PRLB - Earnings call transcript Q3 2019

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Operator

Greetings. Welcome to Proto Labs Third Quarter 2019 Earnings Call. At this time, all participants are in listen-only mode. [Operator Instructions] Please note this conference is being recorded. At this time, I will turn the conference over to Daniel Schumacher, Director of Investor Relations. Mr. Schumacher.

begin. may You

Daniel Schumacher

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

is available in presentation at addition, the provided slide In a address online our web prepared release. press

past on will release certain would we to to filings, XX-K we accompanying begin, future adversely today. guidance presentation to Please differ actual Before and are materially uncertainties our forward-looking our of that discussion expectations and on differ annual risks subject consistent risks financial The results from with and our statements recent SEC press to and cause include I results or any the measures our to to forward-looking refer slide from reconciliation section release like practice. that include for including made and non-GAAP our Investor to our relating information and remind the be considered Form many Relations a report that statements everyone statements may could website for that GAAP results. actual refer will within company complete Please to earnings could performance non-GAAP discuss materially press and of expectations. outcomes cause

Executive Vicki Officer to call Chief like of and Now, to Vicki? I would the President over turn Proto Labs. Holt,

Vicki Holt

will overview as outlook third I with on for will our performance joining fourth Good John business for the provide Dan. Thank an morning, well overall conference a detailed call. as at Thanks, third financial the our in look quarter. Then our quarter performance quarter quarter. begin us everyone. of you our

million, representing the growth XXXX revenue in of quarter we of X.X% record reported $XXX.X or third over of morning, This quarterly X.X% currencies. constant

$X.XX the XXXX. $X.XX, were Our adjusted over a per quarter share of representing share per improvement earnings second

quarter Our business grew that year-over-year industrial environment the continued soften. in has to despite an third

are you lowest since the we U.S. XXXX. the the capacity in index, utilization have measure purchasing what September, managers manufacturing all the As aware industrial its sector ISM monthly in production manufacturing with Both registered quarter U.S. and in said past. for consistent decreased

Our business decline by impacted is negatively production. manufacturing a activity industrial in and

projects are taking that’s in cautious customers R&D financial reflected including results. general Our a approach and our year-to-date more in

industrial a for for strong our Proto was and year Labs manufacturing very XXXX customers for and activity.

of nine If nine you investment the essentially All levels. recall nearly generated XXXX. to our months tax remain months their revenue To current first In the have to XX% these just but of were gone higher business those customers was both first economic from this year key flat. the Labs same due environment. customers, Proto XXX varied business levels customers into reform and investment XXX customers impact of and the the than in top had demonstrate grew economy our effect confidence

growth legacy revenue our quarter our X% year-over-year services Dissecting approximately further, the constant a revenue was little currencies. in the in in

was year-over-year our also third X% industry Americas services grew our while declined quarter the in slightly in to to over Medical, biggest acquired of produced third excluding declined compared the year-over-year. the decline continues legacy grow services Americas, to quarter prior manufacturing as the compared Aerospace Hampshire XX.X% automotive. in look growth customer we nicely, by revenue Our of market largest the the business Americas, the In largest our year year XXXX. rapid New prior The at geography. revenue X.X%

of European growth currencies. constant in Our revenue X.X% region year-over-year produced

in X.X% However, a reported we dollars the headwinds, due of decline currency region. to for

saw we performance industries, in relates aerospace strong electronics. automotive computer medical it year-over-year to and manufacturing in customer declines and and As

region in by acquired compared by to molding increased currencies. injection XXXX, foreign a service, in the rates X.X% X.X% third Services. year-over-year declined revenue and decline currency Our to grew CNC exchange CNC revenue our Transitioning impacted machining constant X.X% Japan quarter of

rapidly parts CNC was Labs market comparison produce outstanding quarterly XXXX a XX.X% increased quality the Third revenue organic and in with XX% quarter. the quarter revenue third of continues recent The quarter most and XXXX produced continue creating record printing was growth XD a year. and XD a record we Labs to and printing prior printed Proto difficult record over expand the repeatability. Proto for to XD

add in technologies. Line Fine XD of These meet to our recently for expand deliver to printing Jet particular production to Two needs printing technologies technologies successful parts. customers’ production and ability printing Multi acquisition solutions. technologies been have XXXX, continue and XD us both for are Fusion we our new extremely that Since offer XD metal our and capabilities our prototypes

