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

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8-K - FORM 8-K - Proto Labs Inc	prlb20171019_8k.htm

Exhibit 99.1

Proto Labs Reports Record Revenue and Net Income for the Third Quarter 2017

Quarterly Revenue Increases 12.7% to a Record $88.1 million

Quarterly Net Income Increases 10.3% to a Record $13.2 million

MAPLE PLAIN, Minn. – October 26, 2017 – 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, 2017.

Third Quarter 2017 Highlights include:

●

Revenue for the third quarter of 2017 was $88.1 million, 12.7 percent above revenue of $78.2 million in the third quarter of 2016.

●

The number of unique product developers and engineers served totaled 16,909 in the third quarter of 2017, an increase of 18.5 percent over the third quarter of 2016.

●

Net income for the third quarter of 2017 was $13.2 million, or $0.49 per diluted share. Non-GAAP net income, excluding the after-tax expense of stock compensation, amortization of intangibles and unrealized foreign currency gains, was $15.0 million, or $0.56 per diluted share. See “Non-GAAP Financial Measures” below.

“We continued to drive strong performance in the third quarter, delivering record revenue for the third straight quarter,” said Vicki Holt, President and Chief Executive Officer. “Our investments in the business to support the needs of our customers are delivering returns with increasing operating margins and record earnings this quarter.”

Additional Third Quarter 2017 Highlights include:

●

Gross margin was 56.0 percent of revenue for the third quarter of 2017 compared with 57.2 percent for the third quarter of 2016.

●

Operating margin was 22.0 percent of revenue during the third quarter of 2017 compared to 21.7 percent for the third quarter of 2016.

●

The company generated $19.6 million in cash from operations during the third quarter of 2017.

●

Cash and investments balance increased to $227.8 million at September 30, 2017.

“Our concerted effort over the past couple of years to expand relationships with our customers continues to drive our performance. The U.S. and Europe, our two largest geographies, delivered record revenue levels as our focus on the customer continues to show positive signs. We continue to expand our capabilities and provide more of a total solution to help our customers get their products to market as efficiently and cost effectively as possible,” 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 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, unrealized foreign currency activity, impairment on assets, facilities-related charges and legal settlement (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 and revenues, the most directly comparable measures 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 third quarter 2017 financial results today, October 26, 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: https://edge.media-server.com/m6/p/epn5s29w. 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

Proto Labs, Inc.

Condensed Consolidated Balance Sheets

(In thousands)

	September 30,		December 31,
	2017		2016
	(Unaudited)
Assets
Current assets
Cash and cash equivalents	$	119,283	$	68,795
Short-term marketable securities		53,201		39,477
Accounts receivable, net		46,276		34,060
Inventory		9,789		9,310
Income taxes receivable		-		445
Other current assets		6,280		5,697
Total current assets		234,829		157,784

Property and equipment, net		153,512		139,474
Long-term marketable securities		55,351		84,479
Goodwill		28,916		28,916
Other intangible assets, net		2,261		2,655
Other long-term assets		2,701		933
Total assets	$	477,570	$	414,241

Liabilities and shareholders' equity
Current liabilities
Accounts payable	$	13,130	$	11,322
Accrued compensation		11,366		7,670
Accrued liabilities and other		7,463		4,435
Income taxes payable		3,804		-
Total current liabilities		35,763		23,427

Long-term deferred tax liabilities		7,721		7,003
Other long-term liabilities		4,247		3,978

Shareholders' equity		429,839		379,833
Total liabilities and shareholders' equity	$	477,570	$	414,241

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,
	2017		2016		2017		2016
Revenue
Injection Molding	$	49,480	$	46,445	$	144,187	$	134,376
CNC Machining		27,166		21,781		73,318		60,510
3D Printing		11,102		9,850		32,061		28,059
Other		357		97		746		2,757
Total revenue		88,105		78,173		250,312		225,702

Cost of revenue		38,793		33,448		109,358		99,077
Gross profit		49,312		44,725		140,954		126,625

Operating expenses
Marketing and sales		13,846		11,787		41,463		34,182
Research and development		5,877		5,976		17,784		17,110
General and administrative		10,222		10,020		28,256		28,397
Total operating expenses		29,945		27,783		87,503		79,689
Income from operations		19,367		16,942		53,451		46,936
Other income, net		291		625		1,779		2,342
Income before income taxes		19,658		17,567		55,230		49,278
Provision for income taxes		6,438		5,585		17,724		15,943
Net income	$	13,220	$	11,982	$	37,506	$	33,335

Net income per share:
Basic	$	0.50	$	0.45	$	1.41	$	1.27
Diluted	$	0.49	$	0.45	$	1.40	$	1.26

Shares used to compute net income per share:
Basic		26,617,349		26,416,041		26,600,174		26,334,738
Diluted		26,802,034		26,609,878		26,716,553		26,539,078

Proto Labs, Inc.

