PRLB Proto Labs Inc

Quarterly Revenue Increases 21% Year over Year to $64.0 Million

Record Quarterly Net Income of $11.7 Million

Proto Labs, Inc. (NYSE: PRLB), a leading online and technology-enabled, quick-turn, on-demand manufacturer, today announced financial results for the second quarter ended June 30, 2015.

Highlights include:

• Revenue for the second quarter of 2015 increased to a record $64.0 million, 21 percent above revenue of $52.9 million in the second quarter of 2014. On a constant currency basis, revenue was up 25 percent versus the prior year.
• Revenue from additive services (3D printing) through the Fineline acquisition completed in April 2014 totaled $5.4 million, an increase of 86 percent from the second quarter of 2014.
• Revenue growth reflected a 28 percent increase in the number of unique product developers and engineers served over the prior year period.
• Net income for the second quarter of 2015 was a record $11.7 million, or $0.44 per diluted share. Non-GAAP net income, excluding the after-tax expense of stock compensation, amortization of intangibles, and non-cash unrealized foreign currency losses, was $13.0 million, or $0.50 per diluted share. See “Non-GAAP Financial Measure” below.

“Our second quarter results reflected strong execution in many areas,” said Vicki Holt, President and Chief Executive Officer. “Revenue in North America grew 23 percent, driven primarily by growth in additive manufacturing and Firstcut services. We were especially pleased with the growth in European revenue, up 33.5 percent on a constant currency basis, 12 percent when translated to dollars. Japan also executed well, generating an increase in revenue of 33 percent on a constant currency basis, 12 percent as reported. The growth across all regions reflected the actions we took earlier in the year to strengthen the leadership team and drive more focused marketing and sales efforts.”

Additional Highlights include:

• Gross margin was 58.7 percent of revenue for the second quarter of 2015 compared with 61.8 percent during the same quarter last year. The current period reflects a lower gross margin on the additive business, representing approximately 90 basis points. Foreign currency exchange rates had an 80 basis point impact year over year with the remaining difference driven by capacity additions and business mix.
• GAAP operating margin was 27.1 percent of revenue during the second quarter of 2015 compared to 30.2 percent for the second quarter of 2014.
• Cash generated from operations during the second quarter totaled $12.4 million. Cash, cash equivalents and investments were $142.0 million at June 30, 2015 compared with $137.2 million at March 31, 2015.

“We continue to focus on our priorities – to enhance our targeted sales and marketing efforts worldwide, expand our envelope of manufacturing services and continually improve customer service. We are making progress on each of these initiatives. In the second half of the year, we anticipate growing demand for our recently introduced materials and processes, including lathe-turned parts in North America and Europe, the full launch of additive manufacturing in Europe in the third quarter and the introduction of the lathe process in Japan later in 2015. Our expanded sales and marketing focus is beginning to gain traction. While there is much work ahead, we remain committed to our continued execution and believe our success will result in strong, consistent revenue growth and profitability,” concluded Ms. Holt.

Non-GAAP Financial Measures

The company has included non-GAAP adjusted revenue growth that excludes the impact of changes in foreign currency exchange rates from total revenues in this press release to provide investors with additional information regarding the company’s financial results. Management believes this metric is useful in evaluating the underlying business trends and ongoing operating performance of the company.

The company has also included non-GAAP net income, adjusted for stock-based compensation expense, amortization expense, and non-cash unrealized foreign currency activity (collectively, “non-GAAP net income”), in this press release to provide investors with additional information regarding the company’s financial results. The company has provided below a reconciliation of non-GAAP net income to net income, the most directly comparable measure calculated and presented in accordance with GAAP. Non-GAAP net income is used by the company’s management and board of directors to understand and evaluate operating performance and trends and provides a useful measure for period-to-period comparisons of the company’s business. Accordingly, the company believes that non-GAAP net income provides useful information to investors and others in understanding and evaluating operating results in the same manner as our management and board of directors.

Conference Call

The company has scheduled a conference call to discuss its second quarter financial results today, July 23, 2015 at 8:30 a.m. ET. To access the call in the U.S. please dial 877-709-8150. Outside the U.S. please dial 201-689-8354. No participant code is required. A simultaneous webcast of the call will be available via the investor relations section of the Proto Labs website and the following link: http://edge.media-server.com/m/p/waibd344/lan/en. An audio replay will be available for 14 days following the call on the investor relations section of Proto Labs’ website.

About Proto Labs, Inc.

