PRLB Proto Labs Inc

Quarterly Revenue Up 32% Year over Year to $73.8 MillionFull Year 2015 Revenue Up 26% over 2014 to $264.1 Million

Proto Labs, Inc. (NYSE: PRLB), a leading online and technology-enabled, quick-turn, on-demand manufacturer, today announced financial results for the fourth quarter and full year ended December 31, 2015.

Fourth Quarter 2015 Highlights include:

• Revenue for the fourth quarter of 2015 increased to a record $73.8 million, 32 percent above revenue of $56.1 million in the fourth quarter of 2014. Excluding the $5.1 million revenue contribution from Alphaform, the German company acquired in the fourth quarter of 2015, legacy revenue totaled $68.7 million, an increase of 22.5 percent compared with the prior year’s fourth quarter. Excluding the negative impact on revenue from foreign currency exchange rates (“constant currency”), legacy revenue was up 25 percent versus the prior year.
• Revenue from 3D printing totaled $9.1 million. Excluding the Alphaform 3D printing revenue of $2.5 million, legacy 3D printing revenue was $6.6 million, an increase of 69 percent from the fourth quarter of 2014.
• Revenue growth was driven by a 21 percent increase in the number of unique product developers and engineers served to 12,414 from 10,231 in the fourth quarter of 2014.
• Net income for the fourth quarter of 2015 was $12.0 million, or $0.45 per diluted share. Non-GAAP net income, excluding the after-tax expense of stock compensation, transaction costs and a bargain purchase gain related to the Alphaform acquisition, amortization of intangibles and unrealized foreign currency gains, was $13.4 million, or $0.50 per diluted share. See “Non-GAAP Financial Measures” below.

“In 2015, Proto Labs’ differentiated, technology-enabled digital manufacturing model helped more and more product developers rapidly take their ideas from concept to low volume production, saving R&D expense and getting their products to market faster. The fourth quarter was a strong ending to a very good year for Proto Labs with excellent growth across all our geographies and business lines,” said Vicki Holt, President and Chief Executive Officer. “On a constant currency basis, revenue in North America increased 22 percent; Europe, excluding Alphaform, grew 35 percent and Japan was up 54 percent. This strength was the result of solid execution of our marketing and sales strategy, our digital manufacturing model, which allows us to consistently deliver high quality parts, our outstanding manufacturing team members who continue to successfully scale our operations, and finally, continued strong customer demand for all our service offerings. During the quarter, on a consolidated basis, revenue from injection molding grew 23 percent, setting another quarterly record and revenue from CNC machining increased 19 percent. We were especially pleased with the growth of revenue from our legacy 3D printing, up 69 percent. This was a solid demonstration of the success of our cross-selling efforts.

“We acquired Alphaform during the quarter to accelerate our launch of 3D printing in Europe. Our new Proto Labs team members who joined us from Alphaform are partnering closely with our European and global team on the integration of that business into Proto Labs’ business model and we are on schedule. During the quarter, we completed training of the combined sales force on the full suite of our service offerings and we completed implementation of a manual order interface that will now allow customers to place orders over the Proto Labs’ website. The response to our outreach to Alphaform customers and new customers in Europe has been extremely positive and we are confident in the enhanced market opportunity that this acquisition has provided.”

Additional Fourth Quarter Highlights include:

• Gross margin was 56.0 percent of revenue for the fourth quarter compared with 59.4 percent for the third quarter of 2015 and 59.9 percent during the fourth quarter last year. The decrease from both periods was primarily due to the 260 basis point impact of the Alphaform acquisition. Other drivers included additional investments in capacity and foreign currency exchange rates.
• GAAP operating margin was 22.4 percent of revenue during the fourth quarter of 2015 compared to 26.2 percent for the fourth quarter of 2014. On a non-GAAP basis, operating margins were 25.3 percent. See “Non-GAAP Financial Measures” below.
• Cash generated from operations during the fourth quarter totaled $17.3 million.

Full Year 2015 Highlights include:

• Revenue increased 26 percent to $264.1 million compared with $209.6 million in 2014. Excluding the $5.1 million revenue contribution from Alphaform, legacy revenue totaled $259.0 million, an increase of 23.6 percent compared to 2014. On a constant currency basis, 2015 legacy revenue grew 27.2 percent and 29.6 percent including Alphaform.
• Net income for 2015 increased to $46.5 million, or $1.77 per diluted share compared with $41.6 million, or $1.60 per diluted share in 2014. Non-GAAP net income, excluding the after-tax expense of stock compensation, transaction costs and a bargain purchase gain related to the Alphaform acquisition, amortization of intangibles and unrealized foreign currency gains, was $51.9 million, or $1.97 per diluted share. See “Non-GAAP Financial Measures” below.
• Cash generated from operations during the year totaled $58.6 million. Cash, cash equivalents and investments were $145.6 million at December 31, 2015 compared with $128.4 million at December 31, 2014.

