The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited consolidated financial statements and related notes appearing elsewhere in this Quarterly Report on Form 10-Q.

Forward-Looking Statements

Statements contained in this report regarding matters that are not historical or current facts are "forward-looking statements" within the meaning of The Private Securities Litigation Reform Act of 1995. In some cases, you can identify forward-looking statements by the following words: "may," "will," "could," "would," "should," "expect," "intend," "plan," "anticipate," "believe," "estimate," "predict," "project," "potential," "continue," "ongoing" or the negative of these terms or other comparable terminology, although not all forward-looking statements contain these words. These statements involve known and unknown risks, uncertainties and other factors which may cause our results to be materially different than those expressed or implied in such statements. Certain of these risk factors and others are described in the "Risk Factors" section of the final prospectus relating to our IPO dated February 23, 2012, as filed with the SEC, as well as in our subsequent reports filed with the SEC. Other unknown or unpredictable factors also could have material adverse effects on our future results. We cannot guarantee future results, levels of activity, performance or achievements. Accordingly, you should not place undue reliance on these forward-looking statements. Finally, we expressly disclaim any intent or obligation to update any forward-looking statements to reflect subsequent events or circumstances.

Overview

We are a leading online and technology-enabled manufacturer of quick-turn CNC machined and injection-molded custom parts for prototyping and short-run production. We provide "Real Parts, Really Fast" to product developers worldwide, who are under increasing pressure to bring their finished products to market faster than their competition. We believe low-volume manufacturing has historically been an underserved market due to the inefficiencies inherent in the quotation, equipment set-up and non-recurring engineering processes required to produce custom parts. Our proprietary technology eliminates most of the time-consuming and expensive skilled labor conventionally required to quote and manufacture parts in low volumes, and our customers conduct nearly all of their business with us over the Internet. We target our services to the millions of product developers who use three-dimensional computer-aided design (3D CAD) software to design products across a diverse range of end-markets. Our primary manufacturing services currently include Firstcut, which is our CNC machining service, and Protomold, which is our plastic injection molding service.

Key Financial Measures and Trends

Revenue

The Company's operations are comprised of three geographically-based operating segments in the United States, Europe and Japan included in the reportable segments of United States, Europe, and Other. Revenue within these segments is derived from our Firstcut and Protomold services. Firstcut revenue consists of sales of CNC machined custom parts. Protomold revenue consists of sales of custom injection molds and injection-molded parts. Our historical and current efforts to increase revenue have been directed at gaining new customers and selling to our existing customer base by increasing marketing and selling activities, offering additional services such as the introduction of our Firstcut service in 2007, expanding internationally such as the opening of our Japanese plant in 2009, improving the usability of our services such as our web-centric applications, and expanding the breadth and scope of our products such as by adding more sizes and materials to our offerings. During the six months ended June 30, 2012, we sold our services to approximately 3,850 customer companies from our existing customer base, an increase of 34% over the comparable period in 2011, and to approximately 1,500 new customer companies that were gained during the six months ended June 30, 2012, an increase of 27% over the comparable period in 2011.

Cost of Revenue, Gross Profit and Gross Margin

Cost of revenue consists primarily of raw materials, employee salaries, bonuses, benefits, stock-based compensation, equipment depreciation and overhead allocations associated with the manufacturing process for molds and custom parts. We expect cost of revenue to increase in absolute dollars, but remain relatively constant as a percentage of total revenue.

We define gross profit as our revenue less our cost of revenue, and we define gross margin as gross profit expressed as a percentage of revenue. Our gross profit and gross margin are affected by many factors, including our pricing, our sales volume,

our manufacturing costs, the costs associated with increasing production capacity, the mix between domestic and foreign revenue sources and foreign exchange rates. Our gross margins vary between geographic markets due primarily to the costs associated with starting new factories and our operating maturity in these markets. We believe that over time and with growth and maturity of our international business, gross margins will be generally consistent through all our markets.

Operating Expenses

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

Our recent growth in operating expenses is mainly due to higher headcounts to support our growth and expansion, and we expect that trend to continue. Our business strategy is to continue to be a leading online and technology-enabled manufacturer of quick-turn CNC machined and injection-molded custom parts for prototyping and short-run production. For us to achieve our goals, we anticipate continued substantial investments in technology and personnel, resulting in increased operating expenses.

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

Research and development. Research and development expense consists primarily of employee salaries, bonuses, benefits, stock-based compensation, depreciation on equipment and other related overhead. All of our research and development costs have been expensed as incurred. We expect research and development expense to increase in the future as we seek to enhance and expand our service offerings.

