Protolabs Reports Financial Results for the Second Quarter 2020

Second Quarter 2020 Revenue of $106.6 million

Second Quarter 2020 GAAP EPS of $0.47, Non-GAAP EPS of $0.59

MAPLE PLAIN, Minn. — (BUSINESS WIRE) — July 28, 2020 — 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, 2020.

Second Quarter 2020 Highlights include:

Revenue for the second quarter of 2020 was $106.6 million, representing an 8.1 percent decrease compared to revenue of $115.9 million in the second quarter of 2019.
Net income for the second quarter of 2020 was $12.6 million, or $0.47 per diluted share.
Non-GAAP net income was $15.9 million, or $0.59 per diluted share. See “Non-GAAP Financial Measures” below.

“The first half of 2020 has presented a great deal of challenges to all businesses, and Protolabs is no exception. We have a solid financial foundation, a healthy balance sheet, and resilient business model to weather the uncertain environment,” said Vicki Holt, President and Chief Executive Officer of Protolabs. “The COVID-19 pandemic provides an opportunity for Protolabs to demonstrate the value our digital business model can provide. During the quarter, we delivered over 8 million parts to support the medical industry, generating $12 million in revenue. Our dynamic digital manufacturing business model, and our agile and creative employees, will allow us to thrive as customer activity begins to re-accelerate.”

Additional Second Quarter 2020 Highlights include:

Gross margin was 49.2 percent of revenue for the second quarter of 2020, compared to 50.5 percent for the first quarter of 2020 on lower revenue.
Operating expenses were $38.1 million or 35.8 percent of revenue for the second quarter of 2020, down $3.2 million from $41.3 million of operating expenses in the first quarter of 2020.
GAAP operating margin was 13.5 percent of revenue during the second quarter of 2020, compared to 14.6 percent for the first quarter of 2020 due to lower revenue.
Non-GAAP operating margin was 17.6 percent of revenue during the second quarter of 2020, compared to 17.9 percent for the first quarter of 2020. See “Non-GAAP Financial Measures” below.
The company generated $31.0 million in cash from operations during the second quarter of 2020 up from $22.4 million in first quarter 2020.

“Our business model continues to generate strong cash flow, despite the uncertainty in the market,” said John Way, Chief Financial Officer. “We will continue to monitor demand levels and prudently manage expenses, while continuing to invest in and execute on key strategic initiatives to position our business for strong growth in the future.”

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 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 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 second quarter 2020 financial results and financial guidance today, July 28, 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/9crcgv9j. 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)


				June 30,		December 31,
				2020		2019
				(Unaudited)
	Assets
	Current assets
		Cash and cash equivalents		$	98,003	$	125,225
		Short-term marketable securities			33,128		35,437
		Accounts receivable, net			61,297		57,450
		Inventory			10,774		10,075
		Income taxes receivable			95		-
		Prepaid expenses and other current assets			9,670		8,232
			Total current assets		212,967		236,419

	Property and equipment, net				281,129		263,712
	Goodwill				128,752		128,752
	Other intangible assets, net				15,861		17,369
	Long-term marketable securities				44,127		12,960
	Operating lease assets				11,049		11,425
	Other long-term assets				4,560		3,030
			Total assets	$	698,445	$	673,667

	Liabilities and shareholders' equity
	Current liabilities
		Accounts payable		$	17,556	$	16,804
		Accrued compensation			15,138		15,058
		Accrued liabilities and other			15,041		11,057
		Current operating lease liabilities			3,368		3,340
		Income taxes payable			-		1,322
			Total current liabilities		51,103		47,581

	Long-term operating lease liabilities				8,379		8,565
	Long-term deferred tax liabilities				31,907		26,283
	Other long-term liabilities				5,807		5,448

	Shareholders' equity				601,249		585,790
	Total liabilities and shareholders' equity			$	698,445	$	673,667


