PRLB Proto Labs Inc

Record Quarterly Revenue of $107.7 million, an increase of 34% over 2017

Record Quarterly Net Income of $18.1 million, an increase of 48% over 2017

Proto Labs, Inc. (NYSE: PRLB), a leading online and technology-enabled, quick-turn, on-demand manufacturer, today announced financial results for the first quarter ended March 31, 2018.

First Quarter 2018 Highlights include:

• Revenue for the first quarter of 2018 was a record $107.7 million, representing a 34.4 percent increase over revenue of $80.2 million in the first quarter of 2017.
• The number of unique product developers and engineers served through our web-based customer interface totaled 18,057 in the first quarter of 2018, an increase of 22.0 percent over the first quarter of 2017.
• Net income for the first quarter of 2018 was a record $18.1 million, or $0.66 per diluted share.
• Non-GAAP net income was $19.2 million, or $0.71 per diluted share. See “Non-GAAP Financial Measures” below.

“We are excited to start 2018 with the largest quarter in Protolabs’ history, with quarterly revenue topping the $100 million mark for the first time at $107.7 million,” said Vicki Holt, President and Chief Executive Officer. “This quarter is the first full quarter including the results of the Rapid Manufacturing acquisition, which added sheet metal to our product portfolio and expanded our CNC machining capabilities. The continued expansion of our services increases our value to our customers and allows us to serve more product developers and engineers each quarter.”

Additional First Quarter 2018 highlights include:

• Gross margin was 53.7 percent of revenue for the first quarter of 2018, compared with 56.5 percent for the first quarter of 2017.
• GAAP operating margin was 20.2 percent of revenue during the first quarter of 2018, compared to 22.1 percent for the first quarter of 2017.
• Non-GAAP operating margin was 23.0 percent of revenue during the first quarter of 2018, compared to 24.4 percent for the first quarter of 2017. See “Non-GAAP Financial Measures” below.
• The company generated $26.1 million in cash from operations during the first quarter of 2018.
• Cash and investments balance was $130.2 million at March 31, 2018.

“Our strong business performance combined with the results of the Rapid acquisition and benefits from the recent tax law changes are reflected in our financial results, with our GAAP EPS up 43 percent and our Non-GAAP EPS up 39 percent compared to last year,” said John Way, Chief Financial Officer. “We continued to generate strong cash flow from operations, allowing us to invest in new services and continue to scale our operations in the form of additional facilities and equipment to support our increased customer demand.”

Non-GAAP Financial Measures

The company has included non-GAAP revenue growth that excludes the impact of changes in foreign currency exchange rates. Management believes these metrics are useful in evaluating the underlying business trends and ongoing operating performance of the company.

The company has included non-GAAP operating margin, adjusted for stock-based compensation expense and amortization expense (collectively, “non-GAAP operating margin”), in this press release to provide investors with additional information regarding the company’s financial results.

The company has included non-GAAP net income, adjusted for stock-based compensation expense, 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 provided below reconciliations of GAAP to non-GAAP net income, operating margin and revenues, the most directly comparable measures calculated and presented in accordance with GAAP. These non-GAAP measures 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 these non-GAAP measures 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 first quarter 2018 financial results today, April 26, 2018 at 8:30 a.m. ET. To access the call in the U.S. please dial 877-709-8150 or outside the U.S. dial 201-689-8354 at least five minutes prior to the 8:30 a.m. start time. No participant code is required. A simultaneous webcast of the call will be available via the investor relations section of the Protolabs website and the following link: https://edge.media-server.com/m6/p/obx9hij8. A replay will be available for 14 days following the call on the investor relations section of the Protolabs website.

