PRLB 10-K & 10-Q changes, risk factors and insider trading

•retain and furtherexpand penetrateshare of wallet in existing customer companies, as well as attract new customer companies;

•consistently execute on custom part orders in a consistent and timely manner that satisfies product developers’ and engineers’ needs and provides them with a superior experience;

•respond to anchanging economic recessionconditions which may negatively impactsimpact manufacturers' ability to innovate and bring new products to market.

We have established our operations in the United States and Europe and are seeking to further expand our international operations. Our international revenue accounted for approximately 19%, 21% and 21% of our total revenue in each of the years ended December 31, 2024,2025, 20232024 and 2022.2023, respectively. The future growth and profitability of our international business is subject to a variety of risks and uncertainties. Many of the following factors have adversely affected our international operations and sales to customers located outside of the United States and may again in the future:

All of our in-house manufacturing products are produced in 109 manufacturing facilities, located in Rosemount, Minnesota; Plymouth, Minnesota; Brooklyn Park, Minnesota; Cary, North Carolina (2 facilities); Nashua, New Hampshire (2 facilities); Telford, United Kingdom; Putzbrunn, Germany; and Eschenlohe,Putzbrunn, Germany. These facilities and the manufacturing equipment we use would be costly to replace and could require substantial lead time to repair or replace. Our facilities may be harmed by natural or man-made disasters, including, without limitation, earthquakes, floods, tornadoes, fires, hurricanes and nuclear disasters.

We are a multinational company based in the United States and subject to tax in multiple tax jurisdictions, both domestic and abroad. Our future effective tax rates could be adversely affected by changes in statutory tax rates or interpretation of tax rules, including those set forth in the One Big Beautiful Bill Act enacted in 2025, and regulations in jurisdictions in which we do business, changes in the amount of revenue or earnings in the countries with varying statutory tax rates, or by changes in the valuation of deferred tax assets and liabilities.

We are one of the world’s largest,fastest fastest,manufacturing andservice mostenabling comprehensivecompanies digitalacross manufacturersevery industry to streamline production of customquality parts.parts throughout the entire product life cycle. We manufacture prototypes and low-volume production parts for companies worldwide that 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. Through the acquisition of Hubs (formerly 3D Hubs, Inc.)Inc., (Hubsrecently rebranded to Protolabs Network) in 2021, we provide our customers access to a global network of premium manufacturing partners who reside across North America, Europe and Asia. In January 2024, we rebranded Hubs to the Protolabs Network by Hubs (Protolabs Network). The Protolabsmanufacturing Networkpartner network, complements our in-house manufacturing, enabling us to significantly increase the size, complexity, breadth of manufacturing processes, lead times and prices of the parts we produce. Our customers conduct nearly all their business with us over the Internet. We target our products at 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, to the procurement and supply chain professionals seeking to easily and efficiently source custom parts on-demand, and to a wide variety of customers seeking to purchase low-volume custom parts.

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.time, as well as adding production to our offer. We have added productadditional linesmanufacturing services and expanded those product linesservices to meet the needs of our customers, which has historicallyultimately 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 oursize existingand capabilitiesgeometric complexity of the parts we can make or source with these processes, to extend the aimvariety of meetingmaterials we are able to support, and to identify additional manufacturing processes to which we can apply our technology or incorporate into our manufacturing network in order to better serve the evolving preferences and needs of a broader set ofour customers. As a result of the factors described above, many of our customers tend to return to Proto Labs to meet their ongoing needs.needs, with approximately 96%, 95% and 95% of our revenue in the years ended December 31, 2025, 2024 and 2023, respectively, derived from existing customers.

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 completecompleted the plan withinduring fiscalthe yearfourth 2025.quarter Theof 2025.The Company willcontinues continueto offeringoffer all its manufacturing services to customers across Europe, including injection molding and metal 3D printing. These services will be fulfilledprinting 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 19% and 21% of our consolidated revenue in each of the years ended December 31, 20242025 and 2023.2024, respectively. 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.

Total revenue decreasedincreased to $500.9$533.1 million in the year December 31, 20242025 from $503.9$500.9 million in the year ended December 31, 2023.2024. During this period, our operating expenses increased to $212.0 million in the year ended December 31, 2025 from $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.2024. 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.

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.

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 completecompleted the plan withinin fiscalthe yearfourth quarter of 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.

