PRLB - Earnings call transcript Q2 2018

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Operator

Greetings and welcome to the Proto Labs Second Quarter Earnings Conference Call.

As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Daniel Schumacher, Director of Investor Relations. Thank you.

You may begin.

Dan Schumacher

good and operator, you, morning, everyone. Thank today Executive Officer; me is Chief Vicki Chief and President our and Officer. Holt, Financial With John our Way, press results before announcing ended morning the opened, XXXX. issued This market June XX, its the for a financial second quarter Protolabs release is on available release company's website The protolabs.com. at the

earnings risks may to subject begin, to expectations and materially future our like that from uncertainties be statements made forward-looking expectations. discussion adversely press and XX-K, risks Please remind release on outcomes Report and or statements today. cause recent considered refer we many cause for Before to would will including and to could our to to filings, could performance any on that materially everyone certain our differ I actual that from SEC include forward-looking Form information relating that and are Annual statements actual results differ

results our complete Relations financial our will non-GAAP and the Investor website discuss section Additionally, Please we press within of non-GAAP our a for practice. to past company include guidance release the with reconciliation of consistent measures, refer the GAAP completed Manufacturing component to finally, is of quarter second acquisition quarter year-over-year comparisons. therefore our And of that of results the that this full we XXXX end at includes a the the and results. RAPID is

President to Now, over Executive Chief and Holt, of the Officer I'd Vicki? Vicki turn like to Protolabs. call

Victoria M. Holt

on for the another us in quarterly you Thank and strong record Thank reporting our quarter quarter. you, quarter, revenue conference second Dan. morning, Good Protolabs growth joining second call. had everyone. earnings

our results. $XXX.X and in in each as We performance reported year. the our XX% prior each demonstrated quarter. million the showed represented second in regions services of strong This growth over geographic execution business Our revenue of our financial of in of

we our record to to growth, addition revenue number product of service developers. a continue In

acquisition. XX,XXX product increased XX.X%, served through unique developers prior RAPID unique include to our developers This does compared not the Our to product year.

work to integrate continue We to data. this

XX% the prior revenue at including the revenue was produced which acquisition. benefit geography, On revenue XX% largest the produced XX%. over also currency of growth the breakdown our market, RAPID record U.S., basis, from constant currency. of a year growth foreign Europe the quarterly record by Looking growth strong and benefited from

Our XX% in currency. a basis and reported Japan region constant grew on XX%

On I'm to of the new the Japan's Ayumu multinational background joined our Sony, to country us growing has as to at businesses topic as are at experience manager. confident Ayumu Japan, of Ayumu beginning operations. we pleased companies welcome the and such and successfully Merck. Protolabs lead has innovative Philips July Imai Japan

of revenue this to growth in to by We're Moving service the the compared that Molding second revenue service, returned to quarter XXXX. XX% Injection double-digit increased quarter. pleased

XX% and revenue increased a as record a Our and the year-over-year our testament year. parts customers. growth revenue service record quarter This standout from who XX% had high scalable growth The CNC fast of Machining machined acquisition quarterly is model the from to resulting magnitude and in as benefited in XD deliver to of deliver was also Printing achieve our dedicated team, this a and quality RAPID. growth. year-over-year day to another a ability prior

for Additive. materials. announced advance leadership it our Additive and access joined the This Recently GE in GE with additive to to technologies to Network XD and industrial-grade that space Partner market. the of an Protolabs demonstrate Manufacturing further is to continue manufacturing in was the opportunity partner We Protolabs provide exciting

Panther PepsiCo. was the Industry recognized in Protolabs of with Brisk for Printing at addition winning this Creative to Award Use Awards XD Printing the Black XXXX announcement, In XD its Promotion

service, to continue contributed customers. Metal, knowledge and And in finally our serve our to leader XD, our newest Sheet revenue. leverage in capabilities we a our As expand $X.X world-class million

XXXX our on you update to like priorities. would I Now

As have year. key three this previously we noted, priorities

First, customers. existing to by customer revenue our expanding our penetrating and base grow

services. our enhance including the our scale the increase integration operations, capabilities of of our And third, by expanding Second, RAPID Manufacturing.

