Protolabs Reports Third Quarter 2019 Financial Results

Record Quarterly Revenue of $117.5 million, an increase of 2% over Q3 2018

MAPLE PLAIN, Minn.--(BUSINESS WIRE)--Oct. 24, 2019-- 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, 2019.

Third Quarter 2019 Highlights include:

Revenue for the third quarter of 2019 was $117.5 million, representing a 1.8 percent increase over revenue of $115.4 million for the third quarter of 2018.
The number of unique product developers and engineers served totaled 21,471 in the third quarter of 2019, an increase of 3.3 percent over the third quarter of 2018.
Net income for the third quarter of 2019 was $16.8 million, or $0.62 per diluted share.
Non-GAAP net income was $20.4 million, or $0.76 per diluted share. See “Non-GAAP Financial Measures” below.

“Our business grew year-over-year in the third quarter in an industrial environment that has continued to soften throughout 2019,” said Vicki Holt, President and Chief Executive Officer. “Despite a weaker macro climate, our customer retention rate remains high as we continue to delight our customers by expanding and improving our industry-leading digital manufacturing offer.”

Additional Third Quarter 2019 highlights include:

Gross margin was 50.8 percent of revenue for the third quarter of 2019, compared with 52.0 percent for the second quarter of 2019.
GAAP operating margin was 18.1 percent of revenue for the third quarter of 2019, compared to 16.9 percent for the second quarter of 2019.
Non-GAAP operating margin was 21.6 percent of revenue for the third quarter of 2019, compared to 20.6 percent for the second quarter of 2019. See “Non-GAAP Financial Measures” below.
EBITDA was $28.7 million, or 24.4 percent of revenue, for the third quarter of 2019.
Adjusted EBITDA was $32.4 million, or 27.5 percent of revenue, for the third quarter of 2019. See “Non-GAAP Financial Measures” below.
Cash flow from operations was $28.9 million in the third quarter of 2019.
Cash and investments balance was $155.0 million at September 30, 2019.
The Company repurchased $12.1 million, or 128,077 shares, of common stock during the quarter.

“Our customers are taking a more cautious approach in 2019 in general, including R&D projects, and that is reflected in our financial results year-to-date,” said John Way, Chief Financial Officer. “Our business continues to generate strong cash flows in order to invest for future growth, as well as return capital to shareholders in the form of stock repurchases.”

Non-GAAP Financial Measures

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

The company has included earnings before interest, taxes, depreciation and amortization (“EBITDA”) and EBITDA, adjusted for stock-based compensation expense, unrealized (gain) loss on foreign currency, and disposal of businesses (collectively, “Adjusted EBITDA”), in this press release to provide investors with additional information regarding the company’s financial results.

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 (gain) loss on foreign currency, and disposal of businesses (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, non-GAAP operating margin, non-GAAP revenue growth and Adjusted EBITDA, 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 2019 financial results and fourth quarter outlook today, October 24, 2019 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 presentation containing information on the company’s third quarter 2019 financial results and fourth quarter outlook will be available prior to the call. A simultaneous webcast of the call and slide presentation will be available via the investor relations section of the Protolabs website and the following link: https://edge.media-server.com/mmc/p/mofpzm2m. 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,
	2019		2018
	(Unaudited)
Assets
Current assets
Cash and cash equivalents	$	121,568	$	85,046
Short-term marketable securities		23,642		46,750
Accounts receivable, net		64,069		59,155
Inventory		9,448		10,087
Income taxes receivable		2,852		5,757
Prepaid expenses and other current assets		8,038		8,567
Total current assets		229,617		215,362

Property and equipment, net		252,579		228,001
Goodwill		128,752		128,752
Other intangible assets, net		18,258		19,850
Long-term marketable securities		9,783		23,579
Operating lease assets		12,008		-
Other long-term assets		3,902		3,441
Total assets	$	654,899	$	618,985

Liabilities and shareholders' equity
Current liabilities
Accounts payable	$	18,668	$	17,411
Accrued compensation		12,926		18,130
Accrued liabilities and other		13,133		16,702
Current operating lease liabilities		3,364		-
Income taxes payable		6,717		491
Total current liabilities		54,808		52,734

Long-term operating lease liabilities		9,006		-
Long-term deferred tax liabilities		21,750		20,162
Other long-term liabilities		5,238		4,592

