Quarterly Revenue Increases 17 Percent Year over Year to Record $75.0 Million

MAPLE PLAIN, Minn.--(BUSINESS WIRE)-- Proto Labs, Inc. (NYSE: PRLB), a leading online and technology-enabled, quick-turn, on-demand manufacturer, today announced financial results for the second quarter ended June 30, 2016.

Second Quarter 2016 Highlights include:

• Revenue for the second quarter of 2016 was $75.0 million, 17 percent above revenue of $64.0 million in the second quarter of 2015. Alphaform, the German company acquired in the fourth quarter of 2015, contributed $4.8 million in revenue in the second quarter. Excluding this contribution, legacy revenue totaled $70.2 million, an increase of 10 percent compared with the second quarter of 2015.
• Revenue from 3D printing totaled $9.1 million. Excluding Alphaform’s $2.1 million in 3D printing revenue, legacy 3D printing revenue was $7.0 million, an increase of 29 percent from the 2015 second quarter.
• The number of unique product developers and engineers served increased 14 percent to 13,519 from 11,822 in the second quarter of 2015.
• Net income for the second quarter of 2016 was $10.7 million, or $0.40 per diluted share. Non-GAAP net income, excluding the after-tax expense of stock compensation, amortization of intangibles, nonrecurring expenses and unrealized foreign currency gains, was $12.0 million, or $0.45 per diluted share. See “Non-GAAP Financial Measures” below.

“Revenue growth was solid in the second quarter, driven by continued strong growth in 3D printing, strength in our European markets, and the contribution from Alphaform,” said Vicki Holt, President and Chief Executive Officer. “We were also pleased with the legacy growth in Europe in the quarter, which grew 24 percent and we saw an improved performance in Japan with a revenue increase of 46 percent year over year. In the Americas, we experienced slower than expected growth in injection molding and CNC machining. This was primarily due to a slowdown in the US industrial economy as well as attrition in sales leadership.

“During the quarter, we improved our gross margins in both our legacy operations as well as in our Alphaform business. We are also beginning to see traction from our expanded sales and marketing efforts of 3D printing in Europe and anticipate this business will continue to grow throughout the year.”

Additional Second Quarter 2016 Highlights include:

• Gross margin was 56.4 percent of revenue for the second quarter compared with 58.7 percent for the second quarter of 2015 and 54.6 in the first quarter of 2016. Alphaform had a 310 basis point negative impact on gross margin in the second quarter of 2016.
• GAAP operating margin was 19.8 percent of revenue during the second quarter of 2016 compared to 27.1 percent for the second quarter of 2015. On a non-GAAP basis, operating margin was 23.6 percent. See “Non-GAAP Financial Measures” below.
• Cash generated from operations during the second quarter was $19.9 million. Cash and investments increased $7.1 million during the quarter to $164.3 million at June 30, 2016.

“Over the next several quarters, we will be focused on driving actions to improve our sales performance and efficiency through our operations and we expect to see improvement in sales growth, especially in the Americas, over time. We remain confident in the fundamentals in our business - our market size, differentiated proposition and excellent customer experience,” 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 net income, adjusted for stock-based compensation expense, amortization expense, unrealized foreign currency activity, impairment on assets and charges related to the exit of facilities (collectively, “non-GAAP net income”), in this press release to provide investors with additional information regarding the company’s financial results.

The company has also included a reconciliation of non-GAAP condensed consolidated statement of operations to GAAP condensed consolidated statement of operations. The non-GAAP condensed consolidated statement of operations provides non-GAAP operating income and non-GAAP net income, which 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 non-GAAP operating income and non-GAAP net income 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 second quarter financial results today, July 28, 2016 at 8:30 a.m. ET. To access the call in the U.S. please dial 877-709-8150. Outside the U.S. please dial 201-689-8354. No participant code is required. A simultaneous webcast of the call will be available via the investor relations section of the Proto Labs website and the following link: http://edge.media-server.com/m/p/dwf9w9tm/lan/en. A replay will be available for 14 days following the call on the investor relations section of Proto Labs’ website.

About Proto Labs, Inc.

