PRLB Proto Labs Inc

Quarterly Revenue Increases 17 Percent Year over Year to Record $75.0 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, 2016.

Second Quarter 2016 Highlights include:

• Revenue for the second quarter of 2016 was $75.0 million, 17 percent above revenue of $64.0 million in the second quarter of 2015. Alphaform, the German company acquired in the fourth quarter of 2015, contributed $4.8 million in revenue in the second quarter. Excluding this contribution, legacy revenue totaled $70.2 million, an increase of 10 percent compared with the second quarter of 2015.
• Revenue from 3D printing totaled $9.1 million. Excluding Alphaform’s $2.1 million in 3D printing revenue, legacy 3D printing revenue was $7.0 million, an increase of 29 percent from the 2015 second quarter.
• The number of unique product developers and engineers served increased 14 percent to 13,519 from 11,822 in the second quarter of 2015.
• Net income for the second quarter of 2016 was $10.7 million, or $0.40 per diluted share. Non-GAAP net income, excluding the after-tax expense of stock compensation, amortization of intangibles, nonrecurring expenses and unrealized foreign currency gains, was $12.0 million, or $0.45 per diluted share. See “Non-GAAP Financial Measures” below.

“Revenue growth was solid in the second quarter, driven by continued strong growth in 3D printing, strength in our European markets, and the contribution from Alphaform,” said Vicki Holt, President and Chief Executive Officer. “We were also pleased with the legacy growth in Europe in the quarter, which grew 24 percent and we saw an improved performance in Japan with a revenue increase of 46 percent year over year. In the Americas, we experienced slower than expected growth in injection molding and CNC machining. This was primarily due to a slowdown in the US industrial economy as well as attrition in sales leadership.

“During the quarter, we improved our gross margins in both our legacy operations as well as in our Alphaform business. We are also beginning to see traction from our expanded sales and marketing efforts of 3D printing in Europe and anticipate this business will continue to grow throughout the year.”

Additional Second Quarter 2016 Highlights include:

• Gross margin was 56.4 percent of revenue for the second quarter compared with 58.7 percent for the second quarter of 2015 and 54.6 in the first quarter of 2016. Alphaform had a 310 basis point negative impact on gross margin in the second quarter of 2016.
• GAAP operating margin was 19.8 percent of revenue during the second quarter of 2016 compared to 27.1 percent for the second quarter of 2015. On a non-GAAP basis, operating margin was 23.6 percent. See “Non-GAAP Financial Measures” below.
• Cash generated from operations during the second quarter was $19.9 million. Cash and investments increased $7.1 million during the quarter to $164.3 million at June 30, 2016.

“Over the next several quarters, we will be focused on driving actions to improve our sales performance and efficiency through our operations and we expect to see improvement in sales growth, especially in the Americas, over time. We remain confident in the fundamentals in our business - our market size, differentiated proposition and excellent customer experience,” Ms. Holt concluded.

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, amortization expense, unrealized foreign currency activity, impairment on assets and charges related to the exit of facilities (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 second quarter financial results today, July 28, 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/dwf9w9tm/lan/en. 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)   June 30, December 31, 2016 2015 (Unaudited) Assets Current assets Cash and cash equivalents $ 57,331 $ 47,653 Short-term marketable securities 39,216 33,201 Accounts receivable, net 34,486 36,125 Inventory 9,901 9,771 Income taxes receivable 2,005 6,028 Other current assets   5,468   5,224 Total current assets 148,407 138,002   Property and equipment, net 138,685 125,475 Long-term marketable securities 67,730 64,789 Goodwill 28,916 28,916 Other intangible assets, net 2,980 3,337 Other long-term assets   1,305   517 Total assets $ 388,023 $ 361,036   Liabilities and shareholders' equity Current liabilities Accounts payable $ 11,435 $ 13,643 Accrued compensation 9,753 9,993

Accrued liabilities and other

 

2,491

 

2,626

Total current liabilities 23,679 26,262   Long-term deferred tax liabilities 4,632 4,240 Other long-term liabilities 2,928 2,889   Shareholders' equity   356,784   327,645 Total liabilities and shareholders' equity $ 388,023 $ 361,036                                 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,

