Protolabs Reports Financial Results for the Second Quarter of 2023

Proto Labs, Inc. Condensed Consolidated Balance Sheets (In thousands)


	June 30, 2023		December 31, 2022
	(Unaudited)
Assets
Current assets
Cash and cash equivalents	$	66,493	$	56,558
Short-term marketable securities		19,945		23,568
Accounts receivable, net		75,034		76,225
Inventory		14,311		13,578
Income taxes receivable		868		4,042
Prepaid expenses and other current assets		8,501		12,597
Total current assets		185,152		186,568

Property and equipment, net		248,614		257,785
Goodwill		273,991		273,991
Other intangible assets, net		28,353		31,250
Long-term marketable securities		16,344		26,419
Operating lease assets		3,084		3,844
Finance lease assets		16,934		17,532
Other long-term assets		4,738		4,779
Total assets	$	777,210	$	802,168

Liabilities and shareholders' equity
Current liabilities
Accounts payable	$	16,474	$	17,356
Accrued compensation		12,486		12,743
Accrued liabilities and other		19,155		22,384
Current operating lease liabilities		1,209		1,561
Current finance lease liabilities		16,549		17,537
Income taxes payable		348		—
Total current liabilities		66,221		71,581

Long-term operating lease liabilities		1,833		2,255
Long-term finance lease liabilities		745		—
Long-term deferred tax liabilities		20,790		26,322
Other long-term liabilities		4,936		4,362

Shareholders' equity		682,685		697,648
Total liabilities and shareholders' equity	$	777,210	$	802,168

Proto Labs, Inc. Condensed Consolidated Statements of Operations (In thousands, except share and per share amounts) (Unaudited)


	Three Months Ended June 30,					Six Months Ended June 30,
	2023			2022		2023			2022
Revenue
Injection Molding	$	48,819		$	53,355	$	100,767		$	106,753
CNC Machining		48,297			48,222		96,401			94,320
3D Printing		21,005			19,963		42,330			39,635
Sheet Metal		3,939			5,160		8,187			9,847
Other Revenue		205			202		439			515
Total Revenue		122,265			126,902		248,124			251,070

Cost of revenue		69,142			69,480		141,225			137,844
Gross profit		53,123			57,422		106,899			113,226

Operating expenses
Marketing and sales		21,730			21,055		44,181			41,641
Research and development		9,865			9,450		20,542			20,007
General and administrative		15,822			16,522		32,655			33,293
Closure of Japan business		98			5,194		164			5,194
Total operating expenses		47,515			52,221		97,542			100,135
Income from operations		5,608			5,201		9,357			13,091
Other (loss) income, net		(3,368	)		1		(2,078	)		(299	)
Income before income taxes		2,240			5,202		7,279			12,792
Provision for income taxes		2,623			2,645		5,003			5,140
Net (loss) income	$	(383	)	$	2,557	$	2,276		$	7,652

Net (loss) income per share:
Basic	$	(0.01	)	$	0.09	$	0.09		$	0.28
Diluted	$	(0.01	)	$	0.09	$	0.09		$	0.28

Shares used to compute net (loss) income per share:
Basic		26,210,478			27,530,739		26,414,467			27,515,583
Diluted		26,210,478			27,536,823		26,445,427			27,524,019

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


	Six Months Ended June 30,
	2023			2022
Operating activities
Net income	$	2,276		$	7,652
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		18,883			20,274
Stock-based compensation expense		7,370			8,428
Deferred taxes		(5,605	)		(5,653	)
Interest on finance lease obligations		568			-
Loss on foreign currency translation		3,906			-
Impairments related to closure of Japan business		-			1,792
Gain on disposal of property and equipment		(428	)		-
Other		215			32
Changes in operating assets and liabilities:		4,682			(1,485	)
Net cash provided by operating activities		31,867			31,040