Multi to and printing Fusion grows. as for demand value customers Our metal offerings exceptional continue industry to Jet parts provide XD

to to We printing and printing serve expand. pursue the technologies our aggressively market will continue and XD to evolve continues as differentiated customers new XD

contributed XX.X% representing year-over-year. revenue decline Lastly, million a of sheet of metal $X.X in quarter, the

As acquisition our rapid previously, has stated not expectations. we our met

fit operations some in XXXX, to acquisition from not is was cross-selling manufacturing increase result moved which digital XXXX, with business, scalable our spent order the lower an an complex Consequently, we and model. away a and volume value. the Following in December was of average new intended our The XXXX in did adjusting not one scalable increase the and efforts to e-commerce through into of which we there envelope was offer aligned offer. manufacturing

in success using some developers services. acquired experiencing increase product are the of XX% number our in than the greater with cross-selling efforts We

the services, value our increase average the in greater than anticipated. is in developers the order in into with base which However, Even drop was a account the existing the significant penetration in creates future. acquired single-digits, product utilizing opportunity the

a last environment, we create has this with we proven times, While by differentiated these forever. market macroeconomic sheet are not will our the on-time to finding the achieving difficult metal customers the difficult ultimately The integrating opportunity as remains drive buying challenge. strong, in through lead while sheet metal into stated vendors be operations. And experience, the existing necessary delivery a we environment volume will market leading unseating service in results

We career drivers keen we the the a in place of to these major have actions have on right business are business. the acquired improve very confident success responsible the my I to performance several for personally key turnarounds earnings been of in are and focus the services.

in our on-demand accelerated both are manufacturing variability actions demand, am with Feedback There costs and vast in will of manufacturing these Proto case, valuable this In innovative to in I is confirms these inherent the which business. they an Labs ways across unprecedented driving flex yield areas, the reside developing services cross-selling and are underway and at services base results. speeds. on-demand value customers the customer confident from them reliable which innovation to our

We will expect remain on the us. business outstanding long-term our focused Labs to over experience improving and they delivering the from this Proto customers,

to levels. a environment Labs, our tremendous macroeconomic after weakening historical summary, have and growth lower a comparisons, difficult XXXX than XXXX been rates In due year-over-year for Proto

optimism will during geographic tremendous demonstrate the capital scalable allow taking of in this to a Although to are business increase, and our for business growth we bring expenses our value approach investment because uncertainty. we growth, customers. When to our managing and model time disciplined we the in Proto we of Labs and markets macroeconomic invest future continue believe

excited the We I’m leadership focusing about by the position digital very mission have steadfast we and Proto our manufacturing of built needs long-term in and confident on a and remain space customers our the for Labs. prospects in

for John Now, financial our like over results. information would I to the to more call John? turn on

John Way

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

in strength at of headwind $XXX,XXX to U.S. the currency the due relative represented quarter Foreign dollar. the

XD served continuing Our year in quarter XX,XXX to compared unique with growth X.X% with to prior third to us of cycle. our product development product strong customers in engage developer or growth allow earlier increased printing the to the

due margin XX.X% profit second down XXXX. in adjusted $XX.X XX.X% the point margin a was operations gross second acquired points the of compared in the to to non-GAAP of in the quarter consolidated million quarter of for volumes. a resulting quarter XXX margin Our gross from the sequentially compression due the gross rapid to quarter third quarter following gross basis our XXXX represented third basis to lower was Sequential in XX headwind factors. of The

revenue expense was largest $X in reduction point maintenance quarter million marketing the of revenue. the As decline quarter, of XX.X% revenue to lower of of in in XX.X% molding injection million. supply $XX.X Adjusted and totaled total to quarter the $XX.X sequentially compares during decline several Americas production our consistent from expenses of the was Adjusted The a second for spend CNC structure of volumes the revenue we or and component quarter with and basis Adjusted in trade XXXX. X.X% due This the down cost adjust The past, XX% higher sales with have expenditures sequential third quarter. was shows. the second to million second stated spend, or of seasonality including associated it the XX.X% quarter difficult in operating our is primarily marketing of revenue operations XXXX. when in of and short-term relates XX remaining R&D the anticipated. of repair increased than to the are

