Proto Labs Inc - FORM 8-K - EX-99.1 - EXHIBIT 99.1

Proto Labs Inc - FORM 8-K - EX-99.1 - EXHIBIT 99.1 - July 27, 2017

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Proto Labs Inc Reports

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8-K - FORM 8-K - Proto Labs Inc	prlb20170725_8k.htm

Exhibit 99.1

Proto Labs Reports Record Revenue for the Second Quarter 2017

Quarterly Revenue Increases 9.4% to a Record $82.0 million

Quarterly Net Income Increases 13.0% to $12.1 million

MAPLE PLAIN, Minn. – July 27, 2017 – 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, 2017.

Second Quarter 2017 Highlights include:

●

Revenue for the second quarter of 2017 was $82.0 million, 9.4 percent above revenue of $75.0 million in the second quarter of 2016.

●

The number of unique product developers and engineers served totaled 16,174 in the second quarter of 2017, an increase of 18.8 percent over the second quarter of 2016.

●

Net income for the second quarter of 2017 was $12.1 million, or $0.45 per diluted share. Non-GAAP net income, excluding the after-tax expense of stock compensation, amortization of intangibles, legal settlements and unrealized foreign currency gains, was $13.1 million, or $0.49 per diluted share. See “Non-GAAP Financial Measures” below.

“We delivered record revenue this quarter with the Americas leading the way with 14.5 percent year-over-year growth,” said Vicki Holt, President and Chief Executive Officer. “Our revenue growth was driven by an 18.8 percent growth in the number of unique product developers we served this quarter, reflecting continued penetration of our market opportunity.”

Additional Second Quarter 2017 Highlights include:

●

Gross margin was 56.5 percent of revenue for the second quarter of 2017 compared with 56.4 percent for the second quarter of 2016.

●

Operating margin was 20.0 percent of revenue during the second quarter of 2017 compared to 19.8 percent of revenue for the second quarter of 2016.

●

The company generated $20.6 million in cash from operations during the second quarter of 2017.

●

Cash and investments balance increased to $217.9 million at June 30, 2017.

“We continue to execute on our initiative to expand our product envelope. Our recently launched on-demand manufacturing offering tailors our injection molding service to address the specific needs of the customer. This offering includes a suite of inspection reports, including a digital inspection report option, a lifetime mold guarantee and more competitive piece part pricing to the on-demand manufacturing customer” concluded Holt.

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 non-GAAP adjusted revenue growth that excludes the impact of discontinued businesses, discontinued manufacturing processes, and unprofitable Alphaform 3D printing contracts 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 operating margin, adjusted for stock-based compensation expense, amortization expense, impairment on assets and facilities-related charges (collectively, “non-GAAP operating margin”), in this press release to provide investors with additional information regarding the company’s financial results.

The company has also included non-GAAP net income, adjusted for stock-based compensation expense, amortization expense, impairment on assets, facilities-related charges, legal settlement and unrealized foreign currency activity (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 a reconciliation of GAAP to non-GAAP net income, the most directly comparable measure calculated and presented in accordance with GAAP. Non-GAAP net income is 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 net income provides 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 2017 financial results today, July 27, 2017 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/pcgxg5mm. 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.

Contacts:

Investor Relations:

Daniel Schumacher, 763-479-7240

daniel.schumacher@protolabs.com

John Way, 763-479-7726

john.way @protolabs.com

Media Relations:

Bill Dietrick, 763-479-7664

bill.dietrick@protolabs.com

	June 30,		December 31,
	2017		2016
	(Unaudited)
Assets
Current assets
Cash and cash equivalents	$	99,196	$	68,795
Short-term marketable securities		48,272		39,477
Accounts receivable, net		42,211		34,060
Inventory		9,327		9,310
Income taxes receivable		-		445
Other current assets		5,915		5,697
Total current assets		204,921		157,784

Property and equipment, net		146,364		139,474
Long-term marketable securities		69,435		84,479
Goodwill		28,916		28,916
Other intangible assets, net		2,367		2,655
Other long-term assets		2,650		933
Total assets	$	454,653	$	414,241

Liabilities and shareholders' equity
Current liabilities
Accounts payable	$	14,147	$	11,322
Accrued compensation		10,990		7,670
Accrued liabilities and other		4,530		4,435
Income taxes payable		1,383		-
Total current liabilities		31,050		23,427

