Protolabs Reports Financial Results for the Fourth Quarter and Full Year 2019

Record Full Year 2019 Revenue of $458.7 million, an increase of 3% over 2018

MAPLE PLAIN, Minn. — (BUSINESS WIRE) — February 6, 2020 — 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, 2019.

Fourth Quarter 2019 Highlights include:

  • Revenue for the fourth quarter of 2019 was $111.9 million, representing a 0.8 percent decrease compared to revenue of $112.8 million in the fourth quarter of 2018.
  • The number of unique product developers and engineers served totaled 20,595 in the fourth quarter of 2019, an increase of 0.9 percent over the fourth quarter of 2018.
  • Net income for the fourth quarter of 2019 was $15.2 million, or $0.56 per diluted share.
  • Non-GAAP net income was $17.1 million, or $0.63 per diluted share. See “Non-GAAP Financial Measures” below.

“The fourth quarter of 2019 played out as we expected, as global macroeconomic conditions continued to weaken through the end of 2019,” said Vicki Holt, President and Chief Executive Officer. “Despite softer revenue in the fourth quarter, our world-class e-commerce digital manufacturing offer still resonates with customers, as evidenced by our three percent growth in 2019 in these tough macro conditions.”

Additional Fourth Quarter 2019 Highlights include:

  • Gross margin was 50.6 percent of revenue for the fourth quarter of 2019, compared to 52.5 percent for the fourth quarter of 2018.
  • Operating expenses were 33.1 percent of revenue for the fourth quarter of 2019, compared to 34.6 percent for the fourth quarter of 2018.
  • GAAP operating margin was 17.5 percent of revenue during the fourth quarter of 2019, compared to 17.9 percent for the fourth quarter of 2018.
  • Non-GAAP operating margin was 19.2 percent of revenue during the fourth quarter of 2019, compared to 21.2 percent for the fourth quarter of 2018. See “Non-GAAP Financial Measures” below.
  • EBITDA was $27.0 million, or 24.1 percent of revenue, for the fourth quarter of 2019.
  • Adjusted EBITDA was $28.3 million, or 25.3 percent of revenue, for the fourth quarter of 2019. See “Non-GAAP Financial Measures” below.
  • The company generated $32.3 million in cash from operations during the fourth quarter of 2019.
  • Cash and investments balance was $173.6 million at December 31, 2019.

“Protolabs continued its track record of very strong cash generation in the fourth quarter of 2019, despite revenue softness and contraction in global manufacturing activity,” said John Way, Chief Financial Officer. “Our balance sheet remains very healthy as we enter into 2020, allowing us to make strategic investments focused on long term business performance.”

Full Year 2019 Financial Highlights include:

  • Revenue increased 2.9 percent to $458.7 million compared to $445.6 million in 2018.
  • Protolabs served 47,774 product developers during the year, an increase of 3.9 percent over 2018.
  • Net income for 2019 was $63.7 million, or $2.35 per diluted share.
  • Non-GAAP net income was $75.4 million, or $2.79 per diluted share. See “Non-GAAP Financial Measures” below.
  • Cash generated from operations during the year totaled $116.1 million.
  • The Company repurchased $33.5 million or 326,462 shares of common stock.

“Although macroeconomic headwinds across various industries have resulted in lower than expected purchasing from our customers in 2019, Protolabs remains committed to continually improving our offer and delighting our customers,” said Holt. “As we enter 2020, we are very excited about enhancements we are making to our e-commerce platform and back-end support systems. This project, called Protolabs 2.0, will build out our systems to support our customers and our strategy for the next decade and beyond. We have an outstanding team and are well-situated strategically and financially to expand our position as the leading e-commerce, digitally enabled supplier of custom manufacturing parts and services, which will lead to long-term shareholder value creation.”

