Protolabs Reports Financial Results for the Third Quarter of 2022

Proto Labs, Inc.

Condensed Consolidated Balance Sheets

(In thousands)

	September 30,		December 31,
	2022		2021
	(Unaudited)
Assets
Current assets
Cash and cash equivalents	$	59,361	$	65,929
Short-term marketable securities		25,253		11,580
Accounts receivable, net		80,611		80,051
Inventory		14,617		13,161
Income taxes receivable		763		1,321
Prepaid expenses and other current assets		11,752		11,450
Total current assets		192,357		183,492

Property and equipment, net		259,856		280,346
Goodwill		383,558		400,610
Other intangible assets, net		31,907		37,998
Long-term marketable securities		29,257		14,340
Operating lease assets		4,293		5,578
Finance lease assets		1,524		1,898
Other long-term assets		4,186		4,320
Total assets	$	906,938	$	928,582

Liabilities and shareholders' equity
Current liabilities
Accounts payable	$	16,893	$	25,364
Accrued compensation		15,087		13,704
Accrued liabilities and other		25,478		11,980
Current operating lease liabilities		1,773		3,298
Current finance lease liabilities		1,484		550
Income taxes payable		5		-
Total current liabilities		60,720		54,896

Long-term operating lease liabilities		2,477		2,245
Long-term finance lease liabilities		-		1,351
Long-term deferred tax liabilities		26,864		35,892
Other long-term liabilities		6,031		5,705

Shareholders' equity		810,846		828,493
Total liabilities and shareholders' equity	$	906,938	$	928,582

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,
	2022		2021		2022			2021
Revenue
Injection Molding	$	48,940	$	57,685	$	155,693		$	172,212
CNC Machining		47,489		43,658		141,809			121,953
3D Printing		19,823		18,589		59,458			53,994
Sheet Metal		5,219		4,854		15,066			14,790
Other		250		556		765			1,567
Total revenue		121,721		125,342		372,791			364,516

Cost of revenue		68,089		70,018		205,933			197,237
Gross profit		53,632		55,324		166,858			167,279

Operating expenses
Marketing and sales		20,594		21,422		62,235			61,946
Research and development		9,309		10,614		29,316			33,855
General and administrative		16,477		16,361		49,770			44,186
Closure of Japan business		1,194		-		6,388			-
Total operating expenses		47,574		48,397		147,709			139,987
Income from operations		6,058		6,927		19,149			27,292
Other income (loss), net		(24)		136		(323	)		(40)
Income before income taxes		6,034		7,063		18,826			27,252
Provision for income taxes		2,083		2,228		7,223			5,790
Net income	$	3,951	$	4,835	$	11,603		$	21,462

Net income per share:
Basic	$	0.14	$	0.17	$	0.42		$	0.78
Diluted	$	0.14	$	0.17	$	0.42		$	0.77

Shares used to compute net income per share:
Basic		27,505,097		27,713,229		27,512,057			27,638,611
Diluted		27,508,217		27,730,105		27,522,734			27,707,784

Proto Labs, Inc.

Condensed Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)

	Nine Months Ended
	September 30,
	2022			2021
Operating activities
Net income	$	11,603		$	21,462
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		29,981			30,231
Stock-based compensation expense		13,335			15,539
Deferred taxes		(8,920	)		(139	)
Changes in fair value of contingent consideration		-			(8,513	)
Impairments related to closure of Japan business		2,842			-
Gain on disposal of property and equipment		(1,174	)		-
Other		11			442
Changes in operating assets and liabilities		3,886			(26,797	)
Net cash provided by operating activities		51,564			32,225

Investing activities
Purchases of property, equipment and other capital assets		(16,414	)		(27,956	)
Proceeds from sales of property, equipment and other capital assets		3,227			-
Cash used for acquisitions, net of cash acquired		-			(127,413	)
Purchases of marketable securities		(45,872	)		(15,159	)
Proceeds from sales of marketable securities		1,998			57,089
Proceeds from call redemptions and maturities of marketable securities		13,696			15,114
Net cash used in investing activities		(43,365	)		(98,325	)

Financing activities
Proceeds from exercises of stock options and other		2,311			3,838
Purchases of shares withheld for tax obligations		(1,615	)		(4,209	)
Repurchases of common stock		(13,074	)		(13,036	)
Principal repayments of finance lease obligations		(417	)		(413	)
Net cash used in financing activities		(12,795	)		(13,820	)
Effect of exchange rate changes on cash and cash equivalents		(1,972	)		119
Net decrease in cash and cash equivalents		(6,568	)		(79,801	)
Cash and cash equivalents, beginning of period		65,929			127,603
Cash and cash equivalents, end of period	$	59,361		$	47,802