Long-term deferred tax liabilities		8,613		7,003
Other long-term liabilities		4,186		3,978

Shareholders' equity		410,804		379,833
Total liabilities and shareholders' equity	$	454,653	$	414,241

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,
	2017		2016		2017		2016
Revenue
Injection Molding	$	46,792	$	44,762	$	94,708	$	87,931
CNC Machining		24,180		19,854		46,152		38,729
3D Printing		10,873		9,099		20,958		18,209
Other		195		1,246		389		2,660
Total revenue		82,040		74,961		162,207		147,529

Cost of revenue		35,671		32,715		70,565		65,629
Gross profit		46,369		42,246		91,642		81,900

Operating expenses
Marketing and sales		14,630		11,453		27,617		22,395
Research and development		6,084		5,816		11,907		11,134
General and administrative		9,253		10,126		18,034		18,377
Total operating expenses		29,967		27,395		57,558		51,906
Income from operations		16,402		14,851		34,084		29,994
Other income, net		1,173		1,092		1,488		1,717
Income before income taxes		17,575		15,943		35,572		31,711
Provision for income taxes		5,489		5,252		11,286		10,358
Net income	$	12,086	$	10,691	$	24,286	$	21,353

Net income per share:
Basic	$	0.46	$	0.41	$	0.91	$	0.81
Diluted	$	0.45	$	0.40	$	0.91	$	0.80

Shares used to compute net income per share:
Basic		26,541,978		26,368,001		26,554,262		26,295,074
Diluted		26,649,152		26,561,148		26,710,217		26,526,629

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

	Six Months Ended
	June 30,
	2017			2016
Operating activities
Net income	$	24,286		$	21,353
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		8,700			8,147
Stock-based compensation expense		3,958			3,541
Deferred taxes		1,608			403
Amortization of held-to-maturity securities		592			590
Loss on impairment of assets		-			455
Other		77			(1,095	)
Changes in operating assets and liabilities		206			5,084
Net cash provided by operating activities		39,427			38,478

Investing activities
Purchases of property and equipment		(13,301	)		(22,416	)
Purchases of marketable securities		(20,037	)		(38,304	)
Proceeds from maturities of marketable securities		25,194			28,759
Purchases of other investments		(514	)		-
Net cash used in investing activities		(8,658	)		(31,961	)

Financing activities
Acquisition-related contingent consideration		-			(400	)
Proceeds from exercises of stock options and other		3,791			3,729
Repurchases of common stock		(4,410	)		-
Net cash provided by (used in) financing activities		(619	)		3,329
Effect of exchange rate changes on cash and cash equivalents		251			(168	)
Net increase in cash and cash equivalents		30,401			9,678
Cash and cash equivalents, beginning of period		68,795			47,653
Cash and cash equivalents, end of period	$	99,196		$	57,331

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,
	2017			2016			2017			2016
Non-GAAP net income, adjusted for stock-based compensation expense, amortization expense, unrealized gain on foreign currency, legal settlement, impairment on assets and charges related to the exit of facilities
GAAP net income	$	12,086		$	10,691		$	24,286		$	21,353
Add back:
Stock-based compensation expense		2,242			1,809			3,958			3,541
Amortization expense		125			171			288			357
Impairment on assets		-			455			-			455
Facilities-related charges		-			418			-			418
Unrealized gain on foreign currency		(412	)		(806	)		(349	)		(1,130	)
Legal settlement		(417	)		-			(417	)		-
Total adjustments ¹		1,538			2,047			3,480			3,641
Income tax benefits on adjustments ²		(501	)		(773	)		(1,079	)		(1,310	)
Non-GAAP net income	$	13,123		$	11,965		$	26,687		$	23,684


Non-GAAP net income per share:
Basic	$	0.49		$	0.45		$	1.01		$	0.90
Diluted	$	0.49		$	0.45		$	1.00		$	0.89

Shares used to compute non-GAAP net income per share:
Basic		26,541,978			26,368,001			26,554,262			26,295,074
Diluted		26,649,152			26,561,148			26,710,217			26,526,629

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

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2017			2016			2017			2016
Cost of revenue	$	237		$	268		$	434		$	398
Marketing and sales		339			213			607			491
Research and development		279			480			501			774
General and administrative		1,512			1,892			2,704			3,108
Other income, net		(829	)		(806	)		(766	)		(1,130	)
Total adjustments	$	1,538		$	2,047		$	3,480		$	3,641

