PRLB - Earnings call transcript Q1 2022

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Operator

Greetings and welcome to Proto Labs Q1 2022 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Mr. Corporate and VP Frankman, Controller. Jason sir. Please go ahead,

Jason Frankman

the XX, Officer, Proto Thank for first XXXX quarter Rob This Proto Chief morning, March to Financial issued quarter Interim joined announcing you, and welcome Bodor, its Executive company's release and is President press Peter, Proto Labs’ Labs’ Dan website. earnings Officer. the The available XXXX. by Schumacher, Chief first on today everyone and a conference release Labs I'm call. results financial ended

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

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

Bodor. to Now the Rob turn I’d Rob? call to over like

Robert Bodor

second strong in ahead a first our of first slightly joining our and we've to morning, today Good for were our quarter outlook quarter. January to after results quarter report happy company's everyone results the that Jason. financial expectations. start Thanks, I'm our finished and slow and us for the you discuss thank

communicated by was delayed variant in I demand several as our growth seasonal quarter demand call February, impacted our in the weeks. on fourth As January Omicron

February we strong. and in strengthened demand finished quarter starting Our the

digital industry. comprehensive manufacturing draw offer out in the to the our continues customers, base Our largest customer

update take the a moment XXXX Before by want I send those to Ukraine. impacted in provide ongoing our condolences I would Ukraine. an to priorities, and I war on out to the in thoughts conflict address like to

business directly events not we direct have impacted Our been Russia. not Ukraine or suppliers has as the customers Ukraine, in by direct Belarus do in or

have some families impacted events and Labs the their However, peers. employees, Proto

on Our forward. primary impact support our and minimize focus employees is our also going to to business the

to to the lot has our on since manufacturing and the our mission to comprehensive offering digital bring world new to the ideas deliver February, last Although empower most changed fastest service world. we in a in companies by continue update in market

priorities quarter fourth I out XXXX, winning which long-term are our our for with call, aligned strategy. our laid During strategic

during we strategy, made first and execute quarter. We are on to each focused the our priority progress

Our first developing which made in pricing accelerating through revenue coming optimization, We're on and flexible offering is quarter We in accelerating will growth. months. growth offerings. the XD launched in priority the our organic time progress be printing, focused expanded lead a on

and Labs Proto offers provide platform customer a to the of with Hubs focus integration the best-in-class one on progress experience. made into also We e-commerce a

we XXXX in stabilization X.X. delayed implementation integration period As the previously the of was communicated, have by Hubs Protolabs initially

its brings of had reinforced selling model further that values offer to activities marketplace. a intend another released our strengths model strong experience growth, We Hubs seamless. the customer centric focused this We integration cross Labs to recognize CNC Hubs speed validating the very machining high approach functional delight increase further need a that customer will we Proto have ensure year. drive the offers cross to profitable growth. our agility. Combining of our team and and initial thoughtful the unified quarter and growth that and have global customers current to execute the has the taking integrated and to We're is

also accelerated our drive plans, As on integration execute we're growth working Hubs. of we to Protolabs and

We and in costs based businesses. continue various to input on both market adjust factors pricing

realization XXXX, with in pricing our far So line is expectations. in our

our lead time machining longer traction machining, the volume gaining from in an we've is in seen and addition, and In CNC offer CNC XD printing and increase customers. marketplace key

in production injection Our and enhanced an our use key for report cases. offering automated dimensional receive new quality is service, molding which quality tolerance customers

win to We evolve will in production. continue to our and automate offerings

is Our to second delight our XXXX customers. priority in

net trend since time by the rates. Labs customer on driven have e-commerce delivery launch largely best-in-class and our promoter quality Our higher to Proto platform, scores of continued new

to Additionally, experience we e-commerce offering in including to find service. metal our accelerate strategies CRM new to implementing and ways an sheet enhanced experience, continue improve customer our responsiveness

priority report to this be scale. next the Our a digital expectations Proto and for above pleased Labs to margins at margins are success we're quarter. measure in the operating is first leader priority of our

the as realize to of adjustments year as continued margins expect structure the volume we We and and improve to improves, impact optimization. cost pricing through continue

fourth Our final work. a XXXX place to continue to great to be for priority and is

and Our in to matter invest will employees them. asset to that greatest we continue areas are our and in them

investing development learning and and as in dynamic for are flexible way working. all well of We as employees a