Shareholders' equity		564,097		541,497
Total liabilities and shareholders' equity	$	654,899	$	618,985

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,
	2019		2018		2019		2018
Revenue
Injection Molding	$	55,167	$	53,681	$	165,935	$	156,610
CNC Machining		40,219		40,845		116,979		115,364
3D Printing		15,898		13,845		45,644		39,418
Sheet Metal		5,280		6,452		15,777		19,002
Other		891		607		2,504		2,433
Total revenue		117,455		115,430		346,839		332,827

Cost of revenue		57,839		53,027		168,127		153,303
Gross profit		59,616		62,403		178,712		179,524

Operating expenses
Marketing and sales		17,604		16,818		55,466		50,947
Research and development		8,359		7,458		24,541		21,155
General and administrative		12,380		13,096		38,411		38,679
Total operating expenses		38,343		37,372		118,418		110,781
Income from operations		21,273		25,031		60,294		68,743
Other income, net		228		390		1,566		1,376
Income before income taxes		21,501		25,421		61,860		70,119
Provision for income taxes		4,709		4,484		13,391		12,817
Net income	$	16,792	$	20,937	$	48,469	$	57,302

Net income per share:
Basic	$	0.63	$	0.77	$	1.80	$	2.13
Diluted	$	0.62	$	0.77	$	1.79	$	2.10

Shares used to compute net income per share:
Basic		26,846,030		27,038,585		26,894,420		26,963,205
Diluted		27,005,341		27,337,886		27,072,873		27,268,311

Proto Labs, Inc.
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)

	Nine Months Ended
	September 30,
	2019			2018
Operating activities
Net income	$	48,469		$	57,302
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		22,658			19,520
Stock-based compensation expense		9,738			7,986
Deferred taxes		1,599			1,770
Gain on sale of businesses		-			(671	)
Amortization of held-to-maturity securities		(5	)		336
Other		(133	)		160
Changes in operating assets and liabilities		1,453			(1,441	)
Net cash provided by operating activities		83,779			84,962

Investing activities
Purchases of property, equipment and other capital assets		(46,151	)		(61,898	)
Cash used for acquisitions, net of cash acquired		-			(90	)
Proceeds from sale of businesses		-			284
Purchases of other assets and investments		(4,000	)		(126	)
Purchases of marketable securities		(17,443	)		(41,384	)
Proceeds from maturities of marketable securities		54,352			44,721
Net cash used in investing activities		(13,242	)		(58,493	)

Financing activities
Payments on debt		-			(5,000	)
Proceeds from exercises of stock options and other		2,486			7,269
Purchases of shares withheld for tax obligations		(2,420	)		(2,021	)
Repurchases of common stock		(33,521	)		-
Net cash (used in) provided by financing activities		(33,455	)		248
Effect of exchange rate changes on cash and cash equivalents		(560	)		(831	)
Net increase in cash and cash equivalents		36,522			25,886
Cash and cash equivalents, beginning of period		85,046			36,707
Cash and cash equivalents, end of period	$	121,568		$	62,593

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,
	2019			2018			2019			2018
Non-GAAP net income, adjusted for stock-based compensation expense,
amortization expense, unrealized (gain) loss on foreign currency and
disposal of businesses
GAAP net income	$	16,792		$	20,937		$	48,469		$	57,302
Add back:
Stock-based compensation expense		3,212			2,952			9,738			7,986
Amortization expense		859			808			2,593			2,371
Unrealized (gain) loss on foreign currency		449			(101	)		391			147
Disposal of businesses		-			-			-			(671	)
Total adjustments ¹		4,520			3,659			12,722			9,833
Income tax benefits on adjustments ²		(882	)		(1,213	)		(2,875	)		(4,574	)
Non-GAAP net income	$	20,430		$	23,383		$	58,316		$	62,561


Non-GAAP net income per share:
Basic	$	0.76		$	0.86		$	2.17		$	2.32
Diluted	$	0.76		$	0.86		$	2.15		$	2.29

Shares used to compute non-GAAP net income per share:
Basic		26,846,030			27,038,585			26,894,420			26,963,205
Diluted		27,005,341			27,337,886			27,072,873			27,268,311


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

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2019			2018			2019			2018

Cost of revenue	$	872		$	446		$	2,402		$	1,096

Marketing and sales		760			560			1,923			1,380
Research and development		560			419			1,486			1,109
General and administrative		1,879			2,335			6,520			6,772
Total operating expenses		3,199			3,314			9,929			9,261

