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Protolabs Reports Third Quarter 2019 Financial Results

October 24, 2019 6:00 AM

Record Quarterly Revenue of $117.5 million, an increase of 2% over Q3 2018

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 third quarter ended September 30, 2019.

Third Quarter 2019 Highlights include:

“Our business grew year-over-year in the third quarter in an industrial environment that has continued to soften throughout 2019,” said Vicki Holt, President and Chief Executive Officer. “Despite a weaker macro climate, our customer retention rate remains high as we continue to delight our customers by expanding and improving our industry-leading digital manufacturing offer.”

Additional Third Quarter 2019 highlights include:

“Our customers are taking a more cautious approach in 2019 in general, including R&D projects, and that is reflected in our financial results year-to-date,” said John Way, Chief Financial Officer. “Our business continues to generate strong cash flows in order to invest for future growth, as well as return capital to shareholders in the form of stock repurchases.”

Non-GAAP Financial Measures

The company has included non-GAAP revenue growth that excludes the impact of changes in foreign currency exchange rates (collectively, “non-GAAP revenue growth”). Management believes these metrics are useful in evaluating the underlying business trends and ongoing operating performance of the company.

The company has included earnings before interest, taxes, depreciation and amortization (“EBITDA”) and EBITDA, adjusted for stock-based compensation expense, unrealized (gain) loss on foreign currency, and disposal of businesses (collectively, “Adjusted EBITDA”), 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 and amortization expense (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 net income, adjusted for stock-based compensation expense, amortization expense, unrealized (gain) loss on foreign currency, and disposal of businesses (collectively, “non-GAAP net income”), in this press release to provide investors with additional information regarding the company’s financial results.

The company has provided below reconciliations of GAAP to non-GAAP net income, non-GAAP operating margin, non-GAAP revenue growth and Adjusted EBITDA, 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 third quarter 2019 financial results and fourth quarter outlook today, October 24, 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 presentation containing information on the company’s third quarter 2019 financial results and fourth quarter outlook will be available prior to the call. A simultaneous webcast of the call and slide presentation will be available via the investor relations section of the Protolabs website and the following link: https://edge.media-server.com/mmc/p/mofpzm2m. 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)