customer our research in all level capabilities continue expand and growth services order business. and support systems our invest this and experience to internal to the We at the of development future in improve in to

quarter. driven was our in the X.X% in self-insured largely quarter down administrative compensation over favorability slightly medical by of of basis improvement the and the and in X.X% net expense expenses expense The second lower $XX.X incentive general quarter XX.X% revenue, from compared second points was revenue quarter Adjusted million to third EBITDA XX of the of last an adjusted quarter. in result or

was the XXXX non-GAAP in XX.X% tax Our prior third rate the year. compared quarter XX.X% in effective to of

The per IRS was $X.XX improvement effective in and including in principally of XXXX. our in to last to EPS favorable down driven non-GAAP XXXX CNC of third earnings acquired share tax our in was tax rate SG&A. third decrease $X.XX After quarter investments EPS quarter in effective inflation. per lower and in year-over-year sequential share EPS a R&D $X.XX was driven Americas compression, gross wage by of our third audit. quarter in the quarter benefit the Our share margin facility $X.XX adjustments investment our operations, results the was lower the compared per diluted tax remaining Non-GAAP resulting The share represented in volumes an lower the $X.XX third rate year. lower a in activities per by due XXXX

including growth cash totaled expenditures of $XX the Capital systems generating continues million infrastructure, in from our cash investments in strong quarter. the to and drive flow, our to produce future quarter facilities production during turning million Europe to our in cash equipment. IT consisting $XX.X flows, business Now third and of expansion operations

We or the also marketable returned We cash stock capital we million of million million available repurchased stock quarter have to the our the remaining balance $XXX ended and under XXX,XXX shareholders September shares resulting XX. $XX.X $XX $XX repurchase on in program under quarter. of repurchasing million with securities by Today, program. during common

Now manufacturing of of I fourth $XXX current and guidance XXXX. specifically expectations to to production expect We range currently This reflects million. to the be data. the quarter the the like economy muted revenue would global provide revenue our for $XXX million industrial quarter in fourth

for is stated not compared fourth in difficult significant impact That quarter season us to on end of environment. estimate particularly the fourth a have prior in we year. revenues As the holiday quarter impact currency this the to year this the We our forecast. will foreign true the of especially have the quarter, past, is on the

fourth increased each the and pay holiday incur we results to Moving labor holiday in costs. quarter guidance, Thanksgiving Christmas in during year, that the earnings seasons

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

That concludes our formal remarks.

to and will take Vicki your questions. be Now happy I

Operator

Thank you.

be session. question-and-answer now will you. We conducting [Operator Instruction] a Thank

question. The the from your with first line William with question Brian of Drab Blair. is Please proceed

Brian Drab

morning. good taking for questions. my Hi, Thanks

Vicki Holt

Good morning, Brian.

John Way

morning, Brian. Good

Brian Drab

macro I understood the guess well So difficult is publicized. well and environment

when you up of first, am of the getting could, you second the business sequential, ramping? just number could that it a so if quarter or the maybe So, for then rapid was little bit with be would in and didn��t should overall kind now talk sequentially give number business that if – hear about that some a of details rapid significantly sequentially I I wondering into and decline business why

Vicki Holt

Yes.

it them top defined and therefore mentioned times forward I but bit so that I changes a down and slightly talk offer frankly happening had existing that today. industry So, the that me and And major of of have changes outside as really so let lead some well big through plus for just was some stated we – business little times, with don’t going envelope the sequentially, me head, number pulled with customers John of a complex just call, or very of business. business moving lead in that with kind are leading my in that our are I in that on

not we see So, are to business frankly continuing reoccur. piece of the that

large very developers success seeing set in some bringing that from product serve. of are new We product Labs developers we Proto in

that value still grew expectations. over revenue in total on below have mentioned we that but year-over-year, lower XX% with our that the is order As growth I

customers their to are improve to kicking what you So, continue tires in allows value. where they’re way new second customer is and the third and when sure our experience we what us know it’s first in the on can making orders that bring see are, And order, a to begin order we capabilities focused we really in that addition to off as they that cross-sell. that increase they’re try to

