Protolabs Reports Financial Results for the Third Quarter of 2023

Business Wire
14 min read
0
In this article:

Record Revenue of $130.7 million in the Third Quarter

Record Network Revenue of $22.6 million; an 87% YoY increase

GAAP Earnings Per Share of $0.31; Non-GAAP Earnings Per Share of $0.51

MAPLE PLAIN, Minn., November 03, 2023--(BUSINESS WIRE)--Proto Labs, Inc. ("Protolabs" or the "Company") (NYSE: PRLB), the world’s leading provider of digital manufacturing services, today announced financial results for the third quarter ended September 30, 2023.

Third Quarter 2023 Highlights:

  • Revenue for the third quarter of 2023 was a record $130.7 million, representing a 7.4% increase over the third quarter of 2022.

  • Revenue generated from the digital network, powered by Hubs, was $22.6 million in the third quarter, representing growth of 86.9% over the third quarter of the prior year.

  • Net income for the third quarter of 2023 was $8.0 million, or $0.31 per diluted share.

  • Non-GAAP net income was $13.2 million, or $0.51 per diluted share. See "Non-GAAP Financial Measures" below.

"Protolabs produced third quarter financial results that surpassed our expectations on the top and bottom line. We generated record revenue, improved profitability, generated substantial cash flow, and returned capital to shareholders." said Rob Bodor, President and Chief Executive Officer. "This excellent financial performance demonstrates the success of our strategy; Protolabs' unique hybrid model combining the digital factory and the digital network is the best way to grow profitably in our industry. We experienced increased demand for our comprehensive digitally-enabled manufacturing capabilities in the quarter. The model is winning and customers are delighted."

Additional Third Quarter 2023 Highlights:

  • Protolabs served 23,080 unique product developers during the quarter.

  • Gross margin was 45.4% in the third quarter of 2023, up sequentially from 43.4% in the second quarter of 2023.

  • Non-GAAP gross margin was 46.0% in the third quarter of 2023, representing a sequential increase of 190 basis points. See "Non-GAAP Financial Measures" below.

  • EBITDA was $19.5 million, or 14.9% of revenue, in the third quarter of 2023, compared to $11.4 million, or 9.3% of revenue, in the second quarter of 2023. See "Non-GAAP Financial Measures" below.

  • Adjusted EBITDA was $23.9 million, or 18.3% of revenue, in the third quarter of 2023, compared to $19.2 million, or 15.7% of revenue, in the second quarter of 2023. See "Non-GAAP Financial Measures" below.

  • Cash flow from operations was $24.2 million in the third quarter of 2023, compared to $9.3 million in the second quarter of 2023.

  • The Company repurchased $9.0 million of shares during the quarter.

  • Cash and investments balance was $114.9 million as of September 30, 2023.

"Along with record revenue in the third quarter, we made substantial progress on our priority to improve profitability in both the digital factory and the digital network," said Dan Schumacher, Chief Financial Officer. "Through a challenging macro environment, Protolabs has demonstrated the industry-leading earnings power and cash flow generation of our business model, enabling us to continue to invest in future growth and return capital to shareholders."

Non-GAAP Financial Measures

The Company has included non-GAAP revenue growth by region and by service line that excludes the impact of changes in foreign currency exchange rates (collectively, "non-GAAP revenue growth"). Management believes these metrics, when viewed in conjunction with the comparable GAAP 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 costs related to the Japan closure activities (collectively, "Adjusted EBITDA"), in this press release to provide investors with additional information regarding the Company’s financial results. The Company has also included earnings before interest, taxes, depreciation and amortization margin ("EBITDA margin") and EBITDA margin, adjusted for stock-based compensation expense, unrealized (gain) loss on foreign currency and costs related to the Japan closure activities (collectively, "Adjusted EBITDA margin"), in this press release to provide investors with additional information regarding the Company’s financial results.

