Proto Labs Inc.
02/20/2026 | Press release | Distributed by Public on 02/20/2026 14:34
Annual Report for Fiscal Year Ending December 31, 2025 (Form 10-K)
Management's Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with 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 2025 and 2024 items and year-to-year comparisons between 2025 and 2024. Discussions of fiscal year 2023 items and year-to-year comparisons between 2024 and 2023 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, 2024, filed with the SEC on February 21, 2025.
Overview
We are the world's fastest manufacturing service enabling companies across every industry to streamline production of quality 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., recently 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. The manufacturing partner 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 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, as well as adding production to our offer. We have added additional manufacturing services and expanded those services to meet the needs of our customers, which has ultimately driven our growth. We continually seek to expand the range of size 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. As a result of the factors described above, many of our customers tend to return to Proto Labs to meet their ongoing 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 substantially completed the plan during the fourth quarter of 2025.The Company continues to offer all its manufacturing services to customers across Europe, including injection molding and metal 3D printing through internal manufacturing facilities and a network of manufacturing partners. Previously we had established operations in Japan. Our revenue outside of the United States accounted for approximately 19% and 21% of our consolidated revenue in the years ended December 31, 2025 and 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 increased to $533.1 million in the year December 31, 2025 from $500.9 million in the year ended December 31, 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. 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 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.
Key Financial Measures and Trends
Revenue
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 substantially completed the plan in the fourth quarter of 2025. These services will be fulfilled through internal manufacturing facilities and a network of manufacturing partners.
Revenue is derived from our Injection Molding, CNC Machining, 3D Printing and Sheet Metal product lines. Injection Molding revenue consists of sales of custom injection molds and injection-molded parts. CNC Machining revenue consists of sales of CNC-machined custom parts. 3D Printing revenue consists of sales of custom 3D-printed parts. Sheet Metal revenue consists of sales of fabricated sheet metal custom parts and assemblies.
Our revenue is generated from a diverse customer base and our historical and current efforts to increase revenue have been directed at gaining new customers and selling to our existing customer base by increasing marketing and selling activities, including:
•expanding the breadth and scope of our products by adding more sizes and materials to our offerings;
•the introduction of our 3D Printing product line through our acquisition of FineLine in 2014;
•expanding 3D printing to Europe through our acquisition of Alphaform in October 2015;
•the introduction of our Sheet Metal product line through our acquisition of RAPID in 2017;
•continuously improving the usability of our product lines such as our web-centric applications; and
•providing customers with on-demand access to a global network of premium manufacturing partners through our acquisition of Hubs in January 2021.
The following table summarizes our unique customer contacts and revenue per customer contact:
| Year Ended December 31, | ||||||||||||||||||||
| 2025 | 2024 | 2023 | ||||||||||||||||||
| Revenue (in thousands) | $ | 533,127 | $ | 500,890 | $ | 503,877 | ||||||||||||||
| Customer contacts | 48,415 | 51,552 | 53,464 | |||||||||||||||||
|
Revenue per customer contact1
|
$ | 11,012 | $ | 9,716 | $ | 9,425 | ||||||||||||||
1 Revenue per customer contact is calculated using the revenue recognized during the respective period divided by the actual number of customer contacts served during the same period. Customer contacts are product developers, engineers, procurement and supply chain professionals and other individuals who place an order, and that order is shipped and invoiced during the period. The Company believes revenue per customer contact is useful to investors in evaluating the underlying business trends and ongoing operating performance of the Company.
During 2025, we served 48,415 unique customer contacts who purchased our products through our web-based customer interface, a decrease of 6.1% over the same period in 2024. Our customer contacts served decreased while our revenue increased. This was primarily due to our mix of customers served in 2025 as compared to 2024 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 13.3% as compared to 2024.
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.