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,
	2022			2021			2022			2021
Non-GAAP net income, adjusted for stock-based compensation expense, amortization expense, unrealized (gain) loss on foreign currency, costs related to Japan closure activities and transaction costs
GAAP net income	$	3,951		$	4,835		$	11,603		$	21,462
Add back:
Stock-based compensation expense		4,907			4,978			13,335			15,539
Amortization expense		1,510			1,568			4,582			4,601
Unrealized (gain) loss on foreign currency		382			121			742			341
Costs related to Japan closure activities		1,194			-			6,388			-
Transaction costs 1		-			(730	)		-			(5,870	)
Total adjustments 2		7,993			5,937			25,047			14,611
Income tax benefits on adjustments 3		(1,060	)		(1,063	)		(2,518	)		(4,639	)
Non-GAAP net income	$	10,884		$	9,709		$	34,132		$	31,434


Non-GAAP net income per share:
Basic	$	0.40		$	0.35		$	1.24		$	1.14
Diluted	$	0.40		$	0.35		$	1.24		$	1.13

Shares used to compute non-GAAP net income per share:
Basic		27,505,097			27,713,229			27,512,057			27,638,611
Diluted		27,508,217			27,730,105			27,522,734			27,707,784

¹ Transaction costs include direct costs incurred in the Company's acquisition of Hubs, Inc. and the impact of changes in the fair value of acquisition-related contingent consideration obligations.

² Stock-based compensation expense, amortization expense, unrealized (gain) loss on foreign currency, costs related to Japan closure activities and transaction costs were included in the following GAAP consolidated statement of operations categories:

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2022		2021		2022		2021

Cost of revenue	$	902	$	986	$	2,701	$	2,974

Marketing and sales		929		1,059		2,479		2,841
Research and development		602		776		1,702		2,144
General and administrative		3,984		2,995		11,035		6,311
Closure of Japan business		1,194		-		6,388		-
Total operating expenses		6,709		4,830		21,604		11,296

Other (income) expense, net		382		121		742		341
Total adjustments	$	7,993	$	5,937	$	25,047	$	14,611

³ For the three- and nine-month periods ended September 30, 2022 and 2021, income tax effects were calculated using the effective tax rate for the relevant jurisdictions. The Company's non-GAAP tax rates differ from its 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 Gross Margin

(In thousands)

(Unaudited)

	Three Months Ended						Nine Months Ended						Three Months Ended
	September 30,						September 30,						June 30,
	2022			2021			2022			2021			2022			2021
Revenue	$	121,721		$	125,342		$	372,791		$	364,516		$	126,902		$	123,048
Gross Profit		53,632			55,324			166,858			167,279			57,422			56,625
GAAP gross margin		44.1	%		44.1	%		44.8	%		45.9	%		45.2	%		46.0	%
Add back:
Stock-based compensation expense		560			644			1,674			1,947			528			668
Amortization expense		342			342			1,027			1,027			342			343
Total adjustments		902			986			2,701			2,974			870			1,011
Non-GAAP gross profit	$	54,534		$	56,310		$	169,559		$	170,253		$	58,292		$	57,636
Non-GAAP gross margin		44.8	%		44.9	%		45.5	%		46.7	%		45.9	%		46.8	%

Proto Labs, Inc.

Reconciliation of GAAP to Non-GAAP Gross Margin Excluding Japan

(In thousands)

(Unaudited)

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2022			2021			2022			2021
Revenue	$	121,721		$	125,342		$	372,791		$	364,516
Revenue excluding Japan	$	120,434		$	122,282		$	364,562		$	354,783
Gross Profit		53,632			55,324			166,858			167,279
GAAP gross margin		44.1	%		44.1	%		44.8	%		45.9	%
Less: Japan gross profit		47			1,151			3,150			3,845
Gross Profit excluding Japan		53,585			54,173			163,708			163,434
GAAP gross margin excluding Japan		44.5	%		44.3	%		44.9	%		46.1	%
Add back:
Stock-based compensation expense		560			644			1,674			1,947
Amortization expense		342			342			1,027			1,027
Less:
Japan stock-based compensation expense		13			26			61			70
Japan amortization expense		-			-			-			-
Total adjustments		889			960			2,640			2,904
Non-GAAP gross profit excluding Japan	$	54,474		$	55,133		$	166,348		$	166,338
Non-GAAP gross margin excluding Japan		45.2	%		45.1	%		45.6	%		46.9	%

Proto Labs, Inc.