ESG social, for Proto our focused set core we to our identify digital top and manufacturing the goals of In of leadership and These significant governance priorities environmental, performance a on recognition functional industry in filed received proxy are capabilities improved the external attention advancement statement tasked Labs with early also best-in-class establishing cross our our addition, initiatives, SEC. during first priorities. team the in and opportunities XXXX. recently quarter, of outlined

was recognized our States. XXth externally Proto internal accolades. the reinforces companies recognizes facility agility. our speed many the a Ecosystems production We of The technology category service. a customer through and business transformation Award the Award unique U.S. Proto in experience Association in molding to received technologies prototyping technologies to Manufacturers best-in-class And e-commerce manufacturing technologies. our Network, the the manufacturing that March technological the recognizing our awarded at Economic receive leader from News or Excellence its to Collaborative our Leadership from United Industrial time the Award in from digital Award requirements, connecting and for been also late and to Labs were which in year Proto received cross accelerate injection molding XXXX Forum of achieve because has Ecosystems innovation, recognized in Collaborative Labs was Labs Leadership recognizing facility Fourth recognized provider, facets. XXXX implementing shop injection floor. National eighth our continues our only full we continues the to boost Proto a the the and IM external Revolution when straight in Plastics productivity, Lighthouse World global leadership provider capabilities recognition added In Lighthouse to NAM. Our greater NAM. is enhance helps use Labs collaboration functional innovation, and that X.X satisfy as be which This

margins manufacturing rapid we revenue term with experience focused The improved that network momentum manufacturing Proto sequentially is this established keep of execution. execute remain of Hubs services and Our carrying market, outsourcing are Labs partner strategy forward market profitable. combination best-in-class of are into a growing and of manufacturing speed, customer XXXX. to rest operating We and integration rapidly to strengthened a and growing Proto base in We've the our Labs on the truly continued and look is scale, confident the manufacturing. and non-GAAP foundation and the the Hubs. digitalization model long focused brand, this to unique in on has

reinforce will we profitably, this competitive our do we advantage. As sustainable, long-term

moment a Proto X.X conduct its upgrade I was Chief with a Technology how designing to our Before as I the for maintain of strategy launching thank to serving Protolabs leader Labs. the Proto hand service help Baker five position market and infrastructure, to Dan, to fuels over call and a find elevate to get as search take we the digital Interim leader. an his to new enables while systems. search his years would firm technology our as Labs instrumental executive I our am Officer Rich Chief In Officer, Rich in like Technology to

As we digital our digital a network. our time, digital of experience unified we look second precipice and on with on offering the are thread with for combining a horizon, revolutionizing manufacturing the broader

increasing adopt the will ever Dan for will financial Schumacher take to Proto through continue the I to quarter turn outlook results X.X of an way. lead Labs manufacturing you over first Dan? second to As our group call companies now our quarter. and the

Daniel Schumacher

everyone. Rob and Thanks, morning, good

Our of presentation. on Page first the results quarter financial begin X

the March. $XXX.X first of saw constant January, was guidance through slow February of and X.X% increase demand million revenue million range Hubs growth After First growth in $XX.X revenue or X.X% represents we XX.X% nicely start year-over-year. of in in and organic a our year-over-year, generated within quarter, up currencies. representing pick quarter a

year-over-year, XXXX. acquired has a Hubs an expectations. at impact the first our Hubs was On organic grew changes unfavorable January As basis we the XX.X% strengthen above impact million U.S. quarter a continued of as currency to in foreign reminder, in revenue $X.X Quarter. dollar This late in revenue

