# Proto Labs Inc: Form 10-Q for the period ended Mar 31, 2022

- Company: [Proto Labs Inc](/companies/prlb.md) (CIK 1443669)
- Form: 10-Q
- Filed: 2022-05-06
- Accepted by EDGAR: May 6, 2022, 12:09 ET
- Period: 2022-03-31
- Accession: 0001437749-22-011272
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1443669/000143774922011272/prlb20220331_10q.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1443669/000143774922011272/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2022-03-31.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2022-01-01 to 2022-03-31 | $124.2m | us-gaap:RevenueFromContractWithCustomerIncludingAssessedTax |
| Cost of revenue | 3 months, 2022-01-01 to 2022-03-31 | $68.4m | us-gaap:CostOfGoodsAndServicesSold |
| Gross profit | 3 months, 2022-01-01 to 2022-03-31 | $55.8m | us-gaap:GrossProfit |
| Research and development | 3 months, 2022-01-01 to 2022-03-31 | $10.6m | us-gaap:ResearchAndDevelopmentExpense |
| Operating income | 3 months, 2022-01-01 to 2022-03-31 | $7.9m | us-gaap:OperatingIncomeLoss |
| Income tax | 3 months, 2022-01-01 to 2022-03-31 | $2.5m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2022-01-01 to 2022-03-31 | $5.1m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2022-01-01 to 2022-03-31 | $0.19 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2022-01-01 to 2022-03-31 | $0.19 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2022-01-01 to 2022-03-31 | 27,510,477 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 3 months, 2022-01-01 to 2022-03-31 | $17.8m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 3 months, 2022-01-01 to 2022-03-31 | $3.1m | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Cash and equivalents | at 2022-03-31 | $57.2m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2022-03-31 | $188.2m | us-gaap:AssetsCurrent |
| Total assets | at 2022-03-31 | $934.8m | us-gaap:Assets |
| Current liabilities | at 2022-03-31 | $60.3m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2022-03-31 | $102.7m | us-gaap:Liabilities |
| Shareholders' equity | at 2022-03-31 | $832.0m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 28,130 characters.

*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, 2021.*

### 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 this Form 10-Q, as well as our most recent Annual Report on Form 10-K as filed with the Securities and Exchange Commission (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 one of the world’s largest and fastest digital manufacturer of custom prototypes and on-demand production parts. Our mission is to empower companies to bring new ideas to market by offering the fastest and most comprehensive digital manufacturing service in the world. Our automated quoting and manufacturing systems allow us to produce commercial-grade plastic, metal, and liquid silicone rubber parts in as fast as one day. We manufacture prototype and low volume production parts for companies worldwide, who are under increasing pressure to bring their finished products to market faster than their competition. We utilize injection molding, computer numerical control (CNC) machining, 3D printing and sheet metal fabrication to manufacture custom parts for our customers. For most of our offerings, our proprietary technology eliminates most of the time-consuming and expensive skilled labor conventionally required to quote and manufacture parts. 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. In addition, we serve procurement and supply chain professionals seeking to manufacture custom parts on-demand. Through the acquisition of Hubs (formerly 3D Hubs, Inc.) (Hubs) in 2021, we are able to provide our customers access to a global network of premium manufacturing partners who reside across North America, Europe and Asia, complementing our in-house manufacturing. We believe our use of advanced technology enables us to offer significant advantages at competitive prices to many customers and is the primary reason we have become a leading supplier of custom parts.

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. In 2021, we augmented our internal manufacturing operations through our acquisition of Hubs to expand the envelope of custom parts we can provide to our customers through a network of premium manufacturing partners in each of our product lines.

### 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 molds and quick turnaround times help reduce design risk and limit overall production costs for product developers and engineers. Because we retain possession of the molds, customers who need short-run production often come back to Proto Labs’ 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 service. This service utilizes our existing processes, but is designed to fulfill the needs of customers with on-going production needs.

### 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 customer. CNC turning is a subtractive manufacturing process that rotates a metal rod while a cutting tool is used to remove material and create final parts. Quick-turn CNC machining works best for prototyping, form and fit testing, jigs and fixtures and functional components for end-use applications.