Proto Labs is the world’s fastest digital manufacturing source for custom prototypes and low-volume production parts. The technology-enabled company uses advanced 3D printing, CNC machining and injection molding technologies to produce parts within days. The result is an unprecedented speed-to-market value for product designers and engineers worldwide. 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 Proto Labs 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 Proto Labs’ future results. The forward-looking statements included in this press release are made only as of the date hereof. Proto Labs cannot guarantee future results, levels of activity, performance or achievements. Accordingly, you should not place undue reliance on these forward-looking statements. Finally, Proto Labs 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)
				June 30,				December 31,
				2016				2015
				(Unaudited)
Assets
Current assets
Cash and cash equivalents				$	57,331			$	47,653
Short-term marketable securities					39,216				33,201
Accounts receivable, net					34,486				36,125
Inventory					9,901				9,771
Income taxes receivable					2,005				6,028
Other current assets					5,468				5,224
Total current assets					148,407				138,002
Property and equipment, net					138,685				125,475
Long-term marketable securities					67,730				64,789
Goodwill					28,916				28,916
Other intangible assets, net					2,980				3,337
Other long-term assets					1,305				517
Total assets				$	388,023			$	361,036
Liabilities and shareholders' equity
Current liabilities
Accounts payable				$	11,435			$	13,643
Accrued compensation					9,753				9,993
Accrued liabilities and other					2,491				2,626
Total current liabilities					23,679				26,262
Long-term deferred tax liabilities					4,632				4,240
Other long-term liabilities					2,928				2,889
Shareholders' equity					356,784				327,645
Total liabilities and shareholders' equity				$	388,023			$	361,036

Proto Labs, Inc.
Condensed Consolidated Statements of Operations
(In thousands, except share and per share amounts)
(Unaudited)
				Three Months Ended								Six Months Ended
				June 30,								June 30,
				2016			2015					2016			2015
Revenue
Injection Molding (Protomold)				$	44,762		$	39,932				$	87,931		$	77,550
CNC Machining (Firstcut)					19,854			18,585					38,729			34,955
3D Printing (Fineline)					9,099			5,452					18,209			10,000
Other					1,246			-					2,660			-
Total revenue					74,961			63,969					147,529			122,505
Cost of revenue					32,715			26,419					65,629			49,701
Gross profit					42,246			37,550					81,900			72,804
Operating expenses
Marketing and sales					11,453			9,502					22,395			18,356
Research and development					5,816			4,397					11,134			8,711
General and administrative					10,126			6,304					18,377			12,549
Total operating expenses					27,395			20,203					51,906			39,616
Income from operations					14,851			17,347					29,994			33,188
Other income (expense), net					1,092			(36	)				1,717			(493	)
Income before income taxes					15,943			17,311					31,711			32,695
Provision for income taxes					5,252			5,625					10,358			10,556
Net income				$	10,691		$	11,686				$	21,353		$	22,139
Net income per share:
Basic				$	0.41		$	0.45				$	0.81		$	0.86
Diluted				$	0.40		$	0.44				$	0.80		$	0.84
Shares used to compute net income per share:
Basic					26,368,001			25,921,111					26,295,074			25,885,888
Diluted					26,561,148			26,277,503					26,526,629			26,245,135

Proto Labs, Inc.
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
				Six Months Ended
				June 30,
				2016					2015
Operating activities
Net income				$	21,353				$	22,139
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization					8,147					6,940
Stock-based compensation expense					3,541					2,909
Deferred taxes					403					620
Excess tax benefit from stock-based compensation					(1,916	)				(989	)
Amortization of held-to-maturity securities					590					632
Loss on impairment of assets					455					-
Other					(1,095	)				-
Changes in operating assets and liabilities					5,084					(4,418	)
Net cash provided by operating activities					36,562					27,833
Investing activities
Purchases of property and equipment					(22,416	)				(15,717	)
Purchases of marketable securities					(38,304	)				(25,389	)
Proceeds from sales and maturities of marketable securities					28,759					24,109
Net cash used in investing activities					(31,961	)				(16,997	)
Financing activities
Payments on debt					-					(77	)
Acquisition-related contingent consideration					(400	)				(1,000	)
Proceeds from exercises of stock options and other					3,729					2,207
Excess tax benefit from stock-based compensation					1,916					989
Net cash provided by financing activities					5,245					2,119
Effect of exchange rate changes on cash and cash equivalents					(168	)				40
Net increase in cash and cash equivalents					9,678					12,995
Cash and cash equivalents, beginning of period					47,653					43,329
Cash and cash equivalents, end of period				$	57,331				$	56,324

