Protolabs Reports Financial Results for the Third Quarter 2020

Third Quarter 2020 Revenue of $107.5 million

Third Quarter 2020 GAAP EPS of $0.55, Non-GAAP EPS of $0.67

MAPLE PLAIN, Minn. — (BUSINESS WIRE) — October 29, 2020 — 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, 2020.

Third Quarter 2020 Highlights include:

Revenue for the third quarter of 2020 was $107.5 million, representing an 8.5 percent decrease compared to revenue of $117.5 million in the third quarter of 2019, and a sequential increase of 0.9% over the second quarter of 2020.
GAAP net income for the third quarter of 2020 was $14.7 million, or $0.55 per diluted share.
Non-GAAP net income was $17.9 million, or $0.67 per diluted share in the third quarter. See “Non-GAAP Financial Measures” below.

“We delivered third quarter revenue and non-GAAP earnings per share above expectations driven by improved productivity and disciplined cost management,” said Vicki Holt, President and Chief Executive Officer of Protolabs. “As the challenges and uncertainty of 2020 continue, we are focused on executing the areas in our control while continuing to invest in our future. Our new Protolabs 2.0 ecommerce digital manufacturing platform will go live in Europe in November, followed by a US debut in the first quarter of 2021. Our new platform will enhance our already strong customer experience and extend our position as the leader in digital manufacturing.”

Additional Third Quarter 2020 Highlights include:

Gross margin was 50.8 percent of revenue for the third quarter of 2020, up from 49.2 percent for the second quarter of 2020.
Operating expenses were $37.0 million or 34.4 percent of revenue for the third quarter of 2020, down from $38.1 million or 35.8 percent of revenue in the second quarter of 2020.
GAAP operating margin was 16.4 percent of revenue during the third quarter of 2020, up from 13.5 percent for the second quarter of 2020.
Non-GAAP operating margin was 20.8 percent of revenue during the third quarter of 2020, compared to 17.6 percent for the second quarter of 2020. See “Non-GAAP Financial Measures” below.
Adjusted EBITDA margins were 27.9% in the third quarter of 2020, compared to 27.5% in the third quarter of 2019.
The company generated $29.0 million in cash from operations during the third quarter of 2020, compared to $31.0 million in second quarter 2020.
Our cash and marketable securities balance exceeded $200.0 million at the end of the third quarter.

“Our increased focus and execution on managing costs resulted in significant sequential margin improvement in the third quarter,” said John Way, Chief Financial Officer. “Protolabs’ digital manufacturing model continues to produce very strong cash flows even with the challenges presented in 2020, allowing us to reinvest in our business and position us to capitalize on the opportunities as the economy continues its gradual recovery.”

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 and unrealized (gain) loss on foreign currency (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, and unrealized (gain) loss on foreign currency (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 2020 financial results and financial guidance today, October 29, 2020 at 8:30 a.m. EDT. 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. EDT start time. No participant code is required. A simultaneous webcast of the call, and accompanying presentations will be available via the investor relations section of the Protolabs website and the following link: https://edge.media-server.com/mmc/p/hpno43bk. A replay will be available for 14 days following the call on the investor relations section of the Protolabs website.

About Protolabs

Protolabs is a leading digital manufacturing source for rapid prototyping and on-demand production. The 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,
			2020		2019
			(Unaudited)
Assets
Current assets
	Cash and cash equivalents		$	118,254	$	125,225
	Short-term marketable securities			30,993		35,437
	Accounts receivable, net			61,250		57,450
	Inventory			10,402		10,075
	Income taxes receivable			16		-
	Prepaid expenses and other current assets			10,198		8,232
		Total current assets		231,113		236,419

Property and equipment, net				281,895		263,712
Goodwill				128,752		128,752
Other intangible assets, net				15,107		17,369
Long-term marketable securities				51,369		12,960
Operating lease assets				10,485		11,425
Finance lease assets				2,087		-
Other long-term assets				5,318		3,030
		Total assets	$	726,126	$	673,667

Liabilities and shareholders' equity
Current liabilities
	Accounts payable		$	15,452	$	16,804
	Accrued compensation			13,539		15,058
	Accrued liabilities and other			19,047		11,057
	Current operating lease liabilities			3,330		3,340
	Current finance lease liabilities			325		-
	Income taxes payable			-		1,322
		Total current liabilities		51,693		47,581

