Press release

Protolabs Reports Third Quarter 2019 Financial Results

0
Sponsored by Businesswire

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, 2019.

Third Quarter 2019 Highlights include:

  • Revenue for the third quarter of 2019 was $117.5 million, representing a 1.8 percent increase over revenue of $115.4 million for the third quarter of 2018.
  • The number of unique product developers and engineers served totaled 21,471 in the third quarter of 2019, an increase of 3.3 percent over the third quarter of 2018.
  • Net income for the third quarter of 2019 was $16.8 million, or $0.62 per diluted share.
  • Non-GAAP net income was $20.4 million, or $0.76 per diluted share. See “Non-GAAP Financial Measures” below.

“Our business grew year-over-year in the third quarter in an industrial environment that has continued to soften throughout 2019,” said Vicki Holt, President and Chief Executive Officer. “Despite a weaker macro climate, our customer retention rate remains high as we continue to delight our customers by expanding and improving our industry-leading digital manufacturing offer.”

Additional Third Quarter 2019 highlights include:

  • Gross margin was 50.8 percent of revenue for the third quarter of 2019, compared with 52.0 percent for the second quarter of 2019.
  • GAAP operating margin was 18.1 percent of revenue for the third quarter of 2019, compared to 16.9 percent for the second quarter of 2019.
  • Non-GAAP operating margin was 21.6 percent of revenue for the third quarter of 2019, compared to 20.6 percent for the second quarter of 2019. See “Non-GAAP Financial Measures” below.
  • EBITDA was $28.7 million, or 24.4 percent of revenue, for the third quarter of 2019.
  • Adjusted EBITDA was $32.4 million, or 27.5 percent of revenue, for the third quarter of 2019. See “Non-GAAP Financial Measures” below.
  • Cash flow from operations was $28.9 million in the third quarter of 2019.
  • Cash and investments balance was $155.0 million at September 30, 2019.
  • The Company repurchased $12.1 million, or 128,077 shares, of common stock during the quarter.

     

“Our customers are taking a more cautious approach in 2019 in general, including R&D projects, and that is reflected in our financial results year-to-date,” said John Way, Chief Financial Officer. “Our business continues to generate strong cash flows in order to invest for future growth, as well as return capital to shareholders in the form of stock repurchases.”

Non-GAAP Financial Measures

The company has included non-GAAP revenue growth that excludes the impact of changes in foreign currency exchange rates (collectively, “non-GAAP revenue growth”). Management believes these metrics are useful in evaluating the underlying business trends and ongoing operating performance of the company.

The company has included earnings before interest, taxes, depreciation and amortization (“EBITDA”) and EBITDA, adjusted for stock-based compensation expense, unrealized (gain) loss on foreign currency, and disposal of businesses (collectively, “Adjusted EBITDA”), in this press release to provide investors with additional information regarding the company’s financial results.

The company has included non-GAAP operating margin, adjusted for stock-based compensation expense and amortization expense (collectively, “non-GAAP operating margin”), in this press release to provide investors with additional information regarding the company’s financial results.

The company has included non-GAAP net income, adjusted for stock-based compensation expense, amortization expense, unrealized (gain) loss on foreign currency, and disposal of businesses (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, non-GAAP operating margin, non-GAAP revenue growth and Adjusted EBITDA, the most directly comparable measures calculated and presented in accordance with GAAP. These non-GAAP measures 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 these non-GAAP measures 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 third quarter 2019 financial results and fourth quarter outlook today, October 24, 2019 at 8:30 a.m. ET. To access the call in the U.S. please dial 877-709-8150 or outside the U.S. dial 201-689-8354 at least five minutes prior to the 8:30 a.m. start time. No participant code is required. A presentation containing information on the company’s third quarter 2019 financial results and fourth quarter outlook will be available prior to the call. A simultaneous webcast of the call and slide presentation will be available via the investor relations section of the Protolabs website and the following link: https://edge.media-server.com/mmc/p/mofpzm2m. A replay will be available for 14 days following the call on the investor relations section of the Protolabs website.