Other income, net		449			(101	)		391			(524	)
Total adjustments	$	4,520		$	3,659		$	12,722		$	9,833

²For the three- and nine-month periods ended September 30, 2019 and 2018, 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,
	2019			2018			2019			2018
Revenue	$	117,455		$	115,430		$	346,839		$	332,827
Income from operations		21,273			25,031			60,294			68,743
GAAP operating margin		18.1	%		21.7	%		17.4	%		20.7	%
Add back:
Stock-based compensation expense		3,212			2,952			9,738			7,986
Amortization expense		859			808			2,593			2,371
Total adjustments		4,071			3,760			12,331			10,357
Non-GAAP income from operations	$	25,344		$	28,791		$	72,625		$	79,100
Non-GAAP operating margin		21.6	%		24.9	%		20.9	%		23.8	%

Proto Labs, Inc.
Reconciliation of GAAP Net Income to EBITDA and Adjusted EBITDA
(In thousands)
(Unaudited)

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2019			2018			2019			2018
GAAP net income	$	16,792		$	20,937		$	48,469		$	57,302
Amortization expense		859			808			2,593			2,371
Depreciation expense		6,820			5,963			20,066			17,149
Interest income, net		(489	)		(475	)		(1,535	)		(1,063	)
Tax expense		4,709			4,484			13,391			12,817
EBITDA		28,691			31,717			82,984			88,576
Add back:
Stock-based compensation expense		3,212			2,952			9,738			7,986
Unrealized (gain) loss on foreign currency		449			(101	)		391			147
Disposal of businesses		-			-			-			(671	)
Total adjustments		3,661			2,851			10,129			7,462
Adjusted EBITDA	$	32,352		$	34,568		$	93,113		$	96,038

Proto Labs, Inc.
Comparison of GAAP to Non-GAAP Revenue Growth
(In thousands)
(Unaudited)

	Three Months Ended September 30, 2019							Three Months Ended September 30, 2018		%		% Change Constant
	GAAP		Adjustments¹			Non-GAAP		GAAP		Change²		Currencies³
Revenues
United States	$	92,916	$	-		$	92,916	$	90,732	2.4	%	2.4	%
Europe		20,721		1,001			21,722		21,273	(2.6	%)	2.1	%
Japan		3,818		(140	)		3,678		3,425	11.5	%	7.4	%
Total Revenue	$	117,455	$	861		$	118,316	$	115,430	1.8	%	2.5	%


	Nine Months Ended September 30, 2019							Nine Months Ended September 30, 2018		%		% Change Constant
	GAAP		Adjustments¹			Non-GAAP		GAAP		Change²		Currencies³
Revenues
United States	$	271,877	$	-		$	271,877	$	261,253	4.1	%	4.1	%
Europe		62,915		3,968			66,883		61,431	2.4	%	8.9	%
Japan		12,047		(19	)		12,028		10,143	18.8	%	18.6	%
Total Revenue	$	346,839	$	3,949		$	350,788	$	332,827	4.2	%	5.4	%

¹ Revenue for the three- and nine-month periods ended September 30, 2019 has been recalculated using 2018 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.
²This column presents the percentage change from GAAP revenue for the three- and nine-month periods ended September 30, 2018 to GAAP revenue for the three- and nine-month periods ended September 30, 2019.
³ This column presents the percentage change from GAAP revenue for the three- and nine-month periods ended September 30, 2018 to non-GAAP revenue for the three- and nine-month periods ended September 30, 2019 (as recalculated using the foreign currency exchange rates in effect during the three- and nine-month periods ended September 30, 2018) 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,
	2019	2018	2019	2018
Unique product developers and engineers served	21,471	20,792	40,791	38,823

View source version on businesswire.com: https://www.businesswire.com/news/home/20191024005242/en/

Source: Proto Labs, Inc.

Investor Relations Contact:
Protolabs
Dan Schumacher, 763-479-7240
Director of Investor Relations
daniel.schumacher@protolabs.com
or
Media Contact:
Protolabs
Sarah Ekenberg, 763-479-7560
Marketing Manager, PR & Media
sarah.ekenberg@protolabs.com

News Release

Protolabs Reports Third Quarter 2019 Financial Results