Proto Labs Inc

2024 was a transformational year for Protolabs, delivering strong financial results, including expanded gross margins, increasing non-GAAP earnings per share, and growing our cash flow from operations to $77.8 million, up from $73.3 million in 2023. During 2024, Protolabs continued the evolution beyond prototyping into production, and we reorganized our internal structure, creating regional go-to-market teams and a new global operations organization. Our go-to-market teams are refocused to ensure the best possible customer experience from prototype to production, while our operations organization efficiently brings our global fulfillment capabilities to every customer.

Our transformation is gaining meaningful traction from both new and existing customers. In 2024, the number of customers using our combined Factory and Network offer grew by 50% and revenue per customer increased over 2023. We are making strategic investments to drive growth, including additional marketing to build our brand as a production manufacturer, allocating resources to improve our sales enablement tools and processes, and continuing to expand our production manufacturing capabilities.

(1)The Company defines non-GAAP earnings per share as net income determined under U.S. GAAP, adjusted for stock-based compensation expense, amortization expense, unrealized gain or loss on foreign currency, and costs related to exit and disposal activities, divided by the weighted average number of diluted shares outstanding. A reconciliation of non-GAAP net income to its most directly comparable GAAP financial measure is included in Appendix B to this Proxy Statement.

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Shareholder Value Creation

2024 was a transformational year for the Company as we continue to create the most complete and comprehensive offer in our industry. Amidst a challenging macroeconomic backdrop underscored by sustained contraction in manufacturing, the Company produced strong financial results. While our TSR was not as strong as our peer group and reference indices as our Company goes through this transformation, it has been historically very strong, exceeding that of our peer group, the S&P 500 and the Russell 2000 Growth Index from our initial public offering through 2020. As we continue to execute the Company’s long-term strategy, management is committed to driving profitable revenue growth and increase shareholder value over the long term.

The information above reflects the period of time ending December 31, 2024, and the “peer group” reflected in the chart above represents the compensation peer group used for 2024 compensation developed by our independent compensation consultant Pearl Meyer. The peer group includes the following companies: 3D Systems Corporation, Allient Inc., Badger Meter, Inc., Cerence Inc., CTS Corporation, Enerpac Tool Group Corp, ESCO Technologies, Inc., FARO Technologies, Inc., Helios Technologies Inc., Lindsay Corporation, Rimini Street, Inc., Semtech Corporation, SPS Commerce, Inc., Vicor Corporation and Vishay Precision Group, Inc.

Although Protolabs’ TSR performance shown in the chart above trailed that of the peer group over each of the periods shown, the compensation and talent committee believes that pay and performance are appropriately aligned. Our 2021, 2022, 2023 and 2024 annual cash incentive payouts for our named executive officers were well below the target amounts. Additionally, many of the long-term incentives awarded to our named executive officers are well below their initial grant date fair value, and all outstanding stock options granted prior to 2023 are underwater.

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Key Actions and Decisions in 2024

In 2024, the Company made a number of important decisions related to our named executive officer compensation program.

Key Governance Attributes

Our compensation and talent committee is committed to establishing an executive compensation program that reflects strong corporate governance attributes. The following table summarizes those corporate governance attributes.

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Say-on-Pay Results

Protolabs and the compensation and talent committee value the input of our shareholders with respect to our executive compensation. At our 2024 Annual Meeting of Shareholders, the say-on-pay proposal received the approval of approximately 87% of the shares voted on the proposal. The compensation and talent committee considered this result to be a general endorsement by our shareholders of our compensation program and as a result has maintained the majority of the fundamental features of our executive compensation program.