About Protolabs

Protolabs is the world’s fastest digital manufacturing source for rapid prototyping and on-demand production. The technology-enabled company produces custom parts and assemblies in as fast as one day with automated 3D printing, CNC machining, sheet metal fabrication, and injection molding processes. Its digital approach to manufacturing enables accelerated time to market, reduces development and production costs, and minimizes risk throughout the product life cycle. 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 Protolabs 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 Protolabs’ future results. The forward-looking statements included in this press release are made only as of the date hereof. Protolabs cannot guarantee future results, levels of activity, performance or achievements. Accordingly, you should not place undue reliance on these forward-looking statements. Finally, Protolabs 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)
   
   
 

September 30,

December 31,

 

2019

2018

  (Unaudited)
Assets  
Current assets  
Cash and cash equivalents  

$

121,568

$

85,046

Short-term marketable securities  

 

23,642

 

46,750

Accounts receivable, net  

 

64,069

 

59,155

Inventory  

 

9,448

 

10,087

Income taxes receivable  

 

2,852

 

5,757

Prepaid expenses and other current assets  

 

8,038

 

8,567

Total current assets  

 

229,617

 

215,362

   
Property and equipment, net  

 

252,579

 

228,001

Goodwill  

 

128,752

 

128,752

Other intangible assets, net  

 

18,258

 

19,850

Long-term marketable securities  

 

9,783

 

23,579

Operating lease assets  

 

12,008

 

Other long-term assets  

 

3,902

 

3,441

Total assets  

$

654,899

$

618,985

   
Liabilities and shareholders’ equity  
Current liabilities  
Accounts payable  

$

18,668

$

17,411

Accrued compensation  

 

12,926

 

18,130

Accrued liabilities and other  

 

13,133

 

16,702

Current operating lease liabilities  

 

3,364

 

Income taxes payable  

 

6,717

 

491

Total current liabilities  

 

54,808

 

52,734

   
Long-term operating lease liabilities  

 

9,006

 

Long-term deferred tax liabilities  

 

21,750

 

20,162

Other long-term liabilities  

 

5,238

 

4,592

   
Shareholders’ equity  

 

564,097

 

541,497

Total liabilities and shareholders’ equity  

$

654,899

$

618,985

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,
 

2019

 

2018

2019

 

2018

Revenue      
Injection Molding  

$

55,167

 

$

53,681

$

165,935

 

$

156,610

CNC Machining  

 

40,219

 

 

40,845

 

116,979

 

 

115,364

3D Printing  

 

15,898

 

 

13,845

 

45,644

 

 

39,418

Sheet Metal  

 

5,280

 

 

6,452

 

15,777

 

 

19,002

Other  

 

891

 

 

607

 

2,504

 

 

2,433

Total revenue  

 

117,455

 

 

115,430

 

346,839

 

 

332,827

       
Cost of revenue  

 

57,839

 

 

53,027

 

168,127

 

 

153,303

Gross profit  

 

59,616

 

 

62,403

 

178,712

 

 

179,524

       
Operating expenses      
Marketing and sales  

 

17,604

 

 

16,818

 

55,466

 

 

50,947

Research and development  

 

8,359

 

 

7,458

 

24,541

 

 

21,155

General and administrative  

 

12,380

 

 

13,096

 

38,411

 

 

38,679

Total operating expenses  

 

38,343

 

 

37,372

 

118,418

 

 

110,781

Income from operations  

 

21,273

 

 

25,031

 

60,294

 

 

68,743

Other income, net  

 

228

 

 

390

 

1,566

 

 

1,376

Income before income taxes  

 

21,501

 

 

25,421

 

61,860

 

 

70,119

Provision for income taxes  

 

4,709

 

 

4,484

 

13,391

 

 

12,817

Net income  

$

16,792

 

$

20,937

$

48,469

 

$

57,302

       
Net income per share:      
Basic  

$

0.63

 

$

0.77

$

1.80

 

$

2.13

Diluted  

$

0.62

 

$

0.77

$

1.79

 

$

2.10

       
Shares used to compute net income per share:      
Basic  

 

26,846,030

 

 

27,038,585

 

26,894,420

 

 

26,963,205

Diluted  

 

27,005,341

 

 

27,337,886

 

27,072,873

 

 

27,268,311

Proto Labs, Inc.
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
   
  Nine Months Ended
  September 30,
 

2019

2018

Operating activities  
Net income  

$

48,469

 

$

57,302

 

Adjustments to reconcile net income to net cash provided by operating activities:  
Depreciation and amortization  

 

22,658

 

 

19,520

 

Stock-based compensation expense  

 

9,738

 

 

7,986

 

Deferred taxes  

 

1,599

 

 

1,770

 

Gain on sale of businesses  

 

 

 

(671

)

Amortization of held-to-maturity securities  

 

(5

)

 

336

 

Other  

 

(133

)

 

160

 

Changes in operating assets and liabilities  

 

1,453

 

 

(1,441

)

Net cash provided by operating activities  

 

83,779

 

 

84,962

 

   
Investing activities  
Purchases of property, equipment and other capital assets  

 

(46,151

)

 

(61,898

)

Cash used for acquisitions, net of cash acquired  

 

 

 

(90

)