September 30,

December 31,

2019

2018

(Unaudited)
Assets
Current assets
Cash and cash equivalents

$

121,568

$

85,046

Short-term marketable securities

23,642

46,750

Accounts receivable, net

64,069

59,155

Inventory

9,448

10,087

Income taxes receivable

2,852

5,757

Prepaid expenses and other current assets

8,038

8,567

Total current assets

229,617

215,362

Property and equipment, net

252,579

228,001

Goodwill

128,752

128,752

Other intangible assets, net

18,258

19,850

Long-term marketable securities

9,783

23,579

Operating lease assets

12,008

-

Other long-term assets

3,902

3,441

Total assets

$

654,899

$

618,985

Liabilities and shareholders' equity
Current liabilities
Accounts payable

$

18,668

$

17,411

Accrued compensation

12,926

18,130

Accrued liabilities and other

13,133

16,702

Current operating lease liabilities

3,364

-

Income taxes payable

6,717

491

Total current liabilities

54,808

52,734

Long-term operating lease liabilities

9,006

-

Long-term deferred tax liabilities

21,750

20,162

Other long-term liabilities

5,238

4,592

Shareholders' equity

564,097

541,497

Total liabilities and shareholders' equity

$

654,899

$

618,985

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,

2019

2018

2019

2018

Revenue
Injection Molding

$

55,167

$

53,681

$

165,935

$

156,610

CNC Machining

40,219

40,845

116,979

115,364

3D Printing

15,898

13,845

45,644

39,418

Sheet Metal

5,280

6,452

15,777

19,002

Other

891

607

2,504

2,433

Total revenue

117,455

115,430

346,839

332,827

Cost of revenue

57,839

53,027

168,127

153,303

Gross profit

59,616

62,403

178,712

179,524

Operating expenses
Marketing and sales

17,604

16,818

55,466

50,947

Research and development

8,359

7,458

24,541

21,155

General and administrative

12,380

13,096

38,411

38,679

Total operating expenses

38,343

37,372

118,418

110,781

Income from operations

21,273

25,031

60,294

68,743

Other income, net

228

390

1,566

1,376

Income before income taxes

21,501

25,421

61,860

70,119

Provision for income taxes

4,709

4,484

13,391

12,817

Net income

$

16,792

$

20,937

$

48,469

$

57,302

Net income per share:
Basic

$

0.63

$

0.77

$

1.80

$

2.13

Diluted

$

0.62

$

0.77

$

1.79

$

2.10

Shares used to compute net income per share:
Basic

26,846,030

27,038,585

26,894,420

26,963,205

Diluted

27,005,341

27,337,886

27,072,873

27,268,311

Proto Labs, Inc.
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
Nine Months Ended
September 30,

2019

2018

Operating activities
Net income

$

48,469

$

57,302

Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization

22,658

19,520

Stock-based compensation expense

9,738

7,986

Deferred taxes

1,599

1,770

Gain on sale of businesses

-

(671

)

Amortization of held-to-maturity securities

(5

)

336

Other

(133

)

160

Changes in operating assets and liabilities

1,453

(1,441

)

Net cash provided by operating activities

83,779

84,962

Investing activities
Purchases of property, equipment and other capital assets

(46,151

)

(61,898

)

Cash used for acquisitions, net of cash acquired

-

(90

)

Proceeds from sale of businesses

-

284

Purchases of other assets and investments

(4,000

)

(126

)

Purchases of marketable securities

(17,443

)

(41,384

)

Proceeds from maturities of marketable securities

54,352

44,721

Net cash used in investing activities

(13,242

)

(58,493

)

Financing activities
Payments on debt

-

(5,000

)

Proceeds from exercises of stock options and other

2,486

7,269

Purchases of shares withheld for tax obligations

(2,420

)

(2,021

)

Repurchases of common stock

(33,521

)

-

Net cash (used in) provided by financing activities

(33,455

)

248

Effect of exchange rate changes on cash and cash equivalents

(560

)

(831

)

Net increase in cash and cash equivalents

36,522

25,886

Cash and cash equivalents, beginning of period

85,046

36,707

Cash and cash equivalents, end of period

$

121,568

$

62,593

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,

2019

2018

2019

2018

Non-GAAP net income, adjusted for stock-based compensation expense,
amortization expense, unrealized (gain) loss on foreign currency and
disposal of businesses
GAAP net income

$

16,792

$

20,937

$

48,469

$

57,302

Add back:
Stock-based compensation expense

3,212

2,952

9,738

7,986

Amortization expense

859

808

2,593

2,371

Unrealized (gain) loss on foreign currency

449

(101

)

391

147

Disposal of businesses

-

-

-

(671

)

Total adjustments 1

4,520

3,659

12,722

9,833

Income tax benefits on adjustments 2

(882

)

(1,213

)

(2,875

)

(4,574

)

Non-GAAP net income

$

20,430

$

23,383

$

58,316

$

62,561

Non-GAAP net income per share:
Basic

$

0.76

$

0.86

$

2.17

$

2.32

Diluted

$

0.76

$

0.86

$

2.15

$

2.29

Shares used to compute non-GAAP net income per share:
Basic

26,846,030

27,038,585

26,894,420

26,963,205

Diluted

27,005,341

27,337,886

27,072,873

27,268,311

1 Stock-based compensation expense, amortization expense, unrealized (gain) loss on foreign currency and disposal of businesses were included in the following GAAP consolidated statement of operations categories:
Three Months Ended Nine Months Ended
September 30, September 30,

2019

2018

2019

2018

Cost of revenue

$

872

$

446

$

2,402

$

1,096

Marketing and sales

760

560

1,923

1,380

Research and development

560

419

1,486

1,109

General and administrative

1,879

2,335

6,520

6,772

Total operating expenses

3,199

3,314

9,929

9,261

Other income, net

449

(101

)

