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Protolabs Reports Financial Results for the Third Quarter of 2021

Record Revenue of $125.3 million in the Third Quarter of 2021, an increase of 17% year-over-year

Proto Labs, Inc. (NYSE: PRLB), the world’s leading provider of digital manufacturing services, today announced financial results for the third quarter ended September 30, 2021.

Third Quarter 2021 Highlights include:

  • Revenue for the third quarter of 2021 was $125.3 million, representing a 16.6 percent increase compared to revenue of $107.5 million in the third quarter of 2020.
  • Hubs generated $8.8 million of revenue in the third quarter.
  • Net income for the third quarter of 2021 was $4.8 million, or $0.17 per diluted share.
  • Non-GAAP net income was $9.7 million, or $0.35 per diluted share. See “Non-GAAP Financial Measures” below.

“We achieved record revenue in the third quarter amidst a difficult backdrop of global supply chain issues and labor and materials constraints. During the quarter, we also received external recognition of our best-in-class digital manufacturing capabilities as the World Economic Forum announced our induction into their Global Lighthouse Network, recognizing our industry leading efforts to implement Fourth Industrial Revolution technologies,” noted Rob Bodor, President and Chief Executive Officer. “We continue to focus on the long-term market opportunities and invest in the business to serve the evolving needs of our customers.”

Additional Third Quarter 2021 Highlights include:

  • Protolabs served 23,457 unique product developers during the quarter, representing a 24.8 percent increase over the third quarter of 2020.
  • Gross margin in the third quarter of 2021 was 44.1 percent of revenue; Non-GAAP gross margin was 44.9 percent of revenue. See “Non-GAAP Financial Measures” below.
  • EBITDA margin was 13.7 percent of revenue in the third quarter of 2021; adjusted EBITDA margin was 17.1 percent of revenue in the third quarter of 2021. See “Non-GAAP Financial Measures” below.
  • Cash and investments balance was $83.9 million as of September 30, 2021.

“Our earnings in the third quarter were impacted by post pandemic-related cost inflation, as well as continued investments in our systems and product offering in order to maintain our position as the largest and fastest provider of digital manufacturing services,” added John Way, Chief Financial Officer. “We have a very strong balance sheet with $84 million in cash and investments and no debt, allowing us to continue to invest in future growth and return capital to our shareholders.”

Non-GAAP Financial Measures

The company has included non-GAAP revenue growth that excludes the impact of changes in foreign currency exchange rates and revenue earned from our acquisition of Hubs (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 transaction costs (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, amortization expense, and transaction costs (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 transaction costs (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 2021 financial results and fourth quarter 2021 outlook today, October 28, 2021 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 presentation will be available via the investor relations section of the Protolabs website and the following link: https://edge.media-server.com/mmc/p/kff4bprd. 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 leading provider of digital manufacturing services. The e-commerce-based company offers injection molding, CNC machining, 3D printing, and sheet metal fabrication to product developers, engineers, and supply chain teams across the globe. Protolabs serves customers using in-house production capabilities that bring unprecedented speed in tandem with Hubs, a Protolabs Company, which serves customers through its network of premium manufacturing partners. Together, they help companies bring new ideas to market with the fastest and most comprehensive digital manufacturing service in the world. 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,

2021

2020

(Unaudited)
Assets
Current assets
Cash and cash equivalents

$

47,802

$

127,603

Short-term marketable securities

 

16,542

 

34,088

Accounts receivable, net

 

85,629

 

57,877

Inventory

 

9,813

 

10,862

Income taxes receivable

 

1,766

 

540

Prepaid expenses and other current assets

 

10,571

 

11,032

Total current assets

 

172,123

 

242,002

 
Property and equipment, net

 

283,019

 

282,666

Goodwill

 

404,240

 

128,752

Other intangible assets, net

 

39,816

 

14,350

Long-term marketable securities

 

19,557

 

59,357

Operating lease assets

 

5,197

 

9,855

Finance lease assets

 

2,022

 

2,396

Other long-term assets

 

4,337

 

4,826

Total assets

$

930,311

$

744,204

 
Liabilities and shareholders' equity
Current liabilities
Accounts payable

$

22,735

$

18,248

Accrued compensation

 

15,269

 