Proceeds from sale of businesses  

 

 

 

284

 

Purchases of other assets and investments  

 

(4,000

)

 

(126

)

Purchases of marketable securities  

 

(17,443

)

 

(41,384

)

Proceeds from maturities of marketable securities  

 

54,352

 

 

44,721

 

Net cash used in investing activities  

 

(13,242

)

 

(58,493

)

   
Financing activities  
Payments on debt  

 

 

 

(5,000

)

Proceeds from exercises of stock options and other  

 

2,486

 

 

7,269

 

Purchases of shares withheld for tax obligations  

 

(2,420

)

 

(2,021

)

Repurchases of common stock  

 

(33,521

)

 

 

Net cash (used in) provided by financing activities  

 

(33,455

)

 

248

 

Effect of exchange rate changes on cash and cash equivalents  

 

(560

)

 

(831

)

Net increase in cash and cash equivalents  

 

36,522

 

 

25,886

 

Cash and cash equivalents, beginning of period  

 

85,046

 

 

36,707

 

Cash and cash equivalents, end of period  

$

121,568

 

$

62,593

 

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,
 

2019

 

2018

2019

 

2018

Non-GAAP net income, adjusted for stock-based compensation expense,      
amortization expense, unrealized (gain) loss on foreign currency and      
disposal of businesses      
GAAP net income  

$

16,792

 

 

$

20,937

 

$

48,469

 

 

$

57,302

 

Add back:      
Stock-based compensation expense  

 

3,212

 

 

 

2,952

 

 

9,738

 

 

 

7,986

 

Amortization expense  

 

859

 

 

 

808

 

 

2,593

 

 

 

2,371

 

Unrealized (gain) loss on foreign currency  

 

449

 

 

 

(101

)

 

391

 

 

 

147

 

Disposal of businesses  

 

 

 

 

 

 

 

 

 

(671

)

Total adjustments 1  

 

4,520

 

 

 

3,659

 

 

12,722

 

 

 

9,833

 

Income tax benefits on adjustments 2  

 

(882

)

 

 

(1,213

)

 

(2,875

)

 

 

(4,574

)

Non-GAAP net income  

$

20,430

 

 

$

23,383

 

$

58,316

 

 

$

62,561

 

       
       
Non-GAAP net income per share:      
Basic  

$

0.76

 

 

$

0.86

 

$

2.17

 

 

$

2.32

 

Diluted  

$

0.76

 

 

$

0.86

 

$

2.15

 

 

$

2.29

 

       
Shares used to compute non-GAAP net income per share:      
Basic  

 

26,846,030

 

 

 

27,038,585

 

 

26,894,420

 

 

 

26,963,205

 

Diluted  

 

27,005,341

 

 

 

27,337,886

 

 

27,072,873

 

 

 

27,268,311

 

       
       
1 Stock-based compensation expense, amortization expense, unrealized (gain) loss on foreign currency and disposal of businesses were included in the following GAAP consolidated statement of operations categories:
 
  Three Months Ended Nine Months Ended
  September 30, September 30,
 

2019

 

2018

2019

 

2018

       
Cost of revenue  

$

872

 

 

$

446

 

$

2,402

 

 

$

1,096

 

       
Marketing and sales  

 

760

 

 

 

560

 

 

1,923

 

 

 

1,380

 

Research and development  

 

560

 

 

 

419

 

 

1,486

 

 

 

1,109

 

General and administrative  

 

1,879

 

 

 

2,335

 

 

6,520

 

 

 

6,772

 

Total operating expenses  

 

3,199

 

 

 

3,314

 

 

9,929

 

 

 

9,261

 

       
Other income, net  

 

449

 

 

 

(101

)

 

391

 

 

 

(524

)

Total adjustments  

$

4,520

 

 

$

3,659

 

$

12,722

 

 

$

9,833

 

       
2 For the three- and nine-month periods ended September 30, 2019 and 2018, income tax effects were calculated using the effective tax rate for the relevant jurisdictions. Our non-GAAP tax rates differ from our GAAP tax rates due primarily to the mix of activity incurred in domestic and foreign tax jurisdictions and removing effective tax rate benefits from stock-based compensation activity in the quarter.
Proto Labs, Inc.
Reconciliation of GAAP to Non-GAAP Operating Margin
(In thousands)
(Unaudited)
       
  Three Months Ended Nine Months Ended
  September 30, September 30,
 

2019

 

2018

2019

 

2018

Revenue  

$

117,455

 

 

$

115,430

 

$

346,839

 

 

$

332,827

 

Income from operations  

 

21,273

 

 

 

25,031

 

 

60,294

 

 

 

68,743

 