During 2024,2025, we served 51,55248,415 unique customer contacts who purchased our products through our web-based customer interface, a decrease of 3.6%6.1% over the same period in 2023.2024. Our customer contacts served decreased at a rate greater thanwhile our decreaserevenue in revenue.increased. This was primarily due to our mix of customers served in 20242025 as compared to 20232024 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%13.3% as compared to 2023.2024.

Operating expenses consist of marketing and sales, research and development anddevelopment, general and administrative expenses.expenses, restructuring and transformation costs and costs related to disposal and exit activities. Personnel-related costs are the most significant component in each of these categories.

Our business strategy is to continueserve tocustomers beacross the entire lifecycle of a leadingpart—from onlineprototype and technology-enabled manufacturer of quick-turn, on-demand injection-molded, CNC-machined, 3D-printed and sheet metal custom parts for prototyping and low-volumethrough production. In order to achieve our goals, we anticipate continued substantial investments in technology and personnel, resulting in increased operating expenses in the future.

We finance our operations and capital expenditures through cash flow from operations. We had cash and cash equivalents of $110.8 million as of December 31, 2025, an increase of $21.8 million from December 31, 2024. The increase in our cash was primarily due to cash generated through operations of $74.5 million, which was partially offset by cash used in financing activities of $40.4 million, primarily for repurchases of common stock of $43.0 million and purchases of shares withheld for tax obligations of $3.4 million, which was partially offset by cash proceeds from the issuance of common stock from equity plans of $6.3 million and cash used in investing activities of $13.4 million, consisting primarily of net purchases of property, equipment and other capital assets of $14.0 million, partially offset by net proceeds from marketable securities of $0.6 million. 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.

Cash flow from operating activities of $77.8$74.5 million during 20242025 primarily consisted of net income of $16.6$21.2 million, adjusted for certain non-cash items, including depreciation and amortization of $35.8$33.8 million, stock-based compensation expense of $17.0$15.7 million, changesdeferred intaxes operatingof assets$2.9 and liabilities and other items totaling $11.0 million andmillion, non-cash fixed asset impairment charges primarily related to the exit of certain operations in Germany $2.6$0.4 million, which were partially offset byand changes in deferredoperating taxesassets ofand $5.2liabilities and other items totaling $0.3 million. The cash flow from operating activities during 20242025 compared to 20232024 increaseddecreased $4.6$3.3 million primarily due to changes in operating assets and liabilities and other of $5.4$10.6 million, a decrease in non-cash fixed impairment charges primarily related to certain operations in Germany during 2024 of $2.6$2.1 million, increasesa decrease in deferreddepreciation taxesand amortization of $2.5$2.0 million, increasesdecreases in stock-based compensation of $1.0 million and other items of $0.3$1.3 million, which were partially offset by decreasesincreases in foreigndeferred currency translation lossestaxes of $3.9 million, depreciation and amortization of $1.7 million, interest on finance lease obligations of $1.0$8.1 million and net income of $0.6$4.6 million.

Cash flow from operating activities of $73.3$77.8 million during 20232024 primarily consisted of net income of $17.2$16.6 million, adjusted for certain non-cash items, including depreciation and amortization of $37.5$35.8 million, stock-based compensation expense of $16.0$17.0 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$11.0 million and non-cash fixed asset impairment charges related to the exit of certain operations in Germany of $2.6 million, which were partially offset by changes in deferred taxes of $7.7$5.2 million. The cash flow from operating activities during 20232024 compared to 20222023 increased $11.2$4.6 million primarily due to changes in operating assets and liabilities andof other$5.4 itemsmillion, non-cash fixed asset impairment charges primarily related to certain operations in Germany of $7.2$2.6 million, increases in deferred taxes of $1.8$2.5 million, increases in intereststock-based on finance lease obligationscompensation of $1.1$1.0 million and increasesother in net incomeitems of $120.7$0.3 million, which were partially offset by decreases in stock-basedforeign compensationcurrency translation losses of $1.6$3.9 million, depreciation and amortization of $1.7 million, interest on finance lease obligations of $1.0 million and lossnet onincome impairment of goodwill of $118.0$0.6 million.

Cash used in investing activities was $13.6$13.4 million for the year ended December 31, 2024,2025, consisting of $9.1$14.0 million for the net purchases of property, equipment and other capital assetsassets, andpartially $4.4offset by $0.6 million in net purchasesproceeds from maturities of marketable securities.