first and our with to growth. priority to drive revenue is our evolve engagement customers Our sales to approach continue

term. growth the our number and in quarter additional growth with of for to businesses. will we their served of expertise for the provide strong provide also partnering avenues our contribute and Additive reach progress. to developers Our strong We're visibility unique to business feel making revenue the and customers help We to grow growth Protolabs GE over more looking this demonstrates continue product long are

of we scale remaining Our offer services our priorities expand the increase to and are the operations. continue to

priorities Our both of the the integration on is these with focus RAPID acquisition.

the this added to the and priority have operations reviewing capacity capabilities. and process. sure Metal team's a CNC reminder also executive It operations expanded a to to acquisition new portfolio processes serve in our business my make with the volumes. Hampshire is integrate the and Increasing the service as we customers starts our Sheet increase New as capacity As our our

deployed capacity Sheet to of New With have We take of Hampshire. workflow automation workflow developing the and we the workflow revised for fresh operations are in operations. CNC this to look plans the and continuous at will required lean professionals of a and increased improve help operations. our resources now both Optimizing productivity improvement increase Metal adding the equipment the the the

aligning the process together We to to customers brought and delight continue inventions teams alignment leverage other's our organizations training offering. Simultaneously, preparing to locations. with automation R&D are improve and each have and capabilities new CNC our both customer-facing with CNC and we our also at

due scalable. we we operations portion very manual and was Cable a a revenues $XXX,XXX. in Wire to our to business business and Hampshire, recognized addition not process with Wire of core and of first was In scaling or was business acquired Cable the Metal the not Sheet during the quarter diligence that and CNC significant New

a XX. business April divested we this result As effective

priorities that, like of drive turn performance with John. than the year With to execution growth pleased XX% over as are of business focus call our We to quarter to to continue I'd the we'll on another greater and progresses.

John A. Way

Vicki. XXXX. in you, the million million, XX% an in quarter second or $XX was Thank same increase the quarter Revenue $XXX.X over of

quarter our benefited stated, Manufacturing. revenue of from with business Vicki sizing, second this help the revenue acquisition of XXXX. in RAPID of million To the As $XX.X RAPID quarter had approximately our growth

year. we compares Gross in $X.X increase was of in the in currency In a with the XX.X% a the sequential quarter from second This comparable improvement margin represented million the with quarter million quarter was the representing $XX.X profit last first addition, reported the the benefit Gross quarter. an for foreign remaining year. growth. quarter over prior XX%, $XX.X increase million, organic of XX.X%

our million RAPID has XXX the gross the majority the for consolidated a XX% earnings total revenue that Operating call, of about to headwind basis of margins point in expenses change. second As quarter of $XX.X or prior stated totaled our for accounts year-over-year XXXX.

year's increase a investment As and relating the of to with activities. our last this in increased the percent than seasonality marketing research of higher XX.X%, was slightly revenue, spend development and

investments $XX expense year-over-year, XX.X% we from in outpacing revenue, the second a As XXXX, the XXXX. we made organization. revenue operating increased of $XX.X XX.X%. compared the expenses XX% as XX.X% earnings, second an GAAP are and from our in basis, year, quarter operating at as the improved of quarter prior On marketing million the quarter operating XX% Adjusting amortization, growth improvement revenue, non-GAAP of or revenue, revenue XX% revenue look were last second adjusted in million of we and representing XX.X% and income for to operating a XX.X% income percent was quarter. of initial stock-based non-GAAP from XX% seeing of was XX.X% of or compared sales in Sales in returns of of million operating growth expense or to XX.X% our $XX.X to XX.X%. have in compensation the revenue

gain Our to in income year. stock cash includes and tax quarter our the costs tax currency amortization gains, our The flow share in increase On rate second the after-tax the XX% per businesses, is GAAP the Finland and and quarter resulting benefit foreign option business. associated prior the was in to tax activity. unrealized equity On eliminating earnings U.S. GAAP change intangibles, was a of million, $XX.X tremendous on effective diluted compensation, an of rate for non-GAAP and tax reporting the adjusted $X.XX. back other rate basis, totaled Cable a sale rate compared quarter. Adding the with in RAPID benefits current in non-GAAP basis, per stock XX.X% of the the the Wire and The due of XX.X% and net prior tax earnings in corporate diluted earnings $X.XX, reduction year. representing share of a over was creates the rate the XX.X%

