Proto Labs Inc.

05/01/2026 | Press release | Distributed by Public on 05/01/2026 11:58

Quarterly Report for Quarter Ending March 31, 2026 (Form 10-Q)

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 our unaudited consolidated financial statements and related notes appearing elsewhere in this Quarterly Report on Form 10-Q and our Annual Report on Form 10-K for the year ended December 31, 2025.
Forward-Looking Statements
Statements contained in this report regarding matters that are not historical or current facts are "forward-looking statements" within the meaning of The Private Securities Litigation Reform Act of 1995. In some cases, you can identify forward-looking statements by the following words: "may," "will," "could," "would," "should," "expect," "intend," "plan," "anticipate," "believe," "estimate," "predict," "project," "potential," "continue," "ongoing" or the negative of these terms or other comparable terminology, although not all forward-looking statements contain these words. These statements involve known and unknown risks, uncertainties and other factors that may cause our results to be materially different than those expressed or implied in such statements. Certain of these risk factors and others are described in Item 1A. "Risk Factors" of this 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, 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 the world's fastest manufacturing service enabling companies across every industry to streamline production of quality parts throughout the entire product life cycle. Our vision is accelerating innovation by revolutionizing manufacturing. Our mission is to shape the future by bringing customer ideas to life across every stage of their product cycle. We accomplish this by offering a variety of manufacturing capabilities fulfilled through a combination of owned manufacturing factories and a worldwide network of premium manufacturing partners. Our automated quoting and manufacturing systems are highly integrated with our manufacturing and fulfillment systems, which allow us to offer a vast array of manufacturing technologies in a variety of materials across a continuum of lead times and prices. Protolabs uses artificial intelligence (AI) in a number of different ways to improve our efficiency and the value we offer to customers, including: intelligent pricing and sourcing algorithms, automated quality inspection in injection molding, toolpath verification in CNC machining, software development, and various other AI end use cases. In the age of AI, we are well-positioned with our long history of leveraging technology to solve legacy manufacturing challenges and are deploying AI to power how we drive innovation to better serve our customers. AI is enabling us to move faster than ever before and continue to scale our business efficiently. Our technology-enabled digital engineering and manufacturing applications enable us to produce commercial-grade prototype and production plastic, metal, and liquid silicone rubber parts in as fast as one day.
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 enable 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.
We have established our operations in the United States and Europe.
Our primary manufacturing product lines currently include Injection Molding, CNC Machining, 3D Printing and Sheet Metal. We continually seek to expand the range of sizes and geometric complexity of the parts we can make with these processes, to extend the variety of materials we are able to support, and to identify additional manufacturing processes to which we can apply our technology or incorporate into our manufacturing network in order to better serve the evolving preferences and needs of our customers.
Key Financial Measures and Trends
Revenue
Our operations are comprised of two geographic operating segments in the United States and Europe.
Revenue is derived from the sale or 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.
Protolabs' long-term strategy is to serve customers across the entire lifecycle of a part-from prototype through production. To support this long-term strategy, we have aligned the organization around four strategic pillars:
•Elevate Customer Experience - remove friction across the customer journey to deliver a best-in-class experience and increase revenue per customer. Enable employees to serve customers more efficiently, driving faster growth.
•Accelerate Innovation - reaccelerate innovation across core manufacturing services to drive outsized growth and an accelerated pace of new releases. Leverage differentiated IP and deep manufacturing & engineering talent.
•Expand Production - take a deliberate, customer-led approach-prioritizing the right customers, applications, and capabilities. Begin with most strategic customers and scale over time.
•Drive Operational Efficiency - expand our factory and Protolabs network gross margins and capture operating expense leverage via efficiencies and productivity. Reallocate resources and funds to invest in the highest-priority growth initiatives.
The following table summarizes our unique customer contacts and revenue per customer contact:
Three Months Ended March 31,
2026 2025
Revenue (in thousands) $ 139,336 $ 126,205
Customer contacts 19,826 21,627
Revenue per customer contact1
$7,028 $5,836
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.
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, 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.
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 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.