Cash used in investing activities was $4.6$13.6 million for the year ended December 31, 2023,2024, consisting of $27.4$9.1 million for the net purchases of property, equipment and other capital assets,assets $1.0and million in other investing activities, which were partially offset by $23.9$4.4 million of net proceeds from maturitiespurchases of marketable securities.

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.

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.

The effective tax rate decreased by 5.7%1.1% for the year ended December 31, 20242025 when compared to 20232024 primarily due to a release of tax reserves arising from a successful audit closure, and a reduction in deferred tax liabilities from being revalued at a lower state tax rate, partially offset by an increasedecrease in losses in foreign operations that are not eligible for tax benefits on account of valuation allowances.allowances, as well as a decrease in tax expense from the vesting of restricted stock and the exercise of stock options, partially offset by 2024 including a one-time reduction in deferred tax liabilities from being revalued at a lower state tax rate, that did not repeat in 2025.

Statements contained in thisThis report regarding matters that are not historical or current facts arecontains “forward-looking statements” within the meaning of The Private Securities Litigation Reform Act of 1995. Forward-looking statements include all statements that are not historical or current facts. 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 actual results to be materially different thanfrom those expressed or implied in such statements. Certain of these risk factors and others are described in Item 1A. “Risk Factors” of this Quarterly Report on 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, youYou should not place undue reliance on these forward-looking statements. Finally, weWe expressly disclaim any intent or obligation to update any forward-looking statements to reflect subsequent events or circumstances.circumstances, except as required by law.

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, to the procurement and supply chain professionals seeking to easily and efficiently source custom parts on-demand, and to a wide variety of customers seeking to purchase custom parts. We believe our use of advanced technologies enableenables 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 or source 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 or incorporate into our manufacturing network in order to better serve the evolving preferences and needs of our customers.

Revenue is derived from the sale orof parts fulfilled through our owned manufacturing factories and worldwide network of premium manufacturing partners. Our product lines consist of Injection Molding, CNC Machining, 3D Printing and Sheet Metal. 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.

Cost of revenue consists primarily of raw materials, equipment depreciation, employee compensation (including benefits and stock-based compensation,compensation), facilities costs, overhead allocations associated with the manufacturing process for molds and custom parts, and costs to procure parts through our network of premium manufacturing partners. 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.dollars as our business grows.

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

Restructuring and transformation costs. CostsRestructuring and transformation costs consist of expenses related to actions taken to improve operational efficiency and streamline the organization. Such costs include employee severance and related benefits, professional fees, and other charges in connection with organizational realignments. Cost savings generated from these restructuring and transformation initiatives are being redeployed primarily into technology investments, including enhancements to core systems, automation, and digital capabilities, to support growth in the Company'sour core business and further drive scale and efficiency.

Costs related to disposal and exit activities. Costs related to disposal and exit activities isare driven by our decision to close certain manufacturing facilities in Germany. The expenses consist primarily of operating expenses, including employee severance, write-down of fixedproperty assetsand equipment and facility-related charges.charges, and employee severance. Benefits may result from adjustments to initial estimates regarding the nature and timing of disposal and exit activities.

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.

Stock-based compensation expense included in the statements of operations data above for the three and six months ended MarchJune 31,30, 2026 and 2025 were as follows:

Comparison of Three Months Ended MarchJune 31,30, 2026 and 2025

Revenue by reportable segment and the related changes for the three months ended MarchJune 31,30, 2026 and 2025 were as follows:

Our revenue increased $13.1$14.3 million, or 10.4%,10.6%, for the three months ended MarchJune 31,30, 2026 compared to the same period in 2025. The growth in revenue was primarily driven by an increase in CNC and Injection Molding revenue in the United States from key growth industries, primarily aerospace and defense, and market dynamics that have driven increases in price. By reportable segment, revenue in the United States increased $11.9$12.0 million, or 11.8%,10.9%, for the three months ended MarchJune 31,30, 2026 compared to the same period in 2025. Revenue in Europe increased $1.3$2.2 million, or 4.9%,9.2%, for the three months ended MarchJune 31,30, 2026 compared to the same period in 2025. International revenue was favorably impacted by $2.2$0.4 million during the three months ended MarchJune 31,30, 2026 compared to the same period in 2025 as a result of foreign currency movements, primarily due to the strengthening of the British Pound and Euro relative to the United States Dollar.