²For the three months ended June 30, 2017 and 2016, income tax effects were calculated reflecting an effective GAAP tax rate of 31.2% and 32.9%, respectively, and an effective non-GAAP tax rate of 31.3% and 33.5%, respectively. For the six months ended June 30, 2017 and 2016, income tax effects were calculated reflecting an effective GAAP tax rate of 31.7% and 32.7%, respectively, and an effective non-GAAP tax rate of 31.7% and 33.0%, respectively. Our GAAP tax rates for the three and six months ended June 30, 2017 and 2016 differ from our non-GAAP tax rates for the same periods due primarily to the mix of activity incurred in domestic and foreign tax jurisdictions.

Proto Labs, Inc.
Reconciliation of GAAP to Non-GAAP Operating Margin
(In thousands)
(Unaudited)

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2017			2016			2017			2016
Revenue	$	82,040		$	74,961		$	162,207		$	147,529
Income from operations		16,402			14,851			34,084			29,994
GAAP operating margin		20.0	%		19.8	%		21.0	%		20.3	%
Add back:
Stock-based compensation expense		2,242			1,809			3,958			3,541
Amortization expense		125			171			288			357
Impairment on assets		-			455			-			455
Facilities-related charges		-			418			-			418
Total adjustments		2,367			2,853			4,246			4,771
Non-GAAP income from operations adjusted for stock-based compensation expense, amortization expense, impairment on assets and facilities-related charges	$	18,769		$	17,704		$	38,330		$	34,765
Non-GAAP operating margin		22.9	%		23.6	%		23.6	%		23.6	%

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
	2017		2016		Change			Currencies¹			2017		2016		Change			Currencies¹
Revenues
United States	$	63,353	$	55,323		14.5	%		14.5	%	$	123,529	$	109,791		12.5	%		12.5	%
Europe		16,131		17,276		-6.6	%		-1.9	%		33,130		32,907		0.7	%		6.1	%
Japan		2,556		2,362		8.2	%		11.5	%		5,548		4,831		14.8	%		15.8	%
Total Revenue	$	82,040	$	74,961		9.4	%		10.6	%	$	162,207	$	147,529		9.9	%		11.2	%

¹ Revenue growth for the three- and six-month periods ended June 30, 2017 has been recalculated using 2016 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							Six Months Ended
	June 30,				%			June 30,				%
	2017		2016		Change²			2017		2016		Change²
Revenues
Injection Molding	$	46,792	$	44,219		5.8	%	$	94,158	$	86,612		8.7	%
CNC Machining		24,180		19,854		21.8	%		46,152		38,729		19.2	%
3D Printing		10,873		9,019		20.6	%		20,958		18,036		16.2	%
Other		195		401		-51.4	%		389		876		-55.6	%
Total Revenue	$	82,040	$	73,493		11.6	%	$	161,657	$	144,253		12.1	%

² Revenue growth for the three- and six-month periods ended June 30, 2017 and 2016 has been recalculated to exclude revenue earned from two discontinued manufacturing processes, Metal Injection Molding (MIM) and Magnesium Thixomolding (Thixo), discontinued non-core resin resale business and unprofitable Alphaform 3D Printing contracts.

Proto Labs, Inc.
Revenue by Geography
(In thousands)
(Unaudited)

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2017		2016		2017		2016
Revenue:
United States	$	63,353	$	55,323	$	123,529	$	109,791
Europe		16,131		17,276		33,130		32,907
Japan		2,556		2,362		5,548		4,831
Total Revenue	$	82,040	$	74,961	$	162,207	$	147,529

Proto Labs, Inc.
Product Developer Information
(Unaudited)

Three Months Ended

Six Months Ended

June 30,

2017

2016

2017

2016

Unique product developers and engineers served

16,174

13,612

24,255

20,333

Note: the information above includes unique product developers and engineers who purchased our 3D Printed products in the United States and Europe through our web-based customer interface. The information does not include 3D Printing and Injection Molding customers resulting from the Alphaform acquisition who do not utilize our web-based customer interface.

Proto Labs, Inc.

Condensed Consolidated Balance Sheets

(In thousands)