So, we’re as impacted by well. that

a local They and taking customers – offers quarter. a the share parts, very the and matter and those around macro confident that the that There times feedback. they can So capacity the it’s frankly with pleased sheet is business. I’m lead machine environment of customer it’s in a metal getting out They’re there mom have but shops pops on nobody that turning now and service three-day service.

a to So, more is macro from we’ve take environment. in share that what got difficult those

John Way

the or And on million. that, $X numbers about X% down Brian for it’s

Vicki Holt

Sequentially.

John Way

Sequentially.

Brian Drab

outlook And About XXXX? What here and the gross Can in you $X talk million, do from gross be how margin? X%, the okay. margin gross potential into and talked trending margin. expect about quarter expansion much? the you about there to you then pressures on gross for fourth margin Is

John Way

Yes.

look discussed at with the in guide. So, looking we’ve and fourth past I think, as we revenue quarter what the consistent our at and

With coming down but sequentially with challenges the revenue to cost and we will little manage have be some the materials, bit, managing we the able really a being will down. down the structure labor cost revenue

will we’re So, than be the looking at where bit gross it currently a little we lighter probably as margin, in are fourth quarter.

gross We each of margin are focused across on our services.

right actions now through plans going process up the building We’re budgeting XXXX. and looking and our the at for

flesh looking those in drive to margins, through gross the now the right will We be we’re but work improvement fully out to going plans.

Brian Drab

demand October October one And more you third ask now. of what for Okay. I’ll in the But seen just have and in terms in year? quarter relative then to last

Vicki Holt

is Yes, I consistent in we that what out. that put it’s demand it’s guidance the seen with we’ve think, pretty,

you. the revenue point, this at with, guidance comfortable with we feel we So, just gave

Brian Drab

Alright.

very follow up I’ll Okay, later. thanks much.

Operator

you. Thank

Berenberg. DeGasperi proceed of with question. is next the Andrew line Our Please with question your from

Andrew DeGasperi

I anything just down. blip, follow-up sort you terms there push-out their a on I to morning area morning. you business in can of want a the saw you on mentioned mentioned that’s or highlight? of of think Good specific also is something this one that slowing Do temporary a aerospace know, end ask

Vicki Holt

quarter, proposition blip. temporary play so a it in aerospace. not I it’s X.X%, where it and commercial drones, We strong remember is activity, have activity basically slightly. that growth was that Yes, is so very in in still just in we space, in there, of strong. in aircraft. or lots think, see really so very in revenue of particular aerospace a we It’s It’s down value flat aerospace it’s satellite much it’s lots our communications, strong year-to-date And

of still volume R&D confident that’s and that production for got we’re So, long-term us. space lots and legs low activity in

Andrew DeGasperi

sort bit, overall, of in it. you of terms Got I I but see QX you the started side really or do business, to year this in terms And how a sheet this just progressing? do the growth it year-over-year, in that we’re last a and business on focusing with in dealing rapid I declining the you’re the see a of it guess question business know, just macro QX starting metal XXXX event? know, but also issues returning is

Vicki Holt

for back minute. step me a Let

expanded of that offer the the and metal and So, offer with how really the significantly we’ve will CNC things one done changed has offer the cross-selling Proto focusing on efforts them our work and sheet for them. customers teaching with then Labs

that So, takes time.

We a the the pops environment are mom capacity. in where excess significant really are have also competitors which and macroeconomic

is gaining and environment So current vendors unseating share that this difficult. those in more

turning the but increase XX% will be in mentioned those I product are customers, it muted. We developers, somewhat

forecast a being in a recognizing integrated much will we’re we’ve to to, customer experience little more on cautious So, and there create able got that addition, be the us time. take

Andrew DeGasperi

low Last the a there bigger this sort seen pulled prototyping, from it. of at have question, point? business Got you back volume versus

Vicki Holt

– about we’ve service? across the So, you particularly injection molding seen talking are

Andrew DeGasperi

Yes, correct.

