Proto Labs Inc

Previous wording

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the consolidated financial statements and related notes included elsewhere in this Annual Report on Form 10-K. This discussion and analysis contains forward-looking statements that involve risks and uncertainties. Our actual results may differ materially from those anticipated in these forward- looking statements as a result of various factors, including those set forth under “Risk Factors” and elsewhere in this Annual Report on Form 10-K. This Management's Discussion and Analysis (MD&A) generally discusses fiscal years 2023 and 2022 items and year-to-year comparisons between 2023 and 2022. Discussions of fiscal year 2021 items and year-to-year comparisons between 2022 and 2021 are not included in this MD&A, and can be found in "Management's Discussion and Analysis of Financial Condition and Results of Operations" in Part II, Item 7. of the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2022, filed with the SEC on February 21, 2023.

Current wording

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the consolidated financial statements and related notes included elsewhere in this Annual Report on Form 10-K. This discussion and analysis contains forward-looking statements that involve risks and uncertainties. Our actual results may differ materially from those anticipated in these forward- looking statements as a result of various factors, including those set forth under “Risk Factors” and elsewhere in this Annual Report on Form 10-K. This Management's Discussion and Analysis (MD&A) generally discusses fiscal years 2024 and 2023 items and year-to-year comparisons between 2024 and 2023. Discussions of fiscal year 2022 items and year-to-year comparisons between 2023 and 2022 are generally not included in this MD&A, and can be found in "Management's Discussion and Analysis of Financial Condition and Results of Operations" in Part II, Item 7. of the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2023, filed with the SEC on February 16, 2024.

Previous wording

We currently operate in a global custom contract manufacturing market which is a form of outsourcing where companies enter into an arrangement or formal agreement with another company or individual for the manufacture of complete parts, products, or components. Since our inception, we have focused on areas where we could automate the manufacturing process via our digital model and we positioned ourselves to avoid routine, low margin, high-volume commoditized manufacturing. Our initial focus was on prototypes and simple parts and have added complexity over time. We have added product lines and expanded those product lines to meet the needs of our customers, which has ultimately driven our growth. In 2022, we launched the first iteration of our integrated offer in Europe and followed with the launch in the United States in early 2023. The integrated offer allows us to offer CNC manufacturing for eligible parts through the combination of our internal digital manufacturing and our digital network of manufacturing partners. We also continually seek to enhance other aspects of our technology and manufacturing processes, including our interactive web-based and automated user interface and quoting system. We intend to continue to invest significantly to enhance our technology and manufacturing processes and expand the range of our existing capabilities with the aim of meeting the needs of a broader set of customers. As a result of the factors described above, many of our customers tend to return to Proto Labs to meet their ongoing needs.

Current wording

We currently operate in a global custom contract manufacturing market which is a form of outsourcing where companies enter into an arrangement or formal agreement with another company or individual for the manufacture of complete parts, products, or components. Since our inception, we have focused on areas where we could automate the manufacturing process via our digital model and we positioned ourselves to avoid routine, low margin, high-volume commoditized manufacturing. Our initial focus was on prototypes and simple parts and have added complexity over time. We have added product lines and expanded those product lines to meet the needs of our customers, which has historically driven our growth. In 2022, we launched the first iteration of our integrated offer in Europe and followed with the launch in the United States in early 2023. The integrated offer allows us to offer CNC manufacturing for eligible parts through the combination of our internal digital manufacturing and our digital network of manufacturing partners. We also continually seek to enhance other aspects of our technology and manufacturing processes, including our interactive web-based and automated user interface and quoting system. We intend to continue to invest significantly to enhance our technology and manufacturing processes and expand the range of our existing capabilities with the aim of meeting the needs of a broader set of customers. As a result of the factors described above, many of our customers tend to return to Proto Labs to meet their ongoing needs.

Previous wording

We have established our operations in the United States and Europe. Previously we had established operations in Japan. On May 27, 2022, the Company's board of directors approved a plan for the closure of the Company's manufacturing facility in Japan and announced an intention to cease operations in the region. The Company dissolved its Japan operations in December 2023. Our revenue outside of the United States accounted for approximately 21% of our consolidated revenue in each of the years ended December 31, 2023 and 2022. We intend to continue to expand our international sales efforts and believe opportunities exist to serve the needs of customers in select new geographic regions.

Current wording

We have established our operations in the United States and Europe. On October 21, 2024, the Company's board of directors approved a plan related to the Company's manufacturing facilities in Germany. The plan includes the closure of the Company's prototype injection molding manufacturing facility in Eschenlohe, Germany, and the discontinuation of Direct Metal Laser Sintering 3D printing services through its 3D printing facility in Putzbrunn, Germany. The Company expects to substantially complete the plan within fiscal year 2025. The Company will continue offering all its manufacturing services to customers across Europe, including injection molding and metal 3D printing. These services will be fulfilled through internal manufacturing facilities and a network of manufacturing partners. Previously we had established operations in Japan. On May 27, 2022, the Company's board of directors approved a plan for the closure of the Company's manufacturing facility in Japan and announced an intention to cease operations in the region. The Company dissolved its Japan operations in December 2023. Our revenue outside of the United States accounted for approximately 21% of our consolidated revenue in each of the years ended December 31, 2024 and 2023. We intend to continue to expand our international sales efforts and believe opportunities exist to serve the needs of customers in select new geographic regions.