The Company has included non-GAAP gross margin, adjusted for stock-based compensation expense and amortization expense 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 costs related to the closure of Japan (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 gross margin excluding Japan, adjusted for stock-based compensation expense and amortization expense in this press release to provide investors with additional information regarding the Company’s financial results. The Company has included non-GAAP operating margin excluding Japan, adjusted for stock-based compensation expense, amortization expense, and costs related to the Japan closure activities (collectively, "non-GAAP operating margin excluding Japan"), 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 costs related to the closure of Japan (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 gross margin, non-GAAP gross margin excluding Japan, non-GAAP operating margin, non-GAAP operating margin excluding Japan, non-GAAP revenue growth by region and by service, and Adjusted EBITDA and Adjusted EBITDA margin, 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 2023 financial results and fourth quarter 2023 outlook today, November 3, 2023 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/ic4eziw6. 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 fastest and most comprehensive digital manufacturing service in the world. Our digital factories produce low-volume parts in days while our digital network of manufacturing partners powered by Hubs unlocks advanced capabilities and volume pricing at higher quantities. The result? One manufacturing source—from prototyping to production—for product developers, engineers, and supply chain teams across the globe. See what's next at protolabs.com.

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,
2023

December 31,
2022

(Unaudited)

Assets

Current assets

Cash and cash equivalents

$

83,496

$

56,558

Short-term marketable securities

19,204

23,568

Accounts receivable, net

78,395

76,225

Inventory

13,803

13,578

Income taxes receivable

891

4,042

Prepaid expenses and other current assets

8,722

12,597

Total current assets

204,511

186,568

Property and equipment, net

243,022

257,785

Goodwill

273,991

273,991

Other intangible assets, net

26,668

31,250

Long-term marketable securities

12,212

26,419

Operating lease assets

2,737

3,844

Finance lease assets

16,763

17,532

Other long-term assets

4,341

4,779

Total assets

$

784,245

$

802,168

Liabilities and shareholders' equity

Current liabilities

Accounts payable

$

17,922

$

17,356

Accrued compensation

16,337

12,743

Accrued liabilities and other

21,027

22,384

Current operating lease liabilities

1,568

1,561

Current finance lease liabilities

16,630

17,537

Income taxes payable

1,144

—

Total current liabilities

74,628

71,581

Long-term operating lease liabilities

1,545

2,255

Long-term finance lease liabilities

671

—

Long-term deferred tax liabilities

17,138

26,322

Other long-term liabilities

5,341

4,362

Shareholders' equity

684,922

697,648

Total liabilities and shareholders' equity

$

784,245

$

802,168

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,

2023

2022

2023

2022

Revenue

Injection Molding

$

51,688

$

48,940

$

152,455

$

155,693

CNC Machining

52,916

47,489

149,317

141,809

3D Printing

21,622

19,823

63,952

59,458

Sheet Metal

4,291

5,219

12,478

15,066

Other Revenue

188

250

627

765

Total Revenue

130,705

121,721

378,829

372,791

Cost of revenue

71,423

68,089

212,648

205,933

Gross profit

59,282

53,632

166,181

166,858

Operating expenses

Marketing and sales

21,682

20,594

65,863

62,235

Research and development

10,105

9,309

30,647

29,316

General and administrative

17,058

16,477

49,713

49,770

Closure of Japan business

22

1,194

186

6,388

Total operating expenses

48,867

47,574

146,409

147,709

Income from operations

10,415

6,058

19,772

19,149

Other income (loss), net

320

(24

)

(1,758

)

(323

)

Income before income taxes

10,735

6,034

18,014

18,826

Provision for income taxes

2,781

2,083

7,784

7,223

Net income

$

7,954

$

3,951

$

10,230

$

11,603

Net income per share:

Basic

$

0.31

$

0.14

$

0.39

$

0.42

Diluted

$

0.31

$

0.14

$

0.39

$

0.42

Shares used to compute net income per share:

Basic

26,023,830

27,505,097

26,296,304

27,512,057

Diluted

26,028,456

27,508,217

26,327,606

27,522,734

Proto Labs, Inc.

