Proto Labs Reports Record Revenue for the Fourth Quarter and Full Year 2014

Proto Labs, Inc. (NYSE:PRLB), a leading online and technology-enabled, quick-turn, on-demand manufacturer, today announced financial results for the fourth quarter and full year ended December 31, 2014.

Fourth Quarter 2014 Highlights include:

• Revenue for the fourth quarter of 2014 increased to a record $56.1 million, 27.3 percent above revenue of $44.0 million in the fourth quarter of 2013.
• Revenue for the fourth quarter of 2014 from additive services (3D printing) through the Fineline acquisition completed last April increased to $3.9 million, a 48 percent increase compared to Fineline’s fourth quarter of 2013.
• The record quarterly revenue was driven by a 40 percent increase in the number of unique product developers and engineers, including those served by the Fineline business.
• Net income for the fourth quarter of 2014 increased to $10.2 million, or $0.39 per diluted share. Non-GAAP net income, excluding the after tax expense of stock compensation and amortization of intangibles, was $11.2 million, or $0.43 per diluted share. See “Non-GAAP Financial Measure” below.

“The fourth quarter was a solid ending to a strong year, reflecting record quarterly revenues in all three geographies on a local currency basis,” said Vicki Holt, President and Chief Executive Officer of Proto Labs. “Our business in North America, excluding the contribution from Fineline, grew 23 percent year over year. Revenue in Europe in the fourth quarter increased 10 percent from the fourth quarter of last year and revenue in Japan grew 25 percent in the fourth quarter year over year in local currency.”

“2014 was an excellent year for the company. We made good operational progress and achieved strong financial performance,” continued Ms. Holt. “Revenue grew 28.5 percent; our gross margin was 61.3 percent; and we maintained a 29 percent GAAP operating margin. During the year, we successfully executed on our first acquisition. We launched two new processes and ten new materials and capabilities. Including Fineline, we served 21,550 unique product developers and engineers, an increase of 34 percent over 2013. Excluding the Fineline business, we increased the product developers and engineers served by 20%. We invested in capacity infrastructure for all three of our product lines and we expanded our sales and marketing teams. These initiatives will be critical in the years ahead as we continue to pursue our strategies for growth.”

Additional Fourth Quarter 2014 Highlights include:

• Gross margin was 59.9 percent of revenue during the fourth quarter of 2014 compared with 62.7 percent during the same quarter of 2013. The decline reflects an 80 basis point impact of Fineline, which carries a lower gross margin than the legacy products, investments in manufacturing capacity of 80 basis points to support recently launched services and expected growth and a 110 basis point impact of foreign exchange rates.
• Spending on research and development, including the Protoworks initiatives and integration activities related to Fineline, totaled $4.7 million, or 8.3 percent of revenue. This compares to $3.5 million, or 7.8 percent of revenue, during the fourth quarter of 2013.
• Sales and marketing expense increased 32 percent to $8.1 million, or 14.5 percent of revenue, reflecting the planned expansion of sales and marketing staff to drive revenue growth.
• GAAP operating margin was 26.2 percent of revenue during the fourth quarter of 2014 compared to 31.5 percent during the fourth quarter of 2013.

Full Year 2014 Highlights include:

• Revenue increased 28.5 percent to $209.6 million compared with $163.1 million in 2013.
• Net income for 2014 increased to $41.6 million, or $1.60 per diluted share. Non-GAAP net income, excluding the after tax expense of stock compensation and amortization of intangibles, was $45.2 million, or $1.73 per diluted share. See “Non-GAAP Financial Measure” below.
• Cash generated from operations during the year totaled $57.2 million. Cash, cash equivalents and investments were $128.4 million at December 31, 2014.

“During 2015, we will continue to focus on pursuing the growth opportunities we see for the company from our three growth vectors: adding new product developers and engineers, expanding the envelope of our product offerings and commercializing new processes. The integration of Fineline is nearly complete and we are realizing the benefits of cross-selling and the expanded manufacturing capacity we put in place there and expect the benefits to be increasingly evident throughout the year. Our LSR and metal injection molding, introduced last year, are gaining traction in the market. Our soft launch of turned machined parts progressed well in the fourth quarter and we are on track for our full launch later this quarter. We are focused on improving our customers’ experience and driving awareness and sales of Proto Labs’ unique capabilities to product developers and engineers around the world through a larger, well-trained sales force and more targeted marketing campaigns. I remain very confident about the potential for the company and the ability of our team to deliver on the growth and profitability targets in support of our long-term model,” Ms. Holt concluded.

Non-GAAP Financial Measure

The company has included non-GAAP net income, adjusted for stock-based compensation expense and amortization expense, in this press release to provide investors with additional information regarding the company’s financial results. The company has provided below a reconciliation of non-GAAP net income, adjusted for stock-based compensation expense and amortization expense, to net income, the most directly comparable measure calculated and presented in accordance with GAAP. Non-GAAP net income, adjusted for stock-based compensation expense and amortization expense, is used by the company’s management and board of directors to understand and evaluate operating performance and trends and provides a useful measure for period-to-period comparisons of the company’s business. Accordingly, the company believes that non-GAAP net income, adjusted for stock-based compensation expense and amortization expense, 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 fourth quarter financial results today, February 5, 2015 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 also be available on the investor relations section of the company’s website at www.protolabs.com/investors. An audio 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 a leading online and technology-enabled, quick-turn, on-demand manufacturer of custom parts for prototyping and short-run production. Proto Labs provides “Real Parts, Really Fast” to product developers and engineers worldwide. Proto Labs utilizes computer numerical control (CNC) machining, injection molding, and additive manufacturing (3D printing), to manufacture custom parts for our customers. For more information, visit protolabs.com.

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.