General and administrative. General and administrative expense consists primarily of employee salaries, bonuses, benefits, stock-based compensation, professional service fees related to accounting, tax and legal, and other related overhead. We expect general and administrative expense to increase on an absolute basis and as a percentage of revenue as we continue to grow and expand our operations and develop the infrastructure necessary to operate as a public company. These expenses will include increased audit and legal fees, costs of compliance with securities and other regulations, implementation costs for compliance with the provisions of the Sarbanes-Oxley Act, investor relations expense and higher insurance premiums.

Other Income (Expense), net

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

Provision for Income Taxes

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

Results of Operations

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

                                                               Three Months Ended June 30,                      Change                        Six Months Ended June 30,                         Change
(dollars in thousands)                                        2012                      2011                 $           %                 2012                       2011                  $            %
Revenue                                               $ 29,951       100.0 %    $ 24,052       100.0 %    $ 5,899        24.5 %    $ 59,921        100.0 %    $ 46,387        100.0 %    $ 13,534        29.2 %
Cost of revenue                                         12,239        40.9         9,517        39.6        2,722        28.6        24,482         40.9        17,946         38.7         6,536        36.4

Gross profit                                            17,712        59.1        14,535        60.4        3,177        21.9        35,439         59.1        28,441         61.3         6,998        24.6
Operating expenses:
Marketing and sales                                      4,557        15.2         3,924        16.3          633        16.1         8,998         15.0         7,139         15.4         1,859        26.0
Research and development                                 2,401         8.0         1,223         5.1        1,178        96.3         4,061          6.8         2,335          5.1         1,726        73.9
General and administrative                               3,288        11.0         2,753        11.4          535        19.4         7,276         12.1         5,259         11.3         2,017        38.4

Total operating expenses                                10,246        34.2         7,900        32.8        2,346        29.7        20,335         33.9        14,733         31.8         5,602        38.0

Income from operations                                   7,466        24.9         6,635        27.6          831        12.5        15,104         25.2        13,708         29.5         1,396        10.2
Other income (expense), net                                173         0.6            78         0.3           95       121.8          (404 )       (0.7 )          (3 )       (0.0 )        (401 )         *

Income before income taxes                               7,639        25.5         6,713        27.9          926        13.8        14,700         24.5        13,705         29.5           995         7.3
Provision for income taxes                               2,493         8.3         2,182         9.1          311        14.3         4,772          7.9         4,451          9.6           321         7.2

Net income                                            $  5,146        17.2 %    $  4,531        18.8 %    $   615        13.6 %    $  9,928         16.6 %    $  9,254         19.9 %    $    674         7.3 %

* Not meaningful

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

                                               Three months ended June 30,              Six months ended June 30,
(dollars in thousands)                         2012                  2011                 2012                2011
Stock options and grants                   $         612         $         213       $         1,409         $   411
Employee stock purchase plan                         158                    -                    211              -

Total stock-based compensation expense     $         770         $         213       $         1,620         $   411


Cost of revenue                            $         100         $          20       $           145         $    39
Operating expenses:
Marketing and sales                                  110                    48                   183              94
Research and development                             126                    68                   204             137
General and administrative                           434                    77                 1,088             141

Total stock-based compensation expense     $         770         $         213       $         1,620         $   411

Comparison of Three Months Ended June 30, 2012 and 2011

Revenue

Revenue by product line and the related changes for the three months ended
June 30, 2012 and 2011 were as follows:



                                                    Three Months Ended June 30,
                                                2012                           2011                       Change
                                                    % of Total                     % of Total
(dollars in thousands)                   $           Revenue            $           Revenue            $          %
Revenue
Protomold                             $ 21,446             71.6 %    $ 18,216             75.7 %    $ 3,230       17.7 %
First Cut                                8,505             28.4         5,836             24.3        2,669       45.7

Total revenue                         $ 29,951            100.0 %    $ 24,052            100.0 %    $ 5,899       24.5 %

Revenue by geographic region, based on the billing location of the end customer, is summarized as follows:

                                       Three Months Ended June 30,
                                   2012                           2011                       Change
                                       % of Total                     % of Total
(dollars in thousands)      $           Revenue            $           Revenue            $          %
Revenue
United States            $ 22,905             76.5 %    $ 17,857             74.2 %    $ 5,048       28.3 %
International               7,046             23.5         6,195             25.8          851       13.7

Total revenue            $ 29,951            100.0 %    $ 24,052            100.0 %    $ 5,899       24.5 %

Our revenue increased $5.9 million, or 24.5%, for the three months ended June 30, 2012 compared to the same period in 2011. Our revenue growth was driven by a 28.3% increase in U.S. revenue, a 13.7% increase in international revenue, a 17.7% increase in Protomold revenue and a 45.7% increase in Firstcut revenue, in each case for the three months ended June 30, 2012 compared to the same period in 2011. Our revenue increases were primarily driven by greater spending on marketing and increases in sales personnel. The effect of pricing changes on revenue was immaterial for the three months ended June 30, 2012 compared to the same period in 2011.