Previous wording

We have grown our total revenue from $488.1 million in the year December 31, 2021 to $503.9 million in the year ended December 31, 2023. During this period, our operating expenses increased from $182.3 million in the year ended December 31, 2021 to $193.8 million in the year ended December 31, 2023. Our recent growth in revenue has been accompanied by increased cost of revenues and operating expenses. We expect to increase investment in our operations to support anticipated future growth as discussed more fully below.

Current wording

Total revenue decreased to $500.9 million in the year December 31, 2024 from $503.9 million in the year ended December 31, 2023. During this period, our operating expenses increased to $203.3 million in the year ended December 31, 2024 from $193.8 million in the year ended December 31, 2023 primarily due to $5.6 million of costs related to disposal and exit activities in the year ended December 31, 2024 related our decision to exit and close certain operations in Germany. Historically, our growth in revenue has been accompanied by increased cost of revenues and operating expenses. We expect to increase investment in our operations to support anticipated future growth as discussed more fully below.

Previous wording

In addition, we believe that a number of trends affecting our industry have affected our results of operations and may continue to do so. For example, we believe that many of our target customers are facing three mega trends, which are disrupting long-term product growth models. We believe our customers are facing increased pressure to shorten product life-cycles, to embed products with connectivity driven by the "internet of things" technology, and to deliver products that are personalized and customized to unique customer specifications. We believe we continue to be well positioned to benefit from these trends, given our proprietary technology that enables us to automate and integrate the majority of activities involved in procuring custom parts. As a result, the adoption of e-commerce manufacturing has accelerated, which allows opportunity for us to provide valuable solutions to customers looking to build resiliency in their supply chains through fast, on-demand manufacturers. While our business may be positively affected by these trends, our results may also be favorably or unfavorably impacted by other trends that affect customer orders for custom parts, including, among others, economic conditions, changes in customer preferences or needs, developments in our industry and among our competitors, and developments in our customers' industries. For a more complete discussion of the risks facing our business, see Part I, Item 1A. “Risk Factors” of this Annual Report on Form 10-K.

Current wording

In addition, we believe that a number of trends affecting our industry have impacted our results of operations, which have increased our revenue and our operating expenses, and may continue to do so. For example, we believe that many of our target customers are facing three mega trends, which are disrupting long-term product growth models. We believe our customers are facing increased pressure to shorten product life-cycles, to embed products with connectivity driven by the "internet of things" technology, and to deliver products that are personalized and customized to unique customer specifications. We believe we continue to be well positioned to benefit from these trends, given our proprietary technology that enables us to automate and integrate the majority of activities involved in procuring custom parts. As a result, the adoption of e-commerce manufacturing has accelerated, which allows opportunity for us to provide valuable solutions to customers looking to build resiliency in their supply chains through fast, on-demand manufacturers. While our business may be positively affected by these trends, our results may also be favorably or unfavorably impacted by other trends that affect customer orders for custom parts, including, among others, economic conditions, changes in customer preferences or needs, developments in our industry and among our competitors, and developments in our customers' industries. For a more complete discussion of the risks facing our business, see Part I, Item 1A. “Risk Factors” of this Annual Report on Form 10-K.

Previous wording

Our operations are comprised of two geographic operating segments in the United States and Europe. On May 27, 2022, the Company's board of directors approved a plan for the closure of the Company's manufacturing facility in Japan and announced an intention to cease operations in the region. The Company dissolved its Japan operations in December 2023.

Current wording

Our operations are comprised of two geographic operating segments in the United States and Europe. On October 21, 2024, the Company's board of directors approved a plan related to the Company's manufacturing facilities in Germany. The plan includes the closure of the Company's prototype injection molding manufacturing facility in Eschenlohe, Germany, and the discontinuation of Direct Metal Laser Sintering 3D printing services through its 3D printing facility in Putzbrunn, Germany. The Company expects to substantially complete the plan within fiscal year 2025. The Company will continue offering all its manufacturing services to customers across Europe, including injection molding and metal 3D printing. These services will be fulfilled through internal manufacturing facilities and a network of manufacturing partners. On May 27, 2022, the Company's board of directors approved a plan for the closure of the Company's manufacturing facility in Japan and announced an intention to cease operations in the region. The Company dissolved its Japan operations in December 2023.

Previous wording

During 2022, we served 56,333 unique customer contacts who purchased our products through our web-based customer interface, an increase of 1.8% over the same period in 2021.

Current wording

During 2024, we served 51,552 unique customer contacts who purchased our products through our web-based customer interface, a decrease of 3.6% over the same period in 2023. Our customer contacts served decreased at a rate greater than our decrease in revenue. This was primarily due to our mix of customers served in 2024 as compared to 2023 and our strategic focus to earn larger orders from our customers as we strive to be their supplier of choice by serving their custom parts needs through the comprehensive offer of our factory and the Protolabs Network. Our revenue per customer contact grew 3.1% as compared to 2023.