About Protolabs

Protolabs is the world's fastest digital manufacturing source for rapid prototyping and on-demand production. The technology-enabled company produces custom parts and assemblies in as fast as one day with automated 3D printing, CNC machining, sheet metal fabrication, and injection molding processes. Its digital approach to manufacturing enables accelerated time to market, reduces development and production costs, and minimizes risk throughout the product life cycle. 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 Protolabs 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 Protolabs’ future results. The forward-looking statements included in this press release are made only as of the date hereof. Protolabs cannot guarantee future results, levels of activity, performance or achievements. Accordingly, you should not place undue reliance on these forward-looking statements. Finally, Protolabs 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)           March 31, December 31, 2018 2017 (Unaudited) Assets Current assets Cash and cash equivalents $ 45,095 $ 36,707 Short-term marketable securities 53,467 57,424 Accounts receivable, net 58,464 51,503 Inventory 9,506 11,271 Income taxes receivable - 1,832 Other current assets   8,106   6,267 Total current assets 174,638 165,004   Property and equipment, net 187,863 166,440 Long-term marketable securities 30,667 37,034 Goodwill 128,752 128,504 Other intangible assets, net 19,319 19,084 Other long-term assets   2,670   2,672 Total assets $ 543,909 $ 518,738   Liabilities and shareholders' equity Current liabilities Accounts payable $ 18,358 $ 15,876 Accrued compensation 9,736 12,100 Accrued liabilities and other 10,809 8,408 Short-term debt obligations - 5,000 Income taxes payable   2,962   2,371 Total current liabilities 41,865 43,755   Long-term income taxes payable 2,181 2,181 Long-term deferred tax liabilities 7,582 6,966 Other long-term liabilities 4,605 4,621   Shareholders' equity   487,676   461,215 Total liabilities and shareholders' equity $ 543,909 $ 518,738                       Proto Labs, Inc. Condensed Consolidated Statements of Operations (In thousands, except share and per share amounts) (Unaudited)         Three Months Ended March 31,

2018

2017

Revenue Injection Molding $ 51,343 $ 47,916 CNC Machining 36,731 21,972 3D Printing 12,325 10,085 Sheet Metal 6,241 - Other   1,105   194 Total revenue 107,745 80,167   Cost of revenue   49,837   34,894 Gross profit 57,908 45,273   Operating expenses Marketing and sales 16,572 12,987 Research and development 6,665 5,823 General and administrative   12,943   8,781 Total operating expenses   36,180   27,591 Income from operations 21,728 17,682 Other income, net   178   315 Income before income taxes 21,906 17,997 Provision for income taxes   3,855   5,797 Net income $ 18,051 $ 12,200   Net income per share: Basic $ 0.67 $ 0.46 Diluted $ 0.66 $ 0.46   Shares used to compute net income per share: Basic 26,879,388 26,466,731 Diluted 27,197,099 26,599,200                       Proto Labs, Inc. Condensed Consolidated Statements of Cash Flows (In thousands) (Unaudited)         Three Months Ended March 31, 2018 2017 Operating activities Net income $ 18,051 $ 12,200 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 6,259 4,250 Stock-based compensation expense 2,307 1,716 Deferred taxes 612 394 Amortization of held-to-maturity securities 163 301 Other 106 (56 ) Changes in operating assets and liabilities   (1,353 )   (13 ) Net cash provided by operating activities   26,145     18,792     Investing activities Purchases of property and equipment (25,513 ) (7,812 ) Cash used for acquisitions, net of cash acquired (90 ) - Purchases of marketable securities (3,389 ) (16,520 ) Proceeds from maturities of marketable securities   13,551     10,755   Net cash used in investing activities   (15,441 )   (13,577 )   Financing activities Payments on debt (5,000 ) - Proceeds from exercises of stock options and other 2,252 194 Repurchases of common stock   -     (2,662 ) Net cash used in financing activities   (2,748 )   (2,468 ) Effect of exchange rate changes on cash and cash equivalents   432     346   Net increase in cash and cash equivalents 8,388 3,093 Cash and cash equivalents, beginning of period   36,707     68,795   Cash and cash equivalents, end of period $ 45,095   $ 71,888                             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 March 31,

