PRLB - Earnings call transcript Q2 2022

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Operator

Greetings. And welcome to Proto Labs Second Quarter 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].

conference recorded. this reminder, a is being As It Mr. my pleasure your host, to introduce is now Vice and Frankman, Jason President Corporate Controller. Thank you. Please go ahead.

Jason Frankman

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

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

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

to Rob turn Bodor. I'll Rob? over Now, call the

Robert Bodor

growth services, metal another and within above in than Hubs our continue and Proto another continues bring Despite supply Labs our call. of CNC the digital quarter offer year. to offers to for you in revenue of Both our guidance macroeconomic delight joining by offers manufacturing and as I'm strong machining, comprehensive Highlights concerns, to challenges end EPS Thanks, second or Jason. Good quarter XD thank customers. with together Hubs. the and chain broader happy performance and excited report of to quarter the morning, growth industry manufacturing earnings and ranges. sheet the ongoing includes our strong in growth strong Labs everyone, quarter more at ever marketplace, well now resonate second this printing, as Proto two are we the our

pricing drove sequential addition, improvements both cost In and controls operating and gross in optimization margins.

we expectations did in in metal While and very in machining, our sheet our revenue are XD second not performance services, meet quarter. the service the molding injection pleased printing, with CNC our

in large negatively As half of the medical injection molding was absence the case XXXX. growth first COVID-related of the by several in occurred the was that quarter, orders our first impacted rate

inventory high order among our prior in orders stockpile the In for we high quarters, addition, we customers in experienced times, with in impacted record during we macro large XXXX uncertainty. inventory placing inefficiencies surge orders the led in that unusually to customers, XXXX, system has line that unprecedented behavior extended Furthermore, to time In customers. trends of in coupled lead many significantly reduced in of backlogs us. serve. XXXX our described These with industries

very on we going our molding to world-class are operationally, competitive service, are of this with today. advantages We're customers confident forward focused return providing to our customer times focusing addressed as experience on our the impacted fastest targeted reengage fully go-to-market on lead in injection and available and great We're have inform growth. teams, offering. We still and campaigns

quarter address important of during actions update take second Before our moments I provide would an occurred the XXXX strategic a few XXXX. priorities, to on I like that to

Labs Financial operational to Officer. for that, search five work of Dan Proto me. Dan with Proto him process, extensive Labs early and Schumacher delight most six a for as Labs' an as very has revolutionize He's announce of months. Proto strong our business was excellence to named our I'm excited pedigree and in brings interim leadership to partner experience all excited years after recently Chief served I'm to alongside leadership manufacturing been and First, CFO the great and June, continue and customers. team. a to great asset employees we a to great the Dan

investments businesses of to want the partner return, that promise portfolio for manufacturing through greatest our growth initiatives. of opportunity the to our for focus has I Proto Secondly, actively shareholder greatest and our ultimately, manufacturing. and greatest digital internal integration the our strategy the and profitable our managing working in We're value. Labs discuss areas network

return, XXXX, resources philosophy, in May, and our reallocate potential which facility in did Our to a with Japan that our means business and total Japan region. from grew expectations. Labs are meet in those longer over focused plan our Consistent entered highest and aligned resources the the to opportunities making of long-term of with profitability that decisions Proto our period on away only approved to no operations with objectives. investments directors that X% manufacturing not cease close Japanese but our areas are our in board revenue

and relationships. region personal in digital not lightly, that decision model especially low-touch manufacturing was our where Proto and in employees severance Japan all did Our assistance. long-term to take will Japan difficult want to over customers years. work e-commerce Labs not their in for value well Affected business place other transition This employees a did hard receive a resonate I I loyalty thank in the truly and enormous

on the Dan in will customers later to call. ship the will We parts provide details September. final impact financial through

an has Labs this home over National MLC time and the our MLC, The leadership piece basis numerous years, won externally second for prize. Labs recognized continues the Labs the award the recognizes This from the our medium-sized impressive our of awarded of to Manufacturer Manufacturer testament the work Labs be to joins provide the external first from small IBM we've awards Association of or that regular the a Proto Year division group the recognition. recent Proto Proto on the Proto Labs digital of Merck. includes InBev, a was esteemed award Robotics, as manufacturing Manufacturers. is the taken Proto received customers. Leadership Year Universal quarter, and of alumni top another winners value manufacturer. excellence great and In do Manufacturing Council, is during we of June, to employees capabilities. Next, to that a our best-in-class all-around a

