continue to apply the legacy guidance in Accounting Standards Codification (ASC)

840,

Leases

, in the comparative periods presented in the year of adoption. The Company elected the package of practical expedients permitted under the transition guidance within the new standard, which among other things, allowed the Company to carry forward the historical lease classification. The Company made an accounting policy election to keep leases with an initial term of

12

months or less off of the balance sheet. The Company will recognize those lease payments in the Consolidated Statements of Comprehensive Income on a straight-line basis over the lease term. The impact of the adoption was an increase to the Company’s operating lease assets and liabilities on

January 1, 2019

of

$13.1

million.

Recently Issued Accounting Pronouncements

In

January 2017,

the FASB issued ASU

2017

-

04,

Intangibles – Goodwill and Other

, which is intended to simplify the subsequent measurement of goodwill. This guidance will be effective for impairment tests in fiscal years beginning after

December 15, 2019

and interim periods within those fiscal years with early adoption permitted. The Company does

not

expect the impact to be material.

In

June 2016,

the FASB issued ASU

2016

-

13,

Financial Instruments – Credit Losses

, which is intended to provide financial statement users with more decision-useful information about the expected credit losses on financial instruments held by a reporting entity at each reporting date. This guidance will be effective for fiscal years beginning after

December 15, 2020

and interim periods within those fiscal years with early adoption permitted. The Company is evaluating the impact of future adoption of this guidance on its consolidated financial statements, but does

not

expect the impact to be material.  

XML

Note 3 - Net Income Per Common Share (Tables)

3 Months Ended

Mar. 31, 2019

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)	2019		2018
Net income	$	15,511	$	18,051
Basic - weighted-average shares outstanding:		26,963,366		26,879,388
Effect of dilutive securities:
Employee stock options and other		213,673		317,711
Diluted - weighted-average shares outstanding:		27,177,039		27,197,099
Net income per share:
Basic	$	0.58	$	0.67
Diluted	$	0.57	$	0.66

XML

Note 4 - Goodwill and Other Intangible Assets (Tables)

3 Months Ended

Mar. 31, 2019

Notes Tables

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

	March 31, 2019							December 31, 2018							Useful		Weighted Average
(in thousands)	Gross		Accumulated Amortization			Net		Gross		Accumulated Amortization			Net		Life (in years)		Useful Life Remaining (in years)
Intangible Assets with finite lives:
Marketing assets	$	930	$	(457	)	$	473	$	930	$	(434	)	$	496		10.0		5.1
Non-compete agreement		270		(210	)		60		270		(206	)		64		2.0 - 5.0		3.8
Trade secrets		250		(246	)		4		250		(233	)		17		5.0		0.1
Trade names		1,080		(675	)		405		1,080		(540	)		540		2.0		0.8
Software technology		12,229		(1,309	)		10,920		12,229		(997	)		11,232		10.0		8.8
Customer relationships		10,070		(2,953	)		7,117		10,070		(2,569	)		7,501		6.0 - 9.0		4.6
Total intangible assets	$	24,829	$	(5,850	)	$	18,979	$	24,829	$	(4,979	)	$	19,850

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

(in thousands)	Estimated Amortization Expense
Remaining 2019	$	2,580
2020		2,895
2021		2,895
2022		2,895
2023		2,691
Thereafter		5,023
Total estimated amortization expense	$	18,979

XML

Note 5 - Fair Value Measurements (Tables)

3 Months Ended

Mar. 31, 2019

Notes Tables

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

	March 31, 2019						December 31, 2018
(in thousands)	Level 1		Level 2		Level 3		Level 1		Level 2		Level 3
Financial Assets:
Cash and cash equivalents
Money market mutual fund	$	9,155	$	-	$	-	$	8,943	$	-	$	-
Total	$	9,155	$	-	$	-	$	8,943	$	-	$	-

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Note 6 - Marketable Securities (Tables)

3 Months Ended

Mar. 31, 2019

Notes Tables

Debt Securities, Held-to-maturity [Table Text Block]

	March 31, 2019
(in thousands)	Cost		Unrealized Gains		Unrealized Losses			Fair Value
U.S. municipal securities	$	10,825	$	7	$	(6	)	$	10,826
Corporate debt securities		24,513		52		(27	)		24,538
U.S. government agency securities		14,505		-		(40	)		14,465
Certificates of deposit/time deposits		3,464		10		(10	)		3,464
Total marketable securities	$	53,307	$	69	$	(83	)	$	53,293

	December 31, 2018
(in thousands)	Cost		Unrealized Gains		Unrealized Losses			Fair Value
U.S. municipal securities	$	17,509	$	1	$	(33	)	$	17,477
Corporate debt securities		31,769		-		(96	)		31,673
U.S. government agency securities		16,843		-		(88	)		16,755
Certificates of deposit/time deposits		4,208		-		(25	)		4,183
Total marketable securities	$	70,329	$	1	$	(242	)	$	70,088