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 fourth quarter and full year 2019 financial results and financial guidance today, February 6, 2020 at 8:30 a.m. EST. 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. EST 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/mcknxyj8. 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,

2019

2018
(Unaudited)
Assets
Current assets
Cash and cash equivalents

$

125,225

$

85,046

Short-term marketable securities

 

35,437

 

46,750

Accounts receivable, net

 

57,450

 

59,155

Inventory

 

10,075

 

10,087

Income taxes receivable

 

-

 

5,757

Prepaid expenses and other current assets

 

8,232

 

8,567

Total current assets

 

236,419

 

215,362

 

Property and equipment, net

 

263,712

 

228,001

Goodwill

 

128,752

 

128,752

Other intangible assets, net

 

17,369

 

19,850

Long-term marketable securities

 

12,960

 

23,579

Operating lease assets

 

11,425

 

-

Other long-term assets

 

3,030

 

3,441

Total assets

$

673,667

$

618,985

 

Liabilities and shareholders' equity

 

Current liabilities

 

Accounts payable

$

16,804

$

17,411

Accrued compensation

 

15,058

 

18,130

Accrued liabilities and other

 

11,057

 

16,702

Current operating lease liabilities

 

3,340

 

-

Income taxes payable

 

1,322

 

491

Total current liabilities

 

47,581

 

52,734

 

Long-term operating lease liabilities

 

8,565

 

-

Long-term deferred tax liabilities

 

26,283

 

20,162

Other long-term liabilities

 

5,448

 

4,592

 

Shareholders' equity

 

585,790

 

541,497

Total liabilities and shareholders' equity

$

673,667

$

618,985

 
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,

2019

 

2018

2019

2018

Revenue

 

Injection Molding

$

51,480

 

$

53,913

$

217,415

$

210,523

CNC Machining

 

38,494

 

 

38,157

 

155,473

 

153,521

3D Printing

 

15,708

 

 

13,924

 

61,352

 

53,342

Sheet Metal

 

5,223

 

 

5,996

 

21,000

 

24,998

Other

 

984

 

 

779

 

3,488

 

3,212

Total revenue

 

111,889

 

 

112,769

 

458,728

 

445,596

 

Cost of revenue

 

55,311

 

 

53,614

 

223,438

 

206,917

Gross profit

 

56,578

 

 

59,155

 

235,290

 

238,679

 

Operating expenses

 

Marketing and sales

 

17,510

 

 

17,586

 

72,976

 

68,533

Research and development

 

8,151

 

 

7,580

 

32,692

 

28,735

General and administrative

 

11,355

 

 

13,834

 

49,766

 

52,513

Total operating expenses

 

37,016

 

 

39,000

 

155,434

 

149,781

Income from operations

 

19,562

 

 

20,155

 

79,856

 

88,898

Other income, net

 

(229

)

 

1,381

 

1,337

 

2,757

Income before income taxes

 

19,333

 

 

21,536

 

81,193

 

91,655

Provision for income taxes

 

4,147

 

 

2,250

 

17,538

 

15,067

Net income

$

15,186

 

$

19,286

$

63,655

$

76,588

 

Net income per share:

 

Basic

$

0.57

 

$

0.71

$

2.37

$

2.84

Diluted

$

0.56

 

$

0.71

$

2.35

$

2.81

 

Shares used to compute net income per share:

 

Basic

 

26,777,536

 

 

27,040,207

 

26,866,985

 

26,982,614

Diluted

 

26,945,927

 

 

27,311,988

 

27,049,423

 

27,278,816

 
Proto Labs, Inc.
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
 
Year Ended
December 31,

2019

2018

Operating activities
Net income

$

63,655

 

$

76,588

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

Depreciation and amortization

 

30,864

 

 

26,754

 

Stock-based compensation expense

 

10,781

 

 

10,928

 

Deferred taxes

 

6,106

 

 

11,936

 

Gain on sale of businesses

 

-

 

 

(671

)

Amortization of held-to-maturity securities

 

5

 

 

374

 

Other

 

391

 

 

(619

)