Revenue by reportable segment is summarized as follows:

                                       Three Months Ended June 30,
                                   2012                           2011                       Change
                                       % of Total                     % of Total
(dollars in thousands)      $           Revenue            $           Revenue            $          %
Revenue
United States            $ 23,938             79.9 %    $ 19,023             79.1 %    $ 4,915       25.8 %
Europe                      5,054             16.9         4,355             18.1          699       16.1
Other                         959              3.2           674              2.8          285       42.3

Total revenue            $ 29,951            100.0 %    $ 24,052            100.0 %    $ 5,899       24.5 %

For our United States segment, revenue increased $4.9 million, or 25.8%, for the three months ended June 30, 2012 compared to the same period in 2011. Our United States revenue increase was primarily driven by greater spending on marketing and increases in sales personnel.

For our Europe segment, revenue increased $0.7 million, or 16.1%, for the three months ended June 30, 2012 compared to the same period in 2011. Our Europe revenue increase was primarily driven by greater spending on marketing and increases in sales personnel.

Cost of Revenue, Gross Profit and Gross Margin

Cost of Revenue. Cost of revenue increased $2.7 million, or 28.6%, for the three months ended June 30, 2012 compared to the same period in 2011 due to raw material and production cost increases of $0.8 million to support increased sales volumes, equipment and facility-related cost increases of $0.5 million and an increase in direct labor headcount resulting in personnel and related cost increases of $1.4 million.

Gross Profit and Gross Margin. Gross profit increased due to increases in revenue offset by the cost of revenue as discussed above. Gross margin decreased primarily as a result of increases in direct labor personnel and a slight decline in equipment utilization, which resulted from the increase in capacity related to capital equipment acquisition.

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

Marketing and Sales. Marketing and sales expense increased $0.6 million, or 16.1%, for the three months ended June 30, 2012 compared to the same period in 2011 due to a $0.2 million increase in marketing program costs and an increase in headcount resulting in personnel and related cost increases of $0.4 million.

Research and Development. Our research and development expense increased $1.2 million, or 96.3%, for the three months ended June 30, 2012 compared to the same period in 2011 due to an increase in headcount resulting in personnel and related cost increases of $0.3 million, operating cost increases of $0.2 million and professional services of $0.7 million for outside consulting service.

General and Administrative. Our general and administrative expense increased $0.5 million, or 19.4%, for the three months ended June 30, 2012 compared to the same period in 2011 due primarily to stock-based compensation increases of $0.3 million and professional services of $0.2 million for outside legal and accounting.

Other Income (Expense), net. Other income, net increased $0.1 million for the three months ended June 30, 2012 compared to the same period in 2011 due to changes in foreign currency rates.

Provision for Income Taxes. Our income tax provision and effective tax rates were materially consistent for the three months ended June 30, 2012 compared to the same period in 2011. Our effective tax rate was 32.6% for the three months ended June 30, 2012 compared to 32.5% for the same period in 2011.

Segment Income from Operations

Income from operations by segment and the related changes for the three months
ended June 30, 2012 and 2011 were as follows:



                                                       Three Months Ended June 30,
                                                   2012                            2011                       Change
                                                     % of Segment                    % of Segment
(dollars in thousands)                     $            Revenue            $            Revenue           $            %
Income from operations:
United States                           $ 7,013               29.3 %    $ 6,513               34.2 %    $  500          7.7 %
Europe                                    1,251               24.8          718               16.5         533         74.2
Other                                      (798 )            (83.2 )       (596 )            (88.4 )      (202 )      (33.9 )

Total income from operations            $ 7,466               24.9 %    $ 6,635               27.6 %    $  831         12.5 %

Income from operations for the United States segment increased $0.5 million, or 7.7%, and as a percentage of segment revenue decreased to 29.3% from 34.2%, in each case for the three months ended June 30, 2012 compared to the same period in 2011. Income from operations for the United States segment increased due to a 25.8% increase in revenue offset by increased costs as previously discussed.