Proto Labs, Inc.
Reconciliation of GAAP to Non-GAAP Condensed Consolidated Statements of Operations
(In thousands, except share and per share amounts)
(Unaudited)
				Three Months Ended											Three Months Ended
				June 30, 2016											June 30, 2015
				GAAP			Adjustments				Non-GAAP				GAAP				Adjustments				Non-GAAP
Revenue
Injection Molding (Protomold)				$	44,762		$	-			$	44,762			$	39,932			$	-			$	39,932
CNC Machining (Firstcut)					19,854			-				19,854				18,585				-				18,585
3D Printing (Fineline)					9,099			-				9,099				5,452				-				5,452
Other					1,246			-				1,246				-				-				-
Total revenue					74,961			-				74,961				63,969				-				63,969
Cost of revenue					32,715			(268	)			32,447				26,419				(131	)			26,288
Gross profit					42,246			268				42,514				37,550				131				37,681
Operating expenses
Marketing and sales					11,453			(213	)			11,240				9,502				(271	)			9,231
Research and development					5,816			(480	)			5,336				4,397				(336	)			4,061
General and administrative					10,126			(1,892	)			8,234				6,304				(1,015	)			5,289
Total operating expenses					27,395			(2,585	)			24,810				20,203				(1,622	)			18,581
Income from operations					14,851			2,853				17,704				17,347				1,753				19,100
Other income (expense), net					1,092			(806	)			286				(36	)			165				129
Income before income taxes					15,943			2,047				17,990				17,311				1,918				19,229
Provision for income taxes					5,252			773				6,025				5,625				574				6,199
Net income				$	10,691		$	1,274			$	11,965			$	11,686			$	1,344			$	13,030
Net income per share:
Basic				$	0.41		$	0.04			$	0.45			$	0.45			$	0.05			$	0.50
Diluted				$	0.40		$	0.05			$	0.45			$	0.44			$	0.06			$	0.50
Shares used to compute net income per share:
Basic					26,368,001			26,368,001				26,368,001				25,921,111				25,921,111				25,921,111
Diluted					26,561,148			26,561,148				26,561,148				26,277,503				26,277,503				26,277,503

Proto Labs, Inc.
Reconciliation of GAAP to Non-GAAP Condensed Consolidated Statements of Operations
(In thousands, except share and per share amounts)
(Unaudited)
				Six Months Ended											Six Months Ended
				June 30, 2016											June 30, 2015
				GAAP			Adjustments				Non-GAAP				GAAP				Adjustments				Non-GAAP
Revenue
Injection Molding (Protomold)				$	87,931		$	-			$	87,931			$	77,550			$	-			$	77,550
CNC Machining (Firstcut)					38,729			-				38,729				34,955				-				34,955
3D Printing (Fineline)					18,209			-				18,209				10,000				-				10,000
Other					2,660			-				2,660				-				-				-
Total revenue					147,529			-				147,529				122,505				-				122,505
Cost of revenue					65,629			(398	)			65,231				49,701				(243	)			49,458
Gross profit					81,900			398				82,298				72,804				243				73,047
Operating expenses
Marketing and sales					22,395			(491	)			21,904				18,356				(507	)			17,849
Research and development					11,134			(774	)			10,360				8,711				(630	)			8,081
General and administrative					18,377			(3,108	)			15,269				12,549				(1,902	)			10,647
Total operating expenses					51,906			(4,373	)			47,533				39,616				(3,039	)			36,577
Income from operations					29,994			4,771				34,765				33,188				3,282				36,470
Other income (expense), net					1,717			(1,130	)			587				(493	)			618				125
Income before income taxes					31,711			3,641				35,352				32,695				3,900				36,595
Provision for income taxes					10,358			1,310				11,668				10,556				1,143				11,699
Net income				$	21,353		$	2,331			$	23,684			$	22,139			$	2,757			$	24,896
Net income per share:
Basic				$	0.81		$	0.09			$	0.90			$	0.86			$	0.10			$	0.96
Diluted				$	0.80		$	0.09			$	0.89			$	0.84			$	0.11			$	0.95
Shares used to compute net income per share:
Basic					26,295,074			26,295,074				26,295,074				25,885,888				25,885,888				25,885,888
Diluted					26,526,629			26,526,629				26,526,629				26,245,135				26,245,135				26,245,135