2016

2015

2016

2015

Revenue Injection Molding (Protomold) $ 44,762 $ 39,932 $ 87,931 $ 77,550 CNC Machining (Firstcut) 19,854 18,585 38,729 34,955 3D Printing (Fineline) 9,099 5,452 18,209 10,000 Other   1,246   -     2,660   -   Total revenue 74,961 63,969 147,529 122,505   Cost of revenue   32,715   26,419     65,629   49,701   Gross profit 42,246 37,550 81,900 72,804   Operating expenses Marketing and sales 11,453 9,502 22,395 18,356 Research and development 5,816 4,397 11,134 8,711 General and administrative   10,126   6,304     18,377   12,549   Total operating expenses   27,395   20,203     51,906   39,616   Income from operations 14,851 17,347 29,994 33,188 Other income (expense), net   1,092   (36 )   1,717   (493 ) Income before income taxes 15,943 17,311 31,711 32,695 Provision for income taxes   5,252   5,625     10,358   10,556   Net income $ 10,691 $ 11,686   $ 21,353 $ 22,139     Net income per share: Basic $ 0.41 $ 0.45   $ 0.81 $ 0.86   Diluted $ 0.40 $ 0.44   $ 0.80 $ 0.84     Shares used to compute net income per share: Basic 26,368,001 25,921,111 26,295,074 25,885,888 Diluted 26,561,148 26,277,503 26,526,629 26,245,135                                                 Proto Labs, Inc. Condensed Consolidated Statements of Cash Flows (In thousands) (Unaudited)   Six Months Ended June 30, 2016 2015 Operating activities Net income $ 21,353 $ 22,139 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 8,147 6,940 Stock-based compensation expense 3,541 2,909 Deferred taxes 403 620 Excess tax benefit from stock-based compensation (1,916 ) (989 ) Amortization of held-to-maturity securities 590 632 Loss on impairment of assets 455 - Other (1,095 ) - Changes in operating assets and liabilities   5,084     (4,418 ) Net cash provided by operating activities   36,562     27,833     Investing activities Purchases of property and equipment (22,416 ) (15,717 ) Purchases of marketable securities (38,304 ) (25,389 ) Proceeds from sales and maturities of marketable securities   28,759     24,109   Net cash used in investing activities   (31,961 )   (16,997 )   Financing activities Payments on debt - (77 ) Acquisition-related contingent consideration (400 ) (1,000 ) Proceeds from exercises of stock options and other 3,729 2,207 Excess tax benefit from stock-based compensation   1,916     989   Net cash provided by financing activities   5,245     2,119   Effect of exchange rate changes on cash and cash equivalents   (168 )   40   Net increase in cash and cash equivalents 9,678 12,995 Cash and cash equivalents, beginning of period   47,653     43,329   Cash and cash equivalents, end of period $ 57,331   $ 56,324                                       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 June 30, 2016 June 30, 2015

GAAP

Adjustments

Non-GAAP

GAAP

Adjustments

Non-GAAP

Revenue Injection Molding (Protomold) $ 44,762 $ - $ 44,762 $ 39,932 $ - $ 39,932 CNC Machining (Firstcut) 19,854 - 19,854 18,585 - 18,585 3D Printing (Fineline) 9,099 - 9,099 5,452 - 5,452 Other   1,246   -     1,246   -     -     - Total revenue 74,961 - 74,961 63,969 - 63,969   Cost of revenue   32,715   (268 )   32,447   26,419     (131 )   26,288 Gross profit 42,246 268 42,514 37,550 131 37,681   Operating expenses Marketing and sales 11,453 (213 ) 11,240 9,502 (271 ) 9,231 Research and development 5,816 (480 ) 5,336 4,397 (336 ) 4,061 General and administrative   10,126   (1,892 )   8,234   6,304     (1,015 )   5,289 Total operating expenses   27,395   (2,585 )   24,810   20,203     (1,622 )   18,581 Income from operations 14,851 2,853 17,704 17,347 1,753 19,100 Other income (expense), net   1,092   (806 )   286   (36 )   165     129 Income before income taxes 15,943 2,047 17,990 17,311 1,918 19,229 Provision for income taxes   5,252   773     6,025   5,625     574     6,199 Net income $ 10,691 $ 1,274   $ 11,965 $ 11,686   $ 1,344   $ 13,030   Net income per share: Basic $ 0.41 $ 0.04   $ 0.45 $ 0.45   $ 0.05   $ 0.50 Diluted $ 0.40 $ 0.05   $ 0.45 $ 0.44   $ 0.06   $ 0.50   Shares used to compute net income per share: Basic 26,368,001 26,368,001 26,368,001 25,921,111 25,921,111 25,921,111 Diluted 26,561,148 26,561,148 26,561,148 26,277,503 26,277,503 26,277,503                                                     Proto Labs, Inc. Reconciliation of GAAP to Non-GAAP Condensed Consolidated Statements of Operations (In thousands, except share and per share amounts) (Unaudited)   Six Months Ended Six Months Ended June 30, 2016 June 30, 2015