Investments Classified by Contractual Maturity Date [Table Text Block]

	March 31,
(in thousands)	2019
Due in one year or less	$	35,045
Due after one year through five years		18,262
Total marketable securities	$	53,307

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Note 7 - Inventory (Tables)

3 Months Ended

Mar. 31, 2019

Notes Tables

Schedule of Inventory, Current [Table Text Block]

	March 31,			December 31,
(in thousands)	2019			2018
Raw materials	$	9,132		$	9,560
Work in process		412			792
Total inventory		9,544			10,352
Allowance for obsolescence		(188	)		(265	)
Inventory, net of allowance	$	9,356		$	10,087

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Note 8 - Leases (Tables)

3 Months Ended

Mar. 31, 2019

Notes Tables

Schedule of Operating Lease Assets and Liabilities [Table Text Block]

(in thousands)	March 31, 2019
Operating lease assets	$	11,965
Current operating lease liabilities	$	3,021
Long-term operating lease liabilities		9,107
Total operating lease liabilities	$	12,128

Schedule of Lease Expense [Table Text Block]

(in thousands)	Three Months Ended March 31, 2019
Operating lease cost	$	1,070
Variable lease cost		239
Total lease cost	$	1,309

Lessee, Operating Lease, Liability, Maturity [Table Text Block]

(in thousands)	Operating Leases
Year Ending December 31,
2019 (excluding three months ended March 31, 2019)	$	2,706
2020		2,627
2021		2,307
2022		2,256
2023		1,028
After 2023		2,098
Total future minimum lease payments		13,022
Less interest		(894	)
Present value of lease liabilities	$	12,128

Schedule of Lease Terms and Discount Rates [Table Text Block]

<div style="display: inline; font-family: times new roman; font-size: 10pt"><table border="0" cellpadding="0" cellspacing="0" style="; text-indent: 0px; font-family: "Times New Roman", Times, serif; font-size: 10pt; margin-right: 20%; min-; min-width: 700px;"> <tr style="vertical-align: bottom;"> <td style="border-top-color: rgb(0, 0, 0); border-top-width: thin; border-top-style: solid;"> </td> <td style="border-top-color: rgb(0, 0, 0); border-top-width: thin; border-top-style: solid;"> </td> <td style="border-top-color: rgb(0, 0, 0); border-top-width: thin; border-top-style: solid;"> </td> <td style="border-top-color: rgb(0, 0, 0); border-top-width: thin; border-top-style: solid;"> </td> <td> </td> </tr> <tr style="vertical-align: bottom;"> <td style="font-family: "Times New Roman", Times, serif; font-size: 10pt; background-color: rgb(255, 255, 255);"> </td> <td style="font-family: "Times New Roman", Times, serif; font-size: 10pt; background-color: rgb(255, 255, 255);"> </td> <td colspan="2" style="text-align: center; font-family: "Times New Roman", Times, serif; font-size: 10pt; margin-left: 0pt; border-bottom-color: rgb(0, 0, 0); border-bottom-width: 1px; border-bottom-style: solid; background-color: rgb(255, 255, 255);"><div style="display: inline; font-style: italic; font-weight: inherit; font-style: normal;"> </div><div style=" margin: 0pt; text-align: center; font-family: "Times New Roman", Times, serif; font-size: 10pt; background-color: rgb(255, 255, 255);"><div style="display: inline; font-weight: bold;"><div style="display: inline; font-weight: bold;">March 31, 2019</div></div></div> </td> <td style="padding-bottom: 1px; font-family: "Times New Roman", Times, serif; font-size: 10pt; background-color: rgb(255, 255, 255);"> </td> </tr> <tr style="vertical-align: bottom; background-color: rgb(204, 238, 255);"> <td style="width: 82%; font-family: "Times New Roman", Times, serif; font-size: 10pt;"> <div style=" font-family: "Times New Roman", Times, serif; font-size: 10pt; margin-top: 0pt; margin-bottom: 0pt;">Weighted Average Remaining Lease Term (Years)</div> </td> <td style="width: 1%; font-family: "Times New Roman", Times, serif; font-size: 10pt;"> </td> <td style="width: 1%; font-family: "Times New Roman", Times, serif; font-size: 10pt;"> </td> <td style="width: 15%; text-align: right; font-family: "Times New Roman", Times, serif; font-size: 10pt; margin-left: 0pt;"><div style="display: inline; font-style: italic; font-weight: inherit; font-style: normal;">5.38</div></td> <td nowrap="nowrap" style="width: 1%; font-family: "Times New Roman", Times, serif; font-size: 10pt; margin-left: 0pt;"> </td> </tr> <tr style="vertical-align: bottom; background-color: rgb(255, 255, 255);"> <td style="font-family: "Times New Roman", Times, serif; font-size: 10pt;"> <div style=" font-family: "Times New Roman", Times, serif; font-size: 10pt; margin-top: 0pt; margin-bottom: 0pt;">Weighted Average Discount Rate</div> </td> <td style="width: 1%; font-family: "Times New Roman", Times, serif; font-size: 10pt;"> </td> <td style="width: 1%; font-family: "Times New Roman", Times, serif; font-size: 10pt;"> </td> <td style="width: 15%; text-align: right; font-family: "Times New Roman", Times, serif; font-size: 10pt; margin-left: 0pt;"><div style="display: inline; font-style: italic; font-weight: inherit; font-style: normal;">2.6</div></td> <td nowrap="nowrap" style="width: 1%; font-family: "Times New Roman", Times, serif; font-size: 10pt; margin-left: 0pt;">%</td> </tr> <tr style="vertical-align: bottom;"> <td style="border-bottom-color: rgb(0, 0, 0); border-bottom-width: thin; border-bottom-style: solid;"> </td> <td style="border-bottom-color: rgb(0, 0, 0); border-bottom-width: thin; border-bottom-style: solid;"> </td> <td style="border-bottom-color: rgb(0, 0, 0); border-bottom-width: thin; border-bottom-style: solid;"> </td> <td style="border-bottom-color: rgb(0, 0, 0); border-bottom-width: thin; border-bottom-style: solid;"> </td> <td> </td> </tr> </table></div>