During the three months ended MarchJune 31,30, 2026, we served 19,82620,630 unique customer contacts, which is a decrease of 8.3%5.3% from the same period in 2025. During the three months ended MarchJune 31,30, 2026, our customer contacts served decreased while our revenue grew. This was primarily due to our mix of customers served in the quarter as compared to the same period in 2025 and our focus on larger, more strategic customers as we strive to be their supplier of choice by serving their custom parts needs through our comprehensive offer. Our revenue per customer contact grew 20.4%16.7% for the three months ended MarchJune 31,30, 2026 compared to the same period in 2025.

Revenue by product line and the related changes for the three months ended MarchJune 31,30, 2026 and 2025 were as follows:

By product line, our revenue increase was driven by a 19.7%13.6% increase in CNC Machining revenue, a 4.8%13.1% increase in Injection Molding revenue, a 1.3% increase in 3D Printing revenue, and a 3.3%3.7% increase in Sheet Metal revenue, partially offset by a 2.6% decrease in each3D casePrinting revenue for the three months ended MarchJune 31,30, 2026 compared to the same period in 2025.

Cost of Revenue. Cost of revenue increased $5.2$4.7 million, or 7.4%,6.3%, for the three months ended MarchJune 31,30, 2026 compared to the same period in 2025, while revenue increased 10.4%10.6% for the three months ended MarchJune 31,30, 2026 compared to the same period in 2025. The increase in the cost of revenue of $5.2$4.7 million was primarily driven by higher revenue volumes resulting in increases of $3.9 million in raw material and production and fulfillment related costs, and $1.7$3.2 million in personnel and related costs, primarily due to increases in head count and overtime costs and contract labor to meet increased order volume, $1.2 million in raw material and production costs, and $0.3 million of equipment and facility related costs during the three months ended MarchJune 31,30, 2026 compared to the same period in 2025, partially offset by decreases in equipment and facility-related costs of $0.4 million.2025.

Gross Profit and Gross Margin. Gross profit increased $7.9$9.6 million, or 14.2%,16.0%, for the three months ended MarchJune 31,30, 2026 compared to the same period in 2025. Gross margin increased to 45.6%46.4% in the three months ended MarchJune 31,30, 2026 from 44.1%44.3% in the same period in 2025.

Marketing and Sales. Our marketing and sales expenses increased $1.0 million during the three months ended MarchJune 31,30, 2026 compared to the same period in 2025 primarily due to increases in personnelmarketing and relatedprogram costs of $0.7$0.6 million and $0.3 million inof marketingpersonnel programand related costs.

Research and Development. Our research and development expenses decreased $0.1$0.4 million, or 0.7%,3.4%, during the three months ended MarchJune 31,30, 2026 compared to the same period in 2025 primarily due to decreases in personnel and related costs of $0.3$0.9 million and $0.1 million in professional services,million, partially offset by increases of $0.3 million in professional services and $0.2 million in operating costs.

General and Administrative. Our general and administrative expenses increased $0.2$0.9 million, or 1.0%,4.8%, during the three months ended MarchJune 31,30, 2026 compared to the same period in 2025 primarily due to increases in personnelprofessional services of $0.7 million and related costs of $0.5 million andof $0.4administrative million in professional services,costs, partially offset by decreases of $0.4$0.2 million in stock-based compensation,compensation and $0.3$0.1 million inof administrativepersonnel and related costs.

Restructuring and transformation costs. Restructuring and transformation costs include expenses related to actions taken to improve operational efficiency and streamline the organization and resulted in $1.4$0.9 million in operating expenses during 2026 primarily related to professional services and severance and related benefit costs, and professional services.costs. We had no restructuring and transformation costs for the same period in 2025.

Other income, net. We recognized other income, net of $1.5$1.2 million for the three months ended MarchJune 31,30, 20262026, anda decrease of $0.5 million compared to the same period in 2025. Other income, net for the threecurrent months ended March 31, 2026quarter primarily consisted of $1.2$1.3 million in interest income on investmentsinvestments, and $0.3$0.1 million of other income.income partially offset by $0.2 million of foreign currency losses. Other income, net for the three months ended MarchJune 31,30, 2025 primarily consisted of $1.4$1.1 million in interest income on investmentsinvestments, $0.5 million of foreign currency gains and $0.1 million of other income.