the to during our Now the end cash we Brooklyn and generated of $XXX with ended of in turning business, quarter. Machining was up the Park quarter at continued includes to quarter. million spending $XXX We growth new June from in support a the and last operations flow, and $XX.X million $XX.X investment addition the from Capital million million of of securities equipment marketable the on our facility balance cash cash in particularly service. XX, CNC our

the Now XXXX. of third expectations our quarter to I'd provide for like

revenues to XX%. This to revenue our We the of foreign $XXX comparisons revenue reflects impact factors. Manufacturing. it provide be or year. is quarterly with in quick-turn of currently benefit estimate still have that a for growth with the QX We XX% in our the QX our appropriate negligible million, feel expect QX RAPID from guidance the $XXX backlog, of the Given most of XXXX will inclusion the business. range prior business limited very following guidance million to nature will to we on to compared range currency

our approximately non-GAAP currently amortization compensation will and $X be our $XXX,XXX. include We per Moving tax estimate rate for above, in costs quarterly in our of to quarter guidance, earnings XX% the to our quarter. third stock concludes $X.XX we million and the consideration EPS approximately costs all of XX% add-backs Taking expect QX. between $X.XX to be formal share the remarks. That to into non-GAAP

Vicki be your questions. take I happy to Now would Operator? and

Operator

now floor The you. questions. Thank is open for

Drab ahead. Blair. go Please question is coming Our Brian first from William of

Brian P. Drab

Hi. say harness. disappointed little have to figure a wiring Good you out a couldn't rapidly I'm to fabricate morning. how I

Victoria M. Holt

is focused that we can It process automate that and as really on model scale. a to our difficult and scale you things very automate very is business know, business is and manual and

Brian P. Drab

you quarter, per $XXX,XXX was said? that And

John A. Way

Yeah.

Victoria M. Holt

Yeah.

John A. Way

Yeah.

Brian P. Drab

I fair you the gotten was contribution? CNC RAPID? that that the million to now Okay. combined, business you RAPID but is with assume at Can being estimate it gets around know $XX have that convoluted would all that it from

John A. Way

year, Brian, of think overall revenue I year about for last at business. to last It's rates was similar RAPID. in comments So, the growth looking $XX.X the million

So your number's probably not far off.

Brian P. Drab

XQ million $XX.X in XXXX? was

John A. Way

Correct.

Brian P. Drab

harness a well, then business that wiring included as right? And Okay.

John A. Way

Yeah. Correct.

Brian P. Drab

Okay.

an on Great. basis Okay. adjusted to into and – And XX% marketing has what percentage a expect of it's as – then range, of forward? kind XX% do selling has sales you moved going moved this

John A. Way

– is of think with we've consistent of kind consistent we're with continue to we'll I kind where to the what expect that trend. saying, XX% that where range at been

Brian P. Drab

I'll you can then RAPID gross back more, the get the great. headwind give And in terms that any line and if that'd Okay. Thanks. margin in after of from Alpha, be second around in from quarter, one numbers

John A. Way

Yeah.

headwind So, point margin, XX% stated, basis as we that range. above in it's RAPID XXX and still a has about gross

the improvement look margin we quarter, a saw we business approaching this Europe, range. in in little Printing the Europe in As XD the of bit gross at XX%

there basis points. headwind the about is XXX So,

Brian P. Drab

Okay. Thanks very much.

Operator

you. Thank

of is Troy from Jensen Jaffray. question next Please coming go Piper Our ahead.