Condensed Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)

Nine Months Ended
September 30,

2023

2022

Operating activities

Net income

$

10,230

$

11,603

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization

28,213

29,981

Stock-based compensation expense

11,811

13,335

Deferred taxes

(9,197

)

(8,920

)

Interest on finance lease obligations

859

-

Loss on foreign currency translation

3,906

-

Impairments related to closure of Japan business

-

2,842

Gain on disposal of property and equipment

(498

)

(1,174

)

Other

122

11

Changes in operating assets and liabilities:

10,600

3,886

Net cash provided by operating activities

56,046

51,564

Investing activities

Purchases of property, equipment and other capital assets

(9,935

)

(16,414

)

Proceeds from sales of property, equipment and other capital assets

693

3,227

Purchases of marketable securities

-

(45,872

)

Proceeds from sales of marketable securities

-

1,998

Proceeds from call redemptions and maturities of marketable securities

19,115

13,696

Net cash provided by (used in) investing activities

9,873

(43,365

)

Financing activities

Proceeds from exercises of stock options

1,986

2,311

Purchases of shares withheld for tax obligations

(1,436

)

(1,615

)

Repurchases of common stock

(39,053

)

(13,074

)

Principal repayments of finance lease obligations

(234

)

(417

)

Net cash used in financing activities

(38,737

)

(12,795

)

Effect of exchange rate changes on cash and cash equivalents

(244

)

(1,972

)

Net increase (decrease) in cash and cash equivalents

26,938

(6,568

)

Cash and cash equivalents, beginning of period

56,558

65,929

Cash and cash equivalents, end of period

$

83,496

$

59,361

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,

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 income

$

7,954

$

3,951

$

10,230

$

11,603

Add back:

Stock-based compensation expense

4,441

4,907

11,811

13,335

Amortization expense

1,461

1,510

4,471

4,582

Unrealized (gain) loss on foreign currency

(29

)

382

86

742

Costs related to Japan closure activities

22

1,194

4,093

6,388

Total adjustments 1

5,895

7,993

20,461

25,047

Income tax benefits on adjustments 2

(633

)

(1,060

)

(931

)

(2,518

)

Non-GAAP net income

$

13,216

$

10,884

$

29,760

$

34,132

Non-GAAP net income per share:

Basic

$

0.51

$

0.40

$

1.13

$

1.24

Diluted

$

0.51

$

0.40

$

1.13

$

1.24

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

Basic

26,023,830

27,505,097

26,296,304

27,512,057

Diluted

26,028,456

27,508,217

26,327,606

27,522,734

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
September 30,

Nine Months Ended
September 30,

2023

2022

2023

2022

Cost of revenue

$

805

$

902

$

2,416

$

2,701

Marketing and sales

961

929

2,508

2,479

Research and development

675

602

1,888

1,702

General and administrative

3,461

3,984

9,471

11,035

Closure of Japan business

22

1,194

186

6,388

Total operating expenses

5,119

6,709

14,053

21,604

Other income (loss), net

(29

)

382

3,992

742

Total adjustments

$

5,895

$

7,993

$

20,461

$

25,047

2

For the three and nine months ended September 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
September 30,

Nine Months Ended
September 30,

2023

2022

2023

2022

Revenue

$

130,705

$

121,721

$

378,829

$

372,791

Gross profit

59,282

53,632

166,181

166,858

GAAP gross margin

45.4

%

44.1

%

43.9

%

44.8

%

Add back:

Stock-based compensation expense

462

560

1,388

1,674

Amortization expense

343

342

1,028

1,027

Total adjustments

805

902

2,416

2,701

Non-GAAP gross profit

$

60,087

$

54,534

$

168,597

$

169,559

Non-GAAP gross margin

46.0

%

44.8

%

44.5

%

45.5

%

Proto Labs, Inc.