Proto Labs is the world's fastest digital manufacturing source for custom prototypes and low-volume production parts. The technology-enabled company uses advanced 3D printing, CNC machining and injection molding technologies to produce parts within days. The result is an unprecedented speed-to-market value for product designers and engineers worldwide. Visit protolabs.com for more information.

Forward-Looking Statements

Statements contained in this press release 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. These statements involve known and unknown risks, uncertainties and other factors which may cause the results of Proto Labs 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 within reports filed with the SEC. Other unknown or unpredictable factors also could have material adverse effects on Proto Labs’ future results. The forward-looking statements included in this press release are made only as of the date hereof. Proto Labs cannot guarantee future results, levels of activity, performance or achievements. Accordingly, you should not place undue reliance on these forward-looking statements. Finally, Proto Labs expressly disclaims any intent or obligation to update any forward-looking statements to reflect subsequent events or circumstances.

 

Proto Labs, Inc.

Condensed Consolidated Balance Sheets

(In thousands)

     

June 30,

December 31,

2015

2014

(Unaudited)

Assets

Current assets Cash and cash equivalents $ 56,324 $ 43,329 Short-term marketable securities 31,190 30,706 Accounts receivable, net 29,493 24,226 Inventory 6,828 6,194 Income taxes receivable 2,931 - Other current assets   4,399   3,889 Total current assets 131,165 108,344   Property and equipment, net 100,921 91,626 Long-term marketable securities 54,482 54,318 Goodwill 28,916 28,916 Other intangible assets, net 3,710 4,083 Other long-term assets   197   227 Total assets $ 319,391 $ 287,514  

Liabilities and shareholders' equity

Current liabilities Accounts payable $ 11,334 $ 7,882 Accrued compensation 8,264 6,067 Accrued liabilities and other 1,779 2,718 Income taxes payable - 1,953 Current portion of long-term debt obligations   71   139 Total current liabilities 21,448 18,759   Long-term deferred tax liabilities 2,423 1,846 Long-term debt obligations - 10 Other long-term liabilities 1,533 1,360   Shareholders' equity   293,987   265,539 Total liabilities and shareholders' equity $ 319,391 $ 287,514     Proto Labs, Inc. Condensed Consolidated Statements of Operations (In thousands, except share and per share amounts) (Unaudited)         Three Months Ended Six Months Ended June 30, June 30,

2015

2014

2015

2014

Revenue Protomold $ 39,932 $ 36,255 $ 77,550 $ 68,949 Firstcut 18,585 14,478 34,955 27,858 Fineline   5,452     2,133     10,000     2,133 Total revenue 63,969 52,866 122,505 98,940   Cost of revenue   26,419     20,183     49,701     37,233 Gross profit 37,550 32,683 72,804 61,707   Operating expenses Marketing and sales 9,502 7,261 18,356 13,678 Research and development 4,397 3,914 8,711 7,370 General and administrative   6,304     5,534     12,549     10,237 Total operating expenses   20,203     16,709     39,616     31,285 Income from operations 17,347 15,974 33,188 30,422 Other income (expense), net   (36 )   (66 )   (493 )   37 Income before income taxes 17,311 15,908 32,695 30,459 Provision for income taxes   5,625     4,952     10,556     9,401 Net income $ 11,686   $ 10,956   $ 22,139   $ 21,058   Net income per share: Basic $ 0.45   $ 0.43   $ 0.86   $ 0.82 Diluted $ 0.44   $ 0.42   $ 0.84   $ 0.81   Shares used to compute net income per share: Basic 25,921,111 25,620,005 25,885,888 25,597,055 Diluted 26,277,503 26,146,848 26,245,135 26,132,265     Proto Labs, Inc. Condensed Consolidated Statements of Cash Flows (In thousands) (Unaudited)     Six Months Ended June 30, 2015 2014

Operating activities

Net income $ 22,139 $ 21,058 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 6,940 4,683 Stock-based compensation expense 2,909 2,248 Deferred taxes 620 107 Excess tax benefit from stock-based compensation (989 ) (1,623 ) Amortization of held-to-maturity securities 632 854 Changes in operating assets and liabilities   (4,418 )   (1,310 ) Net cash provided by operating activities   27,833     26,017     Investing activities Purchases of property and equipment (15,717 ) (31,625 ) Acquisitions, net of cash acquired

-

(33,864 ) Purchases of marketable securities (25,389 ) (38,463 ) Proceeds from sales and maturities of marketable securities   24,109     55,441   Net cash used in investing activities   (16,997 )   (48,511 )   Financing activities Payments on debt (77 ) (954 ) Acquisition-related contingent consideration (1,000 ) (400 ) Proceeds from exercises of stock options and other 2,207 1,806 Excess tax benefit from stock-based compensation   989     1,623   Net cash provided by financing activities   2,119     2,075   Effect of exchange rate changes on cash and cash equivalents   40     234  

