PRLB Proto Labs Inc

Quarterly Revenue Increases 9.4% to a Record $82.0 million

Quarterly Net Income Increases 13.0% to $12.1 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, 2017.

Second Quarter 2017 Highlights include:

• Revenue for the second quarter of 2017 was $82.0 million, 9.4 percent above revenue of $75.0 million in the second quarter of 2016.
• The number of unique product developers and engineers served totaled 16,174 in the second quarter of 2017, an increase of 18.8 percent over the second quarter of 2016.
• Net income for the second quarter of 2017 was $12.1 million, or $0.45 per diluted share. Non-GAAP net income, excluding the after-tax expense of stock compensation, amortization of intangibles, legal settlements and unrealized foreign currency gains, was $13.1 million, or $0.49 per diluted share. See “Non-GAAP Financial Measures” below.

“We delivered record revenue this quarter with the Americas leading the way with 14.5 percent year-over-year growth,” said Vicki Holt, President and Chief Executive Officer. “Our revenue growth was driven by an 18.8 percent growth in the number of unique product developers we served this quarter, reflecting continued penetration of our market opportunity.”

Additional Second Quarter 2017 Highlights include:

• Gross margin was 56.5 percent of revenue for the second quarter of 2017 compared with 56.4 percent for the second quarter of 2016.
• Operating margin was 20.0 percent of revenue during the second quarter of 2017 compared to 19.8 percent of revenue for the second quarter of 2016.
• The company generated $20.6 million in cash from operations during the second quarter of 2017.
• Cash and investments balance increased to $217.9 million at June 30, 2017.

“We continue to execute on our initiative to expand our product envelope. Our recently launched on-demand manufacturing offering tailors our injection molding service to address the specific needs of the customer. This offering includes a suite of inspection reports, including a digital inspection report option, a lifetime mold guarantee and more competitive piece part pricing to the on-demand manufacturing customer,” concluded 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 non-GAAP adjusted revenue growth that excludes the impact of discontinued businesses, discontinued manufacturing processes, and unprofitable Alphaform 3D printing contracts 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 operating margin, adjusted for stock-based compensation expense, amortization expense, impairment on assets and facilities-related charges (collectively, “non-GAAP operating margin”), in this press release to provide investors with additional information regarding the company’s financial results.

The company has also included non-GAAP net income, adjusted for stock-based compensation expense, amortization expense, impairment on assets, facilities-related charges, legal settlement 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 provided a reconciliation of GAAP to non-GAAP 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 provide useful measures 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 2017 financial results today, July 27, 2017 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/pcgxg5mm. 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, 2017 2016 (Unaudited) Assets Current assets Cash and cash equivalents $ 99,196 $ 68,795 Short-term marketable securities 48,272 39,477 Accounts receivable, net 42,211 34,060 Inventory 9,327 9,310 Income taxes receivable - 445 Other current assets   5,915   5,697 Total current assets 204,921 157,784   Property and equipment, net 146,364 139,474 Long-term marketable securities 69,435 84,479 Goodwill 28,916 28,916 Other intangible assets, net 2,367 2,655 Other long-term assets   2,650   933 Total assets $ 454,653 $ 414,241   Liabilities and shareholders' equity Current liabilities Accounts payable $ 14,147 $ 11,322 Accrued compensation 10,990 7,670 Accrued liabilities and other 4,530 4,435 Income taxes payable   1,383   - Total current liabilities 31,050 23,427   Long-term deferred tax liabilities 8,613 7,003 Other long-term liabilities 4,186 3,978   Shareholders' equity   410,804   379,833 Total liabilities and shareholders' equity $ 454,653 $ 414,241     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,