Previous wording

Our business model requires that we invest in our capacity well in advance of demand to ensure we can fulfill the expectations for quick delivery of our products to our customers. Therefore, over the last several years, we have made significant investments in additional factory space, equipment and infrastructure across our geographic segments. We expect to continue to grow in future periods, which will result in the need for additional investments in factory space and equipment. We expect that these additional costs for factory and equipment expansion can be absorbed by revenue growth, and allow gross margins by product line to remain relatively consistent over time. Our addition of Hubs in 2021 provides a complementary opportunity to add revenue growth through the use of premium manufacturing partners, without the significant investments required by our internal manufacturing business model.

Current wording

Our quick-turn factory business model requires that we invest in our capacity well in advance of demand to ensure we can fulfill the expectations for quick delivery of products manufactured in house to our customers. Therefore, over the last several years, we have made significant investments in additional factory space, equipment and infrastructure across our geographic segments. We expect to continue to grow in future periods, which will result in the need for additional investments in factory space and equipment. We expect that these additional costs for factory and equipment expansion can be absorbed by revenue growth, and allow gross margins by product line to remain relatively consistent over time. Our addition of Hubs in 2021 provides a complementary opportunity to add revenue growth through the use of premium manufacturing partners, without the significant investments required by our internal manufacturing business model.

Previous wording

Closure of Japan business. Closure of Japan business expense is driven by our decision to close the Japan manufacturing facility and exit the Japan market. The expenses consist primarily of operating expense, including employee severance, write-down of fixed assets, facility-related charges and goodwill impairment charges.

Current wording

Costs related to disposal and exit activities. Costs related to disposal and exit activities is driven by our decision to close certain manufacturing facilities in Germany and Japan and further to exit the Japan market. The expenses consist primarily of operating expenses, including employee severance, write-down of fixed assets, facility-related charges and goodwill impairment charges.

Previous wording

Our revenue increased $15.5 million, or 3.2%, for 2023 compared with 2022. By reportable segment, revenue in the United States increased $9.4 million, or 2.4%, for 2023 compared with 2022. Revenue in Europe increased $14.3 million, or 15.4%, for 2023 compared with 2022. Revenue in Japan decreased $8.2 million, or 100.0%, for 2023 compared with 2022. The decrease in Japan revenue was driven by our decision in the second quarter of 2022 to close our Japan operations. International revenue was negatively impacted by $0.2 million during 2023 compared to the same period in 2022 as a result of foreign currency movements, primarily the weakening of the British Pound and Euro relative to the United States Dollar.

Current wording

Our revenue decreased $3.0 million, or 0.6%, for 2024 compared with 2023. By reportable segment, revenue in the United States decreased $0.6 million, or 0.2%, for 2024 compared with 2023. Revenue in Europe decreased $2.4 million, or 2.2%, for 2024 compared with 2023. International revenue was positively impacted by $1.9 million during 2024 compared to the same period in 2023 as a result of foreign currency movements, primarily the strengthening of the British Pound and Euro relative to the United States Dollar.

Previous wording

By product line, our revenue increase was driven by a 5.2% increase in CNC Machining revenue, a 6.7% increase in 3D Printing revenue and a 1.7% increase in Injection Molding revenue, which was partially offset by a 15.2% decrease in Sheet Metal revenue, and a 8.2% decrease in Other Revenue, in each case for 2023 compared with 2022.

Current wording

By product line, our revenue decrease was driven by a 4.8% decrease in Injection Molding revenue, a 7.7% decrease in Sheet Metal revenue, a 0.6% decrease in 3D Printing revenue and a 14.4% decrease in Other Revenue, which was partially offset by a 4.4% increase in CNC Machining revenue, in each case for 2024 compared with 2023.

Previous wording

Cost of Revenue. Cost of revenue increased $9.0 million, or 3.3%, for 2023 compared to 2022, which was less than the rate of revenue increase of 3.2% for 2023 compared to 2022. The increase in the cost of revenue of$9.0 million was primarily driven by higher revenue volumes in the Protolabs Network, partly offset by reductions in contract labor, headcount and overtime leading to lower personnel and related costs of $8.0 million and lower raw material and product costs of $3.9 million in our digital manufacturing factory offering for 2023 compared with 2022.

Current wording

Cost of Revenue. Cost of revenue decreased $4.2 million, or 1.5%, for 2024 compared to 2023, which was more than the rate of revenue decrease of 0.6% for 2024 compared to 2023. The decrease in the cost of revenue of$4.2 million was driven by reductions in headcount and overtime leading to lower personnel and related costs of $4.1 million in our digital factory business and $0.1 million in other operating costs in 2024 compared with 2023. The cost reductions in our digital manufacturing business were the result of focused management of resources aligned to order volumes, partially supported by increased automation.