Cost of Revenue, Gross Profit and Gross Margin
Cost of revenue consists primarily of raw materials, equipment depreciation, employee compensation including benefits and stock-based compensation, facilities costs and overhead allocations associated with the manufacturing process for molds and custom parts. We expect our personnel-related costs to increase in order to retain and attract top talent and remain competitive in the market. Overall, we expect cost of revenue to increase in absolute dollars.
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.
We define gross profit as our revenue less our cost of revenue, and we define gross margin as gross profit expressed as a percentage of revenue. Our gross profit and gross margin are affected by many factors, including our mix of revenue by product line, pricing, sales volume, manufacturing costs, the costs associated with increasing production capacity, the mix between domestic and foreign revenue sources, the mix between revenue produced in our internal manufacturing operations and outsourced to our external manufacturing partners, and foreign exchange rates.
Operating Expenses
Operating expenses consist of marketing and sales, research and development, general and administrative 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 serve customers across the entire lifecycle of a part-from prototype through production. In order to achieve our goals, we anticipate continued substantial investments in technology and personnel, resulting in increased operating expenses in the future.
Marketing and sales.Marketing and sales expense consists primarily of employee compensation, benefits, commissions, stock-based compensation, marketing programs such as electronic, print and pay-per-click advertising, trade shows and other related overhead. We expect sales and marketing expense to increase in the future as we increase the number of marketing and sales professionals and marketing programs targeted to increase our customer base and grow revenue.
Research and development.Research and development expense consists primarily of personnel and outside service costs related to the development of new processes and product lines, enhancement of existing product lines, software developed for internal use, maintenance of internally developed software, quality assurance and testing. Costs for internal use software are evaluated by project and capitalized where appropriate under Accounting Standards Codification (ASC) 350-40, Intangibles - Goodwill and Other, Internal-Use Software. We expect research and development expense to increase in the future as we seek to enhance our e-commerce interface technology, internal software and supporting business systems, and continue to expand our product lines.
General and administrative.General and administrative expense consists primarily of employee compensation, benefits, stock-based compensation, professional service fees related to accounting, tax and legal and other related overhead. We expect general and administrative expense to increase in the future as we continue to grow and expand as a global organization.
Restructuring and transformation costs.Costs 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's core business and further drive scale and efficiency.
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.
Other Income, Net
Other income, net primarily consists of foreign currency-related gains and losses and interest income on cash balances and investments. Our foreign currency-related gains and losses will vary depending upon movements in underlying exchange rates. Our interest income will vary each reporting period depending on our average cash balances during the period, composition of our marketable security portfolio and the current level of interest rates.
Provision for Income Taxes
Provision for income taxes is comprised of federal, state, local and foreign taxes based on pre-tax income. Overall, our effective tax rate for 2025 and beyond may differ from historical effective tax rates due to changes in losses in foreign operations that are not eligible for tax benefits on account of valuation allowances, as well as any future tax law changes that may impact the effective tax rate.
Results of Operations
The following table summarizes our results of operations and the related changes for the periods indicated. The results below are not necessarily indicative of the results for future periods.