### Industrial 3D Printing

Our Industrial 3D Printing product line includes SL, SLS, DMLS, MJF, PolyJet, Carbon DLS and fused deposition modeling (FDM) processes, which offers 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.

### Sheet Metal

Our Sheet Metal product line includes quick-turn and e-commerce-enabled custom sheet metal parts, providing 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 customer to fabricate rapid prototyping sheet metal or end-use production parts and assemblies.

### 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 gaining new customers and selling to our existing customer base by increasing marketing and selling activities, including:

- expanding the breadth and scope of our products by adding more sizes and materials to our offerings;
- the introduction of our 3D Printing product line through our acquisition of FineLine in 2014;
- expanding 3D Printing to Europe through our acquisition of Alphaform in 2015;
- the introduction of our Sheet Metal product line through our acquisition of Rapid Manufacturing Group, LLC in 2017;
- continuously improving the usability of our product lines such as our web-centric applications; and
- providing customers with on-demand access to a global network of premium manufacturing partners through our acquisition of Hubs in 2021.

During the three months ended March 31, 2022, we served 23,492 unique product developers and engineers who purchased our products through our web-based customer interface, an increase of 3.9% over the same period in 2021.

### 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 customer parts. We expect our personnel-related costs to increase in order to retain and attract top talent and remain competitive in the market. Overall, we expect cost of revenue to increase in absolute dollars.

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, pricing, sales volume, manufacturing costs, the costs associated with increasing production capacity, the mix between domestic and foreign revenue sources, the mix between revenue produced in our internal manufacturing operations and outsourced to our external manufacturing partners, and foreign exchange rates.

### 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.

The launch of our Protolabs 2.0 project, an internal business systems initiative impacting both external customer-facing and internal back-end systems, in the United States in the first quarter of 2021, and our acquisition of Hubs in January 2021, led to higher operating expenses in the first quarter of 2021. Our business strategy is to continue to be a leading online and technology-enabled manufacturer of quick-turn, on-demand injection-molded, CNC-machined, 3D-printed and sheet metal custom parts for prototyping and low-volume production. In order to achieve our goals, we anticipate continued substantial investments in technology and personnel, resulting in increased operating expenses in the future.

*Marketing and sales.* Marketing and sales expense consists primarily of employee compensation, benefits, commissions, stock-based compensation, marketing programs such as electronic, print and pay-per-click advertising, trade shows and other related overhead, which includes an allocation of information technology expense including amortization of Protolabs 2.0 software assets. 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 our e-commerce interface technology, internal software and supporting business systems, and continue to expand our product lines.

*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, which includes an allocation of information technology expense including amortization of Protolabs 2.0 software assets. We expect general and administrative expense to increase in the future as we continue to grow and expand as a global organization.

### Other Loss, net

Other loss, 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. Overall, our effective tax rate for 2022 and beyond may differ from historical effective tax rates due to increases in losses in foreign operations that are not eligible for tax benefits on account of valuation allowances, as well as any future tax law changes that may impact our effective tax rate.

### 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.

*(dollars in thousands)*

|  | Three Months Ended March 31, 2022 |  | 2021 |  | Change $% |  |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Revenue | $124,168 | 100.0 | $116,126 | 100.0 | $8,042 | 6.9 |
| Cost of revenue | 68,364 | 55.1 | 60,796 | 52.4 | 7,568 | 12.4 |
| Gross profit | 55,804 | 44.9 | 55,330 | 47.6 | 474 | 0.9 |
| Operating expenses: |  |  |  |  |  |  |
| Marketing and sales | 20,586 | 16.6 | 19,480 | 16.8 | 1,106 | 5.7 |
| Research and development | 10,557 | 8.5 | 12,181 | 10.5 | (1,624) | (13.3) |
| General and administrative | 16,771 | 13.5 | 19,408 | 16.7 | (2,637) | (13.6) |
| Total operating expenses | 47,914 | 38.6 | 51,069 | 44.0 | (3,155) | (6.2) |
| Income from operations | 7,890 | 6.3 | 4,261 | 3.7 | 3,629 | 85.2 |
| Other loss, net | (300) | (0.2) | (313) | (0.3) | 13 | (4.2) |
| Income before income taxes | 7,590 | 6.1 | 3,948 | 3.4 | 3,642 | 92.2 |
| Provision for income taxes | 2,495 | 2.0 | 236 | 0.2 | 2,259 | 957.2 |
| Net income | $5,095 | 4.1% | $3,712 | 3.2% | $1,383 | 37.3% |

