Protolabs Reports Financial Results for the Fourth Quarter and

Protolabs Reports Financial Results for the Fourth Quarter and Full Year 2018

“2018 was a strong year overall for our company. As we enter into our 20^th year of operations, it is rewarding to look back at all we have accomplished since our inception. It is also very exciting to look ahead and see the numerous opportunities we have to help our customers win in their markets as they capitalize on underlying market trends. Our 2019 priorities are aligned to serving our customers through enhanced relationships, continuously improving the customer experience and increased efficiency in operations. After a strong 2018, these priorities continue our focus on our customers, enabling us to drive growth and deliver long term shareholder returns,” concluded Holt.

Non-GAAP Financial Measures

The company has included non-GAAP net income, adjusted for stock-based compensation expense, amortization expense, impairment on assets, acquisition costs, unrealized foreign currency activity, disposal of businesses, legal settlement, provisional charges related to the tax effect of deemed repatriation of foreign earnings, and revaluation of net deferred tax assets and liabilities (collectively, “non-GAAP net income”), 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, amortization expense, acquisition costs, and impairment on assets (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 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 provided 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 fourth quarter and full year 2018 financial results today, February 7, 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 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/xhkhdnme. 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)


	December 31,		December 31,
	2018		2017
	(Unaudited)
Assets
Current assets
Cash and cash equivalents	$	85,046	$	36,707
Short-term marketable securities		46,750		57,424
Accounts receivable, net		59,155		51,503
Inventory		10,087		11,271
Income taxes receivable		5,757		1,832
Other current assets		8,567		6,267
Total current assets		215,362		165,004

Property and equipment, net		228,001		166,440
Long-term marketable securities		23,579		37,034
Goodwill		128,752		128,504
Other intangible assets, net		19,850		19,084
Other long-term assets		3,441		2,672
Total assets	$	618,985	$	518,738

Liabilities and shareholders' equity
Current liabilities
Accounts payable	$	17,411	$	15,876
Accrued compensation		18,130		12,100
Accrued liabilities and other		16,702		8,408
Short-term debt obligations		-		5,000
Income taxes payable		491		2,371
Total current liabilities		52,734		43,755

Long-term income taxes payable		-		2,181
Long-term deferred tax liabilities		20,162		6,966
Other long-term liabilities		4,592		4,621

Shareholders' equity		541,497		461,215
Total liabilities and shareholders' equity	$	618,985	$	518,738


Proto Labs, Inc.
Condensed Consolidated Statements of Operations
(In thousands, except share and per share amounts)
(Unaudited)

	Three Months Ended				Year Ended
	December 31,				December 31,
	2018		2017		2018		2017
Revenue
Injection Molding	$	53,913	$	50,245	$	210,523	$	194,432
CNC Machining		38,157		30,421		153,521		103,739
3D Printing		13,924		11,268		53,342		43,329
Sheet Metal		5,996		1,767		24,998		1,767
Other		779		477		3,212		1,223
Total revenue		112,769		94,178		445,596		344,490

Cost of revenue		53,614		41,290		206,917		150,648
Gross profit		59,155		52,888		238,679		193,842

Operating expenses
Marketing and sales		17,586		15,393		68,533		56,856
Research and development		7,580		5,776		28,735		23,560
General and administrative		13,834		12,944		52,513		41,200
Total operating expenses		39,000		34,113		149,781		121,616
Income from operations		20,155		18,775		88,898		72,226
Other income, net		1,381		430		2,757		2,209
Income before income taxes		21,536		19,205		91,655		74,435
Provision for income taxes		2,250		4,933		15,067		22,657
Net income	$	19,286	$	14,272	$	76,588	$	51,778

Net income per share:
Basic	$	0.71	$	0.53	$	2.84	$	1.94
Diluted	$	0.71	$	0.53	$	2.81	$	1.93

Shares used to compute net income per share:
Basic		27,040,207		26,705,909		26,982,614		26,647,610
Diluted		27,311,988		27,009,017		27,278,816		26,845,071


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

	Year Ended
	December 31,
	2018			2017
Operating activities
Net income	$	76,588		$	51,778
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		26,754			18,474
Stock-based compensation expense		10,928			8,558
Deferred taxes		11,936			1,174
Gain on sale of businesses		(671	)		-
Amortization of held-to-maturity securities		374			1,063
Loss on impairment of assets		-			513
Other		(619	)		(153	)
Changes in operating assets and liabilities		(2,361	)		341
Net cash provided by operating activities		122,929			81,748

Investing activities
Purchases of property, equipment and other capital assets		(87,104	)		(32,635	)
Cash used for acquisitions, net of cash acquired		(90	)		(110,533	)
Proceeds from sale of businesses		284			-
Purchases of other assets and investments		(126	)		(8,742	)
Purchases of marketable securities		(41,384	)		(20,037	)
Proceeds from maturities of marketable securities		65,139			47,972
Net cash used in investing activities		(63,281	)		(123,975	)

Financing activities
Payments on debt		(5,000	)		5,000
Proceeds from exercises of stock options and other		6,791			8,602
Repurchases of common stock		(12,229	)		(4,410	)
Net cash (used in) provided by financing activities		(10,438	)		9,192
Effect of exchange rate changes on cash and cash equivalents		(871	)		947
Net increase (decrease) in cash and cash equivalents		48,339			(32,088	)
Cash and cash equivalents, beginning of period		36,707			68,795
Cash and cash equivalents, end of period	$	85,046		$	36,707