you empower fastest digital and bring manufacturing ideas service companies mission comprehensive strategic offering new guide to that us Now, deliver market our the by most we in the let me remind our to to priorities of XXXX on world. continue as to

experience. Our expanded our network optimization and offerings, priority integrating revenue accelerating first is Hubs our growth e-commerce the into through pricing

we quarter. As in I in our printing strong saw CNC growth and mentioned growth XD the machining services. Sheet earlier, very also solid was metal

we're in molding service. injection growth forward, on accelerating our Going focused

of one focus integration Hubs year. integrated experience. offers the the Proto We're Labs on of the track good continue customer by have the Regarding release with we'll we a and e-commerce the the and dedicated platform, make on into progress end CNC machining to initial

customer breadth of in manufacturing of industry that prices, to our times experience, Proto growth. digital We provide with a market offering else very combining capabilities, can profitable strengths and leadership Bringing no lead will manufacturing digital provide excited the together furthering Labs network. and digital one with our and unrivaled our the Hubs unified a are replicate

in the delivery our on we is Our industry. times And on-time the customers. next priority deliver XXXX continue quality rates our to in offering delight to strong lead and fastest

toward electric partner to Labs with Proto Our emissions, to and and help compete. to working explore prosthetic new to vehicles for Many of and active limbs astronauts create we're and devices to objective. that customers proud the habitats the that to Products the reliability people better, help change lives, athletes are best-in-class our like allows surface, products. and help speed carbon alongside they live collaborate and innovate live medical more reduce world advanced as improved lunar customers them

of back is increasing our scale factory priority in leader in the by third Our the be automation to levels digital office. and

the are we'll in drive margins second with efficiencies to this price sequential optimize improvements quarter, and both diligent gross We and continue continue in pleased trend. to operating operating and

gross to partner digital XX% our internal manufacturing drive network. to the target in XX% continue Hubs of will and the through to We organization XX% margins manufacturing, deliver on

great by of us and encouraged the impact we collaborating Labs and company, for priority to very and Proto work. to am recruit is live invest best that demonstrated will the the our at next I Our a we Proto to talent. all have communities and be place our continue a employees make by in. to on energy the positive Labs passion XXXX of to employees success drive retain

team, green Council, to and During to various the team the Inclusion building for cross-functional efforts. and charities. Thank Equity raise others activities quarter, initiatives Proto several for your you the groups employee-led and continued Diversity, Givers many donations Leadership organized

inspirational. You're truly

With in digital services these ability on is The and best-in-class a a Proto place, to Labs and growing both our rapid clear model of unique objectives. market. winning priorities short-term outsourced and in our Hubs combination rapidly long-term partner manufacturing network confident am in manufacturing I execute

While With take macroeconomic uncertainty, will we long-term may quarter. on remain that, and we strategy face near-term our Dan financial for disruption results confident on outlook you are third quarter our now execution. second through focused the and in our

Dan Schumacher

everyone. Thanks, Rob. good morning, And

per our revenue and with guidance the above record results financial quarterly We range. are in pleased our including earnings quarter, non-GAAP share

detail, our the I'd decision highlight Europe million. of XXXX walk In of like Japan size. I our that our of behind X% exit Americas or business grown represented Before and to total in had the operation, five to After times to time, financial results rationale Japan. revenue over XX in years amount through $XX same financial our

we Pro returns of In higher Based those of Labs investing the and four addition, business. between additional other determined by XXXX capital, achieve years. only profitability that XXXX, potential time achieved we resources on Japan in in this, areas and could

numbers. to on the Now,

Our on presentation. second of quarter financial page the results X begin

of year-over-year million our and was represents quarter Hubs X.X% XX.X% range quarter, the second guidance revenue increase representing of in growth within of or million generated Second $XXX.X year-over-year. in X.X% $XX.X constant currencies. revenue a