Condensed Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)

	Nine Months Ended
	September 30,
	2017			2016
Operating activities
Net income	$	37,506		$	33,335
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		13,539			12,831
Stock-based compensation expense		6,159			5,260
Deferred taxes		715			495
Amortization of held-to-maturity securities		851			881
Loss on impairment of assets		-			455
Other		21			(1,381	)
Changes in operating assets and liabilities		209			6,266
Net cash provided by operating activities		59,000			58,142

Investing activities
Purchases of property and equipment		(24,164	)		(30,981	)
Purchases of marketable securities		(20,037	)		(56,213	)
Proceeds from maturities of marketable securities		34,090			45,907
Purchases of other investments		(514	)		-
Net cash used in investing activities		(10,625	)		(41,287	)

Financing activities
Acquisition-related contingent consideration		-			(400	)
Proceeds from exercises of stock options and other		5,749			4,168
Repurchases of common stock		(4,410	)		-
Net cash provided by financing activities		1,339			3,768
Effect of exchange rate changes on cash and cash equivalents		774			(58	)
Net increase in cash and cash equivalents		50,488			20,565
Cash and cash equivalents, beginning of period		68,795			47,653
Cash and cash equivalents, end of period	$	119,283		$	68,218

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,
	2017			2016			2017			2016
Non-GAAP net income, adjusted for stock-based compensation expense, amortization expense, unrealized loss (gain) on foreign currency, legal settlement, impairment on assets and charges related to the exit of facilities
GAAP net income	$	13,220		$	11,982		$	37,506		$	33,335
Add back:
Stock-based compensation expense		2,201			1,719			6,159			5,260
Amortization expense		106			163			394			520
Impairment on assets		-			-			-			455
Facilities-related charges		-			731			-			1,150
Unrealized loss (gain) on foreign currency		266			(330	)		(83	)		(1,460	)
Legal settlement		-			-			(417	)		-
Total adjustments ¹		2,573			2,283			6,053			5,925
Income tax benefits on adjustments ²		(747	)		(743	)		(1,824	)		(2,054	)
Non-GAAP net income	$	15,046		$	13,522		$	41,735		$	37,206


Non-GAAP net income per share:
Basic	$	0.57		$	0.51		$	1.57		$	1.41
Diluted	$	0.56		$	0.51		$	1.56		$	1.40

Shares used to compute non-GAAP net income per share:
Basic		26,617,349			26,416,041			26,600,174			26,334,738
Diluted		26,802,034			26,609,878			26,716,553			26,539,078



	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					Nine Months Ended
	September 30,					September 30,
	2017		2016			2017			2016
Cost of revenue	$	263	$	558		$	698		$	999
Marketing and sales		417		250			1,024			741
Research and development		295		310			796			1,084
General and administrative		1,332		1,495			4,035			4,561
Other income, net		266		(330	)		(500	)		(1,460	)
Total adjustments	$	2,573	$	2,283		$	6,053		$	5,925

²For the three months ended September 30, 2017 and 2016, income tax effects were calculated reflecting an effective GAAP tax rate of 32.8% and 31.8%, respectively, and an effective non-GAAP tax rate of 32.3% and 31.9%, respectively. For the nine months ended September 30, 2017 and 2016, income tax effects were calculated reflecting an effective GAAP tax rate of 32.1% and 32.4%, respectively, and an effective non-GAAP tax rate of 31.9% and 32.6%, respectively. Our non-GAAP tax rates for the three and nine months ended September 30, 2017 and 2016 differ from our 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						Nine Months Ended
	September 30,						September 30,
	2017			2016			2017			2016
Revenue	$	88,105		$	78,173		$	250,312		$	225,702
Income from operations		19,367			16,942			53,451			46,936
GAAP operating margin		22.0	%		21.7	%		21.4	%		20.8	%
Add back:
Stock-based compensation expense		2,201			1,719			6,159			5,260
Amortization expense		106			163			394			520
Impairment on assets		-			-			-			455
Facilities-related charges		-			731			-			1,150
Total adjustments		2,307			2,613			6,553			7,385
Non-GAAP income from operations adjusted for stock-based compensation expense, amortization expense, impairment on assets and facilities-related charges	$	21,674		$	19,555		$	60,004		$	54,321
Non-GAAP operating margin		24.6	%		25.0	%		24.0	%		24.1	%

Proto Labs, Inc.