First on In of quarter revenue by Europe, million XX.X% growth XX. amounted revenue region summarized is Slide $XX.X of year-over-year.

currencies, first Europe year-over-year. and revenue revenue impact Hubs of X.X% foreign grew quarter the our in Excluding Europe

in As Rob customers mentioned, have do Ukraine, not or Belarus or suppliers we direct Russia.

have Labs, some impacted from affected to see sanctions customers. Proto date impacts indirect While may we not directly

XX.X% very machining each to and Turning strong performance a services growing XXXX, service, contributed and CNC CNC our year-over-year printing. respectively. to XD and Hubs revenue machining by XD our to in printing XX.X% start had

reliability and we XX.X% in Injection Even sheet in and services. those quarter molding actively speed, Labs levels machining to to the of our expectations Hubs, and metal services, in underperformed printing marketplace. volume XD XX.X% grew resonate working Proto quality continue Excluding first increase competition grew those increasing CNC are with and

XX,XXX impact year-over-year X.X% first in fulfilled rate regions of of revenue per the in and large of XXXX. impacted developer the molding in from key the most orders COVID injection developers due product orders in quarter, the the services was and increased absence product customers. a year-over-year. to increased We related unique up pricing Average we Our quarter served negatively first growth by quarter

Turning to statement. Slide XX income and our detailed

compared and margin in our quarter margin basis range end quarter the in range same to XX.X%, guidance was of in from was margin of the gross in February the points and XXXX in quarter XX.X% gross prior above First higher non-GAAP slightly the we margin our top first was XX.X% fourth due in of revenue gross the improvement the above and well XX to March. Overall period fourth year. sequential as coming anticipated, as representing quarter. than Hubs XX.X% improvements

gross We optimization pleased increased of are which largely pricing margin, in value. well Hubs and as was logistics algorithms with year-over-year very as processes, improvement driven the by

margin long-term to are we XX% target As year, a last XX%. the our result of range updating improvements margin the over to Hubs gross gross

point basis of drag our XXX For overall the approximately manufacturing margin, Hubs outsourced on the quarter lower the to nature gross margin represented an due model.

quarter operating non-GAAP the material of total to in increases expenses range million a XXXX, the Our our higher XXXX. inflation. quarter decline quarter contractor launch expenses due fourth offset first in operating of Hubs of full expenses largely the due in that the of expenses compensation the quarter year-over-year, were in by by quarter of elevated incentive increased driven $XXX,XXX Non-GAAP These first in line within the a first $XX.X Protolabs in X.X Americans. and with XXXX were operating to and were guidance

Moving to taxes.

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

our to due quarter reserves a the the Our one that time repeat sequentially non-GAAP for did in in not uncertain XXXX in decrease fourth tax quarter. first rate of higher positions was

per earnings to share. Turning

in Transitioning offset First absence cash quarter $XXX.X was decrease generated the by and in gross representing first per had per the quarter XX, $X.XX debt from share margins balance from million X.X of decrease decrease March first Protolabs and first of non-GAAP share in we the $X.XX in quarter a highlights driven $X.X first quarter sheet, We to was in share At the of free. $XX.X million lower on of business, cash XXXX our XXXX. quarter, operations diluted our partially compared of and value. XX. legacy flow sensors net share, cash income sheet a XXXX. year-over-year to per million logic The investments $X.XX and we incurred the on higher in Slide of and balance remain launch the per sequential earnings by

Finally, for outlook the outlined XXXX second XX. on of quarter I'd like to our Slide detail as

$XXX guidance patterns. of and typical second $XXX growth between revenue up generate to expect We trends X% in quarter, the million to incorporates performance, constant in seasonality current currency. year-over-year April demand representing and This

revenue on have foreign current to levels. of compared a to unfavorable XXXX dollar currency currency million remain foreign expect We $X.X approximately the impact rates second assuming at quarter

XX% backs non-GAAP include and $X.XX. tax guidance, will the I in expense our earnings second quarter. currently second remarks. compensation We in be expect the $X.XX $X.X of stock for non-GAAP That expense of share to our and In $X.X summary, second are between prepared estimate we ready based quarter million amortization between approximately non-GAAP anticipate and million. to Rob earnings quarter add XX% and we effective questions. per concludes rate Moving

Operator

Our Thank you. first Drab go William [Operator Instructions] is Blair. Brian question from Please with ahead.