Stock-based compensation expense included in the statements of operations data above for the three months ended March 31, 2022 and 2021 were as follows:

*(dollars in thousands)*

|  | Three Months Ended March 31, 2022 | 2021 |
| --- | ---: | ---: |
| Stock options, restricted stock and performance stock | $4,006 | $5,291 |
| Employee stock purchase plan | 391 | 329 |
| Total stock-based compensation expense | $4,397 | $5,620 |
| Cost of revenue | $587 | $635 |
| Operating expenses: |  |  |
| Marketing and sales | 737 | 853 |
| Research and development | 629 | 624 |
| General and administrative | 2,444 | 3,508 |
| Total stock-based compensation expense | $4,397 | $5,620 |

19

### Comparison of Three Months Ended March 31, 2022 and 2021

#### Revenue

Revenue by reportable segment and the related changes for the three months ended March 31, 2022 and 2021 were as follows:

*(dollars in thousands)*

| Revenue | Three Months Ended March 31, 2022 $% of Total Revenue |  | 2021 $% of Total Revenue |  | Change $% |  |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| United States | $95,496 | 76.9% | $91,053 | 78.4% | $4,443 | 4.9% |
| Europe | 24,586 | 19.8 | 21,449 | 18.5 | 3,137 | 14.6 |
| Japan | 4,086 | 3.3 | 3,624 | 3.1 | 462 | 12.7 |
| Total revenue | $124,168 | 100.0% | $116,126 | 100.0% | $8,042 | 6.9% |

Our revenue increased $8.0 million, or 6.9%, for the three months ended March 31, 2022 compared to the same period in 2021. By reportable segment, revenue in the United States increased $4.4 million, or 4.9%, for the three months ended March 31, 2022 compared to the same period in 2021. Revenue in Europe increased $3.1 million, or 14.6%, and revenue in Japan increased $0.5 million, or 12.7%, in each case for the three months ended March 31, 2022 compared to the same period in 2021. Our acquisition of Hubs provided revenue of $4.8 million and $3.2 million in the United States and $5.5 million and $2.6 million in Europe for each of the three months ended March 31, 2022 and 2021, respectively. Hubs revenue in 2021 represents the period from January 22, 2021, the date of acquisition, through March 31, 2021. International revenue was negatively impacted by $1.5 million during the three months ended March 31, 2022 compared to the same period in 2021 as a result of foreign currency movements, primarily the weakening of the British Pound and Euro relative to the United States Dollar.

During the three months ended March 31, 2022, we served 23,492 unique product developers and engineers, an increase of 3.9% over the same period in 2021. Our growth in product developers and engineers served increased at a lower rate than our revenue growth, resulting in an increase in the average spend per product developer and engineer. The increase in average spend per product developer and engineer was driven by price increases and a change in the mix of products with a higher average order size purchased during the quarter by product developers and engineers we serve.

Revenue by product line and the related changes for the three months ended March 31, 2022 and 2021 were as follows:

*(dollars in thousands)*

| Revenue | Three Months Ended March 31, 2022 $% of Total Revenue |  | 2021 $% of Total Revenue |  | Change $% |  |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Injection Molding | $53,398 | 43.0% | $56,359 | 48.5% | $(2,961) | (5.3)% |
| CNC Machining | 46,098 | 37.1 | 36,703 | 31.6 | 9,395 | 25.6 |
| 3D Printing | 19,672 | 15.8 | 17,235 | 14.8 | 2,437 | 14.1 |
| Sheet Metal | 4,687 | 3.8 | 5,219 | 4.5 | (532) | (10.2) |
| Other Revenue | 313 | 0.3 | 610 | 0.5 | (297) | (48.7) |
| Total revenue | $124,168 | 100.0% | $116,126 | 100.0% | $8,042 | 6.9% |

By product line, our revenue increase was driven by a 25.6% increase in CNC Machining revenue and a 14.1% increase in 3D Printing revenue, which was partially offset by a 5.3% decrease in Injection Molding revenue, a 10.2% decrease in Sheet Metal revenue and a 48.7% decrease in Other Revenue, in each case for the three months ended March 31, 2022 compared to the same period in 2021.