Schedule of Lease Cash Flow Information [Table Text Block]

<div style="display: inline; font-family: times new roman; font-size: 10pt"><table border="0" cellpadding="0" cellspacing="0" style="; text-indent: 0px; font-family: "Times New Roman", Times, serif; font-size: 10pt; margin-right: 20%; min-; min-width: 700px;"> <tr style="vertical-align: bottom; background-color: rgb(255, 255, 255);"> <td style="border-top-color: rgb(0, 0, 0); border-top-width: thin; border-top-style: solid;"> </td> <td style="border-top-color: rgb(0, 0, 0); border-top-width: thin; border-top-style: solid;"> </td> <td style="border-top-color: rgb(0, 0, 0); border-top-width: thin; border-top-style: solid;"> </td> <td style="border-top-color: rgb(0, 0, 0); border-top-width: thin; border-top-style: solid;"> </td> <td> </td> </tr> <tr style="vertical-align: bottom; background-color: rgb(255, 255, 255);"> <td style="width: 82%; font-family: "Times New Roman", Times, serif; font-size: 10pt; background-color: rgb(255, 255, 255);"> <div style=" font-family: "Times New Roman", Times, serif; font-size: 10pt; margin-top: 0pt; margin-bottom: 0pt; background-color: rgb(255, 255, 255);">(in thousands)</div> </td> <td style="font-family: "Times New Roman", Times, serif; font-size: 10pt; background-color: rgb(255, 255, 255);"> </td> <td colspan="2" style="text-align: center; font-family: "Times New Roman", Times, serif; font-size: 10pt; margin-left: 0pt; border-bottom-color: rgb(0, 0, 0); border-bottom-width: 1px; border-bottom-style: solid; background-color: rgb(255, 255, 255);"><div style="display: inline; font-style: italic; font-weight: inherit; font-style: normal;"> </div><div style=" margin: 0pt; text-align: center; font-family: "Times New Roman", Times, serif; font-size: 10pt; background-color: rgb(255, 255, 255);"><div style="display: inline; font-weight: bold;"><div style="display: inline; font-weight: bold;"><div style="display: inline; font-weight: bold;"><div style="display: inline; font-weight: bold;">Three Months Ended March 31, 2019</div></div></div></div></div> </td> <td style="padding-bottom: 1px; font-family: "Times New Roman", Times, serif; font-size: 10pt; background-color: rgb(255, 255, 255);"> </td> </tr> <tr style="vertical-align: bottom; background-color: rgb(204, 238, 255);"> <td style="font-family: "Times New Roman", Times, serif; font-size: 10pt;"> <div style=" font-family: "Times New Roman", Times, serif; font-size: 10pt; margin-top: 0pt; margin-bottom: 0pt;">Cash paid for amounts included in the measurement of operating lease liabilities:</div> </td> <td style="font-family: "Times New Roman", Times, serif; font-size: 10pt;"> </td> <td style="font-family: "Times New Roman", Times, serif; font-size: 10pt;"> </td> <td style="font-family: "Times New Roman", Times, serif; font-size: 10pt;"> </td> <td style="font-family: "Times New Roman", Times, serif; font-size: 10pt;"> </td> </tr> <tr style="vertical-align: bottom; background-color: rgb(255, 255, 255);"> <td style="font-family: "Times New Roman", Times, serif; font-size: 10pt;"> <div style=" font-family: "Times New Roman", Times, serif; font-size: 10pt; margin-top: 0pt; margin-bottom: 0pt; margin-left: 18pt;">Operating cash flows for operating leases</div> </td> <td style="width: 1%; font-family: "Times New Roman", Times, serif; font-size: 10pt;"> </td> <td style="width: 1%; font-family: "Times New Roman", Times, serif; font-size: 10pt; margin-left: 0pt;">$</td> <td style="width: 15%; text-align: right; font-family: "Times New Roman", Times, serif; font-size: 10pt; margin-left: 0pt;"><div style="display: inline; font-style: italic; font-weight: inherit; font-style: normal;">1,197</div></td> <td nowrap="nowrap" style="width: 1%; font-family: "Times New Roman", Times, serif; font-size: 10pt; margin-left: 0pt;"> </td> </tr> <tr style="vertical-align: bottom; background-color: rgb(204, 238, 255);"> <td style="font-family: "Times New Roman", Times, serif; font-size: 10pt;"> <div style=" font-family: "Times New Roman", Times, serif; font-size: 10pt; margin-top: 0pt; margin-bottom: 0pt;">Lease assets obtained in exchange for new operating lease liabilities</div> </td> <td style="width: 1%; font-family: "Times New Roman", Times, serif; font-size: 10pt;"> </td> <td style="width: 1%; font-family: "Times New Roman", Times, serif; font-size: 10pt;"> </td> <td style="width: 15%; text-align: right; font-family: "Times New Roman", Times, serif; font-size: 10pt; margin-left: 0pt;"><div style="display: inline; font-style: italic; font-weight: inherit; font-style: normal;">13,049</div></td> <td nowrap="nowrap" style="width: 1%; font-family: "Times New Roman", Times, serif; font-size: 10pt; margin-left: 0pt;"> </td> </tr> <tr style="vertical-align: bottom; background-color: rgb(255, 255, 255);"> <td style="border-bottom-color: rgb(0, 0, 0); border-bottom-width: thin; border-bottom-style: solid;"> </td> <td style="padding-bottom: 1px; border-bottom-color: rgb(0, 0, 0); border-bottom-width: thin; border-bottom-style: solid;"> </td> <td style="border-bottom-color: rgb(0, 0, 0); border-bottom-width: 1px; border-bottom-style: solid;"> </td> <td style="border-bottom-color: rgb(0, 0, 0); border-bottom-width: 1px; border-bottom-style: solid;"> </td> <td style="padding-bottom: 1px;"> </td> </tr> </table></div>