Previous wording

Gross Profit and Gross Margin. Gross profit increased from $215.5 million in 2022 to $222.0 million in 2023. Gross margin was 44.1% of revenue in 2023, unchanged compared to 2022.

Current wording

Gross Profit and Gross Margin. Gross profit increased to $223.2 million in 2024 from $222.0 million in 2023. Gross margin increased to 44.6% of revenue in 2024 from 44.1% in 2023, primarily due to focused management of resources aligned to order volumes, partially supported by increased automation.

Previous wording

Marketing and Sales. Marketing and sales expense increased $4.9 million, or 6.0%, for 2023 compared to 2022, primarily due to increases in personnel and related costs of $4.3 million and marketing program costs increases of $0.6 million for 2023 compared with 2022.

Current wording

Marketing and Sales. Marketing and sales expense increased $4.4 million, or 5.0%, for 2024 compared to 2023, primarily due to increases in personnel and related costs of $2.7 million, marketing demand generation costs increases of $0.7 million and other operating costs of $1.0 million for 2024 compared with 2023.

Previous wording

Research and Development. Our research and development expense increased $1.9 million, or 5.0%, for 2023 compared to 2022 primarily due to increases in personnel and related costs of $2.8 million, partially offset by decreases in other operating costs of $0.5 million and professional services of $0.4 million for 2023 compared with 2022.

Current wording

Research and Development. Our research and development expense increased $1.2 million, or 2.9%, for 2024 compared to 2023 primarily due to increases of $1.1 million in other operating costs, $0.4 million in professional services and $0.3 million in administrative costs, partially offset by decreases in personnel and related costs of $0.6 million for 2024 compared with 2023.

Previous wording

General and Administrative. Our general and administrative expense decreased $1.8 million, or 2.6%, for 2023 compared to 2022 primarily due to a decrease of $1.7 million in stock-based compensation and a decrease of $0.7 million in personnel and related costs, which were partially offset by an increase in professional services and other administrative costs of $0.6 million.

Current wording

General and Administrative. Our general and administrative expense decreased $1.5 million, or 2.2%, for 2024 compared to 2023 primarily due to a decrease in intangible amortization costs of $2.2 million, other operating costs of $1.7 million and administrative costs of $0.3 million, which were partially offset by an increase in stock-based compensation of $1.1 million, personnel and related costs of $1.0 million and professional services of $0.6 million.

Previous wording

Closure of Japan business. Our decision to close our Japan business resulted in $0.2 million in operating expenses during 2023, a decrease of $6.7 million as compared to 2022. During 2022 we recognized $2.3 million of employee severance, $2.4 million related to the write-down of fixed assets, $0.9 million of facility-related charges, $0.6 million in goodwill impairment charges and $0.7 million in other closure related charges.

Current wording

Costs related to disposal and exit activities. Our decision to exit and close certain operations in Germany resulted in $5.6 million in operating expenses during 2024. Operating expenses included $3.3 million of employee severance and $2.3 million related to the write-down of fixed assets. During 2023 we recognized $0.2 million in professional services expenses related to the closure of the Japan business.

Previous wording

Income from operations increased $126.2 million, or 128.6%, for 2023 compared with 2022. By reportable segment, income from operations for the United States increased $1.5 million. Income from operations for Europe increased $117.9 million for 2023 compared with 2022, which was primarily driven by a $118.0 goodwill impairment charge in 2022. Loss from operations included in Corporate Unallocated and Japan decreased $6.8 million for 2023 compared with 2022.

Current wording

Income from operations decreased $8.3 million, or 29.3%, for 2024 compared with 2023. By reportable segment, income from operations for the United States increased $3.6 million for 2024 compared with 2023. Loss from operations for Europe increased $3.0 million for 2024 compared with 2023, which was primarily driven by $5.6 million in operating expenses associated with our decision to exit and close certain operations in Germany. Loss from operations included in Corporate Unallocated and Japan increased $8.9 million for 2024 compared with 2023.

Previous wording

Other (Expense) Income, Net. We recognized other expense, net of $0.2 million in 2023, a decrease of $0.3 million compared to other income, net of $0.1 million for 2022. Other expense, net for 2023 primarily consisted of $3.9 million foreign currency translation loss from the completion on the closure of our Japan business and $1.1 million of interest expense, which was partially offset by a $3.3 million of interest income on investments and $1.5 of other income and gains on foreign currency. Other income, net for 2022 primarily consisted of $1.0 million in interest income, which was partially offset by a $0.9 million loss on foreign currency and other losses.

Current wording

Other (Expense) Income, Net. We recognized other expense, net of $4.8 million in 2024, an increase of $5.0 million compared to other income, net of $0.2 million for 2023. Other expense, net for 2024 primarily consisted of $5.4 million of interest income on investments and other income, partially offset by $0.4 million of foreign currency losses and $0.2 million of interest expense and other expenses. Other income, net for 2023 primarily consisted of $3.9 million foreign currency translation loss from the completion on the closure of our Japan business and $1.1 million of interest expense, which was partially offset by a $3.3 million of interest income on investments and $1.5 of other income and gains on foreign currency.

