Protolabs Reports Financial Results for the Third Quarter of 2023

Proto Labs, Inc. Condensed Consolidated Balance Sheets (In thousands)


	September 30, 2023		December 31, 2022
	(Unaudited)
Assets
Current assets
Cash and cash equivalents	$	83,496	$	56,558
Short-term marketable securities		19,204		23,568
Accounts receivable, net		78,395		76,225
Inventory		13,803		13,578
Income taxes receivable		891		4,042
Prepaid expenses and other current assets		8,722		12,597
Total current assets		204,511		186,568

Property and equipment, net		243,022		257,785
Goodwill		273,991		273,991
Other intangible assets, net		26,668		31,250
Long-term marketable securities		12,212		26,419
Operating lease assets		2,737		3,844
Finance lease assets		16,763		17,532
Other long-term assets		4,341		4,779
Total assets	$	784,245	$	802,168

Liabilities and shareholders' equity
Current liabilities
Accounts payable	$	17,922	$	17,356
Accrued compensation		16,337		12,743
Accrued liabilities and other		21,027		22,384
Current operating lease liabilities		1,568		1,561
Current finance lease liabilities		16,630		17,537
Income taxes payable		1,144		—
Total current liabilities		74,628		71,581

Long-term operating lease liabilities		1,545		2,255
Long-term finance lease liabilities		671		—
Long-term deferred tax liabilities		17,138		26,322
Other long-term liabilities		5,341		4,362

Shareholders' equity		684,922		697,648
Total liabilities and shareholders' equity	$	784,245	$	802,168

Proto Labs, Inc. Condensed Consolidated Statements of Operations (In thousands, except share and per share amounts) (Unaudited)


	Three Months Ended September 30,					Nine Months Ended September 30,
		2023		2022			2023			2022
Revenue
Injection Molding	$	51,688	$	48,940		$	152,455		$	155,693
CNC Machining		52,916		47,489			149,317			141,809
3D Printing		21,622		19,823			63,952			59,458
Sheet Metal		4,291		5,219			12,478			15,066
Other Revenue		188		250			627			765
Total Revenue		130,705		121,721			378,829			372,791

Cost of revenue		71,423		68,089			212,648			205,933
Gross profit		59,282		53,632			166,181			166,858

Operating expenses
Marketing and sales		21,682		20,594			65,863			62,235
Research and development		10,105		9,309			30,647			29,316
General and administrative		17,058		16,477			49,713			49,770
Closure of Japan business		22		1,194			186			6,388
Total operating expenses		48,867		47,574			146,409			147,709
Income from operations		10,415		6,058			19,772			19,149
Other income (loss), net		320		(24	)		(1,758	)		(323	)
Income before income taxes		10,735		6,034			18,014			18,826
Provision for income taxes		2,781		2,083			7,784			7,223
Net income	$	7,954	$	3,951		$	10,230		$	11,603

Net income per share:
Basic	$	0.31	$	0.14		$	0.39		$	0.42
Diluted	$	0.31	$	0.14		$	0.39		$	0.42

Shares used to compute net income per share:
Basic		26,023,830		27,505,097			26,296,304			27,512,057
Diluted		26,028,456		27,508,217			26,327,606			27,522,734

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


	Nine Months Ended September 30,
		2023			2022
Operating activities
Net income	$	10,230		$	11,603
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		28,213			29,981
Stock-based compensation expense		11,811			13,335
Deferred taxes		(9,197	)		(8,920	)
Interest on finance lease obligations		859			-
Loss on foreign currency translation		3,906			-
Impairments related to closure of Japan business		-			2,842
Gain on disposal of property and equipment		(498	)		(1,174	)
Other		122			11
Changes in operating assets and liabilities:		10,600			3,886
Net cash provided by operating activities		56,046			51,564

Investing activities
Purchases of property, equipment and other capital assets		(9,935	)		(16,414	)
Proceeds from sales of property, equipment and other capital assets		693			3,227
Purchases of marketable securities		-			(45,872	)
Proceeds from sales of marketable securities		-			1,998
Proceeds from call redemptions and maturities of marketable securities		19,115			13,696
Net cash provided by (used in) investing activities		9,873			(43,365	)