Changes in operating assets and liabilities

 

4,250

 

 

(2,361

)

Net cash provided by operating activities

 

116,052

 

 

122,929

 

 

Investing activities

 

Purchases of property, equipment and other capital assets

 

(62,230

)

 

(87,104

)

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

 

(46,403

)

 

(41,384

)

Proceeds from maturities of marketable securities

 

68,330

 

 

65,139

 

Net cash used in investing activities

 

(44,303

)

 

(63,281

)

 

Financing activities

 

Payments on debt

 

-

 

 

(5,000

)

Proceeds from exercises of stock options

 

4,391

 

 

8,935

 

Purchases of shares withheld for tax obligations

 

(2,487

)

 

(2,144

)

Repurchases of common stock

 

(33,521

)

 

(12,229

)

Net cash used in financing activities

 

(31,617

)

 

(10,438

)

Effect of exchange rate changes on cash and cash equivalents

 

47

 

 

(871

)

Net increase in cash and cash equivalents

 

40,179

 

 

48,339

 

Cash and cash equivalents, beginning of period

 

85,046

 

 

36,707

 

Cash and cash equivalents, end of period

$

125,225

 

$

85,046

 

 
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,

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

$

15,186

 

$

19,286

 

$

63,655

 

$

76,588

 

Add back:
Stock-based compensation expense

 

1,043

 

 

2,942

 

 

10,781

 

 

10,928

 

Amortization expense

 

889

 

 

862

 

 

3,482

 

 

3,233

 

Unrealized (gain) loss on foreign currency

 

286

 

 

(527

)

 

677

 

 

(380

)

Disposal of businesses

 

-

 

 

-

 

 

-

 

 

(671

)

Total adjustments 1

 

2,218

 

 

3,277

 

 

14,940

 

 

13,110

 

Provisional charges related to the tax effect of deemed repatriation of foreign earnings

 

-

 

 

(719

)

 

-

 

 

(719

)

Revaluation of net deferred tax assets and liabilities

 

-

 

 

(496

)

 

-

 

 

(496

)

Income tax benefits on adjustments 2

 

(350

)

 

(1,086

)

 

(3,225

)

 

(5,660

)

Non-GAAP net income

$

17,054

 

$

20,262

 

$

75,370

 

$

82,823

 

 
 
Non-GAAP net income per share:
Basic

$

0.64

 

$

0.75

 

$

2.81

 

$

3.07

 

Diluted

$

0.63

 

$

0.74

 

$

2.79

 

$

3.04

 

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

 

26,777,536

 

 

27,040,207

 

 

26,866,985

 

 

26,982,614

 

Diluted

 

26,945,927

 

 

27,311,988

 

 

27,049,423

 

 

27,278,816

 

 
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 Year Ended
December 31, December 31,

2019

2018

2019

2018

 
Cost of revenue

$

933

 

$

448

 

$

3,335

 

$

1,543

 

 
Marketing and sales

 

708

 

 

562

 

 

2,631

 

 

1,942

 

Research and development

 

365

 

 

407

 

 

1,851

 

 

1,517

 

General and administrative

 

(74

)

 

2,387

 

 

6,446

 

 

9,159

 

Total operating expenses

 

999

 

 

3,356

 

 

10,928

 

 

12,618

 

 
Other income, net

 

286

 

 

(527

)

 

677

 

 

(1,051

)

Total adjustments

$

2,218

 

$

3,277

 

$

14,940

 

$

13,110

 

 
2 For the three-month and year-ended periods ended December 31, 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

 

Year Ended

December 31,

 

December 31,

2019

2018

2019

2018

Revenue

$

111,889

 

$

112,769

 

$

458,728

 

$

445,596

 

Income from operations

 

19,562

 

 

20,155

 

 

79,856

 

 

88,898

 

GAAP operating margin

 

17.5

%

 

17.9

%

 

17.4

%

 

20.0

%

Add back:

 

 

Stock-based compensation expense

 