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,
			2020		2019		2020		2019
	Revenue
		Injection Molding	$	57,894	$	55,457	$	112,670	$	110,768
		CNC Machining		28,760		38,888		66,645		76,760
		3D Printing		14,236		15,266		30,184		29,746
		Sheet Metal		4,669		5,472		10,318		10,497
		Other		1,016		849		1,866		1,613
		Total revenue		106,575		115,932		221,683		229,384

	Cost of revenue			54,119		55,696		111,127		110,288
	Gross profit			52,456		60,236		110,556		119,096

	Operating expenses
		Marketing and sales		16,936		19,285		35,116		37,862
		Research and development		8,648		8,169		17,635		16,182
		General and administrative		12,521		13,209		26,629		26,031
		Total operating expenses		38,105		40,663		79,380		80,075
	Income from operations			14,351		19,573		31,176		39,021
	Other income, net			767		1,125		1,821		1,338
	Income before income taxes			15,118		20,698		32,997		40,359
	Provision for income taxes			2,511		4,532		6,406		8,682
	Net income		$	12,607	$	16,166	$	26,591	$	31,677

	Net income per share:
		Basic	$	0.47	$	0.60	$	1.00	$	1.18
		Diluted	$	0.47	$	0.60	$	0.99	$	1.17

	Shares used to compute net income per share:
		Basic		26,660,498		26,875,153		26,718,652		26,919,016
		Diluted		26,760,866		27,041,422		26,837,938		27,113,328

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

				Six Months Ended
				June 30,
				2020			2019
	Operating activities
		Net income		$	26,591		$	31,677
		Adjustments to reconcile net income to net cash provided by operating activities:
			Depreciation and amortization		15,855			14,981
			Stock-based compensation expense		6,672			6,526
			Deferred taxes		5,651			1,585
			Amortization of held-to-maturity securities		129			7
			Other		(854	)		(279	)
			Changes in operating assets and liabilities		(627	)		391
		Net cash provided by operating activities			53,417			54,888

	Investing activities
		Purchases of property, equipment and other capital assets			(33,305	)		(34,136	)
		Purchases of other assets and investments			(3,000	)		(4,000	)
		Purchases of marketable securities			(57,212	)		(8,983	)
		Proceeds from maturities of marketable securities			28,225			29,170
		Net cash used in investing activities			(65,292	)		(17,949	)

	Financing activities
		Proceeds from exercises of stock options and other			2,855			2,243
		Purchases of shares withheld for tax obligations			(3,367	)		(2,418	)
		Repurchases of common stock			(14,686	)		(21,410	)
		Net cash used in financing activities			(15,198	)		(21,585	)
	Effect of exchange rate changes on cash and cash equivalents				(149	)		135
	Net (decrease) increase in cash and cash equivalents				(27,222	)		15,489
	Cash and cash equivalents, beginning of period				125,225			85,046
	Cash and cash equivalents, end of period			$	98,003		$	100,535



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,
			2020			2019			2020			2019
	Non-GAAP net income, adjusted for stock-based compensation expense, amortization expense and unrealized gain on foreign currency
		GAAP net income	$	12,607		$	16,166		$	26,591		$	31,677
		Add back:
		Stock-based compensation expense		3,639			3,486			6,672			6,526
		Amortization expense		754			863			1,508			1,734
		Unrealized gain on foreign currency		(139	)		(305	)		(936	)		(58	)
		Total adjustments ¹		4,254			4,044			7,244			8,202
		Income tax benefits on adjustments ²		(987	)		(1,074	)		(1,662	)		(1,993	)
		Non-GAAP net income	$	15,874		$	19,136		$	32,173		$	37,886


	Non-GAAP net income per share:
		Basic	$	0.60		$	0.71		$	1.20		$	1.41
		Diluted	$	0.59		$	0.71		$	1.20		$	1.40

	Shares used to compute non-GAAP net income per share:
		Basic		26,660,498			26,875,153			26,718,652			26,919,016
		Diluted		26,760,866			27,041,422			26,837,938			27,113,328