11,989

Accrued liabilities and other

 

12,636

 

16,193

Current contingent consideration

 

2,506

 

-

Current operating lease liabilities

 

2,362

 

3,272

Current finance lease liabilities

 

555

 

552

Total current liabilities

 

56,063

 

50,254

 
Long-term contingent consideration

 

2,294

 

-

Long-term operating lease liabilities

 

2,792

 

7,586

Long-term finance lease liabilities

 

1,498

 

1,919

Long-term deferred tax liabilities

 

36,331

 

33,854

Other long-term liabilities

 

6,712

 

6,235

 
Shareholders' equity

 

824,621

 

644,356

Total liabilities and shareholders' equity

$

930,311

$

744,204

 

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,

 

2021

 

 

2020

 

 

2021

 

 

2020

Revenue      
Injection Molding

$

57,685

 

$

53,257

 

$

172,212

 

$

165,927

CNC Machining

 

43,658

 

 

33,115

 

 

121,953

 

 

99,760

3D Printing

 

18,589

 

 

16,294

 

 

53,994

 

 

46,478

Sheet Metal

 

4,854

 

 

3,988

 

 

14,790

 

 

14,306

Other

 

556

 

 

850

 

 

1,567

 

 

2,716

Total revenue

 

125,342

 

 

107,504

 

 

364,516

 

 

329,187

       
Cost of revenue

 

70,018

 

 

52,861

 

 

197,237

 

 

163,988

Gross profit

 

55,324

 

 

54,643

 

 

167,279

 

 

165,199

       
Operating expenses      
Marketing and sales

 

21,422

 

 

16,705

 

 

61,946

 

 

51,821

Research and development

 

10,614

 

 

7,915

 

 

33,855

 

 

25,550

General and administrative

 

16,361

 

 

12,354

 

 

44,186

 

 

38,983

Total operating expenses

 

48,397

 

 

36,974

 

 

139,987

 

 

116,354

Income from operations

 

6,927

 

 

17,669

 

 

27,292

 

 

48,845

Other income (expense), net

 

136

 

 

728

 

 

(40)

 

 

2,549

Income before income taxes

 

7,063

 

 

18,397

 

 

27,252

 

 

51,394

Provision for income taxes

 

2,228

 

 

3,700

 

 

5,790

 

 

10,106

Net income

$

4,835

 

$

14,697

 

$

21,462

 

$

41,288

       
Net income per share:      
Basic

$

0.17

 

$

0.55

 

$

0.78

 

$

1.54

Diluted

$

0.17

 

$

0.55

 

$

0.77

 

$

1.54

       
Shares used to compute net income per share:      
Basic

 

27,713,229

 

 

26,736,709

 

 

27,638,611

 

 

26,724,715

Diluted

 

27,730,105

 

 

26,886,433

 

 

27,707,784

 

 

26,861,647

       
Proto Labs, Inc.
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
   
Nine Months Ended
September 30,

 

2021

 

 

2020

Operating activities  
Net income

$

21,462

 

$

41,288

Adjustments to reconcile net income to net cash provided by operating activities:  
Depreciation and amortization

 

30,231

 

 

23,891

Stock-based compensation expense

 

15,539

 

 

10,617

Deferred taxes

 

(139)

 

 

6,578

Amortization of marketable securities

 

374

 

 

202

Realized gain on available-for-sale securities

 

(72)

 

 

-

Changes in fair value of contingent consideration

 

(8,513)

 

 

-

Other

 

140

 

 

(865)

Changes in operating assets and liabilities

 

(26,797)

 

 

664

Net cash provided by operating activities

 

32,225

 

 

82,375

   
Investing activities  
Purchases of property, equipment and other capital assets

 

(27,956)

 

 

(40,489)

Cash used for acquisitions, net of cash acquired

 

(127,413)

 

 

-

Purchases of other assets and investments

 

-

 

 

(3,000)

Purchases of marketable securities

 

(15,159)

 

 

(90,596)

Proceeds from sales of marketable securities

 

57,089

 

 

-

Proceeds from maturities of marketable securities

 

15,114

 

 

56,428

Net cash used in investing activities

 

(98,325)

 

 

(77,657)

   
Financing activities  
Proceeds from exercises of stock options and other

 