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Note 9 - Stock-based Compensation (Tables)

3 Months Ended

Mar. 31, 2019

Notes Tables

Share-based Payment Arrangement, Option, Activity [Table Text Block]

				Weighted-
				Average
	Stock Options			Exercise Price
Options outstanding at December 31, 2018		252,616		$	64.71
Granted		30,046			104.99
Exercised		(3,010	)		57.85
Forfeited		(680	)		96.20
Options outstanding at March 31, 2019		278,972		$	69.04
Exercisable at March 31, 2019		157,602		$	56.70

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

	Three Months Ended March 31,
	2019			2018
Risk-free interest rate		2.58	%		2.52	%
Expected life (years)		6.25			6.25
Expected volatility		42.74	%		42.22	%
Expected dividend yield		0	%		0	%

Share-based Payment Arrangement, Restricted Stock and Restricted Stock Unit, Activity [Table Text Block]

				Weighted-
				Average
				Grant Date
	Restricted			Fair Value
	Stock			Per Share
Restricted stock at December 31, 2018		323,921		$	79.85
Granted		27,476			105.03
Restrictions lapsed		(22,420	)		71.40
Forfeited		(3,692	)		108.51
Restricted stock at March 31, 2019		325,285		$	82.35

Schedule of Nonvested Performance-based Units Activity [Table Text Block]

			Weighted-
			Average
			Grant Date
	Performance		Fair Value
	Stock		Per Share
Performance stock at December 31, 2018		52,140	$	76.54
Granted		21,434		104.99
Restrictions lapsed		-		-
Performance change		-		-
Forfeited		-		-
Performance stock at March 31, 2019		73,574	$	84.83

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

	Three Months Ended March 31,
	2019			2018
Risk-free interest rate		2.33	%		1.48	%
Expected life (months)		6.00			6.00
Expected volatility		37.36	%		24.49	%
Expected dividend yield		0	%		0	%