Investing activities
Purchases of property, equipment and other capital assets		(6,829	)		(6,030	)
Proceeds from sales of property, equipment and other capital assets		623			-
Purchases of marketable securities		-			(38,882	)
Proceeds from sales of marketable securities		—			1,000
Proceeds from call redemptions and maturities of marketable securities		14,020			7,396
Net cash provided by (used in) investing activities		7,814			(36,516	)

Financing activities
Proceeds from exercises of stock options		1,986			2,311
Purchases of shares withheld for tax obligations		(1,425	)		(1,615	)
Repurchases of common stock		(30,064	)		(5,239	)
Principal repayments of finance lease obligations		(163	)		(278	)
Net cash used in financing activities		(29,666	)		(4,821	)
Effect of exchange rate changes on cash and cash equivalents		(80	)		(966	)
Net increase (decrease) in cash and cash equivalents		9,935			(11,263	)
Cash and cash equivalents, beginning of period		56,558			65,929
Cash and cash equivalents, end of period	$	66,493		$	54,666

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 June 30,						Six Months Ended June 30,
	2023			2022			2023			2022
Non-GAAP net income, adjusted for stock-based compensation expense, amortization expense, unrealized (gain) loss on foreign currency and costs related to Japan closure activities
GAAP net (loss) income	$	(383	)	$	2,557		$	2,276		$	7,652
Add back:
Stock-based compensation expense		3,675			4,031			7,370			8,428
Amortization expense		1,484			1,527			3,010			3,072
Unrealized (gain) loss on foreign currency		187			271			115			360
Costs related to Japan closure activities		4,004			5,194			4,070			5,194
Total adjustments ¹		9,350			11,023			14,565			17,054
Income tax benefits on adjustments ²		(296	)		(776	)		(298	)		(1,458	)
Non-GAAP net income	$	8,671		$	12,804		$	16,543		$	23,248


Non-GAAP net income per share:
Basic	$	0.33		$	0.47		$	0.63		$	0.84
Diluted	$	0.33		$	0.46		$	0.63		$	0.84

Shares used to compute non-GAAP net income per share:
Basic		26,210,478			27,530,739			26,414,467			27,515,583
Diluted		26,224,562			27,536,823			26,445,427			27,524,019

1 Stock-based compensation expense, amortization expense, unrealized (gain) loss on foreign currency and costs related to Japan closure activities were included in the following GAAP consolidated statement of operations categories:

	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022

Cost of revenue	$	803	$	870	$	1,611	$	1,799

Marketing and sales		855		813		1,547		1,550
Research and development		641		471		1,212		1,100
General and administrative		2,861		3,404		6,010		7,051
Closure of Japan business		98		5,194		164		5,194
Total operating expenses		4,455		9,882		8,933		14,895

Other income (loss), net		4,092		271		4,021		360
Total adjustments	$	9,350	$	11,023	$	14,565	$	17,054

2 For the three and six months ended June 30, 2023 and 2022, income tax effects were calculated using the effective tax rate for the relevant jurisdictions. The Company's non-GAAP tax rates differ from its 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 Gross Margin (In thousands) (Unaudited)


	Three Months Ended June 30,						Six Months Ended June 30,
	2023			2022			2023			2022
Revenue	$	122,265		$	126,902		$	248,124		$	251,070
Gross profit		53,123			57,422			106,899			113,226
GAAP gross margin		43.4	%		45.2	%		43.1	%		45.1	%
Add back:
Stock-based compensation expense		461			528			927			1,115
Amortization expense		342			342			684			684
Total adjustments		803			870			1,611			1,799
Non-GAAP gross profit	$	53,926		$	58,292		$	108,510		$	115,025
Non-GAAP gross margin		44.1	%		45.9	%		43.7	%		45.8	%

Proto Labs, Inc. Reconciliation of GAAP to Non-GAAP Gross Margin Excluding Japan (In thousands) (Unaudited)