3,838

 

 

5,674

Purchases of shares withheld for tax obligations

 

(4,209)

 

 

(3,367)

Repurchases of common stock

 

(13,036)

 

 

(14,686)

Principal repayments of finance lease obligations

 

(413)

 

 

-

Net cash used in financing activities

 

(13,820)

 

 

(12,379)

Effect of exchange rate changes on cash and cash equivalents

 

119

 

 

690

Net decrease in cash and cash equivalents

 

(79,801)

 

 

(6,971)

Cash and cash equivalents, beginning of period

 

127,603

 

 

125,225

Cash and cash equivalents, end of period

$

47,802

 

$

118,254

   
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,

 

2021

 

 

2020

 

2021

 

 

2020

Non-GAAP net income, adjusted for stock-based compensation expense,    
amortization expense, unrealized (gain) loss on foreign currency and    
transaction costs    
GAAP net income

$

4,835

 

$

14,697

$

21,462

 

$

41,288

Add back:    
Stock-based compensation expense

 

4,978

 

 

3,945

 

15,539

 

 

10,617

Amortization expense

 

1,568

 

 

754

 

4,601

 

 

2,262

Unrealized (gain) loss on foreign currency

 

121

 

 

(84)

 

341

 

 

(1,020)

Transaction costs 1

 

(730)

 

 

-

 

(5,870)

 

 

-

Total adjustments 2

 

5,937

 

 

4,615

 

14,611

 

 

11,859

Income tax benefits on adjustments 3

 

(1,063)

 

 

(1,368)

 

(4,639)

 

 

(3,030)

Non-GAAP net income

$

9,709

 

$

17,944

$

31,434

 

$

50,117

     
     
Non-GAAP net income per share:    
Basic

$

0.35

 

$

0.67

$

1.14

 

$

1.88

Diluted

$

0.35

 

$

0.67

$

1.13

 

$

1.87

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

 

27,713,229

 

 

26,736,709

 

27,638,611

 

 

26,724,715

Diluted

 

27,730,105

 

 

26,886,433

 

27,707,784

 

 

26,861,647

     
     
1 Transaction costs include direct costs incurred in our acquisition of Hubs, Inc. and the impact of changes in the fair value of acquisition-related contingent consideration obligations.
2 Stock-based compensation expense, amortization expense, unrealized (gain) loss on foreign currency and transaction costs were included in the following GAAP consolidated statement of operations categories:
Three Months Ended Nine Months Ended
September 30, September 30,

 

2021

 

 

2020

 

2021

 

 

2020

     
Cost of revenue

$

986

 

$

989

$

2,974

 

$

2,788

     
Marketing and sales

 

1,059

 

 

865

 

2,841

 

 

2,233

Research and development

 

776

 

 

638

 

2,144

 

 

1,766

General and administrative

 

2,995

 

 

2,207

 

6,311

 

 

6,092

Total operating expenses

 

4,830

 

 

3,710

 

11,296

 

 

10,091

     
Other (income) loss, net

 

121

 

 

(84)

 

341

 

 

(1,020)

Total adjustments

$

5,937

 

$

4,615

$

14,611

 

$

11,859

     
3 For the three and nine-month periods ended September 30, 2021 and 2020, 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,

 

2021

 

 

2020

 

2021

 

 

2020

Revenue

$

125,342

 

$

107,504

$

364,516

 

$

329,187

Income from operations

 

6,927

 

 

17,669

 

27,292

 

 

48,845

GAAP operating margin

 

5.5%

 

 

16.4%

 

7.5%

 

 

14.8%

Add back:    
Stock-based compensation expense

 

4,978

 

 

3,945

 

15,539

 

 

10,617

Amortization expense

 

1,568

 

 

754

 

4,601

 

 

2,262

Transaction costs 1

 

(730)

 

 

-

 

(5,870)

 

 

-

Total adjustments

 

5,816

 

 

4,699

 

14,270

 

 

12,879

Non-GAAP income from operations

$

12,743

 

$

22,368

$

41,562

 

$

61,724

Non-GAAP operating margin

 

10.2%

 

 

20.8%

 

11.4%

 

 

18.8%

     
     
1 Transaction costs include direct costs incurred in our acquisition of Hubs, Inc. and the impact of changes in the fair value of acquisition-related contingent consideration obligations.
     
