PRLB Proto Labs Inc

Q4 2018 Revenue of $112.8 million, an increase of 20% over Q4 2017Full Year 2018 Revenue of $445.6 million, an increase of 29% over 2017Q4 2018 Net Income of $19.3 million, an increase of 35% over Q4 2017Full Year 2018 Net Income of $76.6 million, an increase of 48% over 2017

Proto Labs, Inc. (NYSE: PRLB), a leading online and technology-enabled, quick-turn, on-demand manufacturer, today announced financial results for the fourth quarter and full year ended December 31, 2018.

Fourth Quarter 2018 Highlights include:

• Revenue for the fourth quarter of 2018 was $112.8 million, representing a 19.7 percent increase over revenue of $94.2 million in the fourth quarter of 2017.
• The number of unique product developers and engineers served totaled 20,403 in the fourth quarter of 2018, an increase of 18.2 percent over the fourth quarter of 2017.
• Net income for the fourth quarter of 2018 was $19.3 million, or $0.71 per diluted share.
• Non-GAAP net income was $20.3 million, or $0.74 per diluted share. See “Non-GAAP Financial Measures” below.

“Protolabs had another quarter of strong revenue growth, however, fourth quarter financial results were below our expectations,” said Vicki Holt, President and Chief Executive Officer. “We experienced a strong start to the quarter in terms of revenue, followed by a weak December. In addition, our recent acquisition of Rapid Manufacturing is performing below our expectations. These factors, combined with the relocation of our CNC facility in the United States impacted our productivity during the quarter, negatively affecting our operating earnings.”

Additional Fourth Quarter 2018 Highlights include:

• Gross margin was 52.5 percent of revenue for the fourth quarter of 2018, compared to 56.2 percent for the fourth quarter of 2017.
• Operating expenses were 34.6 percent of revenue for the fourth quarter of 2018, compared to 36.2 percent for the fourth quarter of 2017.
• GAAP operating margin was 17.9 percent of revenue during the fourth quarter of 2018, compared to 19.9 percent for the fourth quarter of 2017.
• Non-GAAP operating margin was 21.2 percent of revenue during the fourth quarter of 2018, compared to 25.1 percent for the fourth quarter of 2017. See “Non-GAAP Financial Measures” below.
• The company generated $38.0 million in cash from operations during the fourth quarter of 2018.
• Cash and investments balance was $155.4 million at December 31, 2018.
• The company repurchased $12.2 million or 104,600 shares of common stock.

“As a company, we are focused on serving our customers and driving growth and profitability over the long term,” said Holt. “Protolabs achieved several major milestones during the fourth quarter that will facilitate future growth. We successfully completed the relocation of our CNC operations in Minnesota while fulfilling commitments to customers, increased the number of product developers served in 2018 to nearly 46,000, and became a founding member of MIT’s ADAPT consortium.”

Full Year 2018 Financial Highlights include:

• Revenue increased 29.3 percent to $445.6 million compared to $344.5 million in 2017. This growth includes the acquisition of Rapid Manufacturing in December 2017.
• Net income for 2018 increased 47.9 percent to $76.6 million, or $2.81 per diluted share compared to $51.8 million, or $1.93 per diluted share in 2017.
• Non-GAAP net income was $82.8 million, or $3.04 per diluted share. See “Non-GAAP Financial Measures” below.
• Cash generated from operations during the year totaled $122.9 million.

Additional 2018 Highlights include:

• Served nearly 46,000 product developers during the year, an increase of 22.5 percent over 2017.
• Formed a partnership with Misumi, a Japanese parts distributer, to increase our brand recognition and demand in Japan.
• Moved the company’s CNC operations, including nearly 300 machines over a six-week period, to a new 215,000 square foot state-of-the-art CNC machining digital manufacturing facility in Minnesota.
• New Hampshire operations received national recognition, winning The FABRICATOR’s 2019 Industry Award, an award that recognizes Protolabs’ quick-turn production capabilities, lean manufacturing efforts, and overall evolution over the past year.
• Became a founding member of MIT’s ADAPT (Additive and Digital Advanced Production Technologies) consortium along with other leading organizations in industry and academia.