Operating Expenses
Operating expenses consist of marketing and sales, research and development and general and administrative expenses. Personnel-related costs are the most significant component in each of these categories.
Our business strategy is to continue to be a leading online and technology-enabled manufacturer of quick-turn, on-demand injection-molded, CNC-machined, 3D-printed and fabricated sheet metal custom parts for prototyping and low-volume production. In order to achieve our goals, we anticipate continued substantial investments in technology and personnel, resulting in increased operating expenses in the future.
Marketing and sales. Marketing and sales expense consists primarily of employee compensation, benefits, commissions, stock-based compensation, marketing demand generation costs 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 demand generation costs targeted to increase our customer base and grow revenue.
Research and development. Research and development expense consists primarily of personnel and outside service costs related to the development of new processes and product lines, enhancement of existing product lines, development of software for internal use, maintenance of internally developed software, quality assurance and testing. Costs for internal use software are evaluated by project and capitalized where appropriate under ASC 350-40, Intangibles - Goodwill and Other, Internal-Use Software. We expect research and development expense to increase in the future as we seek to enhance our e-commerce interface technology, internal software and supporting business systems, and continue to expand our product lines.
General and administrative. General and administrative expense consists primarily of employee compensation, benefits, stock-based compensation, professional service fees related to accounting, tax and legal, and other related overhead. 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. The expenses consist primarily of operating expenses, including employee severance, write-down of fixed assets and facility-related charges. Benefits may result from adjustments to initial estimates regarding the nature and timing of disposal and exit activities.
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 foreign currency 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 2026 and beyond may differ from historical effective tax rates due to increases in losses in foreign operations that are not eligible for tax benefits on account of valuation allowances, as well as any future tax law changes that may impact our effective tax rate.
Results of Operations
The following table summarizes our results of operations and the related changes for the periods indicated. The results below are not necessarily indicative of the results for future periods.
Three Months Ended March 31, Change
(dollars in thousands) 2026 2025 $ %
Revenue $ 139,336 100.0 $ 126,205 100.0 $ 13,131 10.4
Cost of revenue 75,744 54.4 70,507 55.9 5,237 7.4
Gross profit 63,592 45.6 55,698 44.1 7,894 14.2
Operating expenses
Marketing and sales 24,780 17.8 23,749 18.8 1,031 4.3
Research and development 10,540 7.6 10,609 8.4 (69) (0.7)
General and administrative 17,012 12.2 16,848 13.4 164 1.0
Restructuring and transformation costs 1,421 1.0 - - 1,421 *
Benefits related to exit and disposal activities - - (39) - 39 (100.0)
Total operating expenses 53,753 38.6 51,167 40.5 2,586 5.1
Income from operations 9,839 7.1 4,531 3.6 5,308 117.1
Other income, net 1,478 1.1 1,454 1.2 24 1.7
Income before income taxes 11,317 8.1 5,985 4.7 5,332 89.1
Provision for income taxes 3,206 2.3 2,386 1.9 820 34.4
Net income $ 8,111 5.8 % $ 3,599 2.9 % $ 4,512 125.4 %
* Percentage change not meaningful
Stock-based compensation expense included in the statements of operations data above for the three months ended March 31, 2026 and 2025 were as follows:
Three Months Ended March 31,
(dollars in thousands) 2026 2025
Stock options, RSUs and PSUs $ 2,942 $ 3,661
Employee stock purchase plan 277 331
Total stock-based compensation expense $ 3,219 $ 3,992
Cost of revenue $ 394 $ 460
Operating expenses:
Marketing and sales 705 778
Research and development 428 625
General and administrative 1,692 2,129
Total stock-based compensation expense $ 3,219 $ 3,992
Comparison of Three Months Ended March 31, 2026 and 2025
Revenue
Revenue by reportable segment and the related changes for the three months ended March 31, 2026 and 2025 were as follows:
Three Months Ended March 31,
2026 2025 Change
(dollars in thousands) $ % of Total Revenue $ % of Total Revenue $ %
Revenue:
United States $ 112,127 80.5 % $ 100,267 79.4 % $ 11,860 11.8 %
Europe 27,209 19.5 % 25,938 20.6 % 1,271 4.9
Total revenue $ 139,336 100.0 % $ 126,205 100.0 % $ 13,131 10.4 %
Our revenue increased $13.1 million, or 10.4%, for the three months ended March 31, 2026 compared to the same period in 2025. The growth in revenue was primarily driven by an increase in CNC 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 million, or 11.8%, for the three months ended March 31, 2026 compared to the same period in 2025. Revenue in Europe increased $1.3 million, or 4.9%, for the three months ended March 31, 2026 compared to the same period in 2025. International revenue was favorably impacted by $2.2 million during the three months ended March 31, 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 March 31, 2026, we served 19,826 unique customer contacts, which is a decrease of 8.3% from the same period in 2025. During the three months ended March 31, 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% for the three months ended March 31, 2026 compared to the same period in 2025.
