PRLB Proto Labs Inc

Record Quarterly Revenue of $109.7 million, an increase of 34% over 2017

Record Quarterly Net Income of $18.3 million, an increase of 52% over 2017

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, 2018.

Second Quarter 2018 highlights include:

• Revenue for the second quarter of 2018 was a record $109.7 million, representing a 33.7 percent increase over revenue of $82.0 million in the second quarter of 2017.
• The number of unique product developers and engineers served through our web-based customer interface totaled 19,198 in the second quarter of 2018, an increase of 18.7 percent over the second quarter of 2017. This metric does not include unique product developers served in our recently acquired RAPID Manufacturing business.
• Net income for the second quarter of 2018 was a record $18.3 million, or $0.67 per diluted share.
• Non-GAAP net income was $19.9 million, or $0.73 per diluted share. See “Non-GAAP Financial Measures” below.

“For the second straight quarter, Protolabs delivered 34% revenue growth over 2017,” said Vicki Holt, President and Chief Executive Officer. “Through the first half of the year, our CNC Machining business has experienced explosive growth in excess of 60%. Our ability to serve our customers with this level of growth demonstrates the tremendous value and scalability of our digital business model.”

Additional Second Quarter 2018 highlights include:

• Gross margin was 54.0 percent of revenue for the second quarter of 2018, compared with 56.5 percent for the second quarter of 2017 with the change in gross margin largely driven by the RAPID Manufacturing acquisition.
• GAAP operating margin was 20.0 percent of revenue during the second quarter of 2018, compared to 20.0 percent for the second quarter of 2017.
• Non-GAAP operating margin was 23.3 percent of revenue during the second quarter of 2018, compared to 22.9 percent for the second quarter of 2017. See “Non-GAAP Financial Measures” below.
• The company generated $33.2 million in cash from operations during the second quarter of 2018.
• Cash and investments balance was $144.9 million at June 30, 2018.

“Protolabs continues to produce strong financial results,” said John Way, Chief Financial Officer. “Our revenue growth of 34% converted to a 34% growth in income from operations and net income growth of 52%. This business performance resulted in cash generated from operations of $33 million and provided the opportunity to reinvest in the business to drive future growth.”

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, disposal of businesses, legal settlements 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 second quarter 2018 financial results today, July 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/3a8giomf. 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)                     June 30, December 31, 2018 2017 (Unaudited) Assets Current assets Cash and cash equivalents $ 62,605 $ 36,707 Short-term marketable securities 57,619 57,424 Accounts receivable, net 55,928 51,503 Inventory 9,590 11,271 Income taxes receivable - 1,832 Other current assets   7,678   6,267 Total current assets 193,420 165,004   Property and equipment, net 197,339 166,440 Long-term marketable securities 24,636 37,034 Goodwill 128,752 128,504 Other intangible assets, net 18,521 19,084 Other long-term assets   3,519   2,672 Total assets $ 566,187 $ 518,738   Liabilities and shareholders' equity Current liabilities Accounts payable $ 20,038 $ 15,876 Accrued compensation 13,822 12,100 Accrued liabilities and other 9,885 8,408 Short-term debt obligations - 5,000 Income taxes payable   637   2,371 Total current liabilities 44,382 43,755   Long-term income taxes payable 2,181 2,181 Long-term deferred tax liabilities 8,583 6,966 Other long-term liabilities 4,788 4,621   Shareholders' equity   506,253   461,215 Total liabilities and shareholders' equity $ 566,187 $ 518,738                                   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, 2018 2017 2018 2017 Revenue Injection Molding $ 51,586 $ 46,792 $ 102,929 $ 94,708 CNC Machining 37,788 24,180 74,519 46,152 3D Printing 13,248 10,873 25,573 20,958 Sheet Metal 6,309 - 12,550 - Other   721   195   1,826   389 Total revenue 109,652 82,040 217,397 162,207   Cost of revenue   50,439   35,671   100,276   70,565 Gross profit 59,213 46,369 117,121 91,642   Operating expenses Marketing and sales 17,557 14,630 34,129 27,617 Research and development 7,032 6,084 13,697 11,907 General and administrative   12,640   9,253   25,583   18,034 Total operating expenses   37,229   29,967   73,409   57,558 Income from operations 21,984 16,402 43,712 34,084 Other income, net   808   1,173   986   1,488 Income before income taxes 22,792 17,575 44,698 35,572 Provision for income taxes   4,478   5,489   8,333   11,286 Net income $ 18,314 $ 12,086 $ 36,365 $ 24,286   Net income per share: Basic $ 0.68 $ 0.46 $ 1.35 $ 0.91 Diluted $ 0.67 $ 0.45 $ 1.34 $ 0.91   Shares used to compute net income per share: Basic 26,972,990 26,541,978 26,925,673 26,554,262 Diluted 27,274,882 26,649,152 27,232,215 26,710,217                                               Proto Labs, Inc. Condensed Consolidated Statements of Cash Flows (In thousands) (Unaudited)   Six Months Ended June 30, 2018 2017 Operating activities Net income $ 36,365 $ 24,286 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 12,749 8,700 Stock-based compensation expense 5,034 3,958 Deferred taxes 1,620 1,608 Gain on sale of businesses (671 ) - Amortization of held-to-maturity securities 276 592 Other 7 77 Changes in operating assets and liabilities   3,937     206   Net cash provided by operating activities   59,317     39,427     Investing activities Purchases of property and equipment (43,194 ) (13,301 ) Cash used for acquisitions, net of cash acquired (90 ) - Proceeds from sale of businesses 284 - Purchases of marketable securities (17,129 ) (20,037 ) Proceeds from maturities of marketable securities 29,056 25,194 Purchases of other assets and investments   -     (514 ) Net cash used in investing activities   (31,073 )   (8,658 )   Financing activities Payments on debt (5,000 ) - Proceeds from exercises of stock options and other 3,306 3,791 Repurchases of common stock   -     (4,410 ) Net cash used in financing activities   (1,694 )   (619 ) Effect of exchange rate changes on cash and cash equivalents   (652 )   251   Net increase in cash and cash equivalents 25,898 30,401 Cash and cash equivalents, beginning of period   36,707     68,795   Cash and cash equivalents, end of period $ 62,605   $ 99,196                                         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, 2018 2017 2018 2017

