Proto Labs Reports Financial Results for the Second Quarter 2016

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,
20162015
(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 EndedSix 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 32,71526,41965,62949,701
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 10,1266,30418,37712,549
Total operating expenses 27,39520,20351,90639,616
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 5,2525,62510,35810,556
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,
20162015
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 36,56227,833
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 28,75924,109
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 1,916989
Net cash provided by financing activities 5,2452,119
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 period47,65343,329
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 EndedThree Months Ended
June 30, 2016June 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)32,44726,419(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)8,2346,304(1,015)5,289
Total operating expenses 27,395(2,585)24,81020,203(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)165129
Income before income taxes 15,943 2,047 17,990 17,311 1,918 19,229
Provision for income taxes 5,2527736,0255,6255746,199
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 EndedSix Months Ended
June 30, 2016June 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)65,23149,701(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)15,26912,549(1,902)10,647
Total operating expenses 51,906(4,373)47,53339,616(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)618125
Income before income taxes 31,711 3,641 35,352 32,695 3,900 36,595
Provision for income taxes 10,3581,31011,66810,5561,14311,699
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 EndedSix 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 2,0471,9183,6413,900
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% ChangeSix Months Ended% Change
June 30,%ConstantJune 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 2,3611,61646.1%29.4%4,8313,94222.6%13.5%
Total Revenue $74,961$63,96917.2%17.1%$147,529$122,50520.4%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% ChangeSix Months Ended% Change
June 30,%ConstantJune 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 2,3611,61646.1%29.4%4,8313,94222.6%13.5%
Total Revenue $70,187$63,9699.7%9.6%$137,864$122,50512.5%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 EndedSix 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 3,4712,9727,3725,556
Total international 23,10914,67145,11028,362
Total revenue $74,961$63,969$147,529$122,505
Proto Labs, Inc.
Product Developer Information
(Unaudited)
Three Months EndedSix Months Ended
June 30,June 30,
2016201520162015
Unique product developers and engineers served 13,51911,82220,24017,194
Note: the data above does not include product developers and engineers who purchased products attributable to our acquisition of Alphaform during the periods presented.

Contacts:

Proto Labs, Inc.
Investor Relations:
John Way, 763-479-7726
john.way@protolabs.com
or
Jenifer Kirtland, 408-656-9496
jkirtland@evcgroup.com
or
Media Relations:
Bill Dietrick, 763-479-7664
bill.dietrick@protolabs.com

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