	Three Months Ended June 30,						Six Months Ended June 30,
	2023			2022			2023			2022
Revenue	$	122,265		$	126,902		$	248,124		$	251,070
Revenue excluding Japan	$	122,265		$	124,046		$	248,124		$	244,128
Gross profit		53,123			57,422			106,899			113,226
GAAP gross margin		43.4	%		45.2	%		43.1	%		45.1	%
Less: Japan gross profit		-			1,063			-			3,102
Gross Profit excluding Japan		53,123			56,359			106,899			110,124
GAAP gross margin excluding Japan		43.4	%		45.4	%		43.1	%		45.1	%
Add back:
Stock-based compensation expense		461			528			927			1,115
Amortization expense		342			342			684			684
Less:
Japan stock-based compensation expense		-			22			-			47
Japan amortization expense		-			-			-			-
Total adjustments		803			848			1,611			1,752
Non-GAAP gross profit excluding Japan	$	53,926		$	57,207		$	108,510		$	111,876
Non-GAAP gross margin excluding Japan		44.1	%		46.1	%		43.7	%		45.8	%

Proto Labs, Inc. Reconciliation of GAAP to Non-GAAP Operating Margin (In thousands) (Unaudited)


	Three Months Ended June 30,						Six Months Ended June 30,
	2023			2022			2023			2022
Revenue	$	122,265		$	126,902		$	248,124		$	251,070
Income from operations		5,608			5,201			9,357			13,091
GAAP operating margin		4.6	%		4.1	%		3.8	%		5.2	%
Add back:
Stock-based compensation expense		3,675			4,031			7,370			8,428
Amortization expense		1,484			1,527			3,010			3,072
Costs related to Japan closure activities		98			5,194			164			5,194
Total adjustments		5,257			10,752			10,544			16,694
Non-GAAP income from operations	$	10,865		$	15,953		$	19,901		$	29,785
Non-GAAP operating margin		8.9	%		12.6	%		8.0	%		11.9	%

Proto Labs, Inc. Reconciliation of GAAP to Non-GAAP Operating Margin Excluding Japan (In thousands) (Unaudited)


	Three Months Ended June 30,						Six Months Ended June 30,
	2023			2022			2023			2022
Revenue	$	122,265		$	126,902		$	248,124		$	251,070
Revenue excluding Japan	$	122,265		$	124,046		$	248,124		$	244,128
Income from operations		5,608			5,201			9,357			13,091
GAAP operating margin		4.6	%		4.1	%		3.8	%		5.2	%
Less: Japan (loss) income from operations		(128	)		(542	)		(474	)		4
Income from operations excluding Japan		5,736			5,743			9,831			13,087
GAAP operating margin excluding Japan		4.7	%		4.6	%		4.0	%		5.4	%
Add back:
Stock-based compensation expense		3,675			4,031			7,370			8,428
Amortization expense		1,484			1,527			3,010			3,072
Costs related to Japan closure activities		98			5,194			164			5,194
Less:
Japan stock-based compensation expense		7			147			17			297
Japan amortization expense		-			-			-			-
Total adjustments		5,250			10,605			10,527			16,397
Non-GAAP income from operations excluding Japan	$	10,986		$	16,348		$	20,358		$	29,484
Non-GAAP operating margin excluding Japan		9.0	%		13.2	%		8.2	%		12.1	%

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


	Three Months Ended June 30,						Six Months Ended June 30,
	2023			2022			2023			2022
Revenue	$	122,265		$	126,902		$	248,124		$	251,070
GAAP net (loss) income		(383	)		2,557			2,276			7,652
GAAP net (loss) income margin		(0.3	%)		2.0	%		0.9	%		3.0	%
Add back:
Amortization expense	$	1,484		$	1,527		$	3,010		$	3,072
Depreciation expense		8,011			8,515			15,873			17,202
Interest income, net		(372	)		(149	)		(722	)		(194	)
Provision for income taxes		2,623			2,645			5,003			5,140
EBITDA		11,363			15,095			25,440			32,872
EBITDA Margin		9.3	%		11.9	%		10.3	%		13.1	%
Add back:
Stock-based compensation expense		3,675			4,031			7,370			8,428
Unrealized (gain) loss on foreign currency		187			271			115			360
Costs related to Japan closure activities		4,004			5,194			4,070			5,194
Total adjustments		7,866			9,496			11,555			13,982
Adjusted EBITDA	$	19,229		$	24,591		$	36,995		$	46,854
Adjusted EBITDA Margin		15.7	%		19.4	%		14.9	%		18.7	%