#### Cost of Revenue, Gross Profit and Gross Margin

*Cost of Revenue.* Cost of revenue increased $7.6 million, or 12.4%, for the three months ended March 31, 2022 compared to the same period in 2021, which was greater than the rate of revenue increase of 6.9% for the three months ended March 31, 2022 compared to the same period in 2021. The $4.9 million increase in cost of revenue in our legacy business was driven by increased volumes and a labor shortage resulting in wage inflation driving personnel and related cost increases of $2.5 million, an increase in raw material and product costs of $2.1 million driven by materials cost inflation and higher logistics costs, and an increase in equipment and facility related costs of $0.3 million. Our acquisition of Hubs provided a $2.7 million increase in cost of revenue for the three months ended March 31, 2022 when compared to the same period in 2021.

*Gross Profit and Gross Margin.* Gross profit increased from $55.3 million in the three months ended March 31, 2021 to $55.8 million in the three months ended March 31, 2022. Gross margin decreased from 47.6% in the three months ended March 31, 2021 to 44.9% in the three months ended March 31, 2022, primarily due to labor and materials cost inflation and the mix of revenue.

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

*Marketing and Sales.* Marketing and sales expenses increased $1.1 million, or 5.7%, during the three months ended March 31, 2022 compared to the same period in 2021. The increase is primarily driven by information technology allocation cost increases, including amortization of Protolabs 2.0 software assets, of $0.3 million and marketing program cost increases of $0.3 million, which were partially offset by personnel and related cost decreases in our legacy business of $0.2 million. In addition, our acquisition of Hubs provided a $0.7 million increase in marketing and sales expenses during the three months ended March 31, 2022 when compared to the same period in 2021.

*Research and Development.* Our research and development expenses decreased $1.6 million, or 13.3%, during the three months ended March 31, 2022 compared to the same period in 2021 primarily due to personnel and related cost decreases of $2.2 million driven by personnel and contractor resources dedicated to the launch of our Protolabs 2.0 system in the first quarter of 2021. Other legacy operating costs increased $0.1 million during the three months ended March 31, 2022. In addition, our acquisition of Hubs provided a $0.5 million increase in research and development expenses during the three months ended March 31, 2022 when compared to the same period in 2021.

*General and Administrative.* Our general and administrative expenses decreased $2.6 million, or 13.6%, during the three months ended March 31, 2022 compared to the same period in 2021 primarily due to a decrease of $2.4 million in professional service costs primarily driven by increased transaction costs in 2021 related to our acquisition of Hubs and a decrease of $1.3 million in stock-based compensation expense primarily driven by increased stock-based compensation expense in 2021 related to the retirement of our CEO. In addition, our acquisition of Hubs provided an increase of $1.1 million in general and administrative expense during the three months ended March 31, 2022 when compared to the same period in 2021.

*Other Loss, net.* We recognized other loss, net of $0.3 million for the three months ended March 31, 2022, consistent with other loss, net of $0.3 million for the three months ended March 31, 2021. Other loss, net for the three months ended March 31, 2022 primarily consisted of a $0.3 million loss on foreign currency. Other loss, net for the three months ended March 31, 2021 primarily consisted of a $0.5 million loss on foreign currency, which was partially offset by $0.1 million in interest income on investments and $0.1 million in other income.

