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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