2017

2016

2017

2016

Revenue Injection Molding $ 46,792 $ 44,762 $ 94,708 $ 87,931 CNC Machining 24,180 19,854 46,152 38,729 3D Printing 10,873 9,099 20,958 18,209 Other   195   1,246   389   2,660 Total revenue 82,040 74,961 162,207 147,529   Cost of revenue   35,671   32,715   70,565   65,629 Gross profit 46,369 42,246 91,642 81,900   Operating expenses Marketing and sales 14,630 11,453 27,617 22,395 Research and development 6,084 5,816 11,907 11,134 General and administrative   9,253   10,126   18,034   18,377 Total operating expenses   29,967   27,395   57,558   51,906 Income from operations 16,402 14,851 34,084 29,994 Other income, net   1,173   1,092   1,488   1,717 Income before income taxes 17,575 15,943 35,572 31,711 Provision for income taxes   5,489   5,252   11,286   10,358 Net income $ 12,086 $ 10,691 $ 24,286 $ 21,353   Net income per share: Basic $ 0.46 $ 0.41 $ 0.91 $ 0.81 Diluted $ 0.45 $ 0.40 $ 0.91 $ 0.80   Shares used to compute net income per share: Basic 26,541,978 26,368,001 26,554,262 26,295,074 Diluted 26,649,152 26,561,148 26,710,217 26,526,629                                       Proto Labs, Inc. Condensed Consolidated Statements of Cash Flows (In thousands) (Unaudited)         Six Months Ended June 30, 2017 2016 Operating activities Net income $ 24,286 $ 21,353 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 8,700 8,147 Stock-based compensation expense 3,958 3,541 Deferred taxes 1,608 403 Amortization of held-to-maturity securities 592 590 Loss on impairment of assets - 455 Other 77 (1,095 ) Changes in operating assets and liabilities   206     5,084   Net cash provided by operating activities   39,427     38,478     Investing activities Purchases of property and equipment (13,301 ) (22,416 ) Purchases of marketable securities (20,037 ) (38,304 ) Proceeds from maturities of marketable securities 25,194 28,759 Purchases of other investments   (514 )   -   Net cash used in investing activities   (8,658 )   (31,961 )   Financing activities Acquisition-related contingent consideration - (400 ) Proceeds from exercises of stock options and other 3,791 3,729 Repurchases of common stock   (4,410 )   -   Net cash provided by (used in) financing activities   (619 )   3,329   Effect of exchange rate changes on cash and cash equivalents   251     (168 ) Net increase in cash and cash equivalents 30,401 9,678 Cash and cash equivalents, beginning of period   68,795     47,653   Cash and cash equivalents, end of period $ 99,196   $ 57,331                             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,

2017

2016

2017

2016

Non-GAAP net income, adjusted for stock-based compensation expense, amortization expense, unrealized gain on foreign currency, legal settlement, impairment on assets and charges related to the exit of facilities

GAAP net income $ 12,086 $ 10,691 $ 24,286 $ 21,353 Add back: Stock-based compensation expense 2,242 1,809 3,958 3,541 Amortization expense 125 171 288 357 Impairment on assets - 455 - 455 Facilities-related charges - 418 - 418 Unrealized gain on foreign currency (412 ) (806 ) (349 ) (1,130 ) Legal settlement   (417 )   -     (417 )   -   Total adjustments 1   1,538     2,047     3,480     3,641   Income tax benefits on adjustments 2   (501 )   (773 )   (1,079 )   (1,310 ) Non-GAAP net income $ 13,123   $ 11,965   $ 26,687   $ 23,684       Non-GAAP net income per share: Basic $ 0.49   $ 0.45   $ 1.01   $ 0.90   Diluted $ 0.49   $ 0.45   $ 1.00   $ 0.89     Shares used to compute non-GAAP net income per share: Basic 26,541,978 26,368,001 26,554,262 26,295,074 Diluted 26,649,152 26,561,148 26,710,217 26,526,629                             1 Stock-based compensation expense, amortization expense, impairment on assets, facilities-related charges, unrealized gain on foreign currency and legal settlement were included in the following GAAP consolidated statement of operations categories:   Three Months Ended Six Months Ended June 30, June 30,