|
Year Ended December 31, |
Change |
Year Ended December 31, |
Change | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| (dollars in thousands) | 2025 | 2024 | $ | % | 2024 | 2023 | $ | % | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Revenue | $ | 533,127 | 100.0 | % | $ | 500,890 | 100.0 | % | $ | 32,237 | 6.4 | $ | 500,890 | 100.0 | % | $ | 503,877 | 100.0 | % | $ | (2,987) | (0.6) | |||||||||||||||||||||||||||||||||||||||||||||||||
| Cost of revenue | 295,990 | 55.5 | 277,690 | 55.4 | 18,300 | 6.6 | 277,690 | 55.4 | 281,884 | 55.9 | (4,194) | (1.5) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Gross profit | 237,137 | 44.5 | 223,200 | 44.6 | 13,937 | 6.2 | 223,200 | 44.6 | 221,993 | 44.1 | 1,207 | 0.5 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Operating expenses: | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Marketing and sales | 98,315 | 18.4 | 92,073 | 18.4 | 6,242 | 6.8 | 92,073 | 18.4 | 87,688 | 17.4 | 4,385 | 5.0 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Research and development | 42,808 | 8.0 | 41,298 | 8.2 | 1,510 | 3.7 | 41,298 | 8.2 | 40,135 | 8.0 | 1,163 | 2.9 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| General and administrative | 69,813 | 13.1 | 64,333 | 12.8 | 5,480 | 8.5 | 64,333 | 12.8 | 65,788 | 13.1 | (1,455) | (2.2) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Restructuring and transformation costs | 749 | 0.1 | - | - | 749 | * | - | - | - | - | - | - | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Costs related to disposal and exit activities | 342 | 0.1 | 5,585 | 1.1 | (5,243) | * | 5,585 | 1.1 | 215 | - | 5,370 | * | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total operating expenses | 212,027 | 39.8 | 203,289 | 40.6 | 8,738 | 4.3 | 203,289 | 40.6 | 193,826 | 38.5 | 9,463 | 4.9 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Income from operations | 25,110 | 4.7 | 19,911 | 4.0 | 5,199 | 26.1 | 19,911 | 4.0 | 28,167 | 5.6 | (8,256) | 29.3 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Other income (expense), net | 5,952 | 1.1 | 4,761 | 0.9 | 1,191 | 25.0 | 4,761 | 0.9 | (215) | (0.1) | 4,976 | * | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Income before income taxes | 31,062 | 5.8 | 24,672 | 4.9 | 6,390 | 25.9 | 24,672 | 4.9 | 27,952 | 5.5 | (3,280) | (11.7) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Provision for income taxes | 9,821 | 1.8 | 8,079 | 1.6 | 1,742 | 21.6 | 8,079 | 1.6 | 10,732 | 2.1 | (2,653) | (24.7) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net income | $ | 21,241 | 4.0 | % | $ | 16,593 | 3.3 | % | $ | 4,648 | 28.0 | % | $ | 16,593 | 3.3 | % | $ | 17,220 | 3.4 | % | $ | (627) | 3.6 | % | |||||||||||||||||||||||||||||||||||||||||||||||
*Percentage change not meaningful
Stock-based compensation expense included in the statements of comprehensive income data above is as follows:
| Year Ended December 31, | |||||||||||||||||
| (in thousands) | 2025 | 2024 | 2023 | ||||||||||||||
| Stock options and other | $ | 14,376 | $ | 15,691 | $ | 14,550 | |||||||||||
| Employee stock purchase plan | 1,353 | 1,308 | 1,439 | ||||||||||||||
| Total stock-based compensation expense | $ | 15,729 | $ | 16,999 | $ | 15,989 | |||||||||||
| Cost of revenue | $ | 1,792 | $ | 1,935 | $ | 1,840 | |||||||||||
| Operating expenses: | |||||||||||||||||
| Marketing and sales | 3,317 | 3,112 | 3,426 | ||||||||||||||
| Research and development | 2,826 | 2,721 | 2,556 | ||||||||||||||
| General and administrative | 7,794 | 9,231 | 8,167 | ||||||||||||||
| Total stock-based compensation expense | $ | 15,729 | $ | 16,999 | $ | 15,989 | |||||||||||
Comparison of Years Ended December 31, 2025 and 2024
Revenue
Revenue by reportable segment and the related changes for 2025 and 2024 is summarized as follows:
| Year Ended December 31, | |||||||||||||||||||||||||||||||||||
| 2025 | 2024 | Change | |||||||||||||||||||||||||||||||||
| (dollars in thousands) | $ | % of Total Revenue | $ | % of Total Revenue | $ | % | |||||||||||||||||||||||||||||
| Revenue | |||||||||||||||||||||||||||||||||||
| United States | $ | 432,326 | 81.1 | % | $ | 396,192 | 79.1 | % | $ | 36,134 | 9.1 | % | |||||||||||||||||||||||
| Europe | 100,801 | 18.9 | 104,698 | 20.9 | (3,897) | (3.7) | |||||||||||||||||||||||||||||
| Total revenue | $ | 533,127 | 100.0 | % | $ | 500,890 | 100.0 | % | $ | 32,237 | 6.4 | % | |||||||||||||||||||||||
Our revenue increased $32.2 million, or 6.4%, for 2025 compared with 2024. By reportable segment, revenue in the United States increased $36.1 million, or 9.1%, for 2025 compared with 2024. Revenue in Europe decreased $3.9 million, or 3.7%, for 2025 compared with 2024. International revenue was positively impacted by$3.5 million during 2025 compared to the same period in 2024 as a result of foreign currency movements, primarily the strengthening of the British Pound and Euro relative to the United States Dollar.