Brian Drab

Rob Dan. good my Hey, question. morning, taking and for Thanks

Robert Bodor

Good morning.

Daniel Schumacher

Good morning.

Brian Drab

morning. Good

margin? can a little seeing give been on business at to make the the bit Just to that able the you're on Hubs, improvements that get Hubs, can that XX% what you elaborate to sense gross you you and XX% you've

Robert Bodor

Yes.

added resources price business, Hubs optimization. the within So around we've

expanding our that that have manufacturing know, partner areas, optimizing manufacturing files as, can a offer charged pricing pricing to that CAD partners we customer. our we we can get into that's and that network. a Also, different from it's get the on going who looking capabilities So to how range be we you various that in, at coming us range are of is so based wider

Brian Drab

remember $XXX if total, the it. I base partner when acquired I was it you Okay, manufacturing correctly, so think million

hubs? where go is where you that for know, now do to You and that expect

Robert Bodor

Yes Hubs hundreds -- the manufacturing the is it's in partners. of network

high and manufacturers, not sure we've as of the globe. a helps us whom but to that they're Our reliability. even regions network partners network And necessarily of make between we And we've, strategy and send so we that successful. network, is got Dan biggest material that to jobs we that in have partnership because to real, mentioned, well the We very that highly tailor so can business, -- network the qualified, to actually further for send ensure and can the quality all groomed mix to ourselves. well, premium to a broader a diversifying there's true who globally, not understand of we really high very the that in them network we've rather invested have believe that of they're that partners manufacturing partners

Daniel Schumacher

a about have manufacturing with relationships And, partners we then pricing built maybe better results that directly that the quarter. occurs and the and Brian, to much and not honestly, capacity And a saw and Year quarter better gross you is -- performed we've so less struggled the within capacity bit to the amongst gross India quarter, first in with locations, our there's did talk you optimize perspective, New this We from which why Chinese more first last within year, we China partners. margin manufacturing Hubs Hubs stronger margin did. other that, and existing year,

Brian Drab

manufacturing Right. forward? number positive that going that you're that Yes, to XXX to so I be not is just base had partner mentioned ask remember see was again going going that's good update you that that out. to Can I this played though, quarter, the

Robert Bodor

key as I think I But I have, thing XX% and -- we know, number itself number don't grow, we number really metric I change, partners will the But we network. were grow trouble health continue to the we and not business think mean, the able the our manufacturing will the that focus is grow no that the is year-over-year we You number that of to with to continuing think needs. to robustness on. the as have and for yes.

Brian Drab

expectations, be first we think Thanks. this, and clear, I you sequentially is improve gross margin signaled you just to last, just Okay, want we And as I in then margin ahead I'm level as pointed out, you came to from expected quarter of gross XXXX? just the -- but should move curious. know, through

Robert Bodor

our expect Yes, we improve quarter quarter to do margin. to to continue gross

is predicated that's to continuing You volume that to to slight and know, say going volume, increase it sequential a our improvement assumptions going one the quarter, I on of Brian percent. -- our a is in. in and margin the am has What quarter slight gross it guide is behind

Brian Drab

guys. thanks okay it, Got

Robert Bodor

Brian. Thanks,

Operator

Thank you.

Hallum from question Greg Our with Palm Group. is go Please next Craig Capital ahead.

Danny Eggerichs

Thanks on guys, Greg is today. this the Danny taking for Hey Eggerichs for questions.