2017

2016

2017

2016

Cost of revenue $ 237 $ 268 $ 434 $ 398 Marketing and sales 339 213 607 491 Research and development 279 480 501 774 General and administrative 1,512 1,892 2,704 3,108 Other income, net   (829 )   (806 )   (766 )   (1,130 ) Total adjustments $ 1,538   $ 2,047   $ 3,480   $ 3,641     2 For the three months ended June 30, 2017 and 2016, income tax effects were calculated reflecting an effective GAAP tax rate of 31.2% and 32.9%, respectively, and an effective non-GAAP tax rate of 31.3% and 33.5%, respectively. For the six months ended June 30, 2017 and 2016, income tax effects were calculated reflecting an effective GAAP tax rate of 31.7% and 32.7%, respectively, and an effective non-GAAP tax rate of 31.7% and 33.0%, respectively. Our GAAP tax rates for the three and six months ended June 30, 2017 and 2016 differ from our non-GAAP tax rates for the same periods due primarily to the mix of activity incurred in domestic and foreign tax jurisdictions.       Proto Labs, Inc. Reconciliation of GAAP to Non-GAAP Operating Margin (In thousands) (Unaudited)                 Three Months Ended Six Months Ended June 30, June 30,

2017

2016

2017

2016

Revenue $ 82,040 $ 74,961 $ 162,207 $ 147,529 Income from operations   16,402     14,851     34,084     29,994   GAAP operating margin 20.0 % 19.8 % 21.0 % 20.3 % Add back: Stock-based compensation expense 2,242 1,809 3,958 3,541 Amortization expense 125 171 288 357 Impairment on assets - 455 - 455 Facilities-related charges   -     418     -     418   Total adjustments   2,367     2,853     4,246     4,771  

Non-GAAP income from operations adjusted for stock-based compensation expense, amortization expense, impairment on assets and facilities-related charges

$ 18,769   $ 17,704   $ 38,330   $ 34,765   Non-GAAP operating margin 22.9 % 23.6 % 23.6 % 23.6 %       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

2017

2016

Change

Currencies1

2017

2016

Change

Currencies1

Revenues United States $ 63,353 $ 55,323 14.5 % 14.5 % $ 123,529 $ 109,791 12.5 % 12.5 % Europe 16,131 17,276 -6.6 % -1.9 % 33,130 32,907 0.7 % 6.1 % Japan   2,556   2,362 8.2 % 11.5 %   5,548   4,831 14.8 % 15.8 % Total Revenue $ 82,040 $ 74,961 9.4 % 10.6 % $ 162,207 $ 147,529 9.9 % 11.2 %   1 Revenue growth for the three- and six-month periods ended June 30, 2017 has been recalculated using 2016 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 Six Months Ended June 30,

%

June 30,

%

2017

2016

Change(2)

2017

2016

Change(2)

Revenues Injection Molding $ 46,792 $ 44,219 5.8 % $ 94,158 $ 86,612 8.7 % CNC Machining 24,180 19,854 21.8 % 46,152 38,729 19.2 % 3D Printing 10,873 9,019 20.6 % 20,958 18,036 16.2 % Other   195   401 -51.4 %   389   876 -55.6 % Total Revenue $ 82,040 $ 73,493 11.6 % $ 161,657 $ 144,253 12.1 %   2 Revenue growth for the three- and six-month periods ended June 30, 2017 and 2016 has been recalculated to exclude revenue earned from two discontinued manufacturing processes, Metal Injection Molding (MIM) and Magnesium Thixomolding (Thixo), discontinued non-core resin resale business and unprofitable Alphaform 3D Printing contracts.     Proto Labs, Inc. Revenue by Geography (In thousands) (Unaudited)                 Three Months Ended Six Months Ended June 30, June 30,

2017

2016

2017

2016

Revenue: United States $ 63,353 $ 55,323 $ 123,529 $ 109,791 Europe 16,131 17,276 33,130 32,907 Japan   2,556   2,362   5,548   4,831 Total Revenue $ 82,040 $ 74,961 $ 162,207 $ 147,529       Proto Labs, Inc. Product Developer Information (Unaudited)                 Three Months Ended Six Months Ended June 30, June 30, 2017 2016 2017 2016 Unique product developers and engineers served 16,174 13,612 24,255 20,333   Note: the information above includes unique product developers and engineers who purchased our 3D Printed products in the United States and Europe through our web-based customer interface. The information does not include 3D Printing and Injection Molding customers resulting from the Alphaform acquisition who do not utilize our web-based customer interface.  

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Proto Labs, Inc.Investor Relations:Daniel Schumacher, 763-479-7240daniel.schumacher@protolabs.comorJohn Way, 763-479-7726john.way@protolabs.comorMedia Relations:Bill Dietrick, 763-479-7664bill.dietrick@protolabs.com