Previous wording

We finance our operations and capital expenditures through cash flow from operations. We had cash and cash equivalents of $83.8 million as of December 31, 2023, an increase of $27.2 million from December 31, 2022. The increase in our cash was primarily due to cash generated through operations of $73.3 million, which was partially offset by cash used in investing activities of $4.6 million, consisting primarily of net purchases of property, equipment and other capital assets of $27.4 million partly offset by proceeds from the maturity of marketable securities of $23.9 million, and cash used in financing activities of $41.9 million, primarily for repurchases of common stock of $44.0 million. We had cash and cash equivalents of $56.6 million as of December 31, 2022, a decrease of $9.4 million from December 31, 2021. The decrease in our cash was primarily due to cash used in investing activities for net purchases of, and proceeds of, marketable securities of $25.5 million, purchases of property, equipment and other capital assets of $17.6 million, and cash used in financing activities for repurchases of common stock of $29.7 million, which were partially offset by cash generated through operations of $62.1 million.

Current wording

We finance our operations and capital expenditures through cash flow from operations. We had cash and cash equivalents of $89.1 million as of December 31, 2024, an increase of $5.3 million from December 31, 2023. The increase in our cash was primarily due to cash generated through operations of $77.8 million, which was partially offset by cash used in investing activities of $13.6 million, consisting primarily of net purchases of property, equipment and other capital assets of $9.1 million and net purchases of marketable securities of $4.4 million, and cash used in financing activities of $58.6 million, primarily for repurchases of common stock of $60.3 million and purchases of shares withheld for tax obligations of $2.0 million, which was partially offset by cash proceeds from the issuance of common stock from equity plans of $4.0 million. We had cash and cash equivalents of $83.8 million as of December 31, 2023, an increase of $27.2 million from December 31, 2022. The increase in our cash was primarily due to cash generated through operations of $73.3 million, which was partially offset by cash used in investing activities $4.6 million, consisting primarily of net purchases of property, equipment and other capital assets of $27.4 million, partially offset by proceeds from the maturity of marketable securities of $23.9 million, and cash used in financing activities of $41.9 million, primarily for repurchases of common stock of $44.0 million.

Previous wording

As of December 31, 2023, the amount of cash and cash equivalents held by foreign subsidiaries was $18.1 million. Our intent is to continue to reinvest these funds outside the U.S. and our current plans do not demonstrate a need to repatriate them to fund our domestic operations. We believe that our existing cash and cash equivalents together with cash generated from operations will be sufficient to meet our working capital expenditure requirements for at least the next 12 months.

Current wording

As of December 31, 2024, the amount of cash and cash equivalents held by foreign subsidiaries was $12.1 million. Our intent is to continue to reinvest these funds outside the U.S. and our current plans do not demonstrate a need to repatriate them to fund our domestic operations. We believe that our existing cash and cash equivalents together with cash generated from operations will be sufficient to meet our working capital expenditure requirements for at least the next 12 months.

Previous wording

Cash flow from operating activities of $62.1 million during 2022 primarily consisted of net loss of $103.5 million, adjusted for certain non-cash items, including depreciation and amortization of $39.4 million and stock-based compensation expense of $17.5 million, loss on goodwill impairment of $118.0 million and impairments related to closure of Japan business of $2.8 million, which were partially offset by changes in deferred taxes of $9.5 million and changes in operating asset and liabilities and other items totaling $2.8 million. The cash flow from operating activities during 2022 compared to 2021 increased $6.8 million primarily due to changes in operating assets and liabilities and other items of $22.0 million, loss on impairment of goodwill of $118.0 million, changes in fair value of contingent consideration of $13.3 million and impairments related to closure of Japan business of $2.8 million, which were partially offset by decreases in net income of $136.8 million, decreases in deferred taxes of $9.8 million, decreases in depreciation and amortization of $1.1 million and decreases in stock-based compensation of $1.6 million.

Current wording

Cash flow from operating activities of $77.8 million during 2024 primarily consisted of net income of $16.6 million, adjusted for certain non-cash items, including depreciation and amortization of $35.8 million, stock-based compensation expense of $17.0 million, changes in operating assets and liabilities and other items totaling $11.0 million and non-cash fixed asset impairment charges primarily related to the exit of certain operations in Germany $2.6 million, which were partially offset by changes in deferred taxes of $5.2 million. The cash flow from operating activities during 2024 compared to 2023 increased $4.6 million primarily due to changes in operating assets and liabilities of $5.4 million, non-cash fixed impairment charges primarily related to certain operations in Germany of $2.6 million, increases in deferred taxes of $2.5 million, increases in stock-based compensation of $1.0 million and other items of $0.3 million, which were partially offset by decreases in foreign currency translation losses of $3.9 million, depreciation and amortization of $1.7 million, interest on finance lease obligations of $1.0 million and net income of $0.6 million.