During 2025, we served 48,415 unique customer contacts, a decrease of 6.1% over 2024. Our customer contacts served decreased while our revenue grew. This was primarily due to our mix of customers served in 2025 as compared to 2024 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 13.3% as compared to 2024.
Revenue by product line and the related changes for 2025 and 2024 is summarized as follows:
| Year Ended December 31, | |||||||||||||||||||||||||||||||||||
| 2025 | 2024 | Change | |||||||||||||||||||||||||||||||||
| (dollars in thousands) | $ | % of Total Revenue | $ | % of Total Revenue | $ | % | |||||||||||||||||||||||||||||
| Revenue | |||||||||||||||||||||||||||||||||||
| Injection Molding | $ | 191,521 | 35.9 | % | $ | 194,215 | 38.8 | % | $ | (2,694) | (1.4 | %) | |||||||||||||||||||||||
| CNC Machining | 243,327 | 45.6 | 206,887 | 41.3 | 36,440 | 17.6 | |||||||||||||||||||||||||||||
| 3D Printing | 80,298 | 15.1 | 83,767 | 16.7 | (3,469) | (4.1) | |||||||||||||||||||||||||||||
| Sheet Metal | 17,160 | 3.2 | 15,265 | 3.0 | 1,895 | 12.4 | |||||||||||||||||||||||||||||
| Other Revenue | 821 | 0.2 | 756 | 0.2 | 65 | 8.6 | |||||||||||||||||||||||||||||
| Total revenue | $ | 533,127 | 100.0 | % | $ | 500,890 | 100.0 | % | $ | 32,237 | 6.4 | % | |||||||||||||||||||||||
By product line, our revenue increase was driven by a 17.6% increase in CNC Machining revenue, a 12.4% increase in Sheet Metal revenue, and a 8.6% increase in Other Revenue, which was partially offset by a 4.1% decrease in 3D Printing revenue, and 1.4% decrease in Injection Molding revenue, in each case for 2025 compared with 2024.
Cost of Revenue, Gross Profit and Gross Margin
Cost of Revenue.Cost of revenue increased $18.3 million, or 6.6%, for 2025 compared to 2024, which was more than the rate of revenue increase of 6.4% for 2025 compared to 2024. The increase in the cost of revenue of $18.3 million was driven by higher revenue volumes resulting in an increase of $12.3 million in raw material and production and fulfillment related costs and $7.6 million in personnel related costs, primarily due to incentive compensation related to our annual short-term incentive compensation plan, overtime and medical related costs in 2025 compared with 2024, partially offset by decreases in equipment and facility-related and other costs of $1.6 million.
Gross Profit and Gross Margin.Gross profit increased to $237.1 million in 2025 from $223.2 million in 2024. Gross margin decreased to 44.5% of revenue in 2025 from 44.6% in 2024.
Operating Expenses
Marketing and Sales.Marketing and sales expense increased $6.2 million, or 6.8%, for 2025 compared to 2024, primarily due to increases in personnel and related costs of $5.0 million, primarily due to incentive compensation related to commissions and our annual short-term incentive compensation plan and merit increases, and marketing program cost increases of $1.2 million.
