Business Wire | Jul 28, 2020 06:00AM EDT

Protolabs Reports Financial Results for the Second Quarter 2020

Jul. 28, 2020

MAPLE PLAIN, Minn.--(BUSINESS WIRE)--Jul. 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 16,936 19,285 35,116 37,862 sales Research and 8,648 8,169 17,635 16,182 development General and 12,521 13,209 26,629 26,031 administrative Total operating 38,105 40,663 79,380 80,075 expenses Income from 14,351 19,573 31,176 39,021 operations Other income, net 767 1,125 1,821 1,338

Income before 15,118 20,698 32,997 40,359 income taxes Provision for 2,511 4,532 6,406 8,682 income taxes 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 6,672 6,526 expense Deferred taxes 5,651 1,585

Amortization of 129 7 held-to-maturity securities Other (854 ) (279 )

Changes in operating assets (627 ) 391 and liabilities Net cash provided by operating activities 53,417 54,888

Investing activities Purchases of property, equipment and other (33,305 ) (34,136 ) capital assets Purchases of other assets and investments (3,000 ) (4,000 )

Purchases of marketable securities (57,212 ) (8,983 )

Proceeds from maturities of marketable 28,225 29,170 securities Net cash used in investing activities (65,292 ) (17,949 )

Financing activities Proceeds from exercises of stock options and 2,855 2,243 other Purchases of shares withheld for tax (3,367 ) (2,418 ) obligations 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 (149 ) 135 equivalents 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 $ 12,607 $ 16,166 $ 26,591 $ 31,677 income Add back: Stock-based 3,639 3,486 6,672 6,526 compensation expense Amortization 754 863 1,508 1,734 expense Unrealized gain on (139 ) (305 ) (936 ) (58 ) foreign currency Total 4,254 4,044 7,244 8,202 adjustments ^1 Income tax (987 ) (1,074 ) (1,662 ) (1,993 ) benefits on adjustments ^2 Non-GAAP net $ 15,874 $ 19,136 $ 32,173 $ 37,886 income 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 $ 936 $ 797 $ 1,799 $ 1,530 revenue Marketing and 750 614 1,368 1,163 sales Research and 607 503 1,128 926 development General and 2,100 2,435 3,885 4,641 administrative Total 3,457 3,552 6,381 6,730 operating expenses Other income, (139 ) (305 ) (936 ) (58 ) net Total $ 4,254 $ 4,044 $ 7,244 $ 8,202 adjustments ^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 3,639 3,486 6,672 6,526 expense Amortization expense 754 863 1,508 1,734

Total adjustments 4,393 4,349 8,180 8,260

Non-GAAP income from $ 18,744 $ 23,922 $ 39,356 $ 47,281 operations 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 3,639 3,486 6,672 6,526 expense Unrealized gain on foreign (139 ) (305 ) (936 ) (58 ) currency 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 Three Months Ended Months % Change June 30, 2020 Ended % Constant June 30, 2019 GAAP Adjustments^ Non-GAAP GAAP Change^ Currencies^ 1 2 3 Revenues United $ 86,823 $ - $ 86,823 $ 91,149 (4.7) (4.7) States 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 $ 106,575 $ 355 $ 106,930 $ 115,932 (8.1) (7.8) Revenue Six Six Months Ended Months % Change June 30, 2020 Ended % Constant June 30, 2019 GAAP Adjustments^ Non-GAAP GAAP Change^ Currencies^ 1 2 3 Revenues United $ 176,899 $ - $ 176,899 $ 178,960 (1.2) (1.2) States 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 $ 221,683 $ 948 $ 222,631 $ 229,384 (3.4) (2.9) Revenue ^1 Revenue for the three and six-month periods ended June 30, 2020 has beenrecalculated using 2019 foreign currency exchange rates in effect duringcomparable periods to provide information useful in evaluating the underlyingbusiness trends excluding the impact of changes in foreign currency exchangerates.^2 This column presents the percentage change from GAAP revenue for the threeand six-month periods ended June 30, 2019 to GAAP revenue for the three andsix-month periods ended June 30, 2020.^3 This column presents the percentage change from GAAP revenue for the threeand six-month periods ended June 30, 2019 to non-GAAP revenue for the three andsix-month periods ended June 30, 2020 (as recalculated using the foreigncurrency exchange rates in effect during the three- and six-month periods endedJune 30, 2019) in order to provide a constant-currency comparison.

Proto Labs, Inc.Product Developer Information(Unaudited) Three Months Six Months Ended Ended June 30, June 30, 2020 2019 2020 2019

Unique product developers and engineers 17,037 20,840 29,703 31,550 served

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CONTACT: Investor Relations Contact: Protolabs Dan Schumacher, 763-479-7240 Director of Investor Relations daniel.schumacher@protolabs.com or Media Contact: Protolabs Sarah Ekenberg, 763-479-7560 Marketing Manager, PR & Media sarah.ekenberg@protolabs.com