Long-term operating lease liabilities				8,003		8,565
Long-term finance lease liabilities				1,758		-
Long-term deferred tax liabilities				32,849		26,283
Other long-term liabilities				6,002		5,448

Shareholders' equity				625,821		585,790
Total liabilities and shareholders' equity			$	726,126	$	673,667

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,
			2020		2019		2020		2019
	Revenue
		Injection Molding	$	53,257	$	55,167	$	165,927	$	165,935
		CNC Machining		33,115		40,219		99,760		116,979
		3D Printing		16,294		15,898		46,478		45,644
		Sheet Metal		3,988		5,280		14,306		15,777
		Other		850		891		2,716		2,504
		Total revenue		107,504		117,455		329,187		346,839

	Cost of revenue			52,861		57,839		163,988		168,127
	Gross profit			54,643		59,616		165,199		178,712

	Operating expenses
		Marketing and sales		16,705		17,604		51,821		55,466
		Research and development		7,915		8,359		25,550		24,541
		General and administrative		12,354		12,380		38,983		38,411
		Total operating expenses		36,974		38,343		116,354		118,418
	Income from operations			17,669		21,273		48,845		60,294
	Other income, net			728		228		2,549		1,566
	Income before income taxes			18,397		21,501		51,394		61,860
	Provision for income taxes			3,700		4,709		10,106		13,391
	Net income		$	14,697	$	16,792	$	41,288	$	48,469

	Net income per share:
		Basic	$	0.55	$	0.63	$	1.54	$	1.80
		Diluted	$	0.55	$	0.62	$	1.54	$	1.79

	Shares used to compute net income per share:
		Basic		26,736,709		26,846,030		26,724,715		26,894,420
		Diluted		26,886,433		27,005,341		26,861,647		27,072,873

Proto Labs, Inc.
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)

			Nine Months Ended
			September 30,
			2020			2019
Operating activities
	Net income		$	41,288		$	48,469
	Adjustments to reconcile net income to net cash provided by operating activities:
		Depreciation and amortization		23,891			22,658
		Stock-based compensation expense		10,617			9,738
		Deferred taxes		6,578			1,599
		Amortization of held-to-maturity securities		202			(5	)
		Other		(865	)		(133	)
		Changes in operating assets and liabilities		664			1,453
	Net cash provided by operating activities			82,375			83,779

Investing activities
	Purchases of property, equipment and other capital assets			(40,489	)		(46,151	)
	Purchases of other assets and investments			(3,000	)		(4,000	)
	Purchases of marketable securities			(90,596	)		(17,443	)
	Proceeds from maturities of marketable securities			56,428			54,352
	Net cash used in investing activities			(77,657	)		(13,242	)

Financing activities
	Proceeds from exercises of stock options and other			5,674			2,486
	Purchases of shares withheld for tax obligations			(3,367	)		(2,420	)
	Repurchases of common stock			(14,686	)		(33,521	)
	Net cash used in financing activities			(12,379	)		(33,455	)
Effect of exchange rate changes on cash and cash equivalents				690			(560	)
Net (decrease) increase in cash and cash equivalents				(6,971	)		36,522
Cash and cash equivalents, beginning of period				125,225			85,046
Cash and cash equivalents, end of period			$	118,254		$	121,568

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,
		2020			2019			2020			2019
Non-GAAP net income, adjusted for stock-based compensation expense, amortization expense and unrealized (gain) loss on foreign currency
	GAAP net income	$	14,697		$	16,792		$	41,288		$	48,469
	Add back:
	Stock-based compensation expense		3,945			3,212			10,617			9,738
	Amortization expense		754			859			2,262			2,593
	Unrealized (gain) loss on foreign currency		(84	)		449			(1,020	)		391
	Total adjustments ¹		4,615			4,520			11,859			12,722
	Income tax benefits on adjustments ²		(1,368	)		(882	)		(3,030	)		(2,875	)
	Non-GAAP net income	$	17,944		$	20,430		$	50,117		$	58,316


Non-GAAP net income per share:
	Basic	$	0.67		$	0.76		$	1.88		$	2.17
	Diluted	$	0.67		$	0.76		$	1.87		$	2.15