Previous wording

Cash flow from operating activities of $73.3 million during 2023 primarily consisted of net income of $17.2 million, adjusted for certain non-cash items, including depreciation and amortization of $37.5 million, stock-based compensation expense of $16.0 million, foreign currency translation losses of $3.9 million, interest on finance lease obligations of $1.1 million and changes in operating assets and liabilities and other items totaling $5.2 million, which were partially offset by changes in deferred taxes of $7.7 million. The cash flow from operating activities during 2023 compared to 2022 increased $11.2 million primarily due to changes in operating assets and liabilities of $7.2 million, increases in deferred taxes of $1.8 million, increases in interest on finance lease obligations of $1.1 million and increases in net income of $120.7 million, which were partially offset by decreases in stock-based compensation of $1.6 million and loss on impairment of goodwill of $118.0 million.

Current wording

Cash flow from operating activities of $73.3 million during 2023 primarily consisted of net income of $17.2 million, adjusted for certain non-cash items, including depreciation and amortization of $37.5 million, stock-based compensation expense of $16.0 million, foreign currency translation losses of $3.9 million, interest on finance lease obligations of $1.1 million and changes in operating asset and liabilities and other items totaling $5.2 million, which were partially offset by changes in deferred taxes of $7.7 million. The cash flow from operating activities during 2023 compared to 2022 increased $11.2 million primarily due to changes in operating assets and liabilities and other items of $7.2 million, increases in deferred taxes of $1.8 million, increases in interest on finance lease obligations of $1.1 million and increases in net income of $120.7 million, which were partially offset by decreases in stock-based compensation of $1.6 million and loss on impairment of goodwill of $118.0 million.

Previous wording

Cash used in investing activities was $43.1 million for the year ended December 31, 2022, consisting of $17.6 million for the net purchases of property, equipment and other capital assets and $25.5 million of net purchases of marketable securities.

Current wording

Cash used in investing activities was $13.6 million for the year ended December 31, 2024, consisting of $9.1 million for the net purchases of property, equipment and other capital assets and $4.4 million in net purchases of marketable securities.

Previous wording

Cash used in investing activities was $4.6 million for the year ended December 31, 2023, consisting of $27.4 million for the net purchases of property, equipment and other capital assets, $1.0 in other investing activities, which were partially offset by $23.9 million in proceeds from maturities of marketable securities.

Current wording

Cash used in investing activities was $4.6 million for the year ended December 31, 2023, consisting of $27.4 million for the net purchases of property, equipment and other capital assets, $1.0 million in other investing activities, which were partially offset by $23.9 million of net proceeds from maturities of marketable securities.

Previous wording

Cash used in financing activities was $27.9 million for the year ended December 31, 2022, consisting of $29.7 million in repurchases of common stock, $1.7 million in shares withheld for tax obligations associated with equity transactions, and $0.5 million for repayments of finance lease obligations, which were partially offset by $4.0 million in proceeds from issuance of common stock from equity plans.

Current wording

Cash used in financing activities was $58.6 million for the year ended December 31, 2024, consisting of $60.3 million in repurchases of common stock, $2.0 million in shares withheld for tax obligations associated with equity transactions, and $0.3 million for repayments of finance lease obligations, which were partially offset by $4.0 million in proceeds from issuance of common stock from equity plans.

Previous wording

Our recent annual capital expenditures have varied between 4% and 8% of annual revenue. We believe future growth capital expenditures, excluding any expenditures for buildings and maintenance capital we might purchase for our operations, are likely to vary between approximately 4% and 7% of annual revenue.

Current wording

Our recent annual capital expenditures have varied between 2% and 7% of annual revenue. We believe future growth capital expenditures, excluding any expenditures for buildings and maintenance capital we might purchase for our operations, are likely to vary between approximately 2% and 7% of annual revenue.

Previous wording

As of December 31, 2023, our contractual obligations are $5.5 million related to current and long-term operating and finance lease liabilities and $9.5 million related to unsatisfied performance obligations for contracts with an original expected length of one year or less.

Current wording

As of December 31, 2024, our contractual obligations are $3.5 million related to current and long-term operating and finance lease liabilities and $8.7 million related to unsatisfied performance obligations for revenue generating contracts with an original expected length of one year or less.

Previous wording

We recognize revenue for our internal and outsourced manufacturing operations in accordance with ASC 606, Revenue from Contracts with Customers. We manufacture custom parts to specific customer orders that have no alternative use to us, and we believe there is a legally enforceable right to payment for performance completed to date on internally and outsourced manufactured parts. For manufactured parts that meet these two criteria, we will recognize revenue over time. Revenue is recognized over time using the input method based on time in production as a percentage of total estimated production time to measure progress toward satisfying performance obligations using the estimated total time necessary to complete the parts per the customer's order and an estimate of inventory and production costs incurred to date. The input method requires an analysis of the incurred time in production and an estimate of the total time necessary to complete the total parts per the customer's order. The majority of our CNC machining, 3D printing, and sheet metal contracts have a single performance obligation. The majority of our injection molding contracts have multiple performance obligations including one obligation to produce the mold and a second obligation to produce parts. For injection molding contracts with multiple performance obligations, we allocate revenue to each performance obligation based on its relative standalone selling price. We generally determine standalone selling price based on the price charged to customers.

