Proto Labs Reports Record Revenue and Net Income for the Third Quarter 2017

Quarterly Revenue Increases 12.7% to a Record $88.1 million
Quarterly Net Income Increases 10.3% to a Record $13.2 million

 

MAPLE PLAIN, Minn. — (BUSINESS WIRE) — October 26, 2017 — 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, 2017.

Third Quarter 2017 Highlights include:

  • Revenue for the third quarter of 2017 was $88.1 million, 12.7 percent above revenue of $78.2 million in the third quarter of 2016.
  • The number of unique product developers and engineers served totaled 16,909 in the third quarter of 2017, an increase of 18.5 percent over the third quarter of 2016.
  • Net income for the third quarter of 2017 was $13.2 million, or $0.49 per diluted share. Non-GAAP net income, excluding the after-tax expense of stock compensation, amortization of intangibles, and unrealized foreign currency gains, was $15.0 million, or $0.56 per diluted share. See "Non-GAAP Financial Measures" below.

"We continued to drive strong performance in the third quarter, delivering record revenue for the third straight quarter," said Vicki Holt, President and Chief Executive Officer. "Our investments in the business to support the needs of our customers are delivering returns with increasing operating margins and record earnings this quarter." Additional Third Quarter 2017 Highlights include:

  • Gross margin was 56.0 percent of revenue for the third quarter of 2017 compared with 57.2 percent for the third quarter of 2016.
  • Operating margin was 22.0 percent of revenue during the third quarter of 2017 compared to 21.7 percent for the third quarter of 2016.
  • The Company generated $19.6 million in cash from operations during the third quarter of 2017.
  • Cash and investments balance increased to $227.8 million at September 30, 2017.

"Our concerted effort over the past couple of years to expand relationships with our customers continues to drive our performance. The U.S. and Europe, our two largest geographies, delivered record revenue levels as our focus on the customer continues to show positive signs. We continue to expand our capabilities and provide more of a total solution to help our customers get their products to market as efficiently and cost effectively as possible," concluded Holt.

Non-GAAP Financial Measures

The company has included non-GAAP adjusted revenue growth that excludes the impact of changes in foreign currency exchange rates and non-GAAP adjusted revenue growth that excludes the impact of discontinued businesses in this press release to provide investors with additional information regarding the company's financial results. Management believes these metrics are useful in evaluating the underlying business trends and ongoing operating performance of the company.

The company has also included non-GAAP operating margin, adjusted for stock-based compensation expense, amortization expense, impairment on assets and facilities-related charges (collectively, "non-GAAP operating margin"), in this press release to provide investors with additional information regarding the company's financial results.

The company has also included non-GAAP net income, adjusted for stock-based compensation expense, amortization expense, unrealized foreign currency activity, impairment on assets, facilities-related charges and legal settlement (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 and revenues, the most directly comparable measures calculated and presented in accordance with GAAP. Non-GAAP net income is 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 non-GAAP net income provides 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 and full year 2017 financial results today, October 26, 2017 at 8:30 a.m. ET. To access the call in the U.S. please dial 877-709-8150. Outside the U.S. please dial 201-689-8354. No participant code is required. A simultaneous webcast of the call will be available via the investor relations section of the Proto Labs website and the following link: https://edge.media-server.com/m6/p/epn5s29w . A replay will be available for 14 days following the call on the investor relations section of Proto Labs' website.

About Proto Labs, Inc.

Proto Labs is the world's fastest digital manufacturing source for custom prototypes and low-volume production parts. The technology-enabled company uses advanced 3D printing, CNC machining and injection molding technologies to produce parts within days. The result is an unprecedented speed-to-market value for product designers and engineers worldwide. 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 Proto Labs 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 Proto Labs' future results. The forward-looking statements included in this press release are made only as of the date hereof. Proto Labs cannot guarantee future results, levels of activity, performance or achievements. Accordingly, you should not place undue reliance on these forward-looking statements. Finally, Proto Labs 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,
2017

   

December 31,
2016

    (Unaudited)      
Assets          
Current assets          
Cash and cash equivalents   $ 119,283     $ 68,795
Short-term marketable securities     53,201       39,477
Accounts receivable, net     46,276       34,060
Inventory     9,789       9,310
Income taxes receivable     -       445
Other current assets     6,280       5,697
Total current assets     234,829       157,784
           