1,043

 

 

2,942

 

 

10,781

 

 

10,928

 

Amortization expense

 

889

 

 

862

 

 

3,482

 

 

3,233

 

Total adjustments

 

1,932

 

 

3,804

 

 

14,263

 

 

14,161

 

Non-GAAP income from operations

$

21,494

 

$

23,959

 

$

94,119

 

$

103,059

 

Non-GAAP operating margin

 

19.2

%

 

21.2

%

 

20.5

%

 

23.1

%

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

Three Months Ended

Year Ended

December 31,

December 31,

2019

2018

2019

2018

GAAP net income

$

15,186

 

$

19,286

 

$

63,655

 

$

76,588

 

Amortization expense

 

889

 

 

862

 

 

3,482

 

 

3,233

 

Depreciation expense

 

7,317

 

 

6,372

 

 

27,383

 

 

23,521

 

Interest income, net

 

(560

)

 

(641

)

 

(2,095

)

 

(1,704

)

Tax expense

 

4,147

 

 

2,250

 

 

17,538

 

 

15,067

 

EBITDA

 

26,979

 

 

28,129

 

 

109,963

 

 

116,705

 

Add back:

 

 

Stock-based compensation expense

 

1,043

 

 

2,942

 

 

10,781

 

 

10,928

 

Unrealized (gain) loss on foreign currency

 

286

 

 

(527

)

 

677

 

 

(380

)

Disposal of businesses

 

-

 

 

-

 

 

-

 

 

(671

)

Total adjustments

 

1,329

 

 

2,415

 

 

11,458

 

 

9,877

 

Adjusted EBITDA

$

28,308

 

$

30,544

 

$

121,421

 

$

126,582

 

 
Proto Labs, Inc.
Comparison of GAAP to Non-GAAP Revenue Growth
(In thousands)
(Unaudited)
 
Three Months Ended
December 31, 2019
Three Months
Ended
December 31,
2018
% % Change
Constant
GAAP Adjustments 1 Non-GAAP GAAP Change 2 Currencies 3
Revenues
United States

$

88,329

$

-

 

$

88,329

$

89,282

(1.1

%)

(1.1

%)

Europe

 

19,889

 

385

 

 

20,274

 

19,458

2.2

%

4.2

%

Japan

 

3,671

 

(131

)

 

3,540

 

4,029

(8.9

%)

(12.1

%)

Total Revenue

$

111,889

$

254

 

$

112,143

$

112,769

(0.8

%)

(0.6

%)

 
 
Year Ended
December 31, 2019
Year Ended
December 31,
2018
% % Change
Constant
GAAP Adjustments 1 Non-GAAP GAAP Change 2 Currencies 3
Revenues
United States

$

360,205

$

-

 

$

360,205

$

350,535

2.8

%

2.8

%

Europe

 

82,805

 

4,353

 

 

87,158

 

80,889

2.4

%

7.8

%

Japan

 

15,718

 

(150

)

 

15,568

 

14,172

10.9

%

9.9

%

Total Revenue

$

458,728

$

4,203

 

$

462,931

$

445,596

2.9

%

3.9

%

 
1 Revenue growth for the three-month and year-ended periods ended December 31, 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 growth for the three-month and year-ended periods ended December 31, 2018 to GAAP revenue growth for the three-month and year-ended periods ended December 31, 2019.
3 This column presents the percentage change from GAAP revenue for the three-month and year-ended periods ended December 31, 2018 to non-GAAP revenue for the three-month and year-ended periods ended December 31, 2019 (as recalculated using the foreign currency exchange rates in effect during the three-month and year-ended periods ended December 31, 2018) in order to provide a constant currency comparison.
Proto Labs, Inc.
Product Developer Information
(Unaudited)
 
Three Months Ended Year Ended
December 31,

December 31,

2019

2018

2019

2018

Unique product developers and engineers served

20,595

20,403

47,774

45,968

 

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