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						Year Ended
	December 31,						December 31,
	2018			2017			2018			2017
Non-GAAP net income, adjusted for stock-based compensation expense, amortization expense, impairment on assets, acquisition costs, unrealized gain on foreign currency, disposal of businesses and legal settlement
GAAP net income	$	19,286		$	14,272		$	76,588		$	51,778
Add back:
Stock-based compensation expense		2,942			2,400			10,928			8,558
Amortization expense		862			107			3,233			501
Impairment on assets		-			513			-			513
Acquisition costs		-			1,875			-			1,875
Unrealized gain on foreign currency		(527	)		(102	)		(380	)		(185	)
Disposal of businesses		-			-			(671	)		-
Legal settlement		-			-			-			(417	)
Total adjustments ¹		3,277			4,793			13,110			10,845
Provisional charges related to the tax effect of deemed repatriation of foreign earnings		(719	)		2,400			(719	)		2,400
Revaluation of net deferred tax assets and liabilities		(496	)		(4,262	)		(496	)		(4,262	)
Income tax benefits on adjustments ²		(1,086	)		(1,520	)		(5,660	)		(3,344	)
Non-GAAP net income	$	20,262		$	15,683		$	82,823		$	57,417


Non-GAAP net income per share:
Basic	$	0.75		$	0.59		$	3.07		$	2.16
Diluted	$	0.74		$	0.58		$	3.04		$	2.14

Shares used to compute non-GAAP net income per share:
Basic		27,040,207			26,705,909			26,982,614			26,647,610
Diluted		27,311,988			27,009,017			27,278,816			26,845,071


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

	Three Months Ended						Year Ended
	December 31,						December 31,
	2018			2017			2018			2017

Cost of revenue	$	448		$	273		$	1,543		$	970

Marketing and sales		562			405			1,942			1,429
Research and development		407			295			1,517			1,091
General and administrative		2,387			3,922			9,159			7,957
Total operating expenses		3,356			4,622			12,618			10,477

Other income, net		(527	)		(102	)		(1,051	)		(602	)
Total adjustments	$	3,277		$	4,793		$	13,110		$	10,845

² For the three-month and year-ended periods ended December 31, 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						Year Ended
	December 31,						December 31,
	2018			2017			2018			2017
Revenue	$	112,769		$	94,178		$	445,596		$	344,490
Income from operations		20,155			18,775			88,898			72,226
GAAP operating margin		17.9	%		19.9	%		20.0	%		21.0	%
Add back:
Stock-based compensation expense		2,942			2,400			10,928			8,558
Amortization expense		862			107			3,233			501
Acquisition Costs		-			1,875			-			1,875
Impairment on assets		-			513			-			513
Total adjustments		3,804			4,895			14,161			11,447
Non-GAAP income from operations adjusted for stock-based compensation expense, amortization expense, acquisition costs, and impairment on assets	$	23,959		$	23,670		$	103,059		$	83,673
Non-GAAP operating margin		21.2	%		25.1	%		23.1	%		24.3	%


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

								Three Months
								Ended
	Three Months Ended							December 31,				% Change
	December 31, 2018							2017		%		Constant
	GAAP		Adjustments ¹			Non-GAAP		GAAP		Change ²		Currencies ³
Revenues
United States	$	89,282				$	89,282	$	72,067	23.9	%	23.9	%
Europe		19,458		523			19,981		18,930	2.8	%	5.6	%
Japan		4,029		(5	)		4,024		3,181	26.7	%	26.5	%
Total Revenue	$	112,769	$	518		$	113,287	$	94,178	19.7	%	20.3	%


								Year Ended
	Year Ended							December 31,				% Change
	December 31, 2018							2017		%		Constant
	GAAP		Adjustments ¹			Non-GAAP		GAAP		Change ²		Currencies ³
Revenues
United States	$	350,535				$	350,535	$	263,086	33.2	%	33.2	%
Europe		80,889		(3,302	)		77,587		70,154	15.3	%	10.6	%
Japan		14,172		(216	)		13,956		11,250	26.0	%	24.1	%
Total Revenue	$	445,596	$	(3,518	)	$	442,078	$	344,490	29.3	%	28.3	%

¹ Revenue growth for the three-month and year-ended periods ended December 31, 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-month and year-ended periods ended December 31, 2017 to GAAP revenue growth for the three-month and year-ended periods ended December 31, 2018.

³ This column presents the percentage change from GAAP revenue growth for the three-month and year-ended periods ended December 31, 2017 (calculated using the foreign currency exchange rates in effect during that period) to non-GAAP revenue growth for the three-month and year-ended periods ended December 31, 2018 (as recalculated using the foreign currency exchange rates in effect during the three-month and year-ended periods ended December 31, 2017) in order to provide a constant currency comparison.


Proto Labs, Inc.
Product Developer Information
(Unaudited)

	Three Months Ended		Year Ended
	December 31,		December 31,
	2018	2017	2018	2017
Unique product developers and engineers served	20,403	17,256	45,968	37,538

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