Reconciliation of GAAP to Non-GAAP Operating Margin

(In thousands)

(Unaudited)

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2022			2021			2022			2021
Revenue	$	121,721		$	125,342		$	372,791		$	364,516
Income from operations		6,058			6,927			19,149			27,292
GAAP operating margin		5.0	%		5.5	%		5.1	%		7.5	%
Add back:
Stock-based compensation expense		4,907			4,978			13,335			15,539
Amortization expense		1,510			1,568			4,582			4,601
Transaction costs 1		-			(730	)		-			(5,870	)
Costs related to Japan closure activities		1,194			-			6,388			-
Total adjustments		7,611			5,816			24,305			14,270
Non-GAAP income from operations	$	13,669		$	12,743		$	43,454		$	41,562
Non-GAAP operating margin		11.2	%		10.2	%		11.7	%		11.4	%

¹ Transaction costs include direct costs incurred in the Company's acquisition of Hubs, Inc. and the impact of changes in the fair value of acquisition-related contingent consideration obligations.

Proto Labs, Inc.

Reconciliation of GAAP to Non-GAAP Operating Margin Excluding Japan

(In thousands)

(Unaudited)

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2022			2021			2022			2021
Revenue	$	121,721		$	125,342		$	372,791		$	364,516
Revenue excluding Japan	$	120,434		$	122,282		$	364,562		$	354,783
Income from operations		6,058			6,927			19,149			27,292
GAAP operating margin		5.0	%		5.5	%		5.1	%		7.5	%
Less: Japan income from operations		(724	)		(521	)		(720	)		(1,174	)
Income from operations excluding Japan		6,782			7,448			19,869			28,466
GAAP operating margin excluding Japan		5.6	%		6.1	%		5.5	%		8.0	%
Add back:
Stock-based compensation expense		4,907			4,978			13,335			15,539
Amortization expense		1,510			1,568			4,582			4,601
Transaction costs 1		-			(730	)		-			(5,870	)
Costs related to Japan closure activities		1,194			-			6,388			-
Less:
Japan stock-based compensation expense		89			160			386			464
Japan amortization expense		-			-			-			-
Total adjustments		7,522			5,656			23,919			13,806
Non-GAAP income from operations excluding Japan	$	14,304		$	13,104		$	43,788		$	42,272
Non-GAAP operating margin excluding Japan		11.9	%		10.7	%		12.0	%		11.9	%


¹ Transaction costs include direct costs incurred in the Company's acquisition of Hubs, Inc. and the impact of changes in the fair value of acquisition-related contingent consideration obligations.

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,
	2022			2021			2022			2021
Revenue	$	121,721		$	125,342		$	372,791		$	364,516
GAAP net income		3,951			4,835			11,603			21,462
GAAP net income margin		3.2	%		3.9	%		3.1	%		5.9	%
Add back:
Amortization expense	$	1,510		$	1,568		$	4,582		$	4,601
Depreciation expense		8,197			8,536			25,399			25,630
Interest income, net		(265	)		(55	)		(459	)		(207	)
Tax expense		2,083			2,228			7,223			5,790
EBITDA		15,476			17,112			48,348			57,276
EBITDA Margin		12.7	%		13.7	%		13.0	%		15.7	%
Add back:
Stock-based compensation expense		4,907			4,978			13,335			15,539
Unrealized (gain) loss on foreign currency		382			121			742			341
Costs related to Japan closure activities		1,194			-			6,388			-
Transaction costs 1		-			(730	)		-			(5,870	)
Total adjustments		6,483			4,369			20,465			10,010
Adjusted EBITDA	$	21,959		$	21,481		$	68,813		$	67,286
Adjusted EBITDA Margin		18.0	%		17.1	%		18.5	%		18.5	%



¹ Transaction costs include direct costs incurred in the Company's acquisition of Hubs, Inc. and the impact of changes in the fair value of acquisition-related contingent consideration obligations.

Proto Labs, Inc.