Vicki Holt

have there that growth Where to come the larger on-demand we and injection see have to we in through manufacturing see – continue we we’re that starting molding witnessed orders stated and by space. offer that a for the

that. our injection growing with well. So, business is as we feel prototyping molding in comfortable But

that the So comparable they’re say, at two growing it’s, would rates. between I

Andrew DeGasperi

it. Thank you. Got

Operator

Troy Jensen The next question. with question is your from the proceed Piper. with line of Please

Troy Jensen

morning, Hey, good morning, Vicki. John. Good

Vicki Holt

morning. Good

John Way

Good morning.

Troy Jensen

John, just for Hey, you.

slightly of this I it, you flat, we’re I slightly, missed about so? grew touch margins. guys mean down but Sorry in bps revenues margins more if look a can I but at bit little it kind sequential grew kept if XXX quarter QX we but on gross and

John Way

yes. Yes,

of driver that. biggest the So, rapid, is

maintenance. business The the XX supplies bps So, some remaining that product and due shortfall was to volume of XXX. and the repair XX is of in that

of acquired biggest So, the the but was we in our U.S. operations in facilities component. some had the

Troy Jensen

Okay.

So, down impact? sheet though bps it’s XX had metal XXX,XXX even sequentially, it only sequential a

John Way

required the It sheet metal CNC operations we component, do. was the that to and the

Troy Jensen

more makes sense. that Yes,

John Way

two. the of Combination

Troy Jensen

Alright. but and I else that we like It And marketing seasonal guess, it events, sounds a Vicki then, trade with good bit been intentional. comments, have may in sales saw leverage made was more this in some quarter. some it some

So, is you the the not here the do leverage operating line? can quarter, guys maybe offset to there fourth ultimately in sluggishness any top just but that lines curious be maybe in

John Way

and to Yes, the I cost structure. think we the all look cost continuing are at

we’re we’re on as ultimately to focused we to long-term the business building staying think envelope. and to what need I do it, the looking for at we’re a continue expand

R&D marketing I and an at back we to we’ll continue we’re marketing, growth. look that of at. at area there. think Sales area the I we’ll drive think we’ll G&A from continue is look think So an scrub to to prudent that same with perspective now. manage continuing are spend. and the The But we’ll right continue we’ll I be think, that volume pull of kind some I levels don’t to and

Vicki Holt

continue of order using the the greatest and to us. on opportunities work lifetime data on before, sales We have team. in our driving analytics to that we’re I focusing team sales our productivity have the mentioned value for

So, segments drive more sales long-term that’s customer and of types companies. productively We’ve taken industry growth.

of us So, also focus long-term that and think, productivity over some sales the of that to drive team. the going data to the I opportunity give is use

Troy Jensen

Okay, I that. understand great.

guidance, know to doesn’t going So, seem thoughts you, numbers your and but to about we’re or recovery right, a like ISM it year. going hear coming just I for kind qualitatively see And election we’re Vicki data we’re I’d to XXXX. get rapid how on of not into you, specific love from

Initial thoughts mean, would XXXX be on awesome. So, I

Vicki Holt

you do things Yes, read same wish the I predict. could I so I

still first year, little hearing there is second looking are a a see the the the maybe half quite we the expecting at we’re people recover bit to headwinds I’m what think probably going things marketplace second in in the some quarter of I toward out that bit. of to

third aren’t be of that coming Now a this phenomenal challenging. of thing we the in off other I XXXX, quarter XXXX comparable had so have look XXXX. that the third course quarter mean, will at you of we’ll

there pretty are comparables So, the well. as tough

year. I see that you’ll So, through think, coming next

Troy Jensen

luck. good Well, Great.

Vicki Holt

Thank you.