Provision for Income Taxes. Our effective tax rate of 28.3%27.4% for the three months ended MarchJune 31,30, 2026 decreased 11.6%6.3% compared to 39.9%33.7% for the same period in 2025. The decrease in the effective tax rate was primarily due to an increase in tax benefits from the vesting of restricted stock and the exercise of stock options, as well as a one-time tax benefit related to the successful closure of a state income tax audit.options. Our income tax provision of $3.2$3.5 million for the three months ended MarchJune 31,30, 2026 increased $0.8$1.2 million as compared to our income tax provision of $2.4$2.2 million for the same period in 2025.

The following table summarizes our cash flows during the threesix months ended MarchJune 31,30, 2026 and 2025:

Historically, we have primarily financed our operations and capital expenditures through cash flow from operations. We had cash and cash equivalents of $124.0$127.9 million as of MarchJune 31,30, 2026, an increase of $13.1$17.1 million from December 31, 2025. The increase in our cash was primarily due to cash provided by operating activities of $17.5$33.0 million,million and $7.3 million of proceeds from issuance of common stock related to equity plans, which were partially offset by net purchases of marketable securities of $2.5 million and net purchases of property, equipment and other capital assets of $2.3$8.5 million, $6.0 million in purchases of shares withheld for tax obligations associated with equity transactions, $5.0 million in repurchases of common stock and net purchases of marketable securities of $3.5 million.

Cash flows from operating activities were $17.5$33.0 million during the threesix months ended MarchJune 31,30, 2026 and primarily consisted of net income of $8.1$17.3 million, adjusted for certain non-cash items, including depreciation and amortization of $8.1$16.2 million, stock-based compensation expense of $3.2$7.3 million andmillion, increases in deferred taxes of $2.4$4.1 million and impairment on a leased facility of $0.9 million, which were partially offset by changes in operating assets and liabilities and other items totaling $4.1 million, and a gain on disposal of property and equipment of $0.1$12.8 million. Cash flows from operating activities were $18.4$29.0 million during the threesix months ended MarchJune 31,30, 2025 and primarily consisted of net income of $3.6$8.0 million, adjusted for certain non-cash items, including depreciation and amortization of $8.7$17.3 million, stock-based compensation expense of $8.3 million and an impairment on a leased facility and fixed asset of $0.4 million, which were partially offset by deferred taxes of $4.0 million and changes in operating assets and liabilities and other items totaling $3.4 million and an impairment of leased facility of $0.2 million, which were partially offset by deferred taxes of $1.6$1.0 million.

Cash flows from operating activities decreasedincreased $0.8$4.0 million during the threesix months ended MarchJune 31,30, 2026 compared to the same period in 2025, primarily due to increases in net income of $9.2 million, increases in deferred taxes of $8.0 million and an increase of $0.5 million in leased facility impairment charges, which were partially offset by changes in operating assets and liabilities and other items totaling $7.9$11.7 million, decreases in stock-based compensation of $0.8 million, and decreases in depreciation and amortization of $0.6 million, which were partially offset by increases in net income of $4.5$1.1 million and increasesdecreases in deferredstock-based taxescompensation of $3.9$0.9 million.

Cash used in investing activities was $2.9$12.0 million during the threesix months ended MarchJune 31,30, 2025,2026, consisting of $1.3$8.5 million for net purchases of property, equipment and other capital assets and $1.6$3.5 million of net purchases of marketable securities, net of proceeds from call redemptions and maturities.securities.

Cash used in financing activities was $21.9$3.9 million during the threesix months ended MarchJune 31,30, 2025,2026, consisting of $20.9 million in repurchases of common stock, $1.2$6.0 million in purchases of shares withheld for tax obligations associated with equity transactionstransactions, $5.0 million in repurchases of common stock and $0.1$0.2 million for repayments of finance lease obligations, which were partially offset by $0.3$7.3 million in proceeds related to theequity exercise of non-qualified stock options.plans.

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). The preparation of these financial statements requires us to make estimates, judgments and assumptions. Our significant accounting policies and estimates are disclosed in Note 2 to the Consolidated Financial Statements included Part II, Item 8 in our Annual Report on Form 10-K for the year ended December 31, 2025. There were no material changes to our critical accounting policies and estimates during the threesix months ended MarchJune 31,30, 2026.