Research and Development.Our research and development expense increased $1.5 million, or 3.7%, for 2025 compared to 2024 primarily due to personnel and related cost increases of $2.2 million, primarily related to incentive compensation related to our annual short-term incentive compensation plan and merit increases, partially offset by decreases of $0.4 million in operating costs and $0.3 million in professional services.
General and Administrative.Our general and administrative expense increased $5.5 million, or 8.5%, for 2025 compared to 2024 primarily due to increases of $3.6 million in personnel and related costs, primarily related to the previously disclosed CEO transition that occurred in 2025, and incentive compensation related to our annual short-term incentive compensation plan, $2.3 million of administrative costs, $1.0 million of professional services, which were partially offset by a decrease $1.4 million in stock-based compensation.
Restructuring and transformation costs. Restructuring and transformation costs include expenses related to actions taken to improve operational efficiency and streamline the organization and result in $0.7 million in operating expenses during 2025 primarily related to severance and related benefit costs. We had no restructuring and transformation costs in 2024.
Costs related to disposal and exit activities. Our decision to exit and close certain operations in Germany resulted in $0.3 million in operating expenses during 2025 primarily related to the write down of fixed assets and other related costs. These items are the result of changes from the estimated amounts accrued in 2024 and the timing of employee separation payments. Costs related to disposal and exit activities for 2024 primarily consisted of $3.3 million of severance and $2.3 million related to the write-down of fixed assets.
Income from Operations
Income from operations increased $5.2 million, or 26.1%, for 2025 compared with 2024. By reportable segment, income from operations for the United States increased $12.4 million for 2025 compared with 2024. Loss from operations for Europe increased $1.6 million for 2025 compared with 2024, which was primarily driven by lower revenue volumes, negative operating leverage and $0.3 million in operating expenses associated with our decision to exit and close certain operations in Germany. Loss from operations included in Corporate Unallocated increased $5.6 million for 2025 compared with 2024.
Other Income (Expense), Net and Provision for Income Taxes
Other Income (Expense), Net.We recognized other income, net of $6.0 million in 2025, an increase of $1.2 million compared to other income, net of $4.8 million for 2024. Other expense, net for 2025 primarily consisted of $5.4 million of interest income on investments and other income and $0.6 million of foreign currency and other gains. Other income, 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.
Provision for Income Taxes. Our income tax provision increased by $1.7 million for 2025 when compared to 2024. The increase in the provision is primarily due to an increase in operating income, as well as 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. Our effective tax rate of 31.6% for 2025 decreased 1.1% compared to 32.7% for the same period in 2024, primarily due to a decrease in losses in foreign operations that are not eligible for tax benefits on account of valuation 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.
Comparison of Years Ended December 31, 2024 and 2023
For a comparison of our results of operations for fiscal years ended December 31, 2024 and December 31, 2023, see Part II, Item 7. "Management's Discussion and Analysis of Financial Condition and Results of Operations" of our Annual Report on Form 10-K for the fiscal year ended December 31, 2024, filed with the SEC on February 21, 2025.
Liquidity and Capital Resources
Cash Flows
The following table summarizes our cash flows for the years ended December 31, 2025, 2024 and 2023:
| Year Ended December 31, | |||||||||||||||||
| (dollars in thousands) | 2025 | 2024 | 2023 | ||||||||||||||
| Net cash provided by operating activities | $ | 74,504 | $ | 77,829 | $ | 73,274 | |||||||||||
| Net cash used in investing activities | (13,410) | (13,580) | (4,552) | ||||||||||||||
| Net cash used in financing activities | (40,366) | (58,550) | (41,858) | ||||||||||||||
| Effect of exchange rates on cash and cash equivalents | 1,027 | (418) | 368 | ||||||||||||||
| Net (decrease) increase in cash and cash equivalents | $ | 21,755 | $ | 5,281 | $ | 27,232 | |||||||||||
Sources of Liquidity
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.