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Note 10 - Accumulated Other Comprehensive Loss (Tables)

3 Months Ended

Mar. 31, 2019

Notes Tables

Comprehensive Income (Loss) [Table Text Block]

	Three Months Ended
	March 31,
(in thousands)	2019			2018
Foreign currency translation adjustments
Balance at beginning of period	$	(8,492	)	$	(5,234	)
Other comprehensive income before reclassifications		476			2,393
Amounts reclassified from accumulated other comprehensive income		-			-
Net current-period other comprehensive income		476			2,393
Balance at end of period	$	(8,016	)	$	(2,841	)

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Note 12 - Segment Reporting (Tables)

3 Months Ended

Mar. 31, 2019

Notes Tables

Income from Operations by Geographic Area [Table Text Block]

	Three Months Ended March 31,
(in thousands)	2019			2018
Income from Operations:
United States	$	26,310		$	28,843
Europe		4,221			3,361
Corporate Unallocated and Japan		(11,083	)		(10,476	)
Total Income from Operations	$	19,448		$	21,728

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

	March 31,		December 31,
(in thousands)	2019		2018
Total long-lived assets:
United States	$	191,296	$	185,979
Europe		35,465		34,577
Japan		7,450		7,445
Total Assets	$	234,211	$	228,001

Operating Segments [Member]

Notes Tables

Revenue from External Customers by Geographic Areas [Table Text Block]

	Three Months Ended March 31,
(in thousands)	2019		2018
Revenue:
United States	$	87,811	$	84,167
Europe		21,254		19,945
Japan		4,387		3,633
Total revenue	$	113,452	$	107,745

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Note 2 - Recent Accounting Pronouncements (Details Textual) - USD ($) $ in Thousands	Mar. 31, 2019	Jan. 01, 2019	Dec. 31, 2018
Operating Lease, Right-of-Use Asset	$ 11,965
Operating Lease, Liability, Total	$ 12,128
Accounting Standards Update 2016-02 [Member]
Operating Lease, Right-of-Use Asset		$ 13,100
Operating Lease, Liability, Total		$ 13,100

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Note 3 - Net Income Per Common Share - Computation of Basic and Diluted Net Income Per Share (Details) - USD ($) $ / shares in Units, $ in Thousands	3 Months Ended
	Mar. 31, 2019	Mar. 31, 2018
Net income	$ 15,511	$ 18,051
Basic - weighted-average shares outstanding: (in shares)	26,963,366	26,879,388
Effect of dilutive securities:
Employee stock options and other (in shares)	213,673	317,711
Diluted - weighted-average shares outstanding: (in shares)	27,177,039	27,197,099
Basic (in dollars per share)	$ 0.58	$ 0.67
Diluted (in dollars per share)	$ 0.57	$ 0.66

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Note 4 - Goodwill and Other Intangible Assets (Details Textual) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2019	Mar. 31, 2018
Goodwill, Period Increase (Decrease), Total	$ 0
Amortization of Intangible Assets, Total	$ 900	$ 800

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Note 4 - Goodwill and Other Intangible Assets - Intangible Assets Other Than Goodwill (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2019	Dec. 31, 2018
Gross	$ 24,829	$ 24,829
Accumulated amortization	(5,850)	(4,979)
Net	18,979	19,850
Marketing-Related Intangible Assets [Member]
Gross	930	930
Accumulated amortization	(457)	(434)
Net	$ 473	496
Useful Life (Year)	10 years
Weighted average useful life remaining (Year)	5 years 36 days
Noncompete Agreements [Member]
Gross	$ 270	270
Accumulated amortization	(210)	(206)
Net	$ 60	64
Weighted average useful life remaining (Year)	3 years 292 days
Noncompete Agreements [Member] | Minimum [Member]
Useful Life (Year)	2 years
Noncompete Agreements [Member] | Maximum [Member]
Useful Life (Year)	5 years
Trade Secrets [Member]
Gross	$ 250	250
Accumulated amortization	(246)	(233)
Net	$ 4	17
Useful Life (Year)	5 years
Weighted average useful life remaining (Year)	36 days
Trade Names [Member]
Gross	$ 1,080	1,080
Accumulated amortization	(675)	(540)
Net	$ 405	540
Useful Life (Year)	2 years
Weighted average useful life remaining (Year)	292 days
Computer Software, Intangible Asset [Member]
Gross	$ 12,229	12,229
Accumulated amortization	(1,309)	(997)
Net	$ 10,920	11,232
Useful Life (Year)	10 years
Weighted average useful life remaining (Year)	8 years 292 days
Customer Relationships [Member]
Gross	$ 10,070	10,070
Accumulated amortization	(2,953)	(2,569)
Net	$ 7,117	$ 7,501
Weighted average useful life remaining (Year)	4 years 219 days
Customer Relationships [Member] | Minimum [Member]
Useful Life (Year)	6 years 328 days
Customer Relationships [Member] | Maximum [Member]
Useful Life (Year)	9 years