Current wording

We recognize revenue for our internal and outsourced manufacturing operations in accordance with ASC 606, Revenue from Contracts with Customers. We manufacture custom parts to specific customer orders that have no alternative use to us, and we believe there is a legally enforceable right to payment for performance completed to date on internally and outsourced manufactured parts. For manufactured parts that meet these two criteria, we will recognize revenue over time. Revenue is recognized over time using the input method based on time in production as a percentage of total estimated production time to measure progress toward satisfying performance obligations using the estimated total time necessary to complete the parts per the customer's order and an estimate of inventory and production costs incurred to date. The majority of our CNC machining, 3D printing, and sheet metal contracts have a single performance obligation. The majority of our injection molding contracts have multiple performance obligations including one obligation to produce the mold and a second obligation to produce parts. For injection molding contracts with multiple performance obligations, we allocate revenue to each performance obligation based on its relative standalone selling price. We generally determine standalone selling price based on the price charged to customers.

Previous wording

Goodwill is tested for impairment annually as of the first day of the fourth quarter, and is tested for impairment between annual tests if an event occurs or circumstances change that would indicate the carrying amount may be impaired. An impairment charge for goodwill is recognized only when the estimated fair value of a reporting unit, including goodwill, is less than its carrying amount. In applying the goodwill impairment assessment, the Company may assess qualitative factors to determine whether it is more likely than not that the fair value of the reporting unit is less than its carrying value. Qualitative factors may include, but are not limited to, economic, market and industry conditions, cost factors and overall financial performance of the reporting unit. If after assessing these qualitative factors, the Company determines it is "more-likely-than not" that the fair value is less than the carrying value, a quantitative assessment of goodwill is required. The quantitative impairment test requires judgment, including the identification of reporting units, the assignment of assets, liabilities and goodwill to reporting units, and the determination of fair value of each reporting unit. The impairment test requires the comparison of the fair value of each reporting unit with its carrying amount, including goodwill. In performing the impairment test, we determined the fair value of our reporting units through the income approach by using discounted cash flow (DCF) analyses. Determining fair value requires us to make judgments about appropriate discount rates, perpetual growth rates and the amount and timing of expected future cash flows. The cash flows employed in the DCF analysis for each reporting unit are based on the reporting unit's budget, long-term business plan and recent operating performance. Discount rate assumptions are based on an assessment of the risk inherent in the future cash flows of the respective reporting unit and market conditions. Given the inherent uncertainty in determining the assumptions underlying a DCF analysis, actual results may differ from those used in our valuations. As a result of the fiscal year 2022 analysis, which used the quantitative assessment, a $118.0 million impairment related to the Europe reporting unit was identified, which represents a write-off of all Europe goodwill, and recorded during the year ended December 31, 2022. As a result of the fiscal year 2023 analysis, which used the qualitative assessment, there were no impairments recorded during the year ended December 31, 2023.

Current wording

Goodwill is tested for impairment annually as of the first day of the fourth quarter, and is tested for impairment between annual tests if an event occurs or circumstances change that would indicate the carrying amount may be impaired. An impairment charge for goodwill is recognized only when the estimated fair value of a reporting unit, including goodwill, is less than its carrying amount. In performing the goodwill impairment assessment, the Company may assess qualitative factors to determine whether it is more likely than not that the fair value of the reporting unit is less than its carrying value. Qualitative factors may include, but are not limited to, economic, market and industry conditions, cost factors and overall financial performance of the reporting unit. If after assessing these qualitative factors, the Company determines it is "more-likely-than not" that the fair value is less than the carrying value, a quantitative assessment of goodwill is required. The quantitative impairment test requires judgment, including the identification of reporting units, the assignment of assets, liabilities and goodwill to reporting units, and the determination of fair value of each reporting unit. The impairment test requires the comparison of the fair value of each reporting unit with its carrying amount, including goodwill. In performing the impairment test, we determined the fair value of our reporting units through the income approach by using discounted cash flow (DCF) analyses. Determining fair value requires us to make judgments about appropriate discount rates, perpetual growth rates and the amount and timing of expected future cash flows. The cash flows employed in the DCF analysis for each reporting unit are based on the reporting unit's budget, long-term business plan and recent operating performance. Discount rate assumptions are based on an assessment of the risk inherent in the future cash flows of the respective reporting unit and market conditions. Given the inherent uncertainty in determining the assumptions underlying a DCF analysis, actual results may differ from those used in our valuations. As a result of the fiscal year 2022 analysis, which used the quantitative assessment, a $118.0 million impairment related to the Europe reporting unit was identified, which represented a write-off of all Europe goodwill, and recorded during the year ended December 31, 2022. As a result of the fiscal years 2024 and 2023 analyses, which used the qualitative assessment, there were no impairments recorded during the years ended December 31, 2024 and 2023.