As of December 31, 2025, the amount of cash and cash equivalents held by foreign subsidiaries was $9.3 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.
Cash Flows from Operating Activities
Cash flow from operating activities of $74.5 million during 2025 primarily consisted of net income of $21.2 million, adjusted for certain non-cash items, including depreciation and amortization of $33.8 million, stock-based compensation expense of $15.7 million, deferred taxes of $2.9 million, non-cash fixed asset impairment charges primarily related to the exit of certain operations in Germany $0.4 million, and changes in operating assets and liabilities and other items totaling $0.3 million. The cash flow from operating activities during 2025 compared to 2024 decreased $3.3 million primarily due to changes in operating assets and liabilities and other of $10.6 million, a decrease in non-cash fixed impairment charges primarily related to certain operations in Germany during 2024 of $2.1 million, a decrease in depreciation and amortization of $2.0 million, decreases in stock-based compensation of $1.3 million, which were partially offset by increases in deferred taxes of $8.1 million and net income of $4.6 million.
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 asset and liabilities and other items totaling $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 $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 asset 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 $0.6 million.
Cash Flows from Investing Activities
Cash used in investing activities was $13.4 million for the year ended December 31, 2025, consisting of $14.0 million for the net purchases of property, equipment and other capital assets, partially offset by $0.6 million in net proceeds from maturities of marketable securities.
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 of net purchases of marketable securities.
Cash Flows from Financing Activities
Cash used in financing activities was $40.4 million for the year ended December 31, 2025, consisting of $43.0 million in repurchases of common stock, $3.4 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 $6.3 million in proceeds from issuance of common stock from equity plans.
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.
Operating and Capital Expenditure Requirements
We believe, based on our current operating plan, that our cash balances and cash generated through operations and interest income will be sufficient to meet our anticipated cash requirements through at least the next 12 months. From time to time we may seek to sell equity or convertible debt securities or enter into credit facilities. The sale of equity and convertible debt securities may result in dilution to our shareholders. If we raise additional funds through the issuance of convertible debt securities or enter into credit facilities, these securities and debt holders could have rights senior to those of our common stock, and this debt could contain covenants that would restrict our operations. We may require additional capital beyond our currently forecasted amounts. Any such required additional capital may not be available on terms acceptable to us, or at all.
Our future capital requirements will depend on many factors, including the following:
•the revenue growth in Injection Molding, CNC Machining, 3D Printing and Sheet Metal product lines;
•costs of operations, including costs relating to expansion and growth;
•the emergence of competing or complementary technological developments;
•the costs of filing, prosecuting, defending and enforcing any patent claims and other intellectual product rights, or participating in litigation-related activities; and
•the acquisition of businesses, products and technologies, although we currently have no commitments or agreements relating to any of these types of transactions.
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.
Contractual Obligations
As of December 31, 2025, our contractual obligations are $3.0 million related to current and long-term operating and finance lease liabilities and $9.6 million related to unsatisfied performance obligations for revenue generating contracts with an original expected length of one year or less.
Financing Arrangements
We had no financing arrangements as of December 31, 2025 and 2024.
Critical Accounting Estimates
The discussion and analysis of our financial condition and results of operations is based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates, judgments and assumptions that affect the reported amount of assets, liabilities, revenue, expenses and related disclosures. Critical accounting estimates are those estimates made in accordance with GAAP which involve a significant level of estimation uncertainty and have had or are reasonably likely to have a material impact on our financial condition and results of operations. On an ongoing basis, we evaluate our estimates, including those related to revenue recognition, goodwill, other intangible assets, stock-based compensation, and income taxes. We base our estimates of the carrying value of certain assets and liabilities on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. In many cases, we could reasonably have used different accounting policies and estimates. In some cases, changes in the accounting estimates are reasonably likely to occur from period to period. Management has discussed the development, selection and disclosure of these estimates with the audit committee of our board of directors. Our actual results may differ significantly from these estimates under different assumptions or conditions.