Troy D. Jensen

results. the Hey, great congrats on

Victoria M. Holt

Troy. Thanks,

Brian P. Drab

Troy. Thanks,

Troy D. Jensen

on you or GE volumes this providing can color would and guys overfill just more be them working? Vicki, color partnership's for just great. more give Hey, primarily Additive you us Are how

Victoria M. Holt

Yeah.

has in lot years over the a a to we So, help built they it's that have us will metal our partnership develop Additive capabilities GE programs parts. customers for of production XD as look to to printing the primarily access actually where help

to XD metal lot to that's concept GE, maintaining And a promote value So, of We equipment XD concept a is and concept know, laser, technology as to laser parts. laser equipment. expertise operating and got fleet printing that in producing printed feel you of our customers. wants we've further very high-quality and a strong equipment our

printing quality for for and metal that that other expand XD that solution printing, some GE printing, metal So, but Additive metal capability companies GE control so to XD XD use is more printing, their XD can really the metal take GE cost-effective we production out advantage parts GE the may promoting products, they with as providing really or production-type design a of printed applications XD their and focused flexibility Medical for can metal partnership printing for products. Protolabs build of provide for XD the design within involve it XD as Aerospace printing metal

Troy D. Jensen

Perfect.

it's I you a question, back guess like sound I'm to molding, if to digits. – curious know you happy think Sounds – can just Hey, you double if accelerate. think injection next partnership. you great

about think low insert of you've you volume off If coming added molding that and overmolding, added it's molding, comp. business, an injection kind you've easy

guys' thoughts your just on of penetration in molding. kind So, injection

Victoria M. Holt

but I on-demand faster, to developing is being we always production wanted say what that of manufacturing getting go as and managers services, prototyping we close from supplier to cycles. a in are supply supplier a also just I to programs have move relationships chain involved longer have with be

that we expect Our And to scale as in them. seeing also we having other customers to them we so, in able do on-demand have automate We're production solutions some on manufacturing, capabilities those order as nicely. pipeline we're to provide work recognizing filling bring is parts. add wins in then advance up be nice those we're to to but and

think see at cycle, company. double-digit and I repositioning really have going We're pleased time XX%, our because a customers. longer But for I'm So to a a it performance back the making the dramatic to how the us pleased Acceleration, with it's it's take growth. and great progress. we're we're we're one pretty kind step shift with selling to of to

Troy D. Jensen

service? you and to Last Proto you flip I'm question Labs sure from but will RAPID customers just integration. the sell able me customers, when to cross-selling? RAPID's RAPID you be benefited on your Okay. services Have that for to sell can your yet

Victoria M. Holt

question, Yeah. great really That and a yet. haven't benefit that from we seen huge is

the tools RAPID first adding Our I that focus really to sheet and training metal the flip in our been third, and the we in we're the some on for of forces, we mentioned first to sales capacity well lot some a of year the sure the equipment customers then as as toward to processes half as we parallel, was even redesign that of we teams of In do in had the as we're make and before into services. on. new the it then making cross-selling have smooth will on that then, that so can complimentary earnest year. switch further And it and be automating begin CNC we with some into software capabilities And we're of second sure as more they've that quarter scale. with sales moved go so got seamless end the the aligning focusing we

it's them so experience a very process, that the We make our don't service So delighted on-time quality that with new be we been want they those that with the customers delivery disciplined negative the and sure to have services. get. a and

quarter here of lot here end we're a third of we year. and the done on sure move there there we've progress in the make little toward gearing a of ready to force So bit sales we up capacity made and the and our turning work as

Troy D. Jensen

All Awesome. Keep the work. up good right.

Victoria M. Holt

Thanks.

John A. Way

Thanks, Troy.

Operator

Company. go of coming Please is Jim ahead. question Needham & Ricchiuti next Our from

Jim Ricchiuti

I think wanted heard the Hi. a you minutes indicated about I call I few Is business. growth I XX% right, Good Molding you Vicki? to, the in morning. joined late, I Injection saw but that that apologize.

Victoria M. Holt

of Yeah. We saw year-over-year in XX% Yes. IM. growth

Jim Ricchiuti

Were you improved the provide driving the improved additional as color sector? Is sales able color? additional to Any just that on that? Is tone any to force? to what's productivity manufacturing the

Victoria M. Holt

We this. that last is of driving there think launched a factors I are year. lot manufacturing on-demand

but relationships just tooling, service the companies of operations order force sales has there's our chain hard around able to the working place reduce manufacturing. bridge benefits able on be not sales supply do Our on-demand to that's be chain for been to build prototyping, and optimize for in and injection procurement just team across to than to been of selling to more on-demand And molded customers but bring supply sides among and our our that lot can prototyping, manufacturing to side. taken a chain over training risk the to supply

that. but of benefits some that's there. back think seeing see cycle a to we're selling to part getting of longer what certainly double-digit starting we're growth So I That's process, us

Jim Ricchiuti

the showing, revenue nice that area. there? growth average shown should developer noticed also the think that you've happening second you're is quarter double-digit I some revenue per How on the per we think about where developer, this I what's And in

Victoria M. Holt

That's usually mix.