Comparison of GAAP to Non-GAAP Revenue Growth by Region

(In thousands)

(Unaudited)

	Three Months Ended September 30, 2022								Three Months Ended September 30, 2021		%			%
	GAAP		Foreign Currency1		Hubs Acquisition		Non-GAAP		GAAP		Change3			Change Organic4
Revenues
United States	$	98,970	$	-	$	-	$	98,970	$	100,127		(1.2	)%		(1.2	)%
Europe		21,464		3,789		-		25,253		22,155		(3.1	)		14.0
Japan		1,287		310		-		1,597		3,060		(57.9	)		(47.8	)
Total Revenue	$	121,721	$	4,099	$	-	$	125,820	$	125,342		(2.9	)%		0.4	%

	Nine Months Ended September 30, 2022									Nine Months Ended September 30, 2021		%			%
	GAAP		Foreign Currency1		Hubs Acquisition2			Non-GAAP		GAAP		Change3			Change Organic4
Revenues
United States	$	295,121	$	-	$	(1,049	)	$	294,072	$	286,524		3.0	%		2.6	%
Europe		69,441		7,165		(1,279	)		75,327		68,259		1.7			10.4
Japan		8,229		1,226		-			9,455		9,733		(15.5	)		(2.9	)
Total Revenue	$	372,791	$	8,391	$	(2,328	)	$	378,854	$	364,516		2.3	%		3.9	%

¹ Revenue for the three- and nine-month periods ended September 30, 2022 has been recalculated using 2021 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 Revenue for the nine-month period ended September 30, 2022 has been recalculated to exclude revenue earned from the Company's acquisition of Hubs, Inc. for the period from January 1, 2022 to January 21, 2022 to provide information useful in evaluating the underlying business trends excluding the impact of acquisitions. The Hubs, Inc. acquisition occurred on January 22, 2021 and was included in 2021 revenue after that date.

³ This column presents the percentage change from GAAP revenue for the three- and nine-month periods ended September 30, 2021 to GAAP revenue for the three- and nine-month periods ended September 30, 2022.

⁴ This column presents the percentage change from GAAP revenue for the three- and nine-month periods ended September 30, 2021 to non-GAAP revenue for the three- and nine-month periods ended September 30, 2022 (as recalculated using the foreign currency exchange rates in effect during the three- and nine-month periods ended September 30, 2021, excluding the impact of Hubs, Inc. acquisition) in order to provide a constant-currency comparison.

Proto Labs, Inc.

Comparison of GAAP to Non-GAAP Revenue Growth by Service Line

(In thousands)

(Unaudited)

	Three Months Ended September 30, 2022								Three Months Ended September 30, 2021		%			%
	GAAP		Foreign Currency1		Hubs Acquisition		Non-GAAP		GAAP		Change3			Change Organic4
Revenues
Injection Molding	$	48,940	$	1,677	$	-	$	50,617	$	57,685		(15.2	)%		(12.3	)%
CNC Machining		47,489		1,580		-		49,069		43,658		8.8			12.4
3D Printing		19,823		803		-		20,626		18,589		6.6			11.0
Sheet Metal		5,219		39		-		5,258		4,854		7.5			8.3
Other		250		-		-		250		556		(55.0	)		(55.0	)
Total Revenue	$	121,721	$	4,099	$	-	$	125,820	$	125,342		(2.9	)%		0.4	%

	Nine Months Ended September 30, 2022									Nine Months Ended September 30, 2021		%			%
	GAAP		Foreign Currency1		Hubs Acquisition2			Non-GAAP		GAAP		Change3			Change Organic4
Revenues
Injection Molding	$	155,693	$	4,102	$	(189	)	$	159,606	$	172,212		(9.6	)%		(7.3	)%
CNC Machining		141,809		2,693		(1,637	)		142,865		121,953		16.3			17.1
3D Printing		59,458		1,553		(408	)		60,603		53,994		10.1			12.2
Sheet Metal		15,066		39		(84	)		15,021		14,790		1.9			1.6
Other		765		4		(10	)		759		1,567		(51.2	)		(51.6	)
Total Revenue	$	372,791	$	8,391	$	(2,328	)	$	378,854	$	364,516		2.3	%		3.9	%

¹ Revenue for the three- and nine-month periods ended September 30, 2022 has been recalculated using 2021 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 Revenue for the nine-month period ended September 30, 2022 has been recalculated to exclude revenue earned from the Company's acquisition of Hubs, Inc. for the period from January 1, 2022 to January 21, 2022 to provide information useful in evaluating the underlying business trends excluding the impact of acquisitions. The Hubs, Inc. acquisition occurred on January 22, 2021 and was included in 2021 revenue after that date.

³ This column presents the percentage change from GAAP revenue for the three- and nine-month periods ended September 30, 2021 to GAAP revenue for the three- and nine-month periods ended September 30, 2022.

⁴ This column presents the percentage change from GAAP revenue for the three- and nine-month periods ended September 30, 2021 to non-GAAP revenue for the three- and nine-month periods ended September 30, 2022 (as recalculated using the foreign currency exchange rates in effect during the three- and nine-month periods ended September 30, 2021, excluding the impact of Hubs, Inc. acquisition) in order to provide a constant-currency comparison.