“Our accomplishments in 2015 have positioned us well for continued, sustainable growth and profitability. In 2016, we will focus on executing our strategy to reliably and quickly deliver quality custom parts to an increasing number of product developers. We will complete the integration of Alphaform into Proto Labs’ operations so that our European customers can purchase 3D-printed parts from all three of our technologies with the same reliability, quality and speed that the company is known for. We are continually refining our marketing and sales based on the successes we have seen over the past year. We will make further investments in R&D in 2016 and anticipate the launch of at least one significant new product offering within our injection molding service during the year. And we will pursue our ongoing efforts to ensure the most efficient, cost-effective manufacturing of high-quality parts. Proto Labs enjoys a very large market opportunity worldwide and demand for all our services remains strong. We have a clear strategy to capitalize on the unique value we deliver to customers, which will result in sustainable revenue and profit growth and allow us to continue to meet our commitments to all our stakeholders,” 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 and legacy revenue excluding the revenue contribution from Alphaform from total revenues in this press release to provide investors with additional information regarding the company’s financial results. Management believes these metrics are 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, transaction expenses and a bargain purchase gain related to the acquisition of Alphaform, amortization expense, and 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 also included a reconciliation of non-GAAP condensed consolidated statement of operations to GAAP condensed consolidated statement of operations. The non-GAAP condensed consolidated statement of operations provides non-GAAP operating income and non-GAAP net income, which are used by the company’s management and board of directors to understand and evaluate operating performance and trends and provide useful measures for period-to-period comparisons of the company’s business. Accordingly, the company believes that non-GAAP operating income and non-GAAP net income provide 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 fourth quarter and full year 2015 financial results today, February 4, 2016 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/gv3m2epe. A 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)           December 31, December 31, 2015 2014 (Unaudited) Assets Current assets Cash and cash equivalents $ 47,653 $ 43,329 Short-term marketable securities 33,201 30,706 Accounts receivable, net 36,125 24,226 Inventory 9,771 6,194 Income taxes receivable 6,028 - Other current assets   5,224   3,889 Total current assets 138,002 108,344   Property and equipment, net 125,475 91,626 Long-term marketable securities 64,789 54,318 Goodwill 28,916 28,916 Other intangible assets, net 3,337 4,083 Other long-term assets   517   227 Total assets $ 361,036 $ 287,514   Liabilities and shareholders' equity Current liabilities Accounts payable $ 13,643 $ 7,882 Accrued compensation 9,993 6,067 Accrued liabilities and other 2,626 2,718 Income taxes payable - 1,953 Current portion of long-term debt obligations   -   139 Total current liabilities 26,262 18,759   Long-term deferred tax liabilities 4,240 1,846 Long-term debt obligations - 10 Other long-term liabilities 2,889 1,360   Shareholders' equity   327,645   265,539 Total liabilities and shareholders' equity $ 361,036 $ 287,514     Proto Labs, Inc. Condensed Consolidated Statements of Operations (In thousands, except share and per share amounts) (Unaudited)                 Three Months Ended Year Ended December 31, December 31,

