Protolabs Reports Financial Results for the Third Quarter of 2021

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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