Financing activities
Proceeds from exercises of stock options		1,986			2,311
Purchases of shares withheld for tax obligations		(1,436	)		(1,615	)
Repurchases of common stock		(39,053	)		(13,074	)
Principal repayments of finance lease obligations		(234	)		(417	)
Net cash used in financing activities		(38,737	)		(12,795	)
Effect of exchange rate changes on cash and cash equivalents		(244	)		(1,972	)
Net increase (decrease) in cash and cash equivalents		26,938			(6,568	)
Cash and cash equivalents, beginning of period		56,558			65,929
Cash and cash equivalents, end of period	$	83,496		$	59,361

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 September 30,						Nine Months Ended September 30,
		2023			2022			2023			2022
Non-GAAP net income, adjusted for stock-based compensation expense, amortization expense, unrealized (gain) loss on foreign currency and costs related to Japan closure activities
GAAP net income	$	7,954		$	3,951		$	10,230		$	11,603
Add back:
Stock-based compensation expense		4,441			4,907			11,811			13,335
Amortization expense		1,461			1,510			4,471			4,582
Unrealized (gain) loss on foreign currency		(29	)		382			86			742
Costs related to Japan closure activities		22			1,194			4,093			6,388
Total adjustments ¹		5,895			7,993			20,461			25,047
Income tax benefits on adjustments ²		(633	)		(1,060	)		(931	)		(2,518	)
Non-GAAP net income	$	13,216		$	10,884		$	29,760		$	34,132


Non-GAAP net income per share:
Basic	$	0.51		$	0.40		$	1.13		$	1.24
Diluted	$	0.51		$	0.40		$	1.13		$	1.24

Shares used to compute non-GAAP net income per share:
Basic		26,023,830			27,505,097			26,296,304			27,512,057
Diluted		26,028,456			27,508,217			26,327,606			27,522,734

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

	Three Months Ended September 30,					Nine Months Ended September 30,
		2023			2022		2023		2022

Cost of revenue	$	805		$	902	$	2,416	$	2,701

Marketing and sales		961			929		2,508		2,479
Research and development		675			602		1,888		1,702
General and administrative		3,461			3,984		9,471		11,035
Closure of Japan business		22			1,194		186		6,388
Total operating expenses		5,119			6,709		14,053		21,604

Other income (loss), net		(29	)		382		3,992		742
Total adjustments	$	5,895		$	7,993	$	20,461	$	25,047

For the three and nine months ended September 30, 2023 and 2022, income tax effects were calculated using the effective tax rate for the relevant jurisdictions. The Company's non-GAAP tax rates differ from its 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 Gross Margin (In thousands) (Unaudited)


	Three Months Ended September 30,						Nine Months Ended September 30,
		2023			2022			2023			2022
Revenue	$	130,705		$	121,721		$	378,829		$	372,791
Gross profit		59,282			53,632			166,181			166,858
GAAP gross margin		45.4	%		44.1	%		43.9	%		44.8	%
Add back:
Stock-based compensation expense		462			560			1,388			1,674
Amortization expense		343			342			1,028			1,027
Total adjustments		805			902			2,416			2,701
Non-GAAP gross profit	$	60,087		$	54,534		$	168,597		$	169,559
Non-GAAP gross margin		46.0	%		44.8	%		44.5	%		45.5	%

Proto Labs, Inc. Reconciliation of GAAP to Non-GAAP Gross Margin Excluding Japan (In thousands) (Unaudited)