We believe the following critical accounting policies and estimates affect our more significant judgments used in the preparation of our consolidated financial statements. See the Notes to Consolidated Financial Statements included in Item 8. "Financial Statements and Supplementary Data" in this Annual Report on Form 10-K for additional information about these critical accounting policies and estimates, as well as a description of our other accounting policies and estimates.
Revenue Recognition
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
We recognize goodwill in accordance with ASC 350, Intangibles-Goodwill and Other. Goodwill is the excess of cost of an acquired entity over the amounts assigned to assets acquired and liabilities assumed in a business combination. Goodwill is allocated to our reporting units, which are determined by the discrete financial information available for the component and whether it is regularly reviewed by segment management. Our reporting units are the United States and Europe. Goodwill is not amortized.
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.
If performing the impairment test, we would determine 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.
For the fiscal year 2025 annual impairment assessment, the Company performed a qualitative assessment for the United States reporting unit, since it is the only reporting unit with goodwill, and determined there were no indicators of impairment and it was more likely than not that the fair value of the United States reporting unit exceeded its carrying value.
Other Intangible Assets
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, 2025, no impairment charges for intangible assets have been recognized.
Stock-Based Compensation
We determine our stock-based compensation in accordance with ASC 718,Compensation-Stock Compensation (ASC 718), which requires the measurement and recognition of compensation expense for all share-based payment awards made to employees and non-employee directors based on the grant date fair value of the award.
Determining the appropriate fair value model and calculating the fair value of stock option grants requires the input of subjective assumptions. We use the Black-Scholes option pricing model to value our stock option awards. Stock-based compensation expense is significant to our consolidated financial statements and is calculated using our best estimates, which involve inherent uncertainties and the application of management's judgment. Significant estimates include our expected term and stock price volatility. If different estimates and assumptions had been used, our common stock valuations could be significantly different and related stock-based compensation expense may be materially impacted.
The Black-Scholes option pricing model requires inputs such as the risk-free interest rate, expected term, expected volatility and expected dividend yield. We base the risk-free interest rate that we use in the Black-Scholes option pricing model on zero coupon U.S. Treasury instruments with maturities similar to the expected term of the award being valued. The expected term of stock options is estimated from the vesting period of the award and represents the weighted average period that our stock options are expected to be outstanding. We estimated the volatility of our stock price based on the historic volatility of our common stock. We have never paid and do not anticipate paying any cash dividends in the foreseeable future and, therefore, we use an expected dividend yield of zero in the option pricing model. We account for forfeitures as they occur.
The fair value of each new employee option awarded was estimated on the date of grant for the periods below using the Black-Scholes option pricing model with the following assumptions:
| Year Ended December 31, | |||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
| Risk-free interest rate | 3.80 - 4.17% | 4.28 - 4.30% | 3.55 - 4.55% | ||||||||||||||
| Expected life (years) | 6.25 | 6.25 | 2.00 - 6.25 | ||||||||||||||
| Expected volatility | 52.05 -52.99% | 50.62 -53.17% | 49.23 -55.92% | ||||||||||||||
| Expected dividend yield | 0% | 0% | 0% | ||||||||||||||
| Weighted average grant date fair value | $22.01 | $18.17 | $16.36 | ||||||||||||||
Our 2012 Employee Stock Purchase Plan (ESPP) allows eligible employees to purchase a variable number of shares of our common stock during each offering period at a discount through payroll deductions of up to 15% of their eligible compensation, subject to plan limitations. The ESPP provides for six-month offering periods with a single purchase period. At the end of each offering period, employees are able to purchase shares at 85% of the lower of the fair market value of our common stock on the first trading day of the offering period or on the last trading day of the offering period. We determine the fair value stock-based compensation related to our ESPP in accordance with ASC 718 using the component measurement approach and the Black-Scholes standard option pricing model.