Revenue by product line and the related changes for the three months ended March 31, 2026 and 2025 were as follows:
Three Months Ended March 31,
2026 2025 Change
(dollars in thousands) $ % of Total Revenue $ % of Total Revenue $ %
Revenue:
Injection Molding $ 51,068 36.7 % $ 48,723 38.6 % $ 2,345 4.8 %
CNC Machining 63,245 45.4 52,843 41.9 10,402 19.7
3D Printing 20,465 14.7 20,194 16.0 271 1.3
Sheet Metal 4,351 3.1 4,211 3.3 140 3.3
Other Revenue 207 0.1 234 0.2 (27) (11.5)
Total Revenue $ 139,336 100.0 % $ 126,205 100.0 % $ 13,131 10.4 %
By product line, our revenue increase was driven by a 19.7% increase in CNC Machining revenue, a 4.8% increase in Injection Molding revenue, a 1.3% increase in 3D Printing revenue, and a 3.3% increase in Sheet Metal revenue, in each case for the three months ended March 31, 2026 compared to the same period in 2025.
Cost of Revenue, Gross Profit and Gross Margin
Cost of Revenue. Cost of revenue increased $5.2 million, or 7.4%, for the three months ended March 31, 2026 compared to the same period in 2025, while revenue increased 10.4% for the three months ended March 31, 2026 compared to the same period in 2025. The increase in the cost of revenue of $5.2 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 million in personnel and related costs, primarily due to increases in head count and overtime costs and contract labor to meet increased order volume, during the three months ended March 31, 2026 compared to the same period in 2025, partially offset by decreases in equipment and facility-related costs of $0.4 million.
Gross Profit and Gross Margin. Gross profit increased $7.9 million, or 14.2%, for the three months ended March 31, 2026 compared to the same period in 2025. Gross margin increased to 45.6% in the three months ended March 31, 2026 from 44.1% in the same period in 2025.
Operating Expenses, Other Income, net and Provision for Income Taxes
Marketing and Sales. Our marketing and sales expenses increased $1.0 million during the three months ended March 31, 2026 compared to the same period in 2025 primarily due to increases in personnel and related costs of $0.7 million and $0.3 million in marketing program costs.
Research and Development. Our research and development expenses decreased $0.1 million, or 0.7%, during the three months ended March 31, 2026 compared to the same period in 2025 primarily due to decreases in personnel and related costs of $0.3 million and $0.1 million in professional services, partially offset by increases of $0.3 million in operating costs.
General and Administrative. Our general and administrative expenses increased $0.2 million, or 1.0%, during the three months ended March 31, 2026 compared to the same period in 2025 primarily due to increases in personnel and related costs of $0.5 million and $0.4 million in professional services, partially offset by decreases of $0.4 million in stock-based compensation, and $0.3 million in administrative 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 million in operating expenses during 2026 primarily related to severance and related benefit costs, and professional services. We had no restructuring and transformation costs for the same period in 2025.
Costs related to exit and disposal. We had no costs related to exit and disposal activities during the three months ended March 31, 2026. Our decision to exit and close certain operations in Germany resulted in less than a $0.1 million in personnel and related cost benefits during the three months ended March 31, 2025.