GAAP

Adjustments

Non-GAAP

GAAP

Adjustments

Non-GAAP

Revenue Injection Molding (Protomold) $ 87,931 $ - $ 87,931 $ 77,550 $ - $ 77,550 CNC Machining (Firstcut) 38,729 - 38,729 34,955 - 34,955 3D Printing (Fineline) 18,209 - 18,209 10,000 - 10,000 Other   2,660   -     2,660   -     -     - Total revenue 147,529 - 147,529 122,505 - 122,505   Cost of revenue   65,629   (398 )   65,231   49,701     (243 )   49,458 Gross profit 81,900 398 82,298 72,804 243 73,047   Operating expenses Marketing and sales 22,395 (491 ) 21,904 18,356 (507 ) 17,849 Research and development 11,134 (774 ) 10,360 8,711 (630 ) 8,081 General and administrative   18,377   (3,108 )   15,269   12,549     (1,902 )   10,647 Total operating expenses   51,906   (4,373 )   47,533   39,616     (3,039 )   36,577 Income from operations 29,994 4,771 34,765 33,188 3,282 36,470 Other income (expense), net   1,717   (1,130 )   587   (493 )   618     125 Income before income taxes 31,711 3,641 35,352 32,695 3,900 36,595 Provision for income taxes   10,358   1,310     11,668   10,556     1,143     11,699 Net income $ 21,353 $ 2,331   $ 23,684 $ 22,139   $ 2,757   $ 24,896   Net income per share: Basic $ 0.81 $ 0.09   $ 0.90 $ 0.86   $ 0.10   $ 0.96 Diluted $ 0.80 $ 0.09   $ 0.89 $ 0.84   $ 0.11   $ 0.95   Shares used to compute net income per share: Basic 26,295,074 26,295,074 26,295,074 25,885,888 25,885,888 25,885,888 Diluted 26,526,629 26,526,629 26,526,629 26,245,135 26,245,135 26,245,135                                                 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 Six Months Ended June 30, June 30,

2016

2015

2016

2015

Non-GAAP net income, adjusted for stock-based compensation expense, amortization expense, unrealized (gain) loss on foreign currency, impairment on assets and charges related to the exit of facilities GAAP net income $ 10,691 $ 11,686 $ 21,353 $ 22,139 Add back: Stock-based compensation expense 1,809 1,567 3,541 2,909 Amortization expense 171 186 357 373 Impairment on assets 455 - 455 - Facilities-related charges 418 - 418 - Unrealized (gain) loss on foreign currency   (806 )   165     (1,130 )   618   Total adjustments   2,047     1,918     3,641     3,900   Income tax benefits on adjustments   (773 )   (574 )   (1,310 )   (1,143 ) Non-GAAP net income $ 11,965   $ 13,030   $ 23,684   $ 24,896       Non-GAAP net income per share: Basic $ 0.45   $ 0.50   $ 0.90   $ 0.96   Diluted $ 0.45   $ 0.50   $ 0.89   $ 0.95     Shares used to compute non-GAAP net income per share: Basic 26,368,001 25,921,111 26,295,074 25,885,888 Diluted 26,561,148 26,277,503 26,526,629 26,245,135                                                 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

2016

2015

Change

Currencies1

2016

2015

Change

Currencies1

Revenues United States $ 55,323 $ 52,270 5.8 % 5.8 % $ 109,791 $ 99,699 10.1 % 10.1 % Europe 17,277 10,083 71.3 % 73.5 % 32,907 18,864 74.4 % 78.2 % Japan   2,361   1,616 46.1 % 29.4 %   4,831   3,942 22.6 % 13.5 % Total Revenue $ 74,961 $ 63,969 17.2 % 17.1 % $ 147,529 $ 122,505 20.4 % 20.7 %                                         1 Revenue growth for the three- and six-month periods ended June 30, 2016 has been recalculated using 2015 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 Six Months Ended % Change June 30, % Constant June 30, % Constant

2016

2015

Change2

Currencies2

2016

2015

Change2

Currencies2 Revenues United States $ 55,323 $ 52,270 5.8 % 5.8 % $ 109,791 $ 99,699 10.1 % 10.1 % Europe 12,503 10,083 24.0 % 26.3 % 23,242 18,864 23.2 % 27.1 % Japan   2,361   1,616 46.1 % 29.4 %   4,831   3,942 22.6 % 13.5 % Total Revenue $ 70,187 $ 63,969 9.7 % 9.6 % $ 137,864 $ 122,505 12.5 % 12.8 %                                         2 Revenue growth for the three- and six-month periods ended June 30, 2016 has been recalculated to exclude revenue earned from our acquisition of Alphaform, and using 2015 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,

2016

2015

2016

2015

Revenues Domestic United States $ 51,852 $ 49,298 $ 102,419 $ 94,143 International Europe 17,277 10,083 32,907 18,864 Japan 2,361 1,616 4,831 3,942 United States   3,471   2,972   7,372   5,556 Total international   23,109   14,671   45,110   28,362 Total revenue $ 74,961 $ 63,969 $ 147,529 $ 122,505                                     Proto Labs, Inc. Product Developer Information (Unaudited)   Three Months Ended Six Months Ended June 30, June 30, 2016 2015 2016 2015 Unique product developers and engineers served 13,519 11,822 20,240 17,194                     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