*Provision for Income Taxes.* Our effective tax rate of 32.9% for the three months ended March 31, 2022 increased 26.9% compared to 6.0% for the same period in 2021. The increase in the effective tax rate is primarily due to a decrease in tax benefits from the vesting of restricted stock and the exercise of stock options. Our income tax provision of $2.5 million for the three months ended March 31, 2022 increased $2.3 million compared to our income tax provision of $0.2 million for the three months ended March 31, 2021.

### Liquidity and Capital Resources

#### Cash Flows

The following table summarizes our cash flows during the three months ended March 31, 2022 and 2021:

*(dollars in thousands)*

|  | Three Months Ended March 31, 2022 | 2021 |
| --- | ---: | ---: |
| Net cash provided by operating activities | $17,783 | $6,425 |
| Net cash used in investing activities | (25,835) | (90,133) |
| Net cash used in financing activities | (601) | (427) |
| Effect of exchange rates on cash and cash equivalents | (37) | 306 |
| Net decrease in cash and cash equivalents | $(8,690) | $(83,829) |

#### 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 $57.2 million as of March 31, 2022, a decrease of $8.7 million from December 31, 2021. The decrease in our cash was primarily due to cash used in investing activity for purchases of marketable securities, net of $22.8 million, purchases of property, equipment and other capital assets of $3.1 million, and cash used in financing activities of $0.6 million, which were partially offset by cash generated through operations of $17.8 million.

#### Cash Flows from Operating Activities

Cash flows from operating activities were $17.8 million during the three months ended March 31, 2022 and primarily consisted of net income of $5.1 million, adjusted for certain non-cash items, including depreciation and amortization of $10.2 million and stock-based compensation expense of $4.4 million, which were partially offset by changes in operating assets and liabilities and other items totaling $1.9 million. Cash flows from operating activities were $6.4 million during the three months ended March 31, 2021 and primarily consisted of net income of $3.7 million, adjusted for certain non-cash items, including depreciation and amortization of $10.1 million, stock-based compensation expense of $5.6 million, which were partially offset by changes in operating assets and liabilities and other items totaling $13.0 million.

Cash flows from operating activities increased $11.4 million during the three months ended March 31, 2022 compared to the same period in 2021, primarily due to increases in net income of $1.4 million and changes in operating assets and liabilities totaling $14.3 million, which were partially offset by decreases in stock-based compensation of $1.2 million and decreases in deferred taxes of $3.1 million.

#### Cash Flows from Investing Activities

Cash used in investing activities was $25.8 million during the three months ended March 31, 2022, consisting of $22.7 million for net purchases of marketable securities and $3.1 million for the purchases of property, equipment and other capital assets.

Cash used in investing activities was $90.1 million during the three months ended March 31, 2021, consisting of $127.7 million in cash used for acquisitions, net of cash acquired and $6.5 million for the purchases of property, equipment and other capital assets, which were partially offset by $44.1 million for net proceeds from investments in marketable securities.

#### Cash Flows from Financing Activities

Cash used in financing activities was $0.6 million during the three months ended March 31, 2022, consisting of $0.5 million in shares withheld for tax obligations associated with equity transactions, and $0.1 million for repayments of finance lease obligations.

Cash used in financing activities was $0.4 million during the three months ended March 31, 2021, consisting of $2.0 million in purchases of shares withheld for tax obligations associated with equity transactions and $0.1 million for repayments of finance lease obligations, which were partially offset by $1.7 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, 2021. There were no material changes to our critical accounting policies during the three months ended March 31, 2022.

### 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.

## Market risk

As filed, 1,461 characters.

### 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 $0.3 million and $0.5 million during the three months ended March 31, 2022 and 2021, respectively. The changes in foreign exchange rates had a negative impact on consolidated revenue of $1.5 million for the three months ended March 31, 2022 as compared to the same periods in 2021.

## Controls and procedures

As filed, 1,436 characters.

### 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.

## Risk factors

As filed, 231 characters.

Part I, Item 1A. “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2021 includes a discussion of our risk factors. There have been no material changes from the risk factors described in our Form 10-K.

Filed May 6, 2022.
Source: SEC EDGAR, the filing index for accession 0001437749-22-011272. Last ingested by Listed: Nov 4, 2026, 18:20 ET. No prices; not investment advice.