2015

2014

2015

2014

Revenue Injection Molding (Protomold) $ 43,865 $ 35,678 $ 163,387 $ 140,282 CNC Machining (Firstcut) 19,581 16,507 74,368 59,914 3D Printing (Fineline) 9,094 3,884 25,132 9,387 Other   1,219   -   1,219   - Total revenue 73,759 56,069 264,106 209,583   Cost of revenue   32,485   22,457   109,703   81,182 Gross profit 41,274 33,612 154,403 128,401   Operating expenses Marketing and sales 10,805 8,115 39,188 29,144 Research and development 4,879 4,682 18,350 16,607 General and administrative   9,033   6,152   29,716   22,122 Total operating expenses   24,717   18,949   87,254   67,873 Income from operations 16,557 14,663 67,149 60,528 Other income, net   612   22   712   3 Income before income taxes 17,169 14,685 67,861 60,531 Provision for income taxes   5,176   4,492   21,347   18,896 Net income $ 11,993 $ 10,193 $ 46,514 $ 41,635   Net income per share: Basic $ 0.46 $ 0.39 $ 1.79 $ 1.62 Diluted $ 0.45 $ 0.39 $ 1.77 $ 1.60   Shares used to compute net income per share: Basic 26,164,340 25,815,973 26,005,858 25,692,699 Diluted 26,465,043 26,152,891 26,320,284 26,100,320     Proto Labs, Inc. Condensed Consolidated Statements of Cash Flows (In thousands) (Unaudited)         Year Ended December 31, 2015 2014 Operating activities Net income $ 46,514 $ 41,635 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 14,126 11,138 Stock-based compensation expense 6,082 4,809 Deferred taxes 2,837 (1,875 ) Excess tax benefit from stock-based compensation (5,539 ) (4,470 ) Amortization of held-to-maturity securities 1,234 1,517 Gain on acquisition (344 ) - Changes in operating assets and liabilities   (6,353 )   4,456   Net cash provided by operating activities   58,557     57,210     Investing activities Purchases of property and equipment (44,362 ) (43,507 ) Acquisitions, net of cash acquired (5,032 ) (33,864 ) Purchases of marketable securities (66,393 ) (60,186 ) Proceeds from sales and maturities of marketable securities   52,193     74,058   Net cash used in investing activities   (63,594 )   (63,499 )   Financing activities Payments on debt (152 ) (1,054 ) Acquisition-related contingent consideration (1,400 ) (1,200 ) Proceeds from exercises of stock options and other 6,251 4,820 Excess tax benefit from stock-based compensation   5,539     4,470   Net cash provided by financing activities   10,238     7,036   Effect of exchange rate changes on cash and cash equivalents   (877 )   (457 ) Net increase in cash and cash equivalents 4,324 290 Cash and cash equivalents, beginning of period   43,329     43,039   Cash and cash equivalents, end of period $ 47,653   $ 43,329       Proto Labs, Inc. Reconciliation of GAAP to Non-GAAP Condensed Consolidated Statements of Operations (In thousands, except share and per share amounts) (Unaudited)                         Three Months Ended Three Months Ended December 31, 2015 December 31, 2014

GAAP

Adjustments

Non-GAAP

GAAP

Adjustments

Non-GAAP

Revenue Injection Molding (Protomold) $ 43,865 $ - $ 43,865 $ 35,678 $ - $ 35,678 CNC Machining (Firstcut) 19,581 - 19,581 16,507 - 16,507 3D Printing (Fineline) 9,094 - 9,094 3,884 - 3,884 Other   1,219   -     1,219   -   -     - Total revenue 73,759 - 73,759 56,069 - 56,069   Cost of revenue   32,485   (135 )   32,350   22,457   (104 )   22,353 Gross profit 41,274 135 41,409 33,612 104 33,716   Operating expenses Marketing and sales 10,805 (279 ) 10,526 8,115 (242 ) 7,873 Research and development 4,879 (318 ) 4,561 4,682 (278 ) 4,404 General and administrative   9,033   (1,364 )   7,669   6,152   (810 )   5,342 Total operating expenses   24,717   (1,961 )   22,756   18,949   (1,330 )   17,619 Income from operations 16,557 2,096 18,653 14,663 1,434 16,097 Other income (expense), net   612   (301 )   311   22   44     66 Income before income taxes 17,169 1,795 18,964 14,685 1,478 16,163 Provision for income taxes   5,176   417     5,593   4,492   474     4,966 Net income $ 11,993 $ 1,378   $ 13,371 $ 10,193 $ 1,004   $ 11,197   Net income per share: Basic $ 0.46 $ 0.05   $ 0.51 $ 0.39 $ 0.04   $ 0.43 Diluted $ 0.45 $ 0.05   $ 0.50 $ 0.39 $ 0.04   $ 0.43   Shares used to compute net income per share: Basic 26,164,340 26,164,340 26,164,340 25,815,973 25,815,973 25,815,973 Diluted 26,465,043 26,465,043 26,465,043 26,152,891 26,152,891 26,152,891     Proto Labs, Inc. Reconciliation of GAAP to Non-GAAP Condensed Consolidated Statements of Operations (In thousands, except share and per share amounts) (Unaudited)                         Year Ended Year Ended December 31, 2015 December 31, 2014