Reconciliation of GAAP to Non-GAAP Gross Margin Excluding Japan

(In thousands)

(Unaudited)

Three Months Ended
September 30,

Nine Months Ended
September 30,

2023

2022

2023

2022

Revenue

$

130,705

$

121,721

$

378,829

$

372,791

Revenue excluding Japan

$

130,705

$

120,434

$

378,829

$

364,562

Gross profit

59,282

53,632

166,181

166,858

GAAP gross margin

45.4

%

44.1

%

43.9

%

44.8

%

Less: Japan gross profit

-

47

-

3,150

Gross Profit excluding Japan

59,282

53,585

166,181

163,708

GAAP gross margin excluding Japan

45.4

%

44.5

%

43.9

%

44.9

%

Add back:

Stock-based compensation expense

462

560

1,388

1,674

Amortization expense

343

342

1,028

1,027

Less:

Japan stock-based compensation expense

-

13

-

61

Japan amortization expense

-

-

-

-

Total adjustments

805

889

2,416

2,640

Non-GAAP gross profit excluding Japan

$

60,087

$

54,474

$

168,597

$

166,348

Non-GAAP gross margin excluding Japan

46.0

%

45.2

%

44.5

%

45.6

%

Proto Labs, Inc.

Reconciliation of GAAP to Non-GAAP Operating Margin

(In thousands)

(Unaudited)

Three Months Ended
September 30,

Nine Months Ended
September 30,

2023

2022

2023

2022

Revenue

$

130,705

$

121,721

$

378,829

$

372,791

Income from operations

10,415

6,058

19,772

19,149

GAAP operating margin

8.0

%

5.0

%

5.2

%

5.1

%

Add back:

Stock-based compensation expense

4,441

4,907

11,811

13,335

Amortization expense

1,461

1,510

4,471

4,582

Costs related to Japan closure activities

22

1,194

186

6,388

Total adjustments

5,924

7,611

16,468

24,305

Non-GAAP income from operations

$

16,339

$

13,669

$

36,240

$

43,454

Non-GAAP operating margin

12.5

%

11.2

%

9.6

%

11.7

%

Proto Labs, Inc.

Reconciliation of GAAP to Non-GAAP Operating Margin Excluding Japan

(In thousands)

(Unaudited)

Three Months Ended
September 30,

Nine Months Ended
September 30,

2023

2022

2023

2022

Revenue

$

130,705

$

121,721

$

378,829

$

372,791

Revenue excluding Japan

$

130,705

$

120,434

$

378,829

$

364,562

Income from operations

10,415

6,058

19,772

19,149

GAAP operating margin

8.0

%

5.0

%

5.2

%

5.1

%

Less: Japan (loss) income from operations

(7

)

(724

)

(481

)

(720

)

Income from operations excluding Japan

10,422

6,782

20,253

19,869

GAAP operating margin excluding Japan

8.0

%

5.6

%

5.3

%

5.5

%

Add back:

Stock-based compensation expense

4,441

4,907

11,811

13,335

Amortization expense

1,461

1,510

4,471

4,582

Costs related to Japan closure activities

22

1,194

186

6,388

Less:

Japan stock-based compensation expense

-

89

17

386

Japan amortization expense

-

-

-

-

Total adjustments

5,924

7,522

16,451

23,919

Non-GAAP income from operations excluding Japan

$

16,346

$

14,304

$

36,704

$

43,788

Non-GAAP operating margin excluding Japan

12.5

%

11.9

%

9.7

%

12.0

%

Proto Labs, Inc.

Reconciliation of GAAP Net Income to EBITDA and Adjusted EBITDA

(In thousands)

(Unaudited)

Three Months Ended
September 30,

Nine Months Ended
September 30,

2023

2022

2023

2022

Revenue

$

130,705

$

121,721

$

378,829

$

372,791

GAAP net income

7,954

3,951

10,230

11,603

GAAP net income margin

6.1

%

3.2

%

2.7

%

3.1

%

Add back:

Amortization expense

$

1,461

$

1,510

$

4,471

$

4,582

Depreciation expense

7,869

8,197

23,742

25,399

Interest income, net

(561

)

(265

)

(1,283

)

(459

)

Provision for income taxes

2,781

2,083

7,784

7,223

EBITDA

19,504

15,476

44,944

48,348

EBITDA Margin

14.9

%

12.7

%

11.9

%

13.0

%

Add back:

Stock-based compensation expense

4,441

4,907

11,811

13,335

Unrealized (gain) loss on foreign currency

(29

)

382

86

742

Costs related to Japan closure activities

22

1,194

4,093

6,388

Total adjustments

4,434

6,483

15,990

20,465

Adjusted EBITDA

$

23,938

$

21,959

$

60,934

$

68,813

Adjusted EBITDA Margin

18.3

%

18.0

%

16.1

%

18.5

%

Proto Labs, Inc.