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Note 4 - Goodwill and Other Intangible Assets - Estimated Aggregated Amortization Expense (Details) - USD ($) $ in Thousands	Mar. 31, 2019	Dec. 31, 2018
Remaining 2019	$ 2,580
2020	2,895
2021	2,895
2022	2,895
2023	2,691
Thereafter	5,023
Total estimated amortization expense	$ 18,979	$ 19,850

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Note 5 - Fair Value Measurements - Fair Value of Financial Assets Measured on a Recurring Basis (Details) - Fair Value, Recurring [Member] - USD ($) $ in Thousands	Mar. 31, 2019	Dec. 31, 2018
Fair Value, Inputs, Level 1 [Member]
Cash and cash equivalents:
Money market mutual fund	$ 9,155	$ 8,943
Total	9,155	8,943
Fair Value, Inputs, Level 2 [Member]
Cash and cash equivalents:
Money market mutual fund
Total
Fair Value, Inputs, Level 3 [Member]
Cash and cash equivalents:
Money market mutual fund
Total

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Note 6 - Marketable Securities - Short-term and Long-term Marketable Securities (Details) - USD ($) $ in Thousands	Mar. 31, 2019	Dec. 31, 2018
Amortized Cost	$ 53,307	$ 70,329
Unrealized Gains	69	1
Unrealized Losses	(83)	(242)
Fair Value	53,293	70,088
Bank Time Deposits [Member]
Amortized Cost	3,464	4,208
Unrealized Gains	10
Unrealized Losses	(10)	(25)
Fair Value	3,464	4,183
US States and Political Subdivisions Debt Securities [Member]
Amortized Cost	10,825	17,509
Unrealized Gains	7	1
Unrealized Losses	(6)	(33)
Fair Value	10,826	17,477
Corporate Debt Securities [Member]
Amortized Cost	24,513	31,769
Unrealized Gains	52
Unrealized Losses	(27)	(96)
Fair Value	24,538	31,673
US Government Agencies Debt Securities [Member]
Amortized Cost	14,505	16,843
Unrealized Gains
Unrealized Losses	(40)	(88)
Fair Value	$ 14,465	$ 16,755

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Note 6 - Marketable Securities - Balance of Held-to-maturity Debt Securities by Contractual Maturity (Details) - USD ($) $ in Thousands	Mar. 31, 2019	Dec. 31, 2018
Due in one year or less	$ 35,045
Due after one year through five years	18,262
Total marketable securities	$ 53,307	$ 70,329

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Note 7 - Inventory - Inventory (Details) - USD ($) $ in Thousands	Mar. 31, 2019	Dec. 31, 2018
Raw materials	$ 9,132	$ 9,560
Work in process	412	792
Total inventory	9,544	10,352
Allowance for obsolescence	(188)	(265)
Inventory, net of allowance	$ 9,356	$ 10,087

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Note 8 - Leases (Details Textual) xbrli-pure in Thousands, $ in Thousands	Mar. 31, 2019 USD ($)	Jan. 01, 2019 USD ($)	Dec. 31, 2018 USD ($)
Operating Lease, Right-of-Use Asset	$ 11,965
Lessee, Financial Lease, Liability, Number of Leases	0
Lessee, Operating Lease, Lease Not yet Commenced, Number of Leases	0
Operating Lease, Liability, Total	$ 12,128
Minimum [Member] | Office Space, Manufacturing Facilities, and Certain Company Vehicles and Equipment [Member]
Lessee, Operating Lease, Term of Contract	1 year
Maximum [Member] | Office Space, Manufacturing Facilities, and Certain Company Vehicles and Equipment [Member]
Lessee, Operating Lease, Term of Contract	10 years
Accounting Standards Update 2016-02 [Member]
Operating Lease, Right-of-Use Asset		$ 13,100
Operating Lease, Liability, Total		$ 13,100

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Note 8 - Leases - Balance Sheet Information (Details) - USD ($) $ in Thousands	Mar. 31, 2019	Dec. 31, 2018
Operating lease assets	$ 11,965
Current operating lease liabilities	3,021
Long-term operating lease liabilities	9,107
Total operating lease liabilities	$ 12,128

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Note 8 - Leases - Lease Expense (Details) $ in Thousands	3 Months Ended
	Mar. 31, 2019 USD ($)
Operating lease cost	$ 1,070
Variable lease cost	239
Total lease cost	$ 1,309