	Three Months Ended September 30,						Nine Months Ended September 30,
		2023			2022			2023			2022
Revenue	$	130,705		$	121,721		$	378,829		$	372,791
Revenue excluding Japan	$	130,705		$	120,434		$	378,829		$	364,562
Gross profit		59,282			53,632			166,181			166,858
GAAP gross margin		45.4	%		44.1	%		43.9	%		44.8	%
Less: Japan gross profit		-			47			-			3,150
Gross Profit excluding Japan		59,282			53,585			166,181			163,708
GAAP gross margin excluding Japan		45.4	%		44.5	%		43.9	%		44.9	%
Add back:
Stock-based compensation expense		462			560			1,388			1,674
Amortization expense		343			342			1,028			1,027
Less:
Japan stock-based compensation expense		-			13			-			61
Japan amortization expense		-			-			-			-
Total adjustments		805			889			2,416			2,640
Non-GAAP gross profit excluding Japan	$	60,087		$	54,474		$	168,597		$	166,348
Non-GAAP gross margin excluding Japan		46.0	%		45.2	%		44.5	%		45.6	%

Proto Labs, Inc. Reconciliation of GAAP to Non-GAAP Operating Margin (In thousands) (Unaudited)


	Three Months Ended September 30,						Nine Months Ended September 30,
		2023			2022			2023			2022
Revenue	$	130,705		$	121,721		$	378,829		$	372,791
Income from operations		10,415			6,058			19,772			19,149
GAAP operating margin		8.0	%		5.0	%		5.2	%		5.1	%
Add back:
Stock-based compensation expense		4,441			4,907			11,811			13,335
Amortization expense		1,461			1,510			4,471			4,582
Costs related to Japan closure activities		22			1,194			186			6,388
Total adjustments		5,924			7,611			16,468			24,305
Non-GAAP income from operations	$	16,339		$	13,669		$	36,240		$	43,454
Non-GAAP operating margin		12.5	%		11.2	%		9.6	%		11.7	%

Proto Labs, Inc. Reconciliation of GAAP to Non-GAAP Operating Margin Excluding Japan (In thousands) (Unaudited)


	Three Months Ended September 30,						Nine Months Ended September 30,
		2023			2022			2023			2022
Revenue	$	130,705		$	121,721		$	378,829		$	372,791
Revenue excluding Japan	$	130,705		$	120,434		$	378,829		$	364,562
Income from operations		10,415			6,058			19,772			19,149
GAAP operating margin		8.0	%		5.0	%		5.2	%		5.1	%
Less: Japan (loss) income from operations		(7	)		(724	)		(481	)		(720	)
Income from operations excluding Japan		10,422			6,782			20,253			19,869
GAAP operating margin excluding Japan		8.0	%		5.6	%		5.3	%		5.5	%
Add back:
Stock-based compensation expense		4,441			4,907			11,811			13,335
Amortization expense		1,461			1,510			4,471			4,582
Costs related to Japan closure activities		22			1,194			186			6,388
Less:
Japan stock-based compensation expense		-			89			17			386
Japan amortization expense		-			-			-			-
Total adjustments		5,924			7,522			16,451			23,919
Non-GAAP income from operations excluding Japan	$	16,346		$	14,304		$	36,704		$	43,788
Non-GAAP operating margin excluding Japan		12.5	%		11.9	%		9.7	%		12.0	%

Proto Labs, Inc. Reconciliation of GAAP Net Income to EBITDA and Adjusted EBITDA (In thousands) (Unaudited)


	Three Months Ended September 30,						Nine Months Ended September 30,
		2023			2022			2023			2022
Revenue	$	130,705		$	121,721		$	378,829		$	372,791
GAAP net income		7,954			3,951			10,230			11,603
GAAP net income margin		6.1	%		3.2	%		2.7	%		3.1	%
Add back:
Amortization expense	$	1,461		$	1,510		$	4,471		$	4,582
Depreciation expense		7,869			8,197			23,742			25,399
Interest income, net		(561	)		(265	)		(1,283	)		(459	)
Provision for income taxes		2,781			2,083			7,784			7,223
EBITDA		19,504			15,476			44,944			48,348
EBITDA Margin		14.9	%		12.7	%		11.9	%		13.0	%
Add back:
Stock-based compensation expense		4,441			4,907			11,811			13,335
Unrealized (gain) loss on foreign currency		(29	)		382			86			742
Costs related to Japan closure activities		22			1,194			4,093			6,388
Total adjustments		4,434			6,483			15,990			20,465
Adjusted EBITDA	$	23,938		$	21,959		$	60,934		$	68,813
Adjusted EBITDA Margin		18.3	%		18.0	%		16.1	%		18.5	%

