On Thursday morning, Proto Labs (PRLB 0.13%) reported that its fourth-quarter revenue increased by 32% year over year to $73.8 million, marking its 14th consecutive quarter of record sales. This increased earnings 15.3% to $0.45 per diluted share. Excluding the $5.8 million contribution from Alphaform, its most recent 3D printing acquisition that closed during the quarter, Proto Labs' legacy revenue increased 23% to $68.7 million -- also a record.

Overall, Proto Labs' earnings showed strong growth and solid execution in what has been a challenging environment for many industrial-focused companies.

Acceptance on the rise
The lifeline to Proto Labs' business is the number of product developers it serves in a given quarter. A growing figure indicates growing acceptance of its rapid manufacturing services in the design and manufacturing community. In the fourth quarter, Proto Labs served 12,414 product developers, a 22% increase year over year. Sequentially, this was slightly lower than the 12,541 product developers it served in the third quarter.

Data source: Proto Labs.

Growth across the board
All of Proto Labs' manufacturing services experienced annual growth in the fourth quarter. The most notable was 3D printing, which grew by an astounding 69%, excluding Alphaform. Clearly, Proto Labs' 3D printing cross-selling efforts to its existing customer base have been highly effective.

Manufacturing Service

Fourth-Quarter Revenue (in millions)

Change (YOY)

Injection molding



CNC machining



3D printing



Data source: Proto Labs.

Despite worldwide growth concerns, Proto Labs' international performance was exceptionally strong. Excluding Alphaform, Proto Labs' European segment saw its fourth-quarter revenue increase by 22.3% year over year to $12.2 million. Had the U.S. dollar remained stable between years, Proto Labs' European segment would've grown by 34.7%. In Japan, Proto Labs' revenue would've increased by 54.1%, but the strong dollar brought it down to 45.9%, to $2.6 million.

The margin story
Proto Labs' gross margin declined by 390 basis points to 56% in the fourth quarter compared to last year, and by 340 basis points sequentially. The annual decline was mainly attributed to a 260 basis point impact from the Alphaform acquisition, and to a lesser extent, investments in added capacity and currency headwinds. It's also worth noting that 3D printing services generally carry a lower gross margin than Proto Labs' injection molding and CNC machining services, which made up a larger percentage of Proto Labs' overall revenue during the quarter than it did the year before.

Additionally, fourth-quarter operating expenses outpaced Proto Labs' revenue growth (excluding Alphaform), which helped compress its operating margin from 26.2% to 22.4% year over year.

The bigger picture
Proto Labs generated $264.1 million in revenue in 2015, representing a 26% increase compared to 2014. It closed out the year with $145.6 million in cash, zero debt, and strong momentum going into 2016.

Looking ahead, Proto Labs CEO Vicki Holt plans to attract and serve more customers by bringing new manufacturing services online and broadening the capabilities of existing manufacturing services with new materials and complexity. According to Holt, investors can "anticipate the launch of at least one significant new product offering within our injection molding service during the year."