	¹ Stock-based compensation expense, amortization expense and unrealized gain on foreign currency were included in the following GAAP consolidated statement of operations categories:
			Three Months Ended						Six Months Ended
			June 30,						June 30,
			2020			2019			2020			2019

		Cost of revenue	$	936		$	797		$	1,799		$	1,530

		Marketing and sales		750			614			1,368			1,163
		Research and development		607			503			1,128			926
		General and administrative		2,100			2,435			3,885			4,641
		Total operating expenses		3,457			3,552			6,381			6,730

		Other income, net		(139	)		(305	)		(936	)		(58	)
		Total adjustments	$	4,254		$	4,044		$	7,244		$	8,202

	² For the three and six-month periods ended June 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						Six Months Ended
			June 30,						June 30,
			2020			2019			2020			2019
	Revenue		$	106,575		$	115,932		$	221,683		$	229,384
	Income from operations			14,351			19,573			31,176			39,021
		GAAP operating margin		13.5	%		16.9	%		14.1	%		17.0	%
		Add back:
		Stock-based compensation expense		3,639			3,486			6,672			6,526
		Amortization expense		754			863			1,508			1,734
		Total adjustments		4,393			4,349			8,180			8,260
		Non-GAAP income from operations	$	18,744		$	23,922		$	39,356		$	47,281
		Non-GAAP operating margin		17.6	%		20.6	%		17.8	%		20.6	%



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

			Three Months Ended						Six Months Ended
			June 30,						June 30,
			2020			2019			2020			2019
	GAAP net income		$	12,607		$	16,166		$	26,591		$	31,677
		Amortization expense		754			863			1,508			1,734
		Depreciation expense		7,143			6,678			14,347			13,246
		Interest income, net		(368	)		(465	)		(928	)		(1,046	)
		Tax expense		2,511			4,532			6,406			8,682
		EBITDA		22,647			27,774			47,924			54,293
		Add back:
		Stock-based compensation expense		3,639			3,486			6,672			6,526
		Unrealized gain on foreign currency		(139	)		(305	)		(936	)		(58	)
		Total adjustments		3,500			3,181			5,736			6,468
		Adjusted EBITDA	$	26,147		$	30,955		$	53,660		$	60,761


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

		Three Months Ended June 30, 2020							Three Months Ended June 30, 2019		%	% Change Constant
		GAAP		Adjustments ¹			Non-GAAP		GAAP		Change ²	Currencies ³
	Revenues
	United States	$	86,823	$	-		$	86,823	$	91,149	(4.7)	(4.7)
	Europe		16,729		417			17,146		20,940	(20.1)	(18.1)
	Japan		3,023		(62	)		2,961		3,843	(21.3)	(23.0)
	Total Revenue	$	106,575	$	355		$	106,930	$	115,932	(8.1)	(7.8)


		Six Months Ended June 30, 2020							Six Months Ended June 30, 2019		%	% Change Constant
		GAAP		Adjustments ¹			Non-GAAP		GAAP		Change ²	Currencies ³
	Revenues
	United States	$	176,899	$	-		$	176,899	$	178,960	(1.2)	(1.2)
	Europe		37,516		1,065			38,581		42,194	(11.1)	(8.6)
	Japan		7,268		(117	)		7,151		8,230	(11.7)	(13.1)
	Total Revenue	$	221,683	$	948		$	222,631	$	229,384	(3.4)	(2.9)

¹ Revenue for the three and six-month periods ended June 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 six-month periods ended June 30, 2019 to GAAP revenue for the three and six-month periods ended June 30, 2020.
³ This column presents the percentage change from GAAP revenue for the three and six-month periods ended June 30, 2019 to non-GAAP revenue for the three and six-month periods ended June 30, 2020 (as recalculated using the foreign currency exchange rates in effect during the three- and six-month periods ended June 30, 2019) in order to provide a constant-currency comparison.


Proto Labs, Inc.
Product Developer Information
(Unaudited)

		Three Months Ended		Six Months Ended
		June 30,		June 30,
		2020	2019	2020	2019
	Unique product developers and engineers served	17,037	20,840	29,703	31,550

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