Comparison of GAAP to Non-GAAP Revenue Growth by Region

(In thousands)

(Unaudited)

Three Months Ended
September 30, 2023

Three Months Ended
September 30, 2022

%

Change2

% Change

Organic3

GAAP

Foreign

Currency1

Non-GAAP

GAAP

Revenues

United States

$

103,940

$

-

$

103,940

$

98,970

5.0

%

5.0

%

Europe

26,765

(1,666

)

25,099

21,464

24.7

%

16.9

%

Japan

-

-

-

1,287

(100.0

%)

(100.0

%)

Total revenue

$

130,705

$

(1,666

)

$

129,039

$

121,721

7.4

%

6.0

%

Nine Months Ended
September 30, 2023

Nine Months Ended
September 30, 2022

%

Change2

% Change

Organic3

GAAP

Foreign

Currency1

Non-GAAP

GAAP

Revenues

United States

$

298,007

$

-

$

298,007

$

295,121

1.0

%

1.0

%

Europe

80,822

1,311

82,133

69,441

16.4

%

18.3

%

Japan

-

-

-

8,229

(100.0

%)

(100.0

%)

Total revenue

$

378,829

$

1,311

$

380,140

$

372,791

1.6

%

2.0

%

1

Revenue for the three and nine months ended September 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 nine months ended September 30, 2022 to GAAP revenue for the three and nine months ended September 30, 2023.

3

This column presents the percentage change from GAAP revenue for the three and nine months ended September 30, 2022 to non-GAAP revenue for the three and nine months ended September 30, 2023 (as recalculated using the foreign currency exchange rates in effect during the three and nine months ended September 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
September 30, 2023

Three Months Ended

September 30, 2022

%

Change2

% Change

Organic3

GAAP

Foreign

Currency1

Non-GAAP

GAAP

Revenues

Injection Molding

$

51,688

$

(655

)

$

51,033

$

48,940

5.6

%

4.3

%

CNC Machining

52,916

(708

)

52,208

47,489

11.4

9.9

3D Printing

21,622

(390

)

21,232

19,823

9.1

7.1

Sheet Metal

4,291

(20

)

4,271

5,219

(17.8

)

(18.2

)

Other Revenue

188

107

295

250

(24.8

)

18.0

Total Revenue

$

130,705

$

(1,666

)

$

129,039

$

121,721

7.4

%

6.0

%

Nine Months Ended
September 30, 2023

Nine Months Ended
September 30, 2022

%

Change2

% Change

Organic3

GAAP

Foreign

Currency1

Non-GAAP

GAAP

Revenues

Injection Molding

$

152,455

$

781

$

153,236

$

155,693

(2.1

)%

(1.6

)%

CNC Machining

149,317

152

149,469

141,809

5.3

5.4

3D Printing

63,952

277

64,229

59,458

7.6

8.0

Sheet Metal

12,478

(9

)

12,469

15,066

(17.2

)

(17.2

)

Other Revenue

627

110

737

765

(18.0

)

(3.7

)

Total Revenue

$

378,829

$

1,311

$

380,140

$

372,791

1.6

%

2.0

%

1

Revenue for the three and nine months ended September 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 nine months ended September 30, 2022 to GAAP revenue for the three and nine months ended September 30, 2023.

3

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

Proto Labs, Inc.

Product Developer Information

(Unaudited)

Three months ended September 30,

Nine months ended September 30,

2023

2022

2023

2022

Unique product developers and engineers served

23,080

23,816

45,668

47,793

View source version on businesswire.com: https://www.businesswire.com/news/home/20231103037185/en/

Contacts

Investor Relations Contact
Protolabs
Ryan Johnsrud, 612-225-4873
Manager – Investor Relations and FP&A
ryan.johnsrud@protolabs.com

Media Contact
Protolabs
Brent Renneke, 763-479-7704
PR & Media Strategist
brent.renneke@protolabs.com

Advertisement

Recommended Stories