Property and equipment, net     153,512       139,474
Long-term marketable securities     55,351       84,479
Goodwill     28,916       28,916
Other intangible assets, net     2,261       2,655
Other long-term assets     2,701       933
Total assets   $ 477,570     $ 414,241
           
Liabilities and shareholders' equity          
Current liabilities          
Accounts payable   $ 13,130     $ 11,322
Accrued compensation     11,366       7,670
Accrued liabilities and other     7,463       4,435
Income taxes payable     3,804       -
Total current liabilities     35,763       23,427
           
Long-term deferred tax liabilities     7,721       7,003
Other long-term liabilities     4,247       3,978
           
Shareholders' equity     429,839       379,833
Total liabilities and shareholders' equity   $ 477,570     $ 414,241
               
                 
Proto Labs, Inc.
Condensed Consolidated Statements of Operations
(In thousands, except share and per share amounts)
(Unaudited)
                 
   

Three Months Ended
September 30,

 

Nine Months Ended
September 30,

     
     

2017

   

2016

   

2017

   

2016

Revenue                
Injection Molding   $ 49,480   $ 46,445   $ 144,187   $ 134,376
CNC Machining     27,166     21,781     73,318     60,510
3D Printing     11,102     9,850     32,061     28,059
Other     357     97     746     2,757
Total revenue     88,105     78,173     250,312     225,702
                 
Cost of revenue     38,793     33,448     109,358     99,077
Gross profit     49,312     44,725     140,954     126,625
                 
Operating expenses                
Marketing and sales     13,846     11,787     41,463     34,182
Research and development     5,877     5,976     17,784     17,110
General and administrative     10,222     10,020     28,256     28,397
Total operating expenses     29,945     27,783     87,503     79,689
Income from operations     19,367     16,942     53,451     46,936
Other income, net     291     625     1,779     2,342
Income before income taxes     19,658     17,567     55,230     49,278
Provision for income taxes     6,438     5,585     17,724     15,943
Net income   $ 13,220   $ 11,982   $ 37,506   $ 33,335
                 
Net income per share:                
Basic   $ 0.50   $ 0.45   $ 1.41   $ 1.27
Diluted   $ 0.49   $ 0.45   $ 1.40   $ 1.26
                 
Shares used to compute net income per share:                
Basic     26,617,349     26,416,041     26,600,174     26,334,738
Diluted     26,802,034     26,609,878     26,716,553     26,539,078
                 
         
Proto Labs, Inc.
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
         
   

Nine Months Ended
September 30,

   
   

2017

 

2016

Operating activities        
Net income   $ 37,506     $ 33,335  
Adjustments to reconcile net income to net cash provided by operating activities:        
Depreciation and amortization     13,539       12,831  
Stock-based compensation expense     6,159       5,260  
Deferred taxes     715       495  
Amortization of held-to-maturity securities     851       881  
Loss on impairment of assets     -       455  
Other     21       (1,381 )
Changes in operating assets and liabilities     209       6,266  
Net cash provided by operating activities     59,000       58,142  
         
Investing activities        
Purchases of property and equipment     (24,164 )     (30,981 )
Purchases of marketable securities     (20,037 )     (56,213 )
Proceeds from maturities of marketable securities     34,090       45,907  
Purchases of other investments     (514 )     -  
Net cash used in investing activities     (10,625 )     (41,287 )
         
Financing activities        
Acquisition-related contingent consideration     -       (400 )
Proceeds from exercises of stock options and other     5,749       4,168  
Repurchases of common stock     (4,410 )     -  
Net cash provided by (used in) financing activities     1,339       3,768  
Effect of exchange rate changes on cash and cash equivalents     774       (58 )
Net increase in cash and cash equivalents     50,488       20,565  
Cash and cash equivalents, beginning of period     68,795       47,653  
Cash and cash equivalents, end of period   $ 119,283     $ 68,218  
                 
                   
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
September 30,

   

Nine Months Ended
September 30,

   

2017

 

2016

   

2017

 

2016

Non-GAAP net income, adjusted for stock-based compensation expense, amortization expense, unrealized gain on foreign currency, legal settlement, impairment on assets and charges related to the exit of facilities