quarter, With million. the a throughout slightly quarter, revenue $X.X above the strengthening to in unfavorable the of million of dollar the $X.X second our experienced US impact guidance we

constant service. region XX. year-over-year. In quarter Second Europe, Americas, quarter by X.X% grew in Transitioning largest second revenue year-over-year X.X% to by quarter slide revenue is revenue grew summarized region, In our on revenue currencies. second the

year-to-date year-over-year. XD their performance revenue in CNC respectively. at printing X.X% strong metal constant revenue XX.X% and Our of services growth strong was second quarter growth XX.X% also Sheet and year-over-year currencies, with continued

constant As second the actively quarter, Rob to first we developers expectations growth. and up declined in molding noted, working underperformed are injection XXXX, We X.X% business served revenue year-over-year XX,XXX in our drive half with consistent has X.X% revenue of molding currencies. in Injection product demand. unique the year-over-year

XX.X% non-GAAP our $XXX,XXX XXXX. in gross drag quarter Hubs improvement This quarter, sequentially manufacturing second Turning the quarter XX as increase continues to in from in to Overall, and on expenses XX.X%. to detailed in services. as the sequentially the of second as the and down were quarter, as largely Hubs quarter lower-margin prudent increase Total second non-GAAP XX.X% and margin in driven margin services. declined basis to quarter overall was Gross a slide by throughout an expectations manufacturing of than increased improvements was margin grow quarter. and optimization algorithms. was by headcount Hubs' to slightly internal go-to-market our higher as gross was it in XX sequential compared an expenses operating model was gross first invest pricing driven $XX.X improvement our second XXXX. below professional manufacturing In cost in statement. margins to faster initiatives million contractor well operating our increased volume income points price the digital Wages represented continues XXX-basis-point partially offset expenses volume, Hub's outsourced facilities. The management by first the

of GAAP facility-related $XXX,XXX charges, reconciliations. the $X.X to $X.X Regarding non-GAAP results our other our XX exit Japan related excluded to in These been second in fixed employee million slide the non-GAAP our million of prior the goodwill to close charges of impairment from of expenses have presentation Japanese in closure-related $XXX,XXX GAAP and Proto expenses quarter, enable operations, a business accompanying severance, clean to $X.X and charges. assets, to decision See of the million appendix including resulted periods. in operating future Labs for financial eventual write-down in comparisons $XXX,XXX slide the during

taxes. to Moving

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

positions. of rate uncertain tax to tax effective to non-GAAP was Our periods compared lower prior a due reserves for release

sequential due tax and a and general above driven was were the of This selling, We release. to high earnings primarily non-GAAP the reserve range, rate was generated cash $X.XX, per higher increase Americas second volume, quarter margin of increase in lower headcount. Transitioning net $XX.X quarter. from in headcount Non-GAAP diluted balance to cash and slide end share the and in XX. gross Hubs and Second due on administrative sequential improvement representing million $X.XX income our flow to share guidance the lower per share. per a sheet lower operations by highlights

also million We dilution balance sheet, our had repurchased the from form cash the shares quarter. in we order during in and investments to $XXX.X second in deployed X.X XX, in we share repurchases remain million At of offset on We the stock-based and June capital compensation. in debt-free. quarter

slide quarter the for outlook of Now, XXXX XX. I'll as outlined on our provide third

revenue third currencies, generate impact between up trends X% typical of demand July in growth excluding year-over-year to closure representing incorporates of and million performance, in $XXX of patterns. $XXX the current Japan. quarter, This million and guidance constant the expect to the We seasonality

XXXX. We closure expect to $X.X have currency is on of revenue million operations have our year-over-year approximately quarter the growth. revenue expected of unfavorable The impact a impact negative $X.X compared to on our million a to third Japan foreign

gladly earnings the Moving margins questions. between to non-GAAP rate quarter effective of expense impact the expect include of summary, XX% stock-based million approximately $X.XX. to amortization expense quarter. $X.X anticipate will and closure non-GAAP share We gross non-GAAP third we estimate That of anticipate prepared XX% I to and add-backs the non-GAAP earnings Rob remarks. in We be million. in the of tax will quarter Japan In $X.X our between compensation take quarter. our per currently concludes guidance. negatively our in $X.XX and third third your We and third

