Quarterly Revenue Increases 15 Percent Year over Year to Record $78.2 Million

MAPLE PLAIN, Minn. — (BUSINESS WIRE) — October 27, 2016 — 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, 2016.

Third Quarter 2016 Highlights include:

• Revenue for the third quarter of 2016 was $78.2 million, 15 percent above revenue of $67.8 million in the third quarter of 2015. Alphaform, the German company acquired in the fourth quarter of 2015, represented $4.0 million in revenue in the third quarter. Excluding this contribution, legacy revenue totaled $74.2 million, an increase of nine percent compared with the third quarter of 2015.
• Revenue from 3D printing was $9.9 million. Excluding Alphaform’s $2.0 million in 3D printing revenue, legacy 3D printing revenue was $7.9 million, an increase of 30 percent from the third quarter of 2015.
• The number of unique product developers and engineers served increased 14 percent to 14,271 from 12,541 in the third quarter a year ago.
• Net income for the third quarter of 2016 was $12.0 million, or $0.45 per diluted share. Non-GAAP net income, excluding the after-tax expense of stock compensation, amortization of intangibles, charges related to the exit of facilities and unrealized foreign currency gains, was $13.5 million, or $0.51 per diluted share. See “Non-GAAP Financial Measures” below.

“Our results continue to reflect solid demand and operational execution globally, including our operations in Germany,” said Vicki Holt, President and Chief Executive Officer. “Revenue was at the top end of our guidance and our EPS exceeded our estimates. We also continue to generate strong cash flow from operations.

“During the quarter, we improved gross margin on a sequential basis and managed our operating expenses while completing our moves in North Carolina and Japan. We accelerated the launch of our overmolding process and also launched 5-axis machining. These actions set us up to deepen our relationships with our customers and capitalize on the market opportunities.”

Additional Third Quarter 2016 Highlights include:

• Gross margin was 57.2 percent of revenue for the third quarter compared with 59.4 percent for the third quarter of 2015 and 56.4 in the second quarter of 2016. The 80 basis point sequential improvement in gross margin is attributable to improved margins at Alphaform and execution in our injection molding and CNC machining businesses.
• GAAP operating margin was 21.7 percent of revenue during the third quarter of 2016 compared to 25.7 percent for the third quarter of 2015. On a non-GAAP basis, operating margin was 25.0 percent for the third quarter of 2016. See “Non-GAAP Financial Measures” below.
• The Company generated cash from operations of $19.6 million during the third quarter. Cash and investments increased $11.3 million during the quarter to $175.6 million at September 30, 2016.

“Proto Labs is a business that helps companies and entrepreneurs get their products to market faster than their competition. The current trends in the market require companies to be more innovative and nimble as the internet of things, mass customization and quickly changing demands from consumers require accelerated product development. We are in a strong position to capitalize on this long term trend.

“There is uncertainty in the market right now due to the election in the United States and Brexit in Europe and that uncertainty is impacting the economy. Our business is not immune to that impact. While the current economic environment is challenging, we are focused on our internal processes, in both sales and operations, to position ourselves as economic conditions improve. We remain very optimistic about the outlook for Proto Labs. We are fortunate to serve a large, underpenetrated market with a unique value proposition, unsurpassed service and quality for customers, and the commitment and employee talent to successfully execute our strategy for profitable growth,” Ms. Holt concluded.

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 legacy revenue excluding the revenue contribution from Alphaform from total revenues 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 charges related to the exit of facilities (collectively, “non-GAAP operating margin”), in this press release to provide investors with additional information regarding the company’s financial results.