                 
GAAP net income   $ 13,220     $ 11,982       $ 37,506     $ 33,335  
Add back:                  
Stock-based compensation expense     2,201       1,719         6,159       5,260  
Amortization expense     106       163         394       520  
Impairment on assets     -       -         -       455  
Facilities-related charges     -       731         -       1,150  
Unrealized loss (gain) on foreign currency     266       (330 )       (83 )     (1,460 )
Legal settlement     -       -         (417 )     -  
Total adjustments 1     2,573       2,283         6,053       5,925  
Income tax benefits on adjustments 2     (747 )     (743 )       (1,824 )     (2,054 )
Non-GAAP net income   $ 15,046     $ 13,522       $ 41,735     $ 37,206  
                   
                   
Non-GAAP net income per share:                  
Basic   $ 0.57     $ 0.51       $ 1.57     $ 1.41  
Diluted   $ 0.56     $ 0.50       $ 1.56     $ 1.40  
                   
Shares used to compute non-GAAP net income per share:                  
Basic     26,617,349       26,416,041         26,600,174       26,334,738  
Diluted     26,802,034       26,609,878         26,716,553       26,539,078  
       

 

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

Three Months Ended
September 30,

   

Nine Months Ended
September 30,

   

2017

 

2016

   

2017

 

2016

Cost of revenue   $ 263     $ 558       $ 698     $ 999  
Marketing and sales     417       250         1,024       741  
Research and development     295       310         796       1,084  
General and administrative     1,332       1,495         4,035       4,561  
Other income, net     266       (330 )       (500 )     (1,460 )
Total adjustments   $ 2,573     $ 2,283       $ 6,053     $ 5,925  
                   
2 For the three months ended September 30, 2017 and 2016, income tax effects were calculated reflecting an effective GAAP tax rate of 32.8% and 31.8%, respectively, and an effective non-GAAP tax rate of 32.3% and 31.9%, respectively. For the nine months ended September 30, 2017 and 2016, income tax effects were calculated reflecting an effective GAAP tax rate of 32.1% and 32.4%, respectively, and an effective non-GAAP tax rate of 31.9% and 32.6%, respectively. Our non-GAAP tax rates for the three and nine months ended September 30, 2017 and 2016 differ from our GAAP tax rates for the same periods due primarily to the mix of activity incurred in domestic and foreign tax jurisdictions.
 
                   
Proto Labs, Inc.
Reconciliation of GAAP to Non-GAAP Operating Margin
(In thousands)
(Unaudited)
                   
   

Three Months Ended
September 30,

   

Nine Months Ended
September 30,

   

2017

 

2016

   

2017

 

2016

Revenue   $ 88,105   $ 78,173     $ 250,312   $ 225,702
Income from operations     19,367     16,942       53,451     46,936
GAAP operating margin     22.0 %     21.7 %       21.4 %     20.8 %
Add back:                  
Stock-based compensation expense     2,201     1,719       6,159     5,260
Amortization expense     106     163       394     520
Impairment on assets     -     -       -     455
Facilities-related charges     -     731       -     1,150
Total adjustments     2,307     2,613       6,553     7,385

 

                 

Non-GAAP income from operations adjusted for stock-based compensation expense, amortization expense, impairment on assets and facilities-related charges

  $ 21,674   $ 19,555     $ 60,004   $ 54,321
Non-GAAP operating margin     24.6 %     25.0 %       24.0 %     24.1 %
                           
                           
Proto Labs, Inc.
Comparison of GAAP to Non-GAAP Revenue Growth
(In thousands)
(Unaudited)
                       
             

 

   
 

Three Months Ended
September 30, 2017

 

Three
Months
Ended
September
30, 2016

  %  

% Change

Constant

  GAAP   Adjustments 1   Non-GAAP   GAAP  

Change 2

  Currencies 3
Revenues                      
United States $ 67,490   $ -     $ 67,490   $ 59,574   13.3%   13.3%
Europe   18,094     (657 )     17,437     15,610   15.9%   11.7%
Japan   2,521     211       2,732     2,989   -15.7%   -8.6%
Total Revenue $ 88,105   $ (446 )   $ 87,659   $ 78,173   12.7%   12.1%
                       
                       
 

Nine Months Ended
September 30, 2017

 