Operator

instructions]. [Operator

from is Brian Blair. The first Drab question coming William of

Brian Drab

it's quarters. sequentially for the in some so molding, decline four flat, basically quarters. sequential declined injection On last is The it's declined but

So, is to business going turn give this model Just you you out there trying to half? at in to that us second that how point this can any point. can or to is business specific some now confidence figure reason around that specifically the

Robert Bodor

an number year-over-year, a across companies of that weather surge unprecedented right, ago, broadly, customers orders as of reserve When But it that disruptions the you supply many saw industries, look stocking look at COVID-related chain we a to you orders and didn't many year the more were we had during as time. recur. inventory period, across right, at

direct at was And so, in addition surge was to that, the impact of There recently we a and shortage we that there for direct in that our about. due to systems, –that our was coming headcount. we've the talked business in And was time labor that inefficiencies had systems, headcount. new those some was when specifically a difficulty timing orders labor launched of such right, had

have Since and our And we led our for our then, quarters for and all the on-time kind of resolve. impacted several we we systems of operationally direct to across all in factory, same automation reduced together those need – efficiency that. our made to introduced which took significant that made scale We as us operational improved improvements backlogs more so, of record revenue, efficient. labor those and also of made the level and to improved improvements

times. lead in We our totally ready we stand today, take orders. world-class We offer all can day. a molds make to all So, can

deal of actually than demand better-positioned so, were a And year level we we're today to much with ago. that

in go-to-market demand. working of doing to and to to customers that our reengage continue were us process we're So, those teams that are now drive the help right impacted,

Brian Drab

year-over-year the Thanks dynamics. for reviewing

you uncertainty of molding this sequentially the There's in I any the So, quarters injection I million revenue macro Without $XX don't environment feel why range. half that XXXX on guess. of I statement in generating just just make second as that you and anything like whether well, did I than injection you but you increase going year-over-year is $XX forward? confidence, increased because is, this those going to would just actions mentioned more forecast that $XX that, model Can this in now more see the for business million the where business given a is $XX do – to have know three first million any understand half? dynamics, molding. the me above been it's the it to I million why for know macro Because last don't it or – hard

Dan Schumacher

increased they're perspective. economists, inventories we about our Brian, When we're pressures macro from resulting at talking customers, our feeling demand to in still a from less perspective. talk

a now perspective, injection headwinds. working are but go-to-market our right it's we molding bring So, offer, the into improve, service continue customers to macro to from to with uncertain

Brian Drab

business, little also bigger And because Or in these down were new the at parts bit, that parts than it rather orders and parts more it a can challenge business? is you you just just in some business? business about were the is talking like drill production molds sounds the production that of

Robert Bodor

lot because parts seeing recur. what Yes. really parts not we production what and of in Well, surge were saw we in was that's we're seeing a strong business,

evidence As companies sitting Dan high there's talks that are inventories. about, on

So, that's really some where headwind. we expect

Brian Drab

challenged dynamic question what the has can just, Just on you me me last company is gross the overall impact molding for margin? this injection – business more remind

Robert Bodor

take have If molding our at traditionally been it, injection gross a look around we margins mid-XXs.

gross molding around injection margins in the quarter. our volume, lower the With were XX%

Operator

Ricchiuti question Jim next Needham & The from Company. of is coming

Jim Ricchiuti

might topic seeing of contributing in you're are competitive dynamics injection issues that any the be some on that part seeing you Curious, this the business? in follow-ups molding. the in some Just to the market of of changes demand the

Robert Bodor

those In don't run for known competition. times, lead times into world we really and lead molding. offer injection in the speed the fastest we're Obviously, in we

times customers period, molders. significant could described are that alternatives. other backlogs and when we There longer our look during period I had our were at that lead the the During local

So we're our the think we dynamic as on I now customers. those that's go-to-market really teams focused that drive reengage to overcoming