“2018 was a strong year overall for our company. As we enter into our 20th year of operations, it is rewarding to look back at all we have accomplished since our inception. It is also very exciting to look ahead and see the numerous opportunities we have to help our customers win in their markets as they capitalize on underlying market trends. Our 2019 priorities are aligned to serving our customers through enhanced relationships, continuously improving the customer experience and increased efficiency in operations. After a strong 2018, these priorities continue our focus on our customers, enabling us to drive growth and deliver long term shareholder returns,” concluded Holt.

Non-GAAP Financial Measures

The company has included non-GAAP net income, adjusted for stock-based compensation expense, amortization expense, impairment on assets, acquisition costs, unrealized foreign currency activity, disposal of businesses, legal settlement, provisional charges related to the tax effect of deemed repatriation of foreign earnings, and revaluation of net deferred tax assets and liabilities (collectively, “non-GAAP net income”), 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, amortization expense, acquisition costs, and impairment on assets (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 revenue growth that excludes the impact of changes in foreign currency exchange rates. Management believes these metrics are useful in evaluating the underlying business trends and ongoing operating performance of the company.

The company has provided reconciliations of GAAP to non-GAAP net income, operating margin and revenues, 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 fourth quarter and full year 2018 financial results today, February 7, 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 simultaneous webcast of the call will be available via the investor relations section of the Protolabs website and the following link: https://edge.media-server.com/m6/p/xhkhdnme. 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)       December 31, December 31, 2018 2017 (Unaudited) Assets Current assets Cash and cash equivalents $ 85,046 $ 36,707 Short-term marketable securities 46,750 57,424 Accounts receivable, net 59,155 51,503 Inventory 10,087 11,271 Income taxes receivable 5,757 1,832 Other current assets   8,567   6,267 Total current assets 215,362 165,004   Property and equipment, net 228,001 166,440 Long-term marketable securities 23,579 37,034 Goodwill 128,752 128,504 Other intangible assets, net 19,850 19,084 Other long-term assets   3,441   2,672 Total assets $ 618,985 $ 518,738   Liabilities and shareholders' equity Current liabilities Accounts payable $ 17,411 $ 15,876 Accrued compensation 18,130 12,100 Accrued liabilities and other 16,702 8,408 Short-term debt obligations - 5,000 Income taxes payable   491   2,371 Total current liabilities 52,734 43,755   Long-term income taxes payable - 2,181 Long-term deferred tax liabilities 20,162 6,966 Other long-term liabilities 4,592 4,621   Shareholders' equity   541,497   461,215 Total liabilities and shareholders' equity $ 618,985 $ 518,738             Proto Labs, Inc. Condensed Consolidated Statements of Operations (In thousands, except share and per share amounts) (Unaudited)           Three Months Ended Year Ended December 31, December 31, 2018 2017 2018 2017 Revenue Injection Molding $ 53,913 $ 50,245 $ 210,523 $ 194,432 CNC Machining 38,157 30,421 153,521 103,739 3D Printing 13,924 11,268 53,342 43,329 Sheet Metal 5,996 1,767 24,998 1,767 Other   779   477   3,212   1,223 Total revenue 112,769 94,178 445,596 344,490   Cost of revenue   53,614   41,290   206,917   150,648 Gross profit 59,155 52,888 238,679 193,842   Operating expenses Marketing and sales 17,586 15,393 68,533 56,856 Research and development 7,580 5,776 28,735 23,560 General and administrative   13,834   12,944   52,513   41,200 Total operating expenses   39,000   34,113   149,781   121,616 Income from operations 20,155 18,775 88,898 72,226 Other income, net   1,381   430   2,757   2,209 Income before income taxes 21,536 19,205 91,655 74,435 Provision for income taxes   2,250   4,933   15,067   22,657 Net income $ 19,286 $ 14,272 $ 76,588 $ 51,778   Net income per share: Basic $ 0.71 $ 0.53 $ 2.84 $ 1.94 Diluted $ 0.71 $ 0.53 $ 2.81 $ 1.93   Shares used to compute net income per share: Basic 27,040,207 26,705,909 26,982,614 26,647,610 Diluted 27,311,988 27,009,017 27,278,816 26,845,071                       Proto Labs, Inc. Condensed Consolidated Statements of Cash Flows (In thousands) (Unaudited)       Year Ended December 31, 2018 2017 Operating activities Net income $ 76,588 $ 51,778 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 26,754 18,474 Stock-based compensation expense 10,928 8,558 Deferred taxes 11,936 1,174 Gain on sale of businesses (671 ) - Amortization of held-to-maturity securities 374 1,063 Loss on impairment of assets - 513 Other (619 ) (153 ) Changes in operating assets and liabilities   (2,361 )   341   Net cash provided by operating activities   122,929     81,748     Investing activities Purchases of property, equipment and other capital assets (87,104 ) (32,635 ) Cash used for acquisitions, net of cash acquired (90 ) (110,533 ) Proceeds from sale of businesses 284 - Purchases of other assets and investments (126 ) (8,742 ) Purchases of marketable securities (41,384 ) (20,037 ) Proceeds from maturities of marketable securities   65,139     47,972   Net cash used in investing activities   (63,281 )   (123,975 )   Financing activities Payments on debt (5,000 ) 5,000 Proceeds from exercises of stock options and other 6,791 8,602 Repurchases of common stock   (12,229 )   (4,410 ) Net cash (used in) provided by financing activities   (10,438 )   9,192   Effect of exchange rate changes on cash and cash equivalents   (871 )   947   Net increase (decrease) in cash and cash equivalents 48,339 (32,088 ) Cash and cash equivalents, beginning of period   36,707     68,795   Cash and cash equivalents, end of period $ 85,046   $ 36,707                 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 Year Ended December 31, December 31,