The fair value of each offering period was estimated using the Black-Scholes option pricing model with the following assumptions:
| Year Ended December 31, | |||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
| Risk-free interest rate | 3.67 - 4.29% | 4.29 - 5.16% | 4.60 - 5.16% | ||||||||||||||
| Expected life (months) | 6.00 | 6.00 | 6.00 | ||||||||||||||
| Expected volatility | 39.13 - 65.60% | 30.97 - 65.60% | 47.38 - 67.84% | ||||||||||||||
| Expected dividend yield | 0% | 0% | 0% | ||||||||||||||
There are significant differences among option valuation models, and this may result in a lack of comparability with other companies that use different models, methods and assumptions. If factors change and we employ different assumptions in the application of ASC 718 in future periods, or if we decide to use a different valuation model, such as a lattice model, the stock-based compensation expense that we record in the future under ASC 718 may differ significantly from what we have recorded using the Black-Scholes option pricing model and could materially affect our operating results.
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 $15.7 million, $17.0 million and $16.0 million during the years ended December 31, 2025, 2024 and 2023, respectively. As of December 31, 2025, we had $2.7 million of unrecognized stock-based compensation costs related to unvested stock options that are expected to be recognized over a weighted average period of 2.8 years. We issued options to purchase 147,664, 140,405 and 186,804 shares of our common stock during the years ended December 31, 2025, 2024 and 2023, respectively. As of December 31, 2025, we had $16.6 million of unrecognized stock-based compensation costs related to unvested restricted stock, which is expected to be recognized over a weighted average period of 2.7 years. We issued restricted stock awards of 312,953, 377,961 and 410,682 shares of our common stock during the years ended December 31, 2025, 2024 and 2023, respectively. As of December 31, 2025, we had $6.6 million of unrecognized stock-based compensation costs related to unvested performance stock, which is expected to be recognized over a weighted average period of 2.0 years. We issued performance stock awards of 160,939, 79,436 and 71,295 shares of our common stock during the years ended December 31, 2025, 2024 and 2023, respectively.
In future periods, our stock-based compensation expense is expected to increase due to our existing unrecognized stock-based compensation and the issuance of additional stock-based awards to continue to attract and retain employees and non-employee directors.
Income Taxes
We account for income taxes in accordance with ASC 740,Income Taxes(ASC 740). Under this method, we determine tax assets and liabilities based upon the differences between the financial statement carrying amounts and the tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to affect taxable income. The tax consequences of most events recognized in the current year's financial statements are included in determining income taxes currently payable. However, because tax laws and financial accounting standards differ in their recognition and measurement of assets, liabilities and equity, revenues, expenses, gains and losses, differences arise between the amount of taxable income and pretax financial income for a year and between the tax basis of assets or liabilities and their reported amounts in the financial statements. Because we assume that the reported amounts of assets and liabilities will be recovered and settled, respectively, a difference between the tax basis of an asset or liability and its reported amount in the balance sheet will result in a taxable or a deductible amount in some future years when the related liabilities are settled or the reported amounts of the assets are recovered, giving rise to a deferred tax asset or liability. We establish a valuation allowance for any portion of our deferred tax assets that we believe will not be recognized.
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 $4.3 million as of December 31, 2025.
The effective tax rate decreased by 1.1% for the year ended December 31, 2025 when compared to 2024 primarily due to a decrease in losses in foreign operations that are not eligible for tax benefits on account of valuation 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.
Recently adopted accounting pronouncements
See Item 8 of Part II, "Financial Statements and Supplementary Data - Note 2 - Summary of Significant Accounting Policies - Recently adopted accounting pronouncements and Recently issued accounting pronouncements."
Proto Labs Inc. published this content on February 20, 2026, and is solely responsible for the information contained herein. Distributed via EDGAR on February 20, 2026 at 20:34 UTC. If you believe the information included in the content is inaccurate or outdated and requires editing or removal, please contact us at [email protected]