John Way

Troy. Thanks,

Operator

Instructions] of Please Jim with next line question Ricchiuti [Operator comes Company. from the Needham The & your question. proceed with

Jim Ricchiuti

cautiousness I slowing. And I wanted you seeing environment made some that’s you’re see morning. on about fairly – would I R&D something don’t slowing projects. modest on particularly wouldn’t expect good Hi, comments to of normally macro that that some you that follow-up the in the

So, could a you that talk that which on you’re about I elaborate wonder maybe little verticals if perhaps or seeing bit in?

John Way

more that at kind spending gave looking strong percentage what think those and that’s that year it, strong flat delivered growth Last in haven’t Yes, XXXX. putting of in growth level we this XXX that’s customers. I I pressure that think, their our we as that top challenge growth creating data some saw we XXXX. year customers and flattened creates and increased top why help? top that was essentially the we’re where and they’re XXX point customers number. Those of is on of in from line Is It’s out Jim,

Jim Ricchiuti

in this I helps. get continue would funded It to R&D expect environment. that of I kind projects mean

So was that. parts business struck see I can just the of other by slowing. I

in So, good couple seeing but out multi you core and beyond just this areas seem could to or beyond a part clearly markets of just for to the I trying a taking the and growth you’re grow the in address? I’m do you the market – printing feel those that continuing of metals, you switch called gears what And wondering, areas. like mean you’re also But you’re XD the reconcile share just continued jet core seeing I’m you is second. business strength business we are the maybe

Vicki Holt

the and a little our we’ve and of offer think I differentiated offer. respect both a have to bit with on. of consistency reliability We going got quality do

high place to are the industrial programs, parts XD So, for customers printed their looking go. for quality when we’re

development you see to I some our we’re for think, and fusion in with think more as customers valuable seeing cycle multi-jet that printing in both are think are to XD what XD particularly that’s printing learning design their are more I product printing XD metal the how how of production and as but for do programs. that, So, for which technologies type production, use and both growth I well

So, it’s think, little I business. that happening bit both with of that’s a

Jim Ricchiuti

last be most metals to say market which and question traction getting Vicki can seem verticals in you the multi-jet. you

Vicki Holt

are also in multi-jet in plastic somewhat We it electronics and computer in the seeing fusion aerospace med area. device in

So, probably three those would be the verticals. industry

Jim Ricchiuti

thank Okay, you.

Operator

The with is the next Brian question a line follow-up of Drab William Blair. from

Brian Drab

Hi.

I’m last want So, looking has margin you’re for really and and to at the trying the cautious. just terms from the notes call another second because gross spend just what the changed expectation trajectory in to of understand more

I of second year to you step think to as terms the gross up in you growth, margin look half sequentially. the revenue expecting of were but

biggest rapid increased in is So, overall it, guess, a the combination is the caution changed with that’s line top on there of I or that factor trajectory? business the

John Way

back bigger the Yes, and is just leverage pull easier I – that’s cost got anticipated revenue it’s to a we when think, revenue it’s cost you��ve than as challenge. to lighter increasing right is

we it I So, what that’s just in cost. creating there experienced rapid think, is volume and the that

Brian Drab

where year-over-year, have margin but where those Okay. gross on gross is overall overall can give and having on just John, And you the headwind alpha not numbers us margin are just just the the headwind update, those and an what is rapid then, margins? the gross

John Way

the basis is overall. XXX points overall headwind rapid the so on and basis about gross XD XXX Yes, point your margin

Brian Drab

over little And where does margin? was gross I last XX% that a put, at alpha guess, quarter

John Way

the the range. in then dipped and we’re so XX% Hampshire Europe into Yes, in printing New in mid-teens XD down in we

Brian Drab

got it. much. Okay, very Thanks

Operator

turn Thank back management remarks. you. the time, At for will to this closing I call

Vicki Holt

you Thank joining for today. us

prospects We are in our long-term and strength the business confident the of model.

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

service technology employees interface as for call. experience. and We our customers progress want We you Thank features Proto continued our as during customers’ I look next our the to you. to and forward our well continue to updating our their on innovate offerings for their enhance efforts support. with thank to Labs

Operator

concludes conference. This you. today’s Thank

your you at lines disconnect your participation. may Thank time. for You this

Proto Labs (PRLB) 24 Oct 192019 Q3 Earnings call transcript