Net increase (decrease) in cash and cash equivalents

12,995 (20,185 )

Cash and cash equivalents, beginning of period

  43,329     43,039  

Cash and cash equivalents, end of period

$ 56,324   $ 22,854       Proto Labs, Inc. Reconciliation of GAAP to Non-GAAP Financial Measure (In thousands, except share and per share amounts) (Unaudited)         Three Months Ended Six Months Ended June 30, June 30,

2015

2014

2015

2014

Non-GAAP net income, adjusted for stock-based compensation expense, amortization expense and unrealized loss (gain) on foreign currency:

GAAP net income $ 11,686 $ 10,956 $ 22,139 $ 21,058 Add back: Stock-based compensation expense Cost of revenue 132 97 243 179 Marketing and sales 271 240 507 435 Research and development 336 268 630 483 General and administrative   828     645     1,529     1,151   Total stock-based compensation expense 1,567 1,250 2,909 2,248 Income tax benefits on stock-based compensation expense   (479 )   (398 )   (884 )   (710 ) Non-GAAP net income adjusted for stock-based compensation expense   12,774     11,808     24,164     22,596   Add back: Amortization expense General and administrative 186 124 373 124 Income tax benefits on amortization expense   (65 )   (43 )   (131 )   (43 )

Non-GAAP net income adjusted for stock-based compensation and amortization expenses

  12,895     11,889     24,406     22,677   Add back: Unrealized loss (gain) on foreign currency Other income (expense), net 165 140 618 127 Income tax benefits on unrealized loss (gain) on foreign currency   (30 )   (25 )   (128 )   (21 )

Non-GAAP net income adjusted for stock-based compensation expense, amortization expense and unrealized loss (gain) on foreign currency

$ 13,030   $ 12,004   $ 24,896   $ 22,783       Non-GAAP net income per share: Basic $ 0.50   $ 0.47   $ 0.96   $ 0.89   Diluted $ 0.50   $ 0.46   $ 0.95   $ 0.87     Shares used to compute non-GAAP net income per share: Basic 25,921,111 25,620,005 25,885,888 25,597,055 Diluted 26,277,503 26,146,848 26,245,135 26,132,265     Proto Labs, Inc. Comparison of GAAP to Non-GAAP Revenue Growth (In thousands) (Unaudited)     Three Months Ended     % Change   Six Months Ended     % Change June 30, % Constant June 30, % Constant

2015

 

2014

Change

Currencies1

2015

 

2014

Change Currencies1 Revenues United States $ 52,270 $ 42,434 23.2% 23.2% $ 99,699 $ 77,418 28.8% 28.8% Europe 10,083 8,985 12.2% 33.5% 18,864 18,190 3.7% 20.5% Japan 1,616 1,447 11.6% 33.0% 3,942 3,332 18.3% 38.9% Total Revenue $ 63,969 $ 52,866 21.0% 25.2% $ 122,505 $ 98,940 23.8% 27.8%                                  

1 Revenue growth for the three- and six-month periods ended June 30, 2015 has been recalculated using 2014 foreign currency exchange rates in effect during comparable periods to provide information useful in evaluating the underlying business trends excluding the impact of changes in foreign currency exchange rates.

    Proto Labs, Inc. Revenue by Geography - Based on Shipping Location (In thousands) (Unaudited)         Three Months Ended Six Months Ended June 30, June 30,

2015

2014

2015

2014

Revenues Domestic United States $ 49,298 $ 39,966 $ 94,143 $ 72,988 International Europe 10,083 8,985 18,864 18,190 Japan 1,616 1,447 3,942 3,332 United States   2,972   2,468   5,556   4,430 Total international   14,671   12,900   28,362   25,952 Total revenue $ 63,969 $ 52,866 $ 122,505 $ 98,940                     Proto Labs, Inc. Product Developer Information (Unaudited)         Three Months Ended Six Months Ended June 30, June 30, 2015 2014 2015 2014 Unique product developers and engineers served 11,822 9,234 17,194 13,115                  

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For Proto Labs, Inc.Investor Relations:John Way, 763-479-7726john.way@protolabs.comorJenifer Kirtland, 408-656-9496jkirtland@evcgroup.comorMedia Relations:Bill Dietrick, 763-479-7664bill.dietrick@protolabs.com