Robert Bodor

morning. good Yes,

Danny Eggerichs

segment bit then just how any that related maybe hoping like bit pretty a I was last pricing? the little it due was additional that And I to little know on then of some strong quarter. was maybe mentioned going? COVID projects, there? was you pretty on but more I much and the comps some how on gets to dig And sheet details. metal and that was in wondering year-over-year a to strong injection side, molding CNC seemed details

Robert Bodor

Sure.

to CMC, was in saw pricing growth we and large it, the business. well in as which benefit So see, regard CNC in the from you increases to our order key business, with and some nailed the nice actually improvements, really from -- customers we of Hubs as both organic

of injection those year start had we and affected In that as in we QX. we're a call, recovery sheet our from two and molding sheet last standpoint, the we're in growth seeing a metal expecting nice From about January, on talked to slow lines. metal, terms service that primarily

year of prepared you injection IM from as molding script that time backlog and large in QX. that in in On QX one fact, our remarks, those in into the led even have we a production side, about orders kind at just of number repeated did to we time, orders leading of our talked last

you we injection as molding driving confident go and longer-term, a orders we're with and stable production And we're see a in But of to got that molding actions of So sales business. magnitude forward. that orders of satisfied injection that's we series that we've very our molding in a didn't -- I I'm injection not ensure know, QX. pipeline recurrence of something in healthy

differentiated into We're launching and have capabilities, a capabilities satisfied. Customers offer in been new very We investing there. our have very that. more production

confident long-term IM. So in that's our in growth quite focus and I'm our

Daniel Schumacher

we positive sheet January very be as growth in we've the year to second for sheet continuing going but metal a quarter. been so both know, been metal, have the that to we February, like April. into perspective, a in had in there's and the you looking feel with From slow start into And results service

slow So sheet a to of more was the year. metal start

Danny Eggerichs

on it been the the actions? you in you within Got also and QX. there, inflationary maybe on trends. I maybe have quarter-to-date that of monthly keep then And what color pricing so demand What track it? far environment demand terms with appreciate optimal seeing seeing are

Robert Bodor

Yes, I of that think guidance we've the what from and we're shortages in the seeing quarter a in seeing our not is consistent So we're inflation perspective, Right? guidance From best are the cost, inflation. seeing go we in our of that what we view in early with with is seeing pickups we're in April our for part trends. an our year, what seasonal so that seen far. us macro but that the saw perspective,

be know some are our of increasing. our into customers, material logistics raw end our costs that that can costs, in You or

different And that we consistently optimize we're looking ways market. within so can we're seeing at the offset there price to what

Danny Eggerichs

of Protolabs the Maybe that on it. overall end improvements of internal X.X how efficiencies, I'll the is just Got kind and progressing?

Robert Bodor

we're our Dan margins. as that in continuing meets assuming so, efficiency productivity and and right, expectations, our we to should are volume see we indicated, -- the drive Well

Danny Eggerichs

taking there. Thanks for All leave the it I'll questions. right,

Robert Bodor

Thank you.

Daniel Schumacher

you. Thank

Operator

you. Thank

is from question next ahead. go Ricchiuti with Please Jim Our Needham.

Jim Ricchiuti

morning. Hi, thanks. Good

moving lot ongoing balance you're with forward? the certainly you're given to a gross extent about additional it extent is going but as might parts progress the that sounds or making play of are of like that margins, there business? pressures improvement the year, into be levers know price improvement the over sequential cost margin we what anticipating seeing I think Hubs. you're in the does these that To optimization, what this To the So

Robert Bodor

If Jim, the that did within direction non-GAAP thing margin QX the slightly improved not have molding we the have business, gross injection maybe more. one increasing decrease right to to had you point margins we QX. would in and

have business molding in of terms improving growth within volume need improve. the what of we see injection volume I that gross seeing focus about, in on is forward to injection to that, margin have part our when see we part that to see So talked of and is sequential and move on we business improvement the actions quarter-to-quarter molding and we as that

think looking making and be costs those going ahead As pricing of are we're we cost looking increases our offset inflationary relates in at to forward. we're largely it see and I and to our pricing, to optimizing where some adjusting moving price that areas price to sure