2018

2017

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

GAAP net income $ 18,051 $ 12,200 Add back: Stock-based compensation expense 2,307 1,716 Amortization expense 764 163 Unrealized loss on foreign currency   156     63   Total adjustments 1 3,227 1,942 Income tax benefits on adjustments 2   (2,043 )   (574 ) Non-GAAP net income $ 19,235   $ 13,568       Non-GAAP net income per share: Basic $ 0.72   $ 0.51   Diluted $ 0.71   $ 0.51     Shares used to compute non-GAAP net income per share: Basic 26,879,388 26,466,731 Diluted 27,197,099 26,599,200                 1 Stock-based compensation expense, amortization expense, and unrealized loss on foreign currency were included in the following GAAP consolidated statement of operations categories:   Three Months Ended March 31,

2018

2017

  Cost of revenue $ 287 $ 197   Marketing and sales 377 269 Research and development 314 222 General and administrative   2,093     1,191   Total operating expenses 2,784 1,682   Other income, net   156     63   Total adjustments $ 3,227   $ 1,942     2 For the three months ended March 31, 2018 and 2017, income tax effects were calculated using the effective tax rate for the relevant jurisdictions. Our non-GAAP tax rates differ from our GAAP tax rates due primarily to the mix of activity incurred in domestic and foreign tax jurisdictions and removing effective tax rate benefits from stock-based compensation activity in the quarter.       Proto Labs, Inc. Reconciliation of GAAP to Non-GAAP Operating Margin (In thousands) (Unaudited)         Three Months Ended March 31,

2018

2017

Revenue $ 107,745 $ 80,167 Income from operations   21,728     17,682   GAAP operating margin 20.2 % 22.1 % Add back: Stock-based compensation expense 2,307 1,716 Amortization expense   764     163   Total adjustments   3,071     1,879  

Non-GAAP income from operations adjusted for stock-based compensation expense and amortization expense

$ 24,799   $ 19,561   Non-GAAP operating margin 23.0 % 24.4 %                           Proto Labs, Inc. Comparison of GAAP to Non-GAAP Revenue Growth (In thousands) (Unaudited)                        

Three Months EndedMarch 31, 2018

Three Months Ended

March 31, 2017

%

% Change

Constant

GAAP Adjustments1 Non-GAAP GAAP

Change2

Currencies3 Revenues United States $ 84,167 $ - $ 84,167 $ 60,176 39.9 % 39.9 % Europe 19,945 (2,534 ) 17,411 16,999 17.3 % 2.4 % Japan   3,633   (176 )   3,457   2,992 21.4 % 15.5 % Total Revenue $ 107,745 $ (2,710 ) $ 105,035 $ 80,167 34.4 % 31.0 %   1 Revenue growth for the three month period ended March 31, 2018 has been recalculated using 2017 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. 2 This column presents the percentage change from GAAP revenue growth for the three month period ended March 31, 2017 to GAAP revenue growth for the three month period ended March 31, 2018. 3 This column presents the percentage change from GAAP revenue growth for the three month period ended March 31, 2017 (calculated using the foreign currency exchange rates in effect during that period) to non-GAAP revenue growth for the three month period ended March 31, 2018 (as recalculated using 2017 foreign currency exchange rates in order to provide a constant currency comparison).     Proto Labs, Inc. Product Developer Information (Unaudited)         Three Months Ended March 31, 2018 2017 Unique product developers and engineers served 18,057 14,801         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, Injection Molding and Sheet Metal customers who do not utilize our web-based customer interface; these customers are principally related to our recent acquisitions.  

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Investor Relations Contact:ProtolabsDan Schumacher, 763-479-7240Director of Investor Relationsdaniel.schumacher@protolabs.comorMedia Contact:Padilla for ProtolabsTim Nelson, 612-455-1789Tim.Nelson@PadillaCo.com