Shares used to compute non-GAAP net income per share:
	Basic		26,736,709			26,846,030			26,724,715			26,894,420
	Diluted		26,886,433			27,005,341			26,861,647			27,072,873


¹ Stock-based compensation expense, amortization expense and unrealized (gain) loss on foreign currency were included in the following GAAP consolidated statement of operations categories:

		Three Months Ended						Nine Months Ended
		September 30,						September 30,
		2020			2019			2020			2019

	Cost of revenue	$	989		$	872		$	2,788		$	2,402

	Marketing and sales		865			760			2,233			1,923
	Research and development		638			560			1,766			1,486
	General and administrative		2,207			1,879			6,092			6,520
	Total operating expenses		3,710			3,199			10,091			9,929

	Other income, net		(84	)		449			(1,020	)		391
Total adjustments		$	4,615		$	4,520		$	11,859		$	12,722

² For the three and nine-month periods ended September 30, 2020 and 2019, 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,
			2020			2019			2020			2019
	Revenue		$	107,504		$	117,455		$	329,187		$	346,839
	Income from operations			17,669			21,273			48,845			60,294
		GAAP operating margin		16.4	%		18.1	%		14.8	%		17.4	%
		Add back:
		Stock-based compensation expense		3,945			3,212			10,617			9,738
		Amortization expense		754			859			2,262			2,593
		Total adjustments		4,699			4,071			12,879			12,331
		Non-GAAP income from operations	$	22,368		$	25,344		$	61,724		$	72,625
		Non-GAAP operating margin		20.8	%		21.6	%		18.8	%		20.9	%

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,
		2020			2019			2020			2019
GAAP net income		$	14,697		$	16,792		$	41,288		$	48,469
	Amortization expense		754			859			2,262			2,593
	Depreciation expense		7,282			6,820			21,629			20,066
	Interest income, net		(255	)		(489	)		(1,183	)		(1,535	)
	Tax expense		3,700			4,709			10,106			13,391
EBITDA			26,178			28,691			74,102			82,984
Add back:
	Stock-based compensation expense		3,945			3,212			10,617			9,738
	Unrealized (gain) loss on foreign currency		(84	)		449			(1,020	)		391
Total adjustments			3,861			3,661			9,597			10,129
Adjusted EBITDA		$	30,039		$	32,352		$	83,699		$	93,113

Proto Labs, Inc.
Comparison of GAAP to Non-GAAP Revenue Growth
(In thousands)
(Unaudited)

		Three Months Ended September 30, 2020							Three Months Ended September 30, 2019		%		% Change Constant
		GAAP		Adjustments ¹			Non-GAAP		GAAP		Change ²		Currencies ³
Revenues
	United States	$	85,608	$	-		$	85,608	$	92,916	(7.9	)	(7.9	)
	Europe		18,897		(828	)		18,069		20,721	(8.8	)	(12.8	)
	Japan		2,999		(36	)		2,963		3,818	(21.5	)	(22.4	)
	Total Revenue	$	107,504	$	(864	)	$	106,640	$	117,455	(8.5	)	(9.2	)


		Nine Months Ended September 30, 2020							Nine Months Ended September 30, 2019		%		% Change Constant
		GAAP		Adjustments ¹			Non-GAAP		GAAP		Change ²		Currencies ³
Revenues
	United States	$	262,507	$	-		$	262,507	$	271,877	(3.4	)	(3.4	)
	Europe		56,413		237			56,650		62,915	(10.3	)	(10.0	)
	Japan		10,267		(153	)		10,114		12,047	(14.8	)	(16.0	)
	Total Revenue	$	329,187	$	84		$	329,271	$	346,839	(5.1	)	(5.1	)

¹ Revenue for the three and nine-month periods ended September 30, 2020 has been recalculated using 2019 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, 2019 to GAAP revenue for the three and nine-month periods ended September 30, 2020.

³ This column presents the percentage change from GAAP revenue for the three and nine-month periods ended September 30, 2019 to non-GAAP revenue for the three and nine-month periods ended September 30, 2020 (as recalculated using the foreign currency exchange rates in effect during the three- and nine-month periods ended September 30, 2019) 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,
	2020	2019	2020	2019
Unique product developers and engineers served	18,796	21,471	37,504	40,791

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