Jim Ricchiuti

Okay.

Victoria M. Holt

Molding, we're XD parts, a bit. of that if mix seeing high mix. yeah, it's Printing If Injection So, you Molding little see might see Injection a we growth, drop

might And so be that mix a on that we the quarter-to-quarter is see somewhat basis. going to in variable shift depending on

Jim Ricchiuti

for me, do like the you it's improvement your part margin I been you're a just corner? the the in fact in decent some that bit in of in What's showed kind question of then Printing And but mean feel final sense a of just slog you Europe, that turning that XD area? business.

Victoria M. Holt

go see a so progress. that ways reach to steps I goals for do we've really are the place what to that our four optimize that taking we're next structure think got a different We've North making here margin, want to our there. for we cost bit to different gross got in little The American projects challenging a market's It's North is continue pricing to The the than than America. market. market. with quarters

for see So, with focusing do kinds to more move really differentiated and challenge and it's the be away again technologies. to things on we've latest can that with our to customers side the continue got we here the on in America and for leader that mix the the from a margins we in commodity and more reach But applications trying a XDP. of North cost us side

the and leader is positioning HP good doing some metal on portfolio. the business in ourselves Europe much Multi the as is the portfolio technology there space. Europe margin a plastics Jet has traction very launched our better well seeing printing which in Fusion and XD We've So plastic than

pursue continue got angle of the and that that a segments try more become in to market. commoditized that to technology of steer away to have from some So we've the little

Jim Ricchiuti

Thanks a lot.

Operator

you. Thank

Brian question William coming from of your proceed follow-up. next Drab with is Our Blair. Please

Brian P. Drab

Hi. that there give only reason is did your any mentioned you're didn't I your But even the know for you last guidance. a comment providing particular that guidance, why you you quarter? quarterly understandably given on original qualitative

John A. Way

year, progress our would on nature quarter year the stage the of I guidance the given we quarterly providing for think is for fourth the feel the just be we giving at guidance this appropriate And the Brian, most us. through really full too. business, as Yeah, quick-turn comments that

Brian P. Drab

want sure nothing fourth quarter give about there moment? make thinking it or to changed should wanting just not is I your fourth we for quarter at the that the guidance precise just the perspective that from be is that's for purely to

John A. Way

reason. the That's

Brian P. Drab

Yes.

Okay, nothing what to we're. is be concerned about

John A. Way

Nothing, nothing's changed.

Victoria M. Holt

Yeah, nothing's just quarter. strategy. the how executing business. third executed really team in executing feel quarter. the the the on We're about good second just We the changed. executing We're We're pleased on on strategy, with

Brian P. Drab

Thank you. it. Got

Operator

to Ms. Thank you. to time, this comments. floor closing Holt At turn I'd over for like back the

Victoria M. Holt

today. Thank about again remain for We you for the Protolabs. joining us excited outlook

ahead, market current business strengths confident model. that look are are to we trends our favorable we our our and As

demonstrated technology-enabled market ability get Our help to products digital manufacturing the platform their differentiated competition. has to companies their and than faster entrepreneurs

want I innovate employees interface service want our thank We the Protolabs and for enhance customers and customers' experience. I features our to technology to to continue our efforts, support. their their for to and thank offerings

next progress and during our forward you. the look reporting you term, greater Thank and on our longer driving call. our over growth committed are to we to We value shareholder enhancing revenue to

Operator

and conference. gentlemen, for thank participation. This Ladies concludes you your today's

your wonderful time day. lines have may this disconnect and a You at

Proto Labs (PRLB) 26 Jul 182018 Q2 Earnings call transcript