Daniel Schumacher

that And a to approach adjust our can the can of in market, continue in to and real so have continuing we very accordingly. algorithms pricing invest time and sense we're pricing

Jim Ricchiuti

it impact you're there. impact alluded I from But doesn't with wondering I'm to any you geopolitical guess Europe, respect think seeing and particular is, And events we yet sound there's to are I like the immediate demand picture signs what seeing areas been a where any ago? that in were to business two the you relative months of any the in or where indirect change

Robert Bodor

no no, yet. signal Well, strong nothing,

because macro a see landscape Euro with delivery in growth did course, do of volatile is it's quarter we that high well which QX know, nice performing We zone, change and and our business improvement can to led it's anticipate a for the satisfaction, time though, in time. customer in us. Europe that You on the

Jim Ricchiuti

if And color anything an noteworthy on relates market out end some quarter that there's could as any there's to worth standpoint? guys last question call verticals vertical you market and you wondering from the I'm sell me end if standpoint? just anything provide You noting diverse wondering pretty from could is into market from that's an just it

Robert Bodor

good very that Yes a were for strong as perspective. end markets machinery year-over-year as for commercial and growth aerospace exceptionally well with from quarters us both us two had industrial

quarter year so in did year-over-year injection of higher molding had the medical medical, that mentioned, impact down COVID last side, impact. was we that that we the some in the As orders because just slightly of

Daniel Schumacher

speed innovation for to critical. those we're offerings -- to be seeing where our But and market highly we're segments valued seeing definitely is continue

Jim Ricchiuti

from thank you. it me, That’s

Robert Bodor

you. Thank

Operator

ahead. is Instructions] Rose Thank with Please Battle from Ben question go Our Research. you. Road next [Operator

Ben Rose

growing thanks the and can be parts on why Yes, Rob wondering service and level gentlemen. With machine this the versus would particular injection perspective growing business morning, much customers molded some certain respect a at maybe appeal certain very I'm resonating high of parts offer for good of nicely, CNC very industries, to sort now? in you perhaps if

Robert Bodor

Yes, would time so I look had particular. the and manufacturer customers think we the highlighted, highly in range also correlated metal those strength and of we at broader continue where CNC. with CNC I if that add Dan to longer you and quarter, times, for parts are in offer that see demand that a solutions lead offerings provides in for our flexible lead our industries

that's we that So attribute what to.

Ben Rose

printing the there from becoming you And area, versus at high a metal standpoint Okay. any that that evidence more printing XD a level, seeing metal XD plastic a you're can maybe the mainstream? speak is mix standpoint, to in is

Robert Bodor

and printing within materials we're well, -- printing, XD both, is both side seeing than Yes, metals. in plastics our in our Today, the all growth I we're XD business think metals. larger of seeing plastics still

but have broader in XD plastics we're in seeing well. metals technologies, growth the a We nice printing portfolio as

Ben Rose

overall? then finally, be and unit either core you're synergies Proto that's specifically thinking the that the speak I'm to to business the might business might business? and that between Hubs you Labs whether to Okay. in other, orders come business more the about appropriate any seeing to that expand helping And could

Robert Bodor

teams integration we are right as dramatically. orders that other definitely ramp we selling and up team two the and and to we completed expect get in, to cross doing transfer on the come and so now, do between the customer we one And businesses. unified online, see experience quite that the Yes, that sales

Ben Rose

you. thank Okay,

Robert Bodor

Thanks Ben.

Operator

reached the to have you. and session would call gentlemen, turn like Thank for Ladies question-and-answer back we the I Bodor remarks. to closing of Robert end and the Mr.

Robert Bodor

support for with of a the our you our we're extremely efforts. quarter. pleased We're forward of to you call. good in our and thank for look continued and on focused like on next and us quarter thank XXXX performance performance employees first four execution joining like their I'd XXXX their day. shareholders strategy. our first on I'd for our the customers our to conference to Have Thank We updating months

Operator

today's concludes conference. This you. Thank

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

Proto Labs (PRLB) 6 May 222022 Q1 Earnings call transcript