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


	Three Months Ended September 30, 2023							Three Months Ended September 30, 2022		% Change ²		% Change Organic ³
	GAAP		Foreign Currency ¹			Non-GAAP		GAAP		% Change ²		% Change Organic ³
Revenues
United States	$	103,940	$	-		$	103,940	$	98,970	5.0	%	5.0	%
Europe		26,765		(1,666	)		25,099		21,464	24.7	%	16.9	%
Japan		-		-			-		1,287	(100.0	%)	(100.0	%)
Total revenue	$	130,705	$	(1,666	)	$	129,039	$	121,721	7.4	%	6.0	%


	Nine Months Ended September 30, 2023						Nine Months Ended September 30, 2022		% Change ²		% Change Organic ³
	GAAP		Foreign Currency ¹		Non-GAAP		GAAP		% Change ²		% Change Organic ³
Revenues
United States	$	298,007	$	-	$	298,007	$	295,121	1.0	%	1.0	%
Europe		80,822		1,311		82,133		69,441	16.4	%	18.3	%
Japan		-		-		-		8,229	(100.0	%)	(100.0	%)
Total revenue	$	378,829	$	1,311	$	380,140	$	372,791	1.6	%	2.0	%

1	Revenue for the three and nine months ended September 30, 2023 has been recalculated using 2022 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 months ended September 30, 2022 to GAAP revenue for the three and nine months ended September 30, 2023.

3	This column presents the percentage change from GAAP revenue for the three and nine months ended September 30, 2022 to non-GAAP revenue for the three and nine months ended September 30, 2023 (as recalculated using the foreign currency exchange rates in effect during the three and nine months ended September 30, 2022) in order to provide a constant-currency comparison.

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


	Three Months Ended September 30, 2023							Three Months Ended September 30, 2022		% Change ²		% Change Organic ³
	GAAP		Foreign Currency ¹			Non-GAAP		GAAP		% Change ²		% Change Organic ³
Revenues
Injection Molding	$	51,688	$	(655	)	$	51,033	$	48,940	5.6	%	4.3	%
CNC Machining		52,916		(708	)		52,208		47,489	11.4		9.9
3D Printing		21,622		(390	)		21,232		19,823	9.1		7.1
Sheet Metal		4,291		(20	)		4,271		5,219	(17.8	)	(18.2	)
Other Revenue		188		107			295		250	(24.8	)	18.0
Total Revenue	$	130,705	$	(1,666	)	$	129,039	$	121,721	7.4	%	6.0	%


	Nine Months Ended September 30, 2023							Nine Months Ended September 30, 2022		% Change ²		% Change Organic ³
	GAAP		Foreign Currency ¹			Non-GAAP		GAAP		% Change ²		% Change Organic ³
Revenues
Injection Molding	$	152,455	$	781		$	153,236	$	155,693	(2.1	)%	(1.6	)%
CNC Machining		149,317		152			149,469		141,809	5.3		5.4
3D Printing		63,952		277			64,229		59,458	7.6		8.0
Sheet Metal		12,478		(9	)		12,469		15,066	(17.2	)	(17.2	)
Other Revenue		627		110			737		765	(18.0	)	(3.7	)
Total Revenue	$	378,829	$	1,311		$	380,140	$	372,791	1.6	%	2.0	%

1		Revenue for the three and nine months ended September 30, 2023 has been recalculated using 2022 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 months ended September 30, 2022 to GAAP revenue for the three and nine months ended September 30, 2023.

3		This column presents the percentage change from GAAP revenue for the three and nine months ended September 30, 2022 to non-GAAP revenue for the three and nine months ended September 30, 2023 (as recalculated using the foreign currency exchange rates in effect during the three and nine months ended September 30, 2022) in order to provide a constant-currency comparison.

Proto Labs, Inc. Product Developer Information (Unaudited)


	Three months ended September 30,		Nine months ended September 30,
	2023	2022	2023	2022
Unique product developers and engineers served	23,080	23,816	45,668	47,793

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