Proto Labs Reports Financial Results for the Second Quarter 2016

By: Proto Labs, Inc. via Business Wire News Releases

July 28, 2016 at 06:00 AM EDT

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,
	2016		2015
	(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 Ended					Six 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		32,715		26,419			65,629		49,701
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		10,126		6,304			18,377		12,549
Total operating expenses		27,395		20,203			51,906		39,616
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		5,252		5,625			10,358		10,556
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,
	2016			2015
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		36,562			27,833

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		28,759			24,109
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		1,916			989
Net cash provided by financing activities		5,245			2,119
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 period		47,653			43,329
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 Ended							Three Months Ended
	June 30, 2016							June 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	)		32,447		26,419			(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	)		8,234		6,304			(1,015	)		5,289
Total operating expenses		27,395		(2,585	)		24,810		20,203			(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	)		165			129
Income before income taxes		15,943		2,047			17,990		17,311			1,918			19,229
Provision for income taxes		5,252		773			6,025		5,625			574			6,199
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 Ended							Six Months Ended
	June 30, 2016							June 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	)		65,231		49,701			(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	)		15,269		12,549			(1,902	)		10,647
Total operating expenses		51,906		(4,373	)		47,533		39,616			(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	)		618			125
Income before income taxes		31,711		3,641			35,352		32,695			3,900			36,595
Provision for income taxes		10,358		1,310			11,668		10,556			1,143			11,699
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 Ended						Six 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		2,047			1,918			3,641			3,900
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						% Change		Six Months Ended						% Change
	June 30,				%		Constant		June 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		2,361		1,616	46.1	%	29.4	%		4,831		3,942	22.6	%	13.5	%
Total Revenue	$	74,961	$	63,969	17.2	%	17.1	%	$	147,529	$	122,505	20.4	%	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						% Change		Six Months Ended						% Change
	June 30,				%		Constant		June 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		2,361		1,616	46.1	%	29.4	%		4,831		3,942	22.6	%	13.5	%
Total Revenue	$	70,187	$	63,969	9.7	%	9.6	%	$	137,864	$	122,505	12.5	%	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 Ended				Six 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		3,471		2,972		7,372		5,556
Total international		23,109		14,671		45,110		28,362
Total revenue	$	74,961	$	63,969	$	147,529	$	122,505


Proto Labs, Inc.
Product Developer Information
(Unaudited)

	Three Months Ended		Six Months Ended
	June 30,		June 30,
	2016	2015	2016	2015
Unique product developers and engineers served	13,519	11,822	20,240	17,194

Note: the data above does not include product developers and engineers who purchased products attributable to our acquisition of Alphaform during the periods presented.

View source version on businesswire.com: http://www.businesswire.com/news/home/20160728005539/en/

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