Other income, net. We recognized other income, net of $1.5 million for the three months ended March 31, 2026 and the same period in 2025. Other income, net for the three months ended March 31, 2026 primarily consisted of $1.2 million in interest income on investments and $0.3 million of other income. Other income, net for the three months ended March 31, 2025 primarily consisted of $1.4 million in interest income on investments and other income.
Provision for Income Taxes. Our effective tax rate of 28.3% for the three months ended March 31, 2026 decreased 11.6% compared to 39.9% 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. Our income tax provision of $3.2 million for the three months ended March 31, 2026 increased $0.8 million as compared to our income tax provision of $2.4 million for the same period in 2025.
Liquidity and Capital Resources
Cash Flows
The following table summarizes our cash flows during the three months ended March 31, 2026 and 2025:
Three Months Ended
March 31,
(dollars in thousands) 2026 2025
Net cash provided by operating activities $ 17,536 $ 18,379
Net cash used in investing activities (4,768) (2,909)
Net cash provided by (used in) financing activities 658 (21,927)
Effect of exchange rate changes on cash and cash equivalents (279) 78
Net increase (decrease) in cash and cash equivalents $ 13,147 $ (6,379)
Sources of Liquidity
Historically, we have primarily financed our operations and capital expenditures through cash flow from operations. We had cash and cash equivalents of $124.0 million as of March 31, 2026, an increase of $13.1 million from December 31, 2025. The increase in our cash was primarily due to cash provided by operating activities of $17.5 million, 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 million.
We believe that our existing cash and cash equivalents together with cash generated from operations will be sufficient to meet our working capital and capital expenditure requirements for at least the next 12 months.
Cash Flows from Operating Activities
Cash flows from operating activities were $17.5 million during the three months ended March 31, 2026 and primarily consisted of net income of $8.1 million, adjusted for certain non-cash items, including depreciation and amortization of $8.1 million, stock-based compensation expense of $3.2 million and increases in deferred taxes of $2.4 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 million. Cash flows from operating activities were $18.4 million during the three months ended March 31, 2025 and primarily consisted of net income of $3.6 million, adjusted for certain non-cash items, including depreciation and amortization of $8.7 million, stock-based compensation expense 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 million.
Cash flows from operating activities decreased $0.8 million during the three months ended March 31, 2026 compared to the same period in 2025, primarily due to changes in operating assets and liabilities and other items totaling $7.9 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 million and increases in deferred taxes of $3.9 million.
Cash Flows from Investing Activities
Cash used in investing activities was $4.8 million during the three months ended March 31, 2026, consisting of $2.5 million of net purchases of marketable securities and $2.3 million for net purchases of property, equipment and other capital assets.
Cash used in investing activities was $2.9 million during the three months ended March 31, 2025, consisting of $1.3 million for net purchases of property, equipment and other capital assets and $1.6 million of purchases of marketable securities, net of proceeds from call redemptions and maturities.
Cash Flows from Financing Activities
Cash provided by financing activities was $0.7 million during the three months ended March 31, 2026, consisting of $3.6 million in proceeds related to equity plans, which were partially offset by $2.9 million in purchases of shares withheld for tax obligations associated with equity transactions and $0.1 million for repayments of finance lease obligations.
Cash used in financing activities was $21.9 million during the three months ended March 31, 2025, consisting of $20.9 million in repurchases of common stock, $1.2 million in purchases of shares withheld for tax obligations associated with equity transactions and $0.1 million for repayments of finance lease obligations, which were partially offset by $0.3 million in proceeds related to the exercise of non-qualified stock options.
Critical Accounting Estimates
We have adopted various accounting policies to prepare the Consolidated Financial Statements in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP). 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 three months ended March 31, 2026.
Recent Accounting Pronouncements
For information on recent accounting pronouncements, see Note 2 to the Consolidated Financial Statements appearing in Part I, Item 1 of this Quarterly Report on Form 10-Q.
Proto Labs Inc. published this content on May 01, 2026, and is solely responsible for the information contained herein. Distributed via EDGAR on May 01, 2026 at 17:59 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]