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


	Three Months Ended June 30, 2023						Three Months Ended June 30, 2022		% Change ²		% Change Organic ³
	GAAP		Foreign Currency ¹		Non-GAAP		GAAP		% Change ²		% Change Organic ³
Revenues
United States	$	96,321	$	-	$	96,321	$	100,655	(4.3	%)	(4.3	%)
Europe		25,944		512		26,456		23,391	10.9	%	13.1	%
Japan		-		-		-		2,856	(100.0	%)	(100.0	%)
Total revenue	$	122,265	$	512	$	122,777	$	126,902	(3.7	%)	(3.3	%)


	Six Months Ended June 30, 2023						Six Months Ended June 30, 2022		% Change ²		% Change Organic ³
	GAAP		Foreign Currency ¹		Non-GAAP		GAAP		% Change ²		% Change Organic ³
Revenues
United States	$	194,067	$	-	$	194,067	$	196,151	(1.1	%)	(1.1	%)
Europe		54,057		2,977		57,034		47,977	12.7	%	18.9	%
Japan		-		-		-		6,942	(100.0	%)	(100.0	%)
Total revenue	$	248,124	$	2,977	$	251,101	$	251,070	(1.2	%)	—	%

1 Revenue for the three and six months ended June 30, 2023 has been recalculated using 2022 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 months ended June 30, 2022 to GAAP revenue for the three and six months ended June 30, 2023.

3 This column presents the percentage change from GAAP revenue for the three and six months ended June 30, 2022 to non-GAAP revenue for the three and six months ended June 30, 2023 (as recalculated using the foreign currency exchange rates in effect during the three and six months ended June 30, 2022) in order to provide a constant-currency comparison.

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


	Three Months Ended June 30, 2023							Three Months Ended June 30, 2022		% Change ²		% Change Organic ³
	GAAP		Foreign Currency ¹			Non-GAAP		GAAP		% Change ²		% Change Organic ³
Revenues
Injection Molding	$	48,819	$	257		$	49,076	$	53,355	(8.5	)%	(8.0	)%
CNC Machining		48,297		125			48,422		48,222	0.2		0.4
3D Printing		21,005		131			21,136		19,963	5.2		5.9
Sheet Metal		3,939		1			3,940		5,160	(23.7	)	(23.6	)
Other Revenue		205		(2	)		203		202	1.5		0.5
Total Revenue	$	122,265	$	512		$	122,777	$	126,902	(3.7	%)	(3.3	%)


	Six Months Ended June 30, 2023						Six Months Ended June 30, 2022		% Change ²		% Change Organic ³
	GAAP		Foreign Currency ¹		Non-GAAP		GAAP		% Change ²		% Change Organic ³
Revenues
Injection Molding	$	100,767	$	1,436	$	102,203	$	106,753	(5.6	)%	(4.3	)%
CNC Machining		96,401		860		97,261		94,320	2.2		3.1
3D Printing		42,330		667		42,997		39,635	6.8		8.5
Sheet Metal		8,187		11		8,198		9,847	(16.9	)	(16.7	)
Other Revenue		439		3		442		515	(14.8	)	(14.2	)
Total Revenue	$	248,124	$	2,977	$	251,101	$	251,070	(1.2	%)	—	%

2 This column presents the percentage change from GAAP revenue for the three and six months ended June 30, 2022 to GAAP revenue for the three and six months ended June 30, 2023.

Proto Labs, Inc. Product Developer Information (Unaudited)


	Three months ended June 30,		Six months ended June 30,
	2023	2022	2023	2022
Unique product developers and engineers served	23,377	24,058	35,743	36,878

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