391

(524

)

Total adjustments

$

4,520

$

3,659

$

12,722

$

9,833

2 For the three- and nine-month periods ended September 30, 2019 and 2018, 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,

2019

2018

2019

2018

Revenue

$

117,455

$

115,430

$

346,839

$

332,827

Income from operations

21,273

25,031

60,294

68,743

GAAP operating margin

18.1

%

21.7

%

17.4

%

20.7

%

Add back:
Stock-based compensation expense

3,212

2,952

9,738

7,986

Amortization expense

859

808

2,593

2,371

Total adjustments

4,071

3,760

12,331

10,357

Non-GAAP income from operations

$

25,344

$

28,791

$

72,625

$

79,100

Non-GAAP operating margin

21.6

%

24.9

%

20.9

%

23.8

%

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,

2019

2018

2019

2018

GAAP net income

$

16,792

$

20,937

$

48,469

$

57,302

Amortization expense

859

808

2,593

2,371

Depreciation expense

6,820

5,963

20,066

17,149

Interest income, net

(489

)

(475

)

(1,535

)

(1,063

)

Tax expense

4,709

4,484

13,391

12,817

EBITDA

28,691

31,717

82,984

88,576

Add back:
Stock-based compensation expense

3,212

2,952

9,738

7,986

Unrealized (gain) loss on foreign currency

449

(101

)

391

147

Disposal of businesses

-

-

-

(671

)

Total adjustments

3,661

2,851

10,129

7,462

Adjusted EBITDA

$

32,352

$

34,568

$

93,113

$

96,038

Proto Labs, Inc.
Comparison of GAAP to Non-GAAP Revenue Growth
(In thousands)
(Unaudited)
Three Months Ended
September 30, 2019		 Three Months
Ended
September 30,
2018		 % % Change
Constant
GAAP Adjustments1 Non-GAAP GAAP Change2 Currencies3
Revenues
United States

$

92,916

$

-

$

92,916

$

90,732

2.4

%

2.4

%

Europe

20,721

1,001

21,722

21,273

(2.6

%)

2.1

%

Japan

3,818

(140

)

3,678

3,425

11.5

%

7.4

%

Total Revenue

$

117,455

$

861

$

118,316

$

115,430

1.8

%

2.5

%

Nine Months Ended
September 30, 2019		 Nine Months
Ended
September 30,
2018		 % % Change
Constant
GAAP Adjustments1 Non-GAAP GAAP Change2 Currencies3
Revenues
United States

$

271,877

$

-

$

271,877

$

261,253

4.1

%

4.1

%

Europe

62,915

3,968

66,883

61,431

2.4

%

8.9

%

Japan

12,047

(19

)

12,028

10,143

18.8

%

18.6

%

Total Revenue

$

346,839

$

3,949

$

350,788

$

332,827

4.2

%

5.4

%

1 Revenue for the three- and nine-month periods ended September 30, 2019 has been recalculated using 2018 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 for the three- and nine-month periods ended September 30, 2018 to GAAP revenue for the three- and nine-month periods ended September 30, 2019.
3 This column presents the percentage change from GAAP revenue for the three- and nine-month periods ended September 30, 2018 to non-GAAP revenue for the three- and nine-month periods ended September 30, 2019 (as recalculated using the foreign currency exchange rates in effect during the three- and nine-month periods ended September 30, 2018) in order to provide a constant-currency comparison.
Proto Labs, Inc.
Product Developer Information
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,

2019

2018

2019

2018

Unique product developers and engineers served

21,471

20,792

40,791

38,823

Investor Relations Contact:

Protolabs

Dan Schumacher, 763-479-7240

Director of Investor Relations

[email protected]

or

Media Contact:

Protolabs

Sarah Ekenberg, 763-479-7560

Marketing Manager, PR & Media

[email protected]

Source: Proto Labs, Inc.

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