Income from operations for the Europe segment increased $0.5 million, or 74.2%, and as a percentage of segment revenue increased to 24.8% from 16.5%, in each case for the three months ended June 30, 2012 compared to the same period in 2011. Income from operations for the Europe segment increased due to a 16.1% increase in revenue, higher factory utilization and operating expenses growing at a slower rate than revenue.

Comparison of Six Months Ended June 30, 2012 and 2011

Revenue

Revenue by product line and the related changes for the six months ended
June 30, 2012 and 2011 were as follows:



                                        Six Months Ended June 30,
                                   2012                           2011                       Change
                                       % of Total                     % of Total
(dollars in thousands)      $           Revenue            $           Revenue            $           %
Revenue
Protomold                $ 43,239             72.2 %    $ 35,137             75.7 %    $  8,102       23.1 %
First Cut                  16,682             27.8        11,250             24.3         5,432       48.3

Total revenue            $ 59,921            100.0 %    $ 46,387            100.0 %    $ 13,534       29.2 %

Revenue by geographic region, based on the billing location of the end customer, is summarized as follows:

                                        Six Months Ended June 30,
                                   2012                           2011                       Change
                                       % of Total                     % of Total
(dollars in thousands)      $           Revenue            $           Revenue            $           %
Revenue
United States            $ 45,080             75.2 %    $ 35,289             76.1 %    $  9,791       27.7 %
International              14,841             24.8        11,098             23.9         3,743       33.7

Total revenue            $ 59,921            100.0 %    $ 46,387            100.0 %    $ 13,534       29.2 %

Our revenue increased $13.5 million, or 29.2%, for the six months ended June 30, 2012 compared to the same period in 2011. Of this growth, approximately $6.1 million was attributable to sales to approximately 3,850 existing customer companies, and approximately $7.4 million was attributable to sales to approximately 1,500 new customer companies that were gained during the six months ended June 30, 2012. Our overall revenue growth was driven by a 27.7% increase in U.S. revenue, a 33.7% increase in international revenue, a 23.1% increase in Protomold revenue and a 48.3% increase in Firstcut revenue, in each case for the six months ended June 30, 2012 compared to the same period in 2011. Our revenue increases were primarily driven by greater spending on marketing and increases in selling personnel. The effect of pricing changes on revenue was immaterial for the six months ended June 30, 2012 compared to the same period in 2011.

Revenue by reportable segment is summarized as follows:

                                        Six Months Ended June 30,
                                   2012                           2011                        Change
                                       % of Total                     % of Total
(dollars in thousands)      $           Revenue            $           Revenue            $            %
Revenue
United States            $ 47,070             78.5 %    $ 37,223             80.2 %    $  9,847        26.5 %
Europe                     10,534             17.6         8,151             17.6         2,383        29.2
Other                       2,317              3.9         1,013              2.2         1,304       128.7

Total revenue            $ 59,921            100.0 %    $ 46,387            100.0 %    $ 13,534        29.2 %

For our United States segment, revenue increased $9.8 million, or 26.5%, for the six months ended June 30, 2012 compared to the same period in 2011. Of this growth, approximately $5.1 million was attributable to sales to approximately 2,950 existing customer companies, and approximately $4.7 million was attributable to sales to approximately 950 new customer companies that were gained during the six months ended June 30, 2012. Our United States revenue increase was primarily driven by greater spending on marketing and increases in sales personnel.

For our Europe segment, revenue increased $2.4 million, or 29.2%, for the six months ended June 30, 2012 compared to the same period in 2011. Of this growth, approximately $0.3 million was attributable to sales to approximately 700 existing customer companies, and approximately $2.1 million was attributable to sales to approximately 400 new customer companies that were gained during the six months ended June 30, 2012. Our Europe revenue increase was primarily driven by greater spending on marketing and increases in sales personnel.

Cost of Revenue, Gross Profit and Gross Margin

Cost of Revenue. Cost of revenue increased $6.5 million, or 36.4%, for the six months ended June 30, 2012 compared to the same period in 2011 due to raw material and production cost increases of $2.3 million to support increased sales volumes, equipment and facility-related cost increases of $1.0 million and an increase in direct labor headcount resulting in personnel and related cost increases of $3.2 million.

Gross Profit and Gross Margin. Gross profit increased due to increases in revenue offset by the cost of revenue as discussed above. Gross margin decreased primarily as a result of increases in direct labor personnel and a slight decline in equipment utilization, which resulted from the increase in capacity related to capital equipment acquisition.

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

Marketing and Sales. Marketing and sales expense increased $1.9 million, or 26.0%, for the six months ended June 30, 2012 compared to the same period in . . .