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									Six Months Ended
				June 30,									June 30,
				2016				2015					2016				2015
Non-GAAP net income, adjusted for stock-based compensation expense,
amortization expense, unrealized (gain) loss on foreign currency,
impairment on assets and charges related to the exit of facilities
GAAP net income				$	10,691			$	11,686				$	21,353			$	22,139
Add back:
Stock-based compensation expense					1,809				1,567					3,541				2,909
Amortization expense					171				186					357				373
Impairment on assets					455				-					455				-
Facilities-related charges					418				-					418				-
Unrealized (gain) loss on foreign currency					(806	)			165					(1,130	)			618
Total adjustments					2,047				1,918					3,641				3,900
Income tax benefits on adjustments					(773	)			(574	)				(1,310	)			(1,143	)
Non-GAAP net income				$	11,965			$	13,030				$	23,684			$	24,896
Non-GAAP net income per share:
Basic				$	0.45			$	0.50				$	0.90			$	0.96
Diluted				$	0.45			$	0.50				$	0.89			$	0.95
Shares used to compute non-GAAP net income per share:
Basic					26,368,001				25,921,111					26,295,074				25,885,888
Diluted					26,561,148				26,277,503					26,526,629				26,245,135

Proto Labs, Inc.
Comparison of GAAP to Non-GAAP Revenue Growth
(In thousands)
(Unaudited)
				Three Months Ended									% Change				Six Months Ended									% Change
				June 30,						%			Constant				June 30,						%			Constant
				2016			2015			Change			Currencies1				2016			2015			Change			Currencies1
Revenues
United States				$	55,323		$	52,270		5.8	%		5.8	%			$	109,791		$	99,699		10.1	%		10.1	%
Europe					17,277			10,083		71.3	%		73.5	%				32,907			18,864		74.4	%		78.2	%
Japan					2,361			1,616		46.1	%		29.4	%				4,831			3,942		22.6	%		13.5	%
Total Revenue				$	74,961		$	63,969		17.2	%		17.1	%			$	147,529		$	122,505		20.4	%		20.7	%
1 Revenue growth for the three- and six-month periods ended June 30, 2016 has been recalculated using 2015 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.
				Three Months Ended									% Change				Six Months Ended									% Change
				June 30,						%			Constant				June 30,						%			Constant
				2016			2015			Change2			Currencies2				2016			2015			Change2			Currencies2
Revenues
United States				$	55,323		$	52,270		5.8	%		5.8	%			$	109,791		$	99,699		10.1	%		10.1	%
Europe					12,503			10,083		24.0	%		26.3	%				23,242			18,864		23.2	%		27.1	%
Japan					2,361			1,616		46.1	%		29.4	%				4,831			3,942		22.6	%		13.5	%
Total Revenue				$	70,187		$	63,969		9.7	%		9.6	%			$	137,864		$	122,505		12.5	%		12.8	%
2 Revenue growth for the three- and six-month periods ended June 30, 2016 has been recalculated to exclude revenue earned from our acquisition of Alphaform, and using 2015 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.

Proto Labs, Inc.
Revenue by Geography - Based on Shipping Location
(In thousands)
(Unaudited)
				Three Months Ended							Six Months Ended
				June 30,							June 30,
				2016			2015				2016			2015
Revenues
Domestic
United States				$	51,852		$	49,298			$	102,419		$	94,143
International
Europe					17,277			10,083				32,907			18,864
Japan					2,361			1,616				4,831			3,942
United States					3,471			2,972				7,372			5,556
Total international					23,109			14,671				45,110			28,362
Total revenue				$	74,961		$	63,969			$	147,529		$	122,505

Proto Labs, Inc.
Product Developer Information
(Unaudited)
			Three Months Ended				Six Months Ended
			June 30,				June 30,
			2016		2015		2016		2015
Unique product developers and engineers served			13,519		11,822		20,240		17,194
Note: the data above does not include product developers and engineers who purchased products attributable to our acquisition of Alphaform during the periods presented.

View source version on businesswire.com: http://www.businesswire.com/news/home/20160728005539/en/

Proto Labs, Inc.

Investor Relations:

John Way, 763-479-7726

[email protected]

or

Jenifer Kirtland, 408-656-9496

[email protected]

or

Media Relations:

Bill Dietrick, 763-479-7664

[email protected]

Source: Proto Labs, Inc.

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