PRLB Proto Labs Inc

Record Quarterly Revenue of $115.4 million, an increase of 31% over Q3 2017

Record Quarterly Net Income of $20.9 million, an increase of 58% over Q3 2017

Proto Labs, Inc. (NYSE: PRLB), a leading online and technology-enabled, quick-turn, on-demand manufacturer, today announced financial results for the third quarter ended September 30, 2018.

Third Quarter 2018 Highlights include:

• Revenue for the third quarter of 2018 was a record $115.4 million, representing a 31.0 percent increase over revenue of $88.1 million in the third quarter of 2017.
• The number of unique product developers and engineers served through our web-based customer interface totaled 20,792 in the third quarter of 2018, an increase of 23.0 percent over the third quarter of 2017.
• Net income for the third quarter of 2018 was a record $20.9 million, or $0.77 per diluted share.
• Non-GAAP net income was $23.4 million, or $0.86 per diluted share. See “Non-GAAP Financial Measures” below.

“We are pleased to deliver another quarter with over 30 percent growth,” said Vicki Holt, President and Chief Executive Officer. “Protolabs again demonstrated strong performance across all of our geographies and in each of our services.”

Additional Third Quarter 2018 Highlights include:

• Gross margin was 54.1 percent of revenue for the third quarter of 2018, compared with 56.0 percent for the third quarter of 2017.
• GAAP operating margin was 21.7 percent of revenue during the third quarter of 2018, compared to 22.0 percent for the third quarter of 2017.
• Non-GAAP operating margin was 24.9 percent of revenue during the third quarter of 2018, compared to 24.6 percent for the third quarter of 2017. See “Non-GAAP Financial Measures” below.
• The company generated $25.6 million in cash from operations during the third quarter of 2018.
• Cash and investments balance was $153.4 million at September 30, 2018.

“As a result of continued strong operations and growth in each of our individual service offerings, we are becoming more of a total solution for some of our customers. The majority of our top customers have utilized every one of our core services in 2018. With our unique ability to deliver parts at unprecedented speed, we are helping more customers deliver their products to market faster and in new ways,” concluded Holt.

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, unrealized foreign currency activity, disposal of businesses and legal settlement (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 third quarter 2018 financial results today, October 25, 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/ep72okh4. 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)           September 30, December 31, 2018 2017 (Unaudited) Assets Current assets Cash and cash equivalents $ 62,593 $ 36,707 Short-term marketable securities 57,561 57,424 Accounts receivable, net 62,131 51,503 Inventory 9,608 11,271 Income taxes receivable - 1,832 Other current assets   8,639   6,267 Total current assets 200,532 165,004   Property and equipment, net 210,053 166,440 Long-term marketable securities 33,224 37,034 Goodwill 128,752 128,504 Other intangible assets, net 19,713 19,084 Other long-term assets   3,590   2,672 Total assets $ 595,864 $ 518,738   Liabilities and shareholders' equity Current liabilities Accounts payable $ 17,300 $ 15,876 Accrued compensation 14,462 12,100 Accrued liabilities and other 14,843 8,408 Short-term debt obligations - 5,000 Income taxes payable   2,763   2,371 Total current liabilities 49,368 43,755   Long-term income taxes payable 2,181 2,181 Long-term deferred tax liabilities 8,732 6,966 Other long-term liabilities 4,377 4,621   Shareholders' equity   531,206   461,215 Total liabilities and shareholders' equity $ 595,864 $ 518,738                     Proto Labs, Inc. Condensed Consolidated Statements of Operations (In thousands, except share and per share amounts) (Unaudited)   Three Months Ended Nine Months Ended September 30, September 30,