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Note 8 - Leases - Maturities of Operating Lease Liabilities (Details) $ in Thousands	Mar. 31, 2019 USD ($)
2019 (excluding three months ended March 31, 2019)	$ 2,706
2020	2,627
2021	2,307
2022	2,256
2023	1,028
After 2023	2,098
Total future minimum lease payments	13,022
Less interest	(894)
Present value of lease liabilities	$ 12,128

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Note 8 - Leases - Weighted Average Remaining Terms and Discount Rates (Details)	Mar. 31, 2019
Weighted Average Remaining Lease Term (Years) (Year)	5 years 138 days
Weighted Average Discount Rate	2.60%

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Note 8 - Leases - Cash Flow Information (Details) $ in Thousands	3 Months Ended
	Mar. 31, 2019 USD ($)
Operating cash flows for operating leases	$ 1,197
Lease assets obtained in exchange for new operating lease liabilities	$ 13,049

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Note 9 - Stock-based Compensation (Details Textual) - USD ($) $ / shares in Units, $ in Thousands	3 Months Ended
	Mar. 31, 2019	Mar. 31, 2018
Share-based Compensation Arrangement by Share-based Payment Award, Expiration Period	10 years
Share-based Payment Arrangement, Noncash Expense, Total	$ 3,040	$ 2,307
Share-based Compensation Arrangement by Share-based Payment Award, Options, Grants in Period, Weighted Average Grant Date Fair Value	$ 47.76
ESPP [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Discount from Market Price, Offering Date	15.00%
Employee Stock Purchase Plan, Offering Period	180 days
Share-based Compensation Arrangement by Share-based Payment Award, Purchase Price of Common Stock, Percent	85.00%
Share-based Payment Arrangement, Option [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Expiration Period	10 years
Share-based Payment Arrangement, Nonvested Award, Cost Not yet Recognized, Amount, Total	$ 4,300
Share-based Payment Arrangement, Nonvested Award, Cost Not yet Recognized, Period for Recognition	3 years
Share-based Payment Arrangement, Option [Member] | Minimum [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Award Vesting Period	4 years
Share-based Payment Arrangement, Option [Member] | Maximum [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Award Vesting Period	5 years
Restricted Stock [Member]
Share-based Payment Arrangement, Nonvested Award, Cost Not yet Recognized, Amount, Total	$ 21,300
Share-based Payment Arrangement, Nonvested Award, Cost Not yet Recognized, Period for Recognition	3 years
Restricted Stock [Member] | Minimum [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Award Vesting Period	4 years
Restricted Stock [Member] | Maximum [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Award Vesting Period	5 years
Performance Shares [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Award Vesting Period	3 years
Share-based Payment Arrangement, Nonvested Award, Cost Not yet Recognized, Amount, Total	$ 4,000
Share-based Payment Arrangement, Nonvested Award, Cost Not yet Recognized, Period for Recognition	2 years 109 days
Percentage of Target Number Capable of Being Earned and Vesting, Lower Limit	0.00%
Percentage of Target Number Capable of Being Earned and Vesting, Upper Limit	150.00%

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Note 9 - Stock-based Compensation - Stock Option Activity (Details)	3 Months Ended
	Mar. 31, 2019 $ / shares shares
Options outstanding (in shares) | shares	252,616
Options outstanding, weighted-average exercise price (in dollars per share) | $ / shares	$ 64.71
Granted (in shares) | shares	30,046
Granted, weighted-average exercise price (in dollars per share) | $ / shares	$ 104.99
Exercised (in shares) | shares	(3,010)
Exercised, weighted-average exercise price (in dollars per share) | $ / shares	$ 57.85
Forfeited (in shares) | shares	(680)
Forfeited, weighted-average exercise price (in dollars per share) | $ / shares	$ 96.20
Options outstanding (in shares) | shares	278,972
Options outstanding, weighted-average exercise price (in dollars per share) | $ / shares	$ 69.04
Options exercisable (in shares) | shares	157,602
Options exercisable, weighted-average exercise price (in dollars per share) | $ / shares	$ 56.70

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Note 9 - Stock-based Compensation - Assumptions Used in the Black-Scholes Option Pricing Model (Details) - Share-based Payment Arrangement, Option [Member]	3 Months Ended
	Mar. 31, 2019	Mar. 31, 2018
Risk-free interest rate	2.58%	2.52%
Expected life (Year)	6 years 91 days	6 years 91 days
Expected volatility	42.74%	42.22%
Expected dividend yield	0.00%	0.00%