Previous wording

We recognize other intangibles assets in accordance with ASC 350, Intangibles—Goodwill and Other. Other intangible assets include software technology, customer relationships and other intangible assets acquired from independent parties. We used a multi-period excess earnings method under the income approach to measure the software platform when acquired through an acquisition. In 2021, the significant assumptions used to estimate the value of the software platform included forecasted annual revenue growth, gross margin rates, operating expenses as a percentage of sales and the weighted-average cost of capital, which are affected by our business plans and expectations about future market or economic conditions. Other intangible assets with a definite life are amortized over a period ranging from two to 12 years on a straight line basis, and are tested for impairment whenever events or circumstances indicate that the carrying amount of an asset (asset group) may not be recoverable. An impairment loss is recognized when the carrying amount of an asset exceeds the estimated undiscounted cash flows generated by the asset. As of December 31, 2023, no impairment charges for intangible assets have been recognized.

Current wording

We recognize other intangibles assets in accordance with ASC 350, Intangibles—Goodwill and Other. Other intangible assets include software technology, customer relationships and other intangible assets acquired from independent parties. We used a multi-period excess earnings method under the income approach to measure the software platform when acquired through an acquisition. The significant assumptions used to estimate the value of the software platform included forecasted annual revenue growth, gross margin rates, operating expenses as a percentage of sales and the weighted- average cost of capital, which are affected by our business plans and expectations about future market or economic conditions. Other intangible assets with a definite life are amortized over a period ranging from two to 12 years on a straight line basis, and are tested for impairment whenever events or circumstances indicate that the carrying amount of an asset (asset group) may not be recoverable. An impairment loss is recognized when the carrying amount of an asset exceeds the estimated undiscounted cash flows generated by the asset. As of December 31, 2024, no impairment charges for intangible assets have been recognized.

Previous wording

We recognize stock-based compensation expense on a straight-line basis over the requisite service period. We recorded stock-based compensation expense relating to stock options, restricted stock awards, performance stock units and our ESPP of $16.0 million, $17.5 million and $19.1 million during the years ended December 31, 2023, 2022 and 2021, respectively. As of December 31, 2023, we had $3.8 million of unrecognized stock-based compensation costs related to unvested stock options that are expected to be recognized over a weighted average period of 2.5 years. We issued options to purchase 186,804, 118,434 and 57,901 shares of our common stock during the years ended December 31, 2023, 2022 and 2021, respectively. As of December 31, 2023, we had $18.5 million of unrecognized stock-based compensation costs related to unvested restricted stock, which is expected to be recognized over a weighted average period of 2.5 years. We issued restricted stock awards of 410,682, 315,432 and 205,996 shares of our common stock during the years ended December 31, 2023, 2022 and 2021, respectively. As of December 31, 2023, we had $4.1 million of unrecognized stock-based compensation costs related to unvested performance stock, which is expected to be recognized over a weighted average period of 1.8 years. We issued performance stock awards of 71,295, 35,697 and 15,078 shares of our common stock during the years ended December 31, 2023, 2022 and 2021, respectively.

Current wording

We recognize stock-based compensation expense on a straight-line basis over the requisite service period. We recorded stock-based compensation expense relating to stock options, restricted stock awards, performance stock units and our ESPP of $17.0 million, $16.0 million and $17.5 million during the years ended December 31, 2024, 2023 and 2022, respectively. As of December 31, 2024, we had $3.6 million of unrecognized stock-based compensation costs related to unvested stock options that are expected to be recognized over a weighted average period of 2.5 years. We issued options to purchase 140,405, 186,804 and 118,434 shares of our common stock during the years ended December 31, 2024, 2023 and 2022, respectively. As of December 31, 2024, we had $18.4 million of unrecognized stock-based compensation costs related to unvested restricted stock, which is expected to be recognized over a weighted average period of 2.6 years. We issued restricted stock awards of 377,961, 410,682 and 315,432 shares of our common stock during the years ended December 31, 2024, 2023 and 2022, respectively. As of December 31, 2024, we had $4.2 million of unrecognized stock-based compensation costs related to unvested performance stock, which is expected to be recognized over a weighted average period of 1.7 years. We issued performance stock awards of 79,436, 71,295 and 35,697 shares of our common stock during the years ended December 31, 2024, 2023 and 2022, respectively.

Previous wording

ASC 740 also clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements by defining a criterion that an individual tax position must meet for any part of the benefit of that position to be recognized in an enterprise’s financial statements. The Company recognizes the effect of income tax positions only if sustaining those positions is more likely than not. The Company records penalties and interest related to unrecognized tax benefits in income taxes in the Company’s Consolidated Statements of Income. Including interest and penalties, we have established a liability for uncertain tax positions of $5.0 million as of December 31, 2023.

Current wording

ASC 740 also clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements by defining a criterion that an individual tax position must meet for any part of the benefit of that position to be recognized in an enterprise’s financial statements. The Company recognizes the effect of income tax positions only if sustaining those positions is more likely than not. The Company records penalties and interest related to unrecognized tax benefits in income taxes in the Company’s Consolidated Statements of Income. Including interest and penalties, we have established a liability for uncertain tax positions of $4.6 million as of December 31, 2024.