2018

2017

2018

2017

Revenue Injection Molding $ 53,681 $ 49,480 $ 156,610 $ 144,187 CNC Machining 40,845 27,166 115,364 73,318 3D Printing 13,845 11,102 39,418 32,061 Sheet Metal 6,452 - 19,002 - Other   607   357   2,433   746 Total revenue 115,430 88,105 332,827 250,312   Cost of revenue   53,027   38,793   153,303   109,358 Gross profit 62,403 49,312 179,524 140,954   Operating expenses Marketing and sales 16,818 13,846 50,947 41,463 Research and development 7,458 5,877 21,155 17,784 General and administrative   13,096   10,222   38,679   28,256 Total operating expenses   37,372   29,945   110,781   87,503 Income from operations 25,031 19,367 68,743 53,451 Other income, net   390   291   1,376   1,779 Income before income taxes 25,421 19,658 70,119 55,230 Provision for income taxes   4,484   6,438   12,817   17,724 Net income $ 20,937 $ 13,220 $ 57,302 $ 37,506   Net income per share: Basic $ 0.77 $ 0.50 $ 2.13 $ 1.41 Diluted $ 0.77 $ 0.49 $ 2.10 $ 1.40   Shares used to compute net income per share: Basic 27,038,585 26,617,349 26,963,205 26,600,174 Diluted 27,337,886 26,802,034 27,268,311 26,716,553                                       Proto Labs, Inc. Condensed Consolidated Statements of Cash Flows (In thousands) (Unaudited)         Nine Months Ended September 30, 2018 2017 Operating activities Net income $ 57,302 $ 37,506 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 19,520 13,539 Stock-based compensation expense 7,986 6,159 Deferred taxes 1,770 715 Gain on sale of businesses (671 ) - Amortization of held-to-maturity securities 336 851 Other 160 21 Changes in operating assets and liabilities   (1,441 )   209   Net cash provided by operating activities   84,962     59,000     Investing activities Purchases of property, equipment and other capital assets (61,898 ) (24,164 ) Cash used for acquisitions, net of cash acquired (90 ) - Proceeds from sale of businesses 284 - Purchases of marketable securities (41,384 ) (20,037 ) Proceeds from maturities of marketable securities 44,721 34,090 Purchases of other assets and investments   (126 )   (514 ) Net cash used in investing activities   (58,493 )   (10,625 )   Financing activities Payments on debt (5,000 ) - Proceeds from exercises of stock options and other 5,248 5,749 Repurchases of common stock   -     (4,410 ) Net cash provided by financing activities   248     1,339   Effect of exchange rate changes on cash and cash equivalents   (831 )   774   Net increase in cash and cash equivalents 25,886 50,488 Cash and cash equivalents, beginning of period   36,707     68,795   Cash and cash equivalents, end of period $ 62,593   $ 119,283                                           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 Nine Months Ended September 30, September 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 $ 20,937 $ 13,220 $ 57,302 $ 37,506 Add back: Stock-based compensation expense 2,952 2,201 7,986 6,159 Amortization expense 808 106 2,371 394 Unrealized loss (gain) on foreign currency (101 ) 266 147 (83 ) Disposal of businesses - - (671 ) - Legal settlement   -     -     -     (417 ) Total adjustments 1 3,659 2,573 9,833 6,053 Income tax benefits on adjustments 2   (1,213 )   (747 )   (4,574 )   (1,824 ) Non-GAAP net income $ 23,383   $ 15,046   $ 62,561   $ 41,735       Non-GAAP net income per share: Basic $ 0.86   $ 0.57   $ 2.32   $ 1.57   Diluted $ 0.86   $ 0.56   $ 2.29   $ 1.56     Shares used to compute non-GAAP net income per share: Basic 27,038,585 26,617,349 26,963,205 26,600,174 Diluted 27,337,886 26,802,034 27,268,311 26,716,553     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 Nine Months Ended September 30, September 30,

2018

2017

2018

2017

  Cost of revenue $ 446 $ 263 $ 1,096 $ 698   Marketing and sales 560 417 1,380 1,024 Research and development 419 295 1,109 796 General and administrative   2,335     1,332     6,772     4,035   Total operating expenses 3,314 2,044 9,261 5,855   Other income, net   (101 )   266     (524 )   (500 ) Total adjustments $ 3,659   $ 2,573   $ 9,833   $ 6,053     2 For the three- and nine-months ended September 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 Nine Months Ended September 30, September 30,

2018

2017

2018

2017

Revenue $ 115,430 $ 88,105 $ 332,827 $ 250,312 Income from operations   25,031   19,367   68,743   53,451 GAAP operating margin 21.7% 22.0% 20.7% 21.4% Add back: Stock-based compensation expense 2,952 2,201 7,986 6,159 Amortization expense   808   106   2,371   394 Total adjustments   3,760   2,307   10,357   6,553

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

$ 28,791 $ 21,674 $ 79,100 $ 60,004 Non-GAAP operating margin 24.9% 24.6% 23.8% 24.0%                                                             Proto Labs, Inc. Comparison of GAAP to Non-GAAP Revenue Growth (In thousands) (Unaudited)  

Three Months EndedSeptember 30, 2018

Three MonthsEndedSeptember 30,2017

%

% ChangeConstant

GAAP Adjustments1 Non-GAAP GAAP

Change2

Currencies3 Revenues United States $ 90,732 $ - $ 90,732

$

67,490 34.4 % 34.4 % Europe 21,273 162 21,435 18,094 17.6 % 18.5 % Japan   3,425   16     3,441   2,521 35.9 % 36.5 % Total Revenue $ 115,430 $ 178   $ 115,608 $ 88,105 31.0 % 31.2 %                                        

Nine Months EndedSeptember 30, 2018

Nine MonthsEnded September 30,2017

 

%

% ChangeConstant

GAAP Adjustments1 Non-GAAP GAAP

Change2

Currencies3 Revenues United States $ 261,253 $ - $ 261,253 $ 191,019 36.8 % 36.8 % Europe 61,431 (3,825 ) 57,606 51,224 19.9 % 12.5 % Japan   10,143   (211 )   9,932   8,069 25.7 % 23.1 % Total Revenue $ 332,827 $ (4,036 ) $ 328,791 $ 250,312 33.0 % 31.4 %   1 Revenue growth for the three- and nine-month periods ended September 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 nine-month periods ended September 30, 2017 to GAAP revenue growth for the three- and nine-month periods ended September 30, 2018.   3 This column presents the percentage change from GAAP revenue growth for the three- and nine-month periods ended September 30, 2017 (calculated using the foreign currency exchange rates in effect during that period) to non-GAAP revenue growth for the three- and nine-month periods ended September 30, 2018 (as recalculated using the foreign currency exchange rates in effect during the three- and nine-month periods ended September 30, 2017) in order to provide a constant currency comparison.       Proto Labs, Inc. Product Developer Information (Unaudited)                 Three Months Ended Nine Months Ended September 30, September 30, 2018 2017 2018 2017 Unique product developers and engineers served 20,792 16,909 38,823 31,307                            

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