2018

2017

2018

2017

Non-GAAP net income, adjusted for stock-based compensation expense, amortization expense, impairment on assets, acquisition costs, unrealized gain on foreign currency, disposal of businesses and legal settlement

GAAP net income $ 19,286 $ 14,272 $ 76,588 $ 51,778 Add back: Stock-based compensation expense 2,942 2,400 10,928 8,558 Amortization expense 862 107 3,233 501 Impairment on assets - 513 - 513 Acquisition costs - 1,875 - 1,875 Unrealized gain on foreign currency (527 ) (102 ) (380 ) (185 ) Disposal of businesses - - (671 ) - Legal settlement   -     -     -     (417 ) Total adjustments 1   3,277     4,793     13,110     10,845   Provisional charges related to the tax effect of deemed repatriation of foreign earnings (719 ) 2,400 (719 ) 2,400 Revaluation of net deferred tax assets and liabilities (496 ) (4,262 ) (496 ) (4,262 ) Income tax benefits on adjustments 2   (1,086 )   (1,520 )   (5,660 )   (3,344 ) Non-GAAP net income $ 20,262   $ 15,683   $ 82,823   $ 57,417       Non-GAAP net income per share: Basic $ 0.75   $ 0.59   $ 3.07   $ 2.16   Diluted $ 0.74   $ 0.58   $ 3.04   $ 2.14     Shares used to compute non-GAAP net income per share: Basic 27,040,207 26,705,909 26,982,614 26,647,610 Diluted 27,311,988 27,009,017 27,278,816 26,845,071                        

1 Stock-based compensation expense, amortization expense, impairment on assets, acquisition costs, unrealized gain on foreign currency, disposal of businesses and legal settlement were included in the following GAAP consolidated statement of operations categories:

  Three Months Ended Year Ended December 31, December 31,

2018

2017

2018

2017

  Cost of revenue $ 448 $ 273 $ 1,543 $ 970   Marketing and sales 562 405 1,942 1,429 Research and development 407 295 1,517 1,091 General and administrative   2,387     3,922     9,159     7,957   Total operating expenses 3,356 4,622 12,618 10,477   Other income, net   (527 )   (102 )   (1,051 )   (602 ) Total adjustments $ 3,277   $ 4,793   $ 13,110   $ 10,845    

2 For the three-month and year-ended periods ended December 31, 2018 and 2017, 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 Year Ended December 31, December 31,

2018

2017

2018

2017

Revenue $ 112,769 $ 94,178 $ 445,596 $ 344,490 Income from operations   20,155     18,775     88,898     72,226   GAAP operating margin 17.9 % 19.9 % 20.0 % 21.0 % Add back: Stock-based compensation expense 2,942 2,400 10,928 8,558 Amortization expense 862 107 3,233 501 Acquisition Costs - 1,875 - 1,875 Impairment on assets   -     513     -     513   Total adjustments   3,804     4,895     14,161     11,447  

Non-GAAP income from operations adjusted for stock-based compensation expense, amortization expense, acquisition costs, and impairment on assets

$ 23,959   $ 23,670   $ 103,059   $ 83,673   Non-GAAP operating margin 21.2 % 25.1 % 23.1 % 24.3 %                       Proto Labs, Inc. Comparison of GAAP to Non-GAAP Revenue Growth (In thousands) (Unaudited)               Three Months Ended Three Months Ended December 31, % Change December 31, 2018 2017 % Constant GAAP Adjustments1 Non-GAAP GAAP

Change2

Currencies3 Revenues United States $ 89,282 $ 89,282 $ 72,067 23.9 % 23.9 % Europe 19,458 523 19,981 18,930 2.8 % 5.6 % Japan   4,029   (5 )   4,024   3,181 26.7 % 26.5 % Total Revenue $ 112,769 $ 518   $ 113,287 $ 94,178 19.7 % 20.3 %                     Year Ended Year Ended December 31, % Change December 31, 2018 2017 % Constant GAAP

Adjustments1

Non-GAAP GAAP

Change2

Currencies3 Revenues United States $ 350,535 $ 350,535 $ 263,086 33.2 % 33.2 % Europe 80,889 (3,302 ) 77,587 70,154 15.3 % 10.6 % Japan   14,172   (216 )   13,956   11,250 26.0 % 24.1 % Total Revenue $ 445,596 $ (3,518 ) $ 442,078 $ 344,490 29.3 % 28.3 %  

1 Revenue growth for the three-month and year-ended periods ended December 31, 2018 has been recalculated using 2017 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 growth for the three-month and year-ended periods ended December 31, 2017 to GAAP revenue growth for the three-month and year-ended periods ended December 31, 2018.   3 This column presents the percentage change from GAAP revenue growth for the three-month and year-ended periods ended December 31, 2017 (calculated using the foreign currency exchange rates in effect during that period) to non-GAAP revenue growth for the three-month and year-ended periods ended December 31, 2018 (as recalculated using the foreign currency exchange rates in effect during the three-month and year-ended periods ended December 31, 2017) in order to provide a constant currency comparison.     Proto Labs, Inc. Product Developer Information (Unaudited)           Three Months Ended Year Ended December 31, December 31, 2018 2017 2018 2017 Unique product developers and engineers served 20,403 17,256 45,968 37,538                    

View source version on businesswire.com: https://www.businesswire.com/news/home/20190207005159/en/

Investor Relations Contact:ProtolabsDan Schumacher, 763-479-7240Director of Investor Relationsdaniel.schumacher@protolabs.comorMedia Contact:ProtolabsSarah Ekenberg, 763-479-7560Marketing Manager, PR & Mediasarah.ekenberg@protolabs.com