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

GAAP net income $ 18,314 $ 12,086 $ 36,365 $ 24,286 Add back: Stock-based compensation expense 2,726 2,242 5,034 3,958 Amortization expense 799 125 1,563 288 Unrealized loss (gain) on foreign currency 93 (412 ) 248 (349 ) Disposal of businesses (671 ) - (671 ) - Legal settlement   -     (417 )   -     (417 ) Total adjustments 1 2,947 1,538 6,174 3,480 Income tax benefits on adjustments 2   (1,318 )   (501 )   (3,361 )   (1,079 ) Non-GAAP net income $ 19,943   $ 13,123   $ 39,178   $ 26,687       Non-GAAP net income per share: Basic $ 0.74   $ 0.49   $ 1.46   $ 1.01   Diluted $ 0.73   $ 0.49   $ 1.44   $ 1.00     Shares used to compute non-GAAP net income per share: Basic 26,972,990 26,541,978 26,925,673 26,554,262 Diluted 27,274,882 26,649,152 27,232,215 26,710,217                          

1 Stock-based compensation expense, amortization expense, unrealized loss (gain) on foreign currency, disposal of businesses, and legal settlement were included in the following GAAP consolidated statement of operations categories:

  Three Months Ended Six Months Ended June 30, June 30, 2018 2017 2018 2017   Cost of revenue $ 363 $ 237 $ 650 $ 434   Marketing and sales 443 339 820 607 Research and development 376 279 690 501 General and administrative   2,343     1,512     4,437     2,704   Total operating expenses 3,162 2,130 5,947 3,812   Other income, net   (578 )   (829 )   (423 )   (766 ) Total adjustments $ 2,947   $ 1,538   $ 6,174   $ 3,480    

2 For the three- and six-months ended June 30, 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 Six Months Ended June 30, June 30, 2018 2017 2018 2017 Revenue $ 109,652 $ 82,040 $ 217,397 $ 162,207 Income from operations   21,984     16,402     43,712     34,084   GAAP operating margin 20.0 % 20.0 % 20.1 % 21.0 % Add back: Stock-based compensation expense 2,726 2,242 5,034 3,958 Amortization expense   799     125     1,563     288   Total adjustments   3,525     2,367     6,597     4,246   Non-GAAP income from operations adjusted for stock-based compensation expense and amortization expense $ 25,509   $ 18,769   $ 50,309   $ 38,330   Non-GAAP operating margin 23.3 % 22.9 % 23.1 % 23.6 %                                                         Proto Labs, Inc. Comparison of GAAP to Non-GAAP Revenue Growth (In thousands) (Unaudited)   Three Months Ended

June 30, 2018

Three Months Ended

June 30, 2017

%

% Change

Constant

GAAP

Adjustments1

Non-GAAP GAAP

Change2

Currencies3

Revenues United States $ 86,354 $ - $ 86,354 $ 63,353 36.3 % 36.3 % Europe 20,213 (1,453 ) 18,760 16,131 25.3 % 16.3 % Japan   3,085   (51 )   3,034   2,556 20.7 % 18.7 % Total Revenue $ 109,652 $ (1,504 ) $ 108,148 $ 82,040 33.7 % 31.8 %                               Six Months Ended

June 30, 2018

Six Months Ended

June 30, 2017

% % Change

Constant

GAAP Adjustments1 Non-GAAP GAAP

Change2

Currencies3 Revenues United States $ 170,521 $ - $ 170,521 $ 123,529 38.0 % 38.0 % Europe 40,158 (3,987 ) 36,171 33,130 21.2 % 9.2 % Japan   6,718   (227 )   6,491   5,548 21.1 % 17.0 % Total Revenue $ 217,397 $ (4,214 ) $ 213,183 $ 162,207 34.0 % 31.4 %   1 Revenue growth for the three- and six-month periods ended June 30, 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- and six-month periods ended June 30, 2017 to GAAP revenue growth for the three- and six-month periods ended June 30, 2018.   3 This column presents the percentage change from GAAP revenue growth for the three- and six-month periods ended June 30, 2017 (calculated using the foreign currency exchange rates in effect during that period) to non-GAAP revenue growth for the three- and six-month periods ended June 30, 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 Six Months Ended June 30, June 30, 2018 2017 2018 2017 Unique product developers and engineers served 19,198 16,174 28,598 24,255                       Note: the information above does not include 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