Comparison of GAAP to Non-GAAP Revenue Growth

(In thousands)

(Unaudited)

								Three Months Ended
	Three Months Ended September 30, 2017							September 30, 2016		%			% Change Constant
	GAAP		Adjustments¹			Non-GAAP		GAAP		Change²			Currencies³
Revenues
United States	$	67,490	$	-		$	67,490	$	59,574		13.3	%		13.3	%
Europe		18,094		(657	)		17,437		15,610		15.9	%		11.7	%
Japan		2,521		211			2,732		2,989		-15.7	%		-8.6	%
Total Revenue	$	88,105	$	(446	)	$	87,659	$	78,173		12.7	%		12.1	%

							Nine Months Ended
	Nine Months Ended September 30, 2017						September 30, 2016		%			% Change Constant
	GAAP		Adjustments¹		Non-GAAP		GAAP		Change²			Currencies³
Revenues
United States	$	191,019	$	-	$	191,019	$	169,364		12.8	%		12.8	%
Europe		51,224		1,144		52,368		48,518		5.6	%		7.9	%
Japan		8,069		256		8,325		7,820		3.2	%		6.5	%
Total Revenue	$	250,312	$	1,400	$	251,712	$	225,702		10.9	%		11.5	%

¹ Revenue growth for the three- and nine-month periods ended September 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.

²This column presents the percentage change from GAAP revenue growth for the three- and nine-month periods ended September 30, 2016 to GAAP revenue growth for the three- and nine-month periods ended September 30, 2017.

³ This column presents the percentage change from GAAP revenue growth for the three- and nine-month periods ended September 30, 2016 (calculated using the foreign currency exchange rates in effect during those periods) to non-GAAP revenue growth for the three- and nine-month periods ended September 30, 2017 (as recalculated using 2016 foreign currency exchange rates in order to provide a constant currency comparison).

	Three Months Ended						Three Months Ended										% Change
	September 30, 2017						September 30, 2016							%			Adjusted
	GAAP		Adjustments⁴		Non-GAAP		GAAP		Adjustments⁴			Non-GAAP		Change			Revenue
Revenues
Injection Molding	$	49,480	$	-	$	49,480	$	46,445	$	(1,100	)	$	45,345		6.5	%		9.1	%
CNC Machining		27,166		-		27,166		21,781		-			21,781		24.7	%		24.7	%
3D Printing		11,102		-		11,102		9,850		(69	)		9,781		12.7	%		13.5	%
Other		357		-		357		97		-			97		268.0	%		268.0	%
Total Revenue	$	88,105	$	-	$	88,105	$	78,173	$	(1,169	)	$	77,004		12.7	%		14.4	%

	Nine Months Ended							Nine Months Ended										% Change
	September 30, 2017							September 30, 2016							%			Adjusted
	GAAP		Adjustments⁴			Non-GAAP		GAAP		Adjustments⁴			Non-GAAP		Change			Revenue
Revenues
Injection Molding	$	144,187	$	(550	)	$	143,637	$	134,376	$	(2,419	)	$	131,957		7.3	%		8.9	%
CNC Machining		73,318		-			73,318		60,510		-			60,510		21.2	%		21.2	%
3D Printing		32,061		-			32,061		28,059		(241	)		27,818		14.3	%		15.3	%
Other		746		-			746		2,757		(1,784	)		973		-72.9	%		-23.3	%
Total Revenue	$	250,312	$	(550	)	$	249,762	$	225,702	$	(4,444	)	$	221,258		10.9	%		12.9	%

⁴ Revenue growth for the three- and nine-month periods ended September 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				Nine Months Ended
	September 30,				September 30,
	2017		2016		2017		2016
Revenue:
United States	$	67,490	$	59,574	$	191,019	$	169,364
Europe		18,094		15,610		51,224		48,518
Japan		2,521		2,989		8,069		7,820
Total Revenue	$	88,105	$	78,173	$	250,312	$	225,702

Proto Labs, Inc.
Product Developer Information
(Unaudited)

Three Months Ended

Nine Months Ended

September 30,

2017

2016

2017

2016

Unique product developers and engineers served

16,909

14,271

31,307

26,528


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 - FORM 8-K - EX-99.1 - EXHIBIT 99.1 - October 26, 2017

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