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Note 9 - Stock-based Compensation - Restricted Stock Options (Details) - Restricted Stock [Member]	3 Months Ended
	Mar. 31, 2019 $ / shares shares
Restricted stock (in shares) | shares	323,921
Restricted stock, weighted-average grant date fair value (in dollars per share) | $ / shares	$ 79.85
Granted (in shares) | shares	27,476
Granted, weighted-average grant date fair value (in dollars per share) | $ / shares	$ 105.03
Restrictions lapsed (in shares) | shares	(22,420)
Restrictions lapsed, weighted-average grant date fair value (in dollars per share) | $ / shares	$ 71.40
Forfeited (in shares) | shares	(3,692)
Forfeited, weighted-average grant date fair value (in dollars per share) | $ / shares	$ 108.51
Restricted stock (in shares) | shares	325,285
Restricted stock, weighted-average grant date fair value (in dollars per share) | $ / shares	$ 82.35

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Note 9 - Stock-based Compensation - Performance Stock (Details) - Performance Shares [Member]	3 Months Ended
	Mar. 31, 2019 $ / shares shares
Restricted stock (in shares) | shares	52,140
Restricted stock, weighted-average grant date fair value (in dollars per share) | $ / shares	$ 76.54
Granted (in shares) | shares	21,434
Granted, weighted-average grant date fair value (in dollars per share) | $ / shares	$ 104.99
Restrictions lapsed (in shares) | shares
Restrictions lapsed, weighted-average grant date fair value (in dollars per share) | $ / shares
Performance change (in shares) | shares
Performance change, weighted-average grant date fair value (in dollars per share) | $ / shares
Forfeited (in shares) | shares
Forfeited, weighted-average grant date fair value (in dollars per share) | $ / shares
Restricted stock (in shares) | shares	73,574
Restricted stock, weighted-average grant date fair value (in dollars per share) | $ / shares	$ 84.83

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Note 9 - Stock-based Compensation - Assumptions Used to Estimate the Fair Value of the ESPP (Details) - ESPP [Member]	3 Months Ended
	Mar. 31, 2019	Mar. 31, 2018
Risk-free interest rate	2.33%	1.48%
Expected life (Month)	180 days	180 days
Expected volatility	37.36%	24.49%
Expected dividend yield	0.00%	0.00%

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Note 10 - Accumulated Other Comprehensive Loss - Other Comprehensive Loss (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2019	Mar. 31, 2018
Balance	$ 541,497	$ 461,215
Balance	542,795	487,676
Accumulated Foreign Currency Adjustment Attributable to Parent [Member]
Balance	(8,492)	(5,234)
Other comprehensive income before reclassifications	476	2,393
Amounts reclassified from accumulated other comprehensive income
Net current-period other comprehensive income	476	2,393
Balance	$ (8,016)	$ (2,841)

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Note 11 - Income Taxes (Details Textual) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2019	Mar. 31, 2018	Dec. 31, 2018
Income Tax Expense (Benefit), Total	$ 4,150	$ 3,855
Effective Income Tax Rate Reconciliation, Percent, Total	21.10%	17.60%
Effective Income Tax Rate, Increase (Decrease), Percentage	3.50%
Effective Income Tax Rate Reconciliation, at Federal Statutory Income Tax Rate, Percent	21.00%
Unrecognized Tax Benefits, Ending Balance	$ 4,300		$ 4,100

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Note 12 - Segment Reporting - Revenue From Operations by Reportable Segment (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2019	Mar. 31, 2018
Revenue:
Revenue	$ 113,452	$ 107,745
Operating Segments [Member] | United States Segment [Member]
Revenue:
Revenue	87,811	84,167
Operating Segments [Member] | Europe Segment [Member]
Revenue:
Revenue	21,254	19,945
Operating Segments [Member] | Japan Segment [Member]
Revenue:
Revenue	$ 4,387	$ 3,633

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Note 12 - Segment Reporting - Income From Operations (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2019	Mar. 31, 2018
Income from operations	$ 19,448	$ 21,728
Operating Segments [Member] | United States Segment [Member]
Income from operations	26,310	28,843
Operating Segments [Member] | Europe Segment [Member]
Income from operations	4,221	3,361
Corporate and Reconciling Items [Member] | Corporate Unallocated and Japan Segment[Member]
Income from operations	$ (11,083)	$ (10,476)

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Note 12 - Segment Reporting - Long-lived Assets by Geographic Region (Details) - USD ($) $ in Thousands	Mar. 31, 2019	Dec. 31, 2018
Long-lived assets	$ 234,211	$ 228,001
Operating Segments [Member] | United States Segment [Member]
Long-lived assets	191,296	185,979
Operating Segments [Member] | Europe Segment [Member]
Long-lived assets	35,465	34,577
Operating Segments [Member] | Japan Segment [Member]
Long-lived assets	$ 7,450	$ 7,445