Jim Ricchiuti

markets? about the as to how the What macro, in people in just are the about in trend changes versus demand, you Maybe deal thus level be quarter? seeing are have whether you in of or in you light want did the about with overall by just the QX market talk far Europe, concerns geographic through you might of it – seeing seeing your that major or talk track of all of business the went region, and of June vertical you terms to even any US

Dan Schumacher

say, a our grew currency on molding first of me basis, Let outside XX% constant year-over-year. services injection

happy very with we're So there. what happened

In – terms like what had and in in from of things in about medical a markets, some industrial from markets lower But were strong and the of the both on the what talked end we're we machinery, was seeing orders injection larger we headwind. strong. automotive molding then COVID so perspective last declined year., an was really year-over-year, aerospace slightly we saw commercial both where

had all If non-GAAP you constant at can regions. our disclosures, currency – a see in growth look take you growth across that we

that were very quarter. with the in pleased we So

Jim Ricchiuti

question, any behavior, And way in or some of your the the one going change markets? final into QX, customer larger other, in the that just markets –

Robert Bodor

Yes. We've We behavior. right change of end much seen haven't gone really through in customer terms July. now

Operator

Palm [Operator from question instructions]. is The next of Greg coming Craig-Hallum.

Greg Palm

sequentially a couple basically last from offsets Japan. I million, of up million, the you're midpoint, to at $X $X I guiding million. from Usually, down, at of the the million, look the QX call exit from impact on a from Jim. couple it, QX wanted least follow-up If question is

So really of something? that tie Am a you Can you missing but seeing change, just out? suggests I maybe activity. little softer not bit a maybe guidance said much you're

Dan Schumacher

seeing we're We specific always. through different I'm way any July, I'm done at guidance market, I the look then industry. has taking taking question if into hearing what we're same we've end our I from industry. that an seasonality. think set anything read a by We're the from what was not account something upload trend, what and by seeing happened seeing

to our with initial we're at QX, a obviously, uplift guidance, from And least now we strong QX results. And can how seeing you our we sequential as built guide. right so through that, as that's look not see as as

is. that's injection happening have and that macro there that hand of And a from So the headwind what stands. today continuing, at amount where to We're inventory that with customers look understand they what's of demand molding. in perspective, terms on

injection Some with there trend molding bigger the was different. might signal market would see trend, we macro that that if a upward in

Greg Palm

exit, to recent XXXX, span in you relates time it over I was at you As the said profitable only in years. run least it rate basis? Can think it full that whether a profitable on say profitable quarters, Japan four was or

Dan Schumacher

was and profitable was profitable this it not not quarter. It XXXX, in

Greg Palm

exit Can margins. And the going to you in that gross a did region? what you impact say negative were margins gross is have disclose on

Dan Schumacher

next negative I What quarter. a in gross and we out on the the it's said, that's gross slowly The margins have to it's have staff final have have going impact depreciation, is orders. on quarter impact the shipping negative margins production, having next on we're the equipment, reason the we we a a

September. that And We why, have not And at or a completely of completed was perspective, I in only that marketing Japan's you Japan. from be expect ops, perspective. about profitability. discontinued $XX need kind with end From it this, enough It's talked getting can't and from P&L and that quarter, negative creating unusually margin overall, an revenue amount. gross negative we to million impact. it challenge our was And so early that and to sales amount what's infrastructure that's the to of remove to biggest for reporting challenge, that a that has that's a to August the large a get Japan is the of

Operator

back Mr. At for closing the this time, to like to I'd turn floor Bodor over comments.

Robert Bodor

We're performance call. XXXX, half the first with our expanding in of particularly earnings quarter in earnings. second our on pleased us joining for you Thank our

their continued forward on We our execution will our a look to our to updating quarter. and on Have you growth. the you performance Thank next clear lead which focused long-term of efforts. strategy, day. for profitable and We great their have support shareholders to for are priorities our employees customers continued in the to place and

Operator

participation interest your gentlemen, thank for and you Ladies Labs. in Proto and

this enjoy the of off You may disconnect and at rest or webcast log day. the time your

Proto Labs (PRLB) 6 Aug 222022 Q2 Earnings call transcript