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,

 

2021

 

 

2020

 

2021

 

 

2020

GAAP net income

$

4,835

 

$

14,697

$

21,462

 

$

41,288

Amortization expense

 

1,568

 

 

754

 

4,601

 

 

2,262

Depreciation expense

 

8,536

 

 

7,282

 

25,630

 

 

21,629

Interest income, net

 

(55)

 

 

(255)

 

(207)

 

 

(1,183)

Tax expense

 

2,228

 

 

3,700

 

5,790

 

 

10,106

EBITDA

 

17,112

 

 

26,178

 

57,276

 

 

74,102

Add back:    
Stock-based compensation expense

 

4,978

 

 

3,945

 

15,539

 

 

10,617

Unrealized (gain) loss on foreign currency

 

121

 

 

(84)

 

341

 

 

(1,020)

Transaction costs 1

 

(730)

 

 

-

 

(5,870)

 

 

-

Total adjustments

 

4,369

 

 

3,861

 

10,010

 

 

9,597

Adjusted EBITDA

$

21,481

 

$

30,039

$

67,286

 

$

83,699

     
     
1 Transaction costs include direct costs incurred in our acquisition of Hubs, Inc. and the impact of changes in the fair value of acquisition-related contingent consideration obligations.
     
                     
Proto Labs, Inc.
Comparison of GAAP to Non-GAAP Revenue Growth
(In thousands)
(Unaudited)
                     
  Three Months Ended

September 30, 2021
    Three Months Ended

September 30, 2020
  %      
  GAAP  

Foreign

Currency1

 

Hubs

Acquisition2

  Non-GAAP     GAAP   Change3    

%

Change

Organic4

 
Revenues                    
United States  

$

100,127

 

$

-

 

$

(4,729)

 

$

95,398

   

$

85,608

 

17.0

%  

11.4

%
Europe  

 

22,155

 

 

(513)

 

 

(4,022)

 

 

17,620

   

 

18,897

 

17.2

   

(6.8)

 
Japan  

 

3,060

 

 

114

 

 

-

 

 

3,174

   

 

2,999

 

2.0

   

5.8

 
Total Revenue  

$

125,342

 

$

(399)

 

$

(8,751)

 

$

116,192

   

$

107,504

 

16.6

%  

8.1

%
                     
                     
  Nine Months Ended

September 30, 2021
    Nine Months Ended

September 30, 2020
  %      
  GAAP  

Foreign

Currency1

 

Hubs

Acquisition2

  Non-GAAP     GAAP   Change3    

%

Change

Organic4

 
Revenues                    
United States  

$

286,524

 

$

-

 

$

(12,512)

 

$

274,012

   

$

262,507

 

9.1

%  

4.4

%
Europe  

 

68,259

 

 

(3,986)

 

 

(10,942)

 

 

53,331

   

 

56,413

 

21.0

   

(5.5)

 
Japan  

 

9,733

 

 

83

 

 

-

 

 

9,816

   

 

10,267

 

(5.2)

   

(4.4)

 
Total Revenue  

$

364,516

 

$

(3,903)

 

$

(23,454)

 

$

337,159

   

$

329,187

 

10.7

%  

2.4

%
                     
1 Revenue for the three and nine-month periods ended September 30, 2021 has been recalculated using 2020 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 Revenue for the three and nine-month periods ended September 30, 2021 has been recalculated to exclude revenue earned from our acquisition of Hubs, Inc. to provide information useful in evaluating the underlying business trends excluding the impact of acquisitions.
3 This column presents the percentage change from GAAP revenue for the three and nine-month periods ended September 30, 2020 to GAAP revenue for the three and nine-month periods ended September 30, 2021.
4 This column presents the percentage change from GAAP revenue for the three and nine-month periods ended September 30, 2020 to non-GAAP revenue for the three and nine-month periods ended September 30, 2021 (as recalculated using the foreign currency exchange rates in effect during the three- and nine-month periods ended September 30, 2020, excluding the impact of Hubs, Inc. acquisition) 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,
 

2021

2020

2021

2020

Unique product developers and engineers served  

23,457

18,796

49,300

37,504

   

 

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