Protolabs Reports Record Revenue and Net Income for Third

Protolabs Reports Record Revenue and Net Income for Third Quarter 2018

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 Ended September 30, 2018							Three Months Ended September 30, 2017		%		% Change Constant
	GAAP		Adjustments ¹			Non-GAAP		GAAP		Change ²		Currencies ³
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 Ended September 30, 2018							Nine Months Ended September 30, 2017		%		% Change Constant
	GAAP		Adjustments ¹			Non-GAAP		GAAP		Change ²		Currencies ³
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.