Nine
Months
Ended
September
30, 2016

  %  

% Change

Constant

 

GAAP

  Adjustments 1   Non-GAAP   GAAP  

Change 2

  Currencies 3
Revenues                      
United States $ 191,019   $ -     $ 191,019   $ 169,364   12.8%   12.8%
Europe   51,224     1,144       52,368     48,518   5.6%   7.9%
Japan   8,069     256       8,325     7,820   3.2%   6.5%
Total Revenue $ 250,312   $ 1,400     $ 251,712   $ 225,702   10.9%   11.5%
                       
1 Revenue growth for the three- and nine-month periods ended September 30, 2017 has been recalculated using 2016 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- and nine-month periods ended September 30, 2016 to GAAP revenue growth for the three- and nine-month periods ended September 30, 2017.
3 This column presents the percentage change from GAAP revenue growth for the three- and nine-month periods ended September 30, 2016 (calculated using the foreign currency exchange rates in effect during those periods) to non-GAAP revenue growth for the three- and nine-month periods ended September 30, 2017 (as recalculated using 2016 foreign currency exchange rates in order to provide a constant currency comparison).
 

 

     

 

           

 

 

Three Months Ended
September 30, 2017

 

Three Months Ended
September 30, 2016

   

%

 

% Change
Adjusted

  GAAP   Adjustments 4   Non-GAAP   GAAP   Adjustments 4   Non-GAAP     Change   Revenue
Revenues                                

Injection Molding

$ 49,480   $ -     $ 49,480   $ 46,445   $ (1,100 )   $ 45,345     6.5%   9.1%
CNC Machining $ 27,166     -       27,166   $ 21,781     -       21,781     24.7%   24.7%
3D Printing   11,102     -       11,102     9,850     (68 )     9,782     12.7%   13.5%
Other   357     -       357     97     -       97     268.0%   268.0%
Total Revenue $ 88,105   $ -     $ 88,105   $ 78,173   $ (1,168 )   $ 77,005     12.7%   14.4%
                                 
                                 
 

Nine Months Ended
September 30, 2017

 

Nine Months Ended
September 30, 2016

    %  

% Change
Adjusted

  GAAP   Adjustments 4   Non-GAAP   GAAP   Adjustments 4   Non-GAAP     Change   Revenue
Revenues                                
Injection Molding $ 144,187   $ (550 )   $ 143,637   $ 134,376   $ (2,419 )   $ 131,957     7.3%   8.9%
CNC Machining $ 73,318     -       73,318     60,510     -       60,510     21.2%   21.2%
3D Printing   32,061     -       32,061     28,059     (242 )     27,817     14.3%   15.3%
Other   959     -       959     2,757     (1,784 )     973     -72.9%   -23.3%
Total Revenue $ 250,525   $ (550 )   $ 249,975   $ 225,702   $ (4,445 )   $ 221,257     10.9%   12.9%
                                 
4 Revenue growth for the three- and nine-month periods ended September 30, 2017 and 2016 has been recalculated to exclude revenue earned from two discontinued manufacturing processes, Metal Injection Molding (MIM) and Magnesium Thixomolding (Thixo), discontinued non-core resin resale business and unprofitable Alphaform 3D Printing contracts.
 
Proto Labs, Inc.
Revenue by Geography
(In thousands)
(Unaudited)
                 
   

Three Months Ended
September 30,

 

Nine Months Ended
September 30,

   

2017

 

2016

 

2017

 

2016

Revenue:                
United States   $ 67,490   $ 59,574   $ 191,019   $ 169,364
Europe     18,094     15,610     51,224     48,518
Japan     2,521     2,989     8,069     7,820
Total Revenue   $ 88,105   $ 78,173   $ 250,312   $ 225,702
                         
 
Proto Labs, Inc.
Product Developer Information
(Unaudited)
               
 

Three Months Ended
September 30,

 

Nine Months Ended
September 30,

 

2017

 

2016

 

2017

 

2016

Unique product developers and engineers served 16,909   14,271   31,307   26,528
               
Note: the information above includes unique product developers and engineers who purchased our 3D Printed products in the United States and Europe through our web-based customer interface. The information does not include 3D Printing and Injection Molding customers resulting from the Alphaform acquisition who do not utilize our web-based customer interface.

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