GAAP

Adjustments

Non-GAAP

GAAP

Adjustments

Non-GAAP

Revenue Injection Molding (Protomold) $ 163,387 $ - $ 163,387 $ 140,282 $ - $ 140,282 CNC Machining (Firstcut) 74,368 - 74,368 59,914 - 59,914 3D Printing (Fineline) 25,132 - 25,132 9,387 - 9,387 Other   1,219   -     1,219   -   -     - Total revenue 264,106 - 264,106 209,583 - 209,583   Cost of revenue   109,703   (513 )   109,190   81,182   (386 )   80,796 Gross profit 154,403 513 154,916 128,401 386 128,787   Operating expenses Marketing and sales 39,188 (1,074 ) 38,114 29,144 (927 ) 28,217 Research and development 18,350 (1,285 ) 17,065 16,607 (1,048 ) 15,559 General and administrative   29,716   (4,871 )   24,845   22,122   (2,944 )   19,178 Total operating expenses   87,254   (7,230 )   80,024   67,873   (4,919 )   62,954 Income from operations 67,149 7,743 74,892 60,528 5,305 65,833 Other income (expense), net   712   (90 )   622   3   275     278 Income before income taxes 67,861 7,653 75,514 60,531 5,580 66,111 Provision for income taxes   21,347   2,240     23,587   18,896   1,758     20,654 Net income $ 46,514 $ 5,413   $ 51,927 $ 41,635 $ 3,822   $ 45,457   Net income per share: Basic $ 1.79 $ 0.21   $ 2.00 $ 1.62 $ 0.15   $ 1.77 Diluted $ 1.77 $ 0.21   $ 1.97 $ 1.60 $ 0.15   $ 1.74   Shares used to compute net income per share: Basic 26,005,858 26,005,858 26,005,858 25,692,699 25,692,699 25,692,699 Diluted 26,320,284 26,320,284 26,320,284 26,100,320 26,100,320 26,100,320     Proto Labs, Inc. Reconciliation of GAAP to Non-GAAP Net Income per Share (In thousands, except share and per share amounts) (Unaudited)                 Three Months Ended Year Ended December 31, December 31,

2015

2014

2015

2014

Non-GAAP net income, adjusted for stock-based compensation expense, amortization expense, unrealized loss on foreign currency, gain on acquisition and acquisition costs: GAAP net income $ 11,993 $ 10,193 $ 46,514 $ 41,635 Add back: Stock-based compensation expense 1,567 1,248 6,082 4,809 Amortization expense 186 186 746 496 Unrealized loss on foreign currency 43 44 254 275 Acquisition costs 343 - 915 - Gain on acquisition   (344 )   -     (344 )   -   Total adjustments   1,795     1,478     7,653     5,580   Income tax benefits on adjustments   (417 )   (474 )   (2,240 )   (1,758 ) Non-GAAP net income $ 13,371   $ 11,197   $ 51,927   $ 45,457       Non-GAAP net income per share: Basic $ 0.51   $ 0.43   $ 2.00   $ 1.77   Diluted $ 0.50   $ 0.43   $ 1.97   $ 1.74     Shares used to compute non-GAAP net income per share: Basic 26,164,340 25,815,973 26,005,858 25,692,699 Diluted 26,465,043 26,152,891 26,320,284 26,100,320     Proto Labs, Inc. Comparison of GAAP to Non-GAAP Revenue Growth (In thousands) (Unaudited)                     Three Months Ended % Change Year Ended % Change December 31, % Constant December 31, % Constant

2015

2014

Change Currencies1

2015

2014

Change Currencies1 Revenues United States $ 53,911 $ 44,336 21.6 % 21.6 % $ 208,017 $ 165,117 26.0 % 26.0 % Europe 17,271 9,967 73.3 % 87.9 % 47,433 37,490 26.5 % 44.5 % Japan   2,577   1,766 45.9 % 54.1 %   8,656   6,976 24.1 % 41.3 % Total Revenue $ 73,759 $ 56,069 31.6 % 34.0 % $ 264,106 $ 209,583 26.0 % 29.6 %  

1 Revenue growth for the three months and year ended December 31, 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.

    Three Months Ended % Change Year Ended % Change December 31, % Constant December 31, % Constant

2015

2014

Change2

Currencies2

2015

2014

Change2

Currencies2 Revenues United States $ 53,911 $ 44,336 21.6 % 21.6 % $ 208,017 $ 165,117 26.0 % 26.0 % Europe 12,190 9,967 22.3 % 34.7 % 42,352 37,490 13.0 % 29.7 % Japan   2,577   1,766 45.9 % 54.1 %   8,656   6,976 24.1 % 41.3 % Total Revenue $ 68,678 $ 56,069 22.5 % 25.0 % $ 259,025 $ 209,583 23.6 % 27.2 %   2 Revenue growth for the three months and year ended December 31, 2015 has been recalculated to exclude revenue earned from our acquisition of Alphaform, and 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 Year Ended December 31, December 31,

2015

2014

2015

2014

Revenues Domestic United States $ 49,709 $ 42,223 $ 194,065 $ 156,033 International Europe 17,271 9,967 47,433 37,490 Japan 2,577 1,766 8,656 6,976 United States   4,202   2,113   13,952   9,084 Total international   24,050   13,846   70,041   53,550 Total revenue $ 73,759 $ 56,069 $ 264,106 $ 209,583     Proto Labs, Inc. Product Developer Information (Unaudited)                 Three Months Ended Year Ended December 31, December 31, 2015 2014 2015 2014 Unique product developers and engineers served 12,414 10,231 27,235 21,552                           Note: the data above does not include product developers and engineers who purchased products attributable to our acquisition of Alphaform during the periods presented  

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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