GAAP operating margin  

 

18.1

%

 

 

21.7

%

 

17.4

%

 

 

20.7

%

Add back:      
Stock-based compensation expense  

 

3,212

 

 

 

2,952

 

 

9,738

 

 

 

7,986

 

Amortization expense  

 

859

 

 

 

808

 

 

2,593

 

 

 

2,371

 

Total adjustments  

 

4,071

 

 

 

3,760

 

 

12,331

 

 

 

10,357

 

Non-GAAP income from operations  

$

25,344

 

 

$

28,791

 

$

72,625

 

 

$

79,100

 

Non-GAAP operating margin  

 

21.6

%

 

 

24.9

%

 

20.9

%

 

 

23.8

%

Proto Labs, Inc.
Reconciliation of GAAP Net Income to EBITDA and Adjusted EBITDA
(In thousands)
(Unaudited)
       
  Three Months Ended Nine Months Ended
  September 30, September 30,
 

2019

 

2018

2019

 

2018

GAAP net income  

$

16,792

 

 

$

20,937

 

$

48,469

 

 

$

57,302

 

Amortization expense  

 

859

 

 

 

808

 

 

2,593

 

 

 

2,371

 

Depreciation expense  

 

6,820

 

 

 

5,963

 

 

20,066

 

 

 

17,149

 

Interest income, net  

 

(489

)

 

 

(475

)

 

(1,535

)

 

 

(1,063

)

Tax expense  

 

4,709

 

 

 

4,484

 

 

13,391

 

 

 

12,817

 

EBITDA  

 

28,691

 

 

 

31,717

 

 

82,984

 

 

 

88,576

 

Add back:      
Stock-based compensation expense  

 

3,212

 

 

 

2,952

 

 

9,738

 

 

 

7,986

 

Unrealized (gain) loss on foreign currency  

 

449

 

 

 

(101

)

 

391

 

 

 

147

 

Disposal of businesses  

 

 

 

 

 

 

 

 

 

(671

)

Total adjustments  

 

3,661

 

 

 

2,851

 

 

10,129

 

 

 

7,462

 

Adjusted EBITDA  

$

32,352

 

 

$

34,568

 

$

93,113

 

 

$

96,038

 

Proto Labs, Inc.
Comparison of GAAP to Non-GAAP Revenue Growth
(In thousands)
(Unaudited)
       
Three Months Ended
September 30, 2019
Three Months
Ended
September 30,
2018
  %   % Change
Constant
GAAP   Adjustments1   Non-GAAP GAAP   Change2   Currencies3
Revenues        
United States

$

92,916

 

$

 

 

$

92,916

$

90,732

 

2.4

%

 

2.4

%

Europe

 

20,721

 

 

1,001

 

 

 

21,722

 

21,273

 

(2.6

%)

 

2.1

%

Japan

 

3,818

 

 

(140

)

 

 

3,678

 

3,425

 

11.5

%

 

7.4

%

Total Revenue

$

117,455

 

$

861

 

 

$

118,316

$

115,430

 

1.8

%

 

2.5

%

       
       
Nine Months Ended
September 30, 2019
Nine Months
Ended
September 30,
2018
  %   % Change
Constant
GAAP   Adjustments1   Non-GAAP GAAP   Change2   Currencies3
Revenues        
United States

$

271,877

 

$

 

 

$

271,877

$

261,253

 

4.1

%

 

4.1

%

Europe

 

62,915

 

 

3,968

 

 

 

66,883

 

61,431

 

2.4

%

 

8.9

%

Japan

 

12,047

 

 

(19

)

 

 

12,028

 

10,143

 

18.8

%

 

18.6

%

Total Revenue

$

346,839

 

$

3,949

 

 

$

350,788

$

332,827

 

4.2

%

 

5.4

%

       
1 Revenue for the three- and nine-month periods ended September 30, 2019 has been recalculated using 2018 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.
2 This column presents the percentage change from GAAP revenue for the three- and nine-month periods ended September 30, 2018 to GAAP revenue for the three- and nine-month periods ended September 30, 2019.
3 This column presents the percentage change from GAAP revenue for the three- and nine-month periods ended September 30, 2018 to non-GAAP revenue for the three- and nine-month periods ended September 30, 2019 (as recalculated using the foreign currency exchange rates in effect during the three- and nine-month periods ended September 30, 2018) in order to provide a constant-currency comparison.
Proto Labs, Inc.
Product Developer Information
(Unaudited)
   
  Three Months Ended Nine Months Ended
  September 30, September 30,
 

2019

2018

2019

2018

Unique product developers and engineers served  

21,471

20,792

40,791

38,823