Proto Labs (PRLB 0.12%) released strong third-quarter 2018 results before the market opened on Thursday. The technology-enabled, quick-turn contract manufacturer of prototypes and low-volume production parts posted revenue and earnings-per-share growth of 31% and 57% year over year, respectively. EPS adjusted for one-time items jumped 54%.

Shares of Proto Labs closed up 8.3% on Thursday, which we can attribute to revenue and earnings, along with fourth-quarter earnings guidance, coming in higher than what most investors were likely expecting. Shares, however, gave back part of that gain on Friday, declining 5.6%, which was likely at least due in part to overall tough market conditions. The S&P 500 and tech-heavy Nasdaq fell 1.7% and 2.1%, respectively, on Friday.

For the one-year period through Friday, Proto Labs stock has gained about 42%, versus the S&P 500's 6% return. 

Male worker standing in front of a CNC metal working machine.

image source: Proto Labs.

Proto Labs' key quarterly numbers


Q3 2018

Q3 2017

Year-Over-Year Change


$115.4 million

$88.1 million


GAAP operating income

$25.0 million

$19.4 million


GAAP net income

$20.9 million

$13.2 million


Adjusted net income

$23.4 million

$15.0 million


GAAP earnings per share (EPS)




Adjusted EPS




Data source: Proto Labs. GAAP = generally accepted accounting principles.

The impact from foreign currency was negligible, negatively denting revenue by just $200,000. Because of the intermingling with the company's existing business, RAPID Manufacturing's contribution to revenue can't be broken out. However, to provide some idea of organic revenue growth, CFO John Way said on the earnings call that RAPID had sales of $11.8 million in the year-ago quarter. Backing that number out, organic revenue growth would come out to somewhat less than 17.6%. I say "somewhat less" because this back-of-the-napkin approach doesn't account for RAPID's growth over the past year.

Revenue also benefited from a new revenue recognition accounting standard adopted in the beginning of 2018, though Way didn't quantify this impact.

Proto Labs had guided for adjusted EPS in the range of $0.71 to $0.77 on revenue of $110 million to $115 million, so its earnings soundly beat the upper end of its guidance range, and its revenue slightly exceeded the upper end of its outlook range. For additional context -- though long-term investors shouldn't give too much importance to Wall Street's near-term estimates -- analysts were looking for adjusted EPS of $0.74 on revenue of $112.6 million. So the company sailed past both expectations.

On the earnings call, Way outlined the reasons adjusted earnings came in quite a bit higher than the company had guided for: 

  • Revenue was slightly above the top end of its guidance range, which tacked on ad additional $0.02 per share to EPS.
  • Operating expenses were below what the company projected, representing a $0.04-per-share benefit.
  • The effective tax rate was lower, resulting in a $0.03-per-share benefit.

The company generated $25.6 million in cash from operations during the quarter and ended the period with cash and cash equivalents of $153.4 million.

Revenue results by service provided

Manufacturing Service


Year-Over-Year Change

Injection molding (Protomold)

$53.7 million


CNC machining (Firstcut)

$40.8 million


3D printing

$13.8 million


Sheet metal*

$6.4 million






$115.4 million


Data source: Proto Labs. *New category stemming from the acquisition of RAPID Manufacturing in December 2017. 

The company's CNC (computer numerical control) metal-working business powered growth, as it did in the first and second quarters and throughout last year. In addition to strong organic growth, this business has been getting a boost from the RAPID acquisition.

3D printing experienced a decent acceleration of growth, as its year-over-year growth was 21% last quarter and 22% in the first quarter. Injection molding's performance was roughly in line with its first-half performance, as it grew 10% last quarter and 8% in the first quarter.

What happened with Proto Labs in the quarter?

  • Revenue jumped 34% year over year to $90.7 million in the U.S., increased 18% to $21.3 million in Europe, and surged 36% to $3.4 million in Japan. 
  • The number of unique product developers and engineers served increased 23% to 20,792. (This is the first quarter that this tally includes customers served on the RAPID system.)
  • Gross margin declined to 54.1%, from 56% in the year-ago period. This decline is largely due to the acquisition of RAPID.
  • GAAP operating margin ticked down slightly to 21.7%, from 22% in the third quarter of 2017, and adjusted operating margin edged up to 24.9%, from 24.6%. 

What management had to say

Here's what CEO Vicki Holt had to say in the press release:

We are pleased to deliver another quarter with over 30 percent growth. Protolabs again demonstrated strong performance across all of our geographies and in each of our services. As a result of continued strong operations and growth in each of our individual service offerings, we are becoming more of a total solution for some of our customers. The majority of our top customers have utilized every one of our core services in 2018. With our unique ability to deliver parts at unprecedented speed, we are helping more customers deliver their products to market faster and in new ways.

Looking ahead

Proto Labs posted another robust quarter. CFO John Way outlined the company's fourth-quarter 2018 outlook on the earnings call.


Revenue Guidance

Projected Year-Over-Year Change

Adjusted EPS Guidance

Projected Year-Over-Year Change


$112 million to $117 million

19% to 24%

$0.77 to $0.83

33% to 43% 

Data source: Proto Labs.

The slowdown in revenue growth from the past few quarters is due to the fourth quarter of 2017, including one month of contribution from RAPID. In other words, the fourth quarter of 2018 will mark the partial one-year lapping of this acquisition. 

The company plans to move its CNC operations into a new facility in the fourth quarter. The adjusted EPS estimate includes a negative impact of $0.02 to $0.03 for the cost of the move plus bringing a new facility online, Way said on the call.

Going into earnings, Wall Street was expecting adjusted EPS of $0.75 on revenue of $115.1 million in the fourth quarter.