PRLB - Earnings call transcript Q4 2024

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Operator

Greetings, and welcome to the Proto Labs Fourth Quarter and Fiscal Year 2024 Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Mr. Jason Frankman, Vice President and Corporate Controller for Proto Labs. Please go ahead, sir.

Jason Frankman

Melissa. you, Thank and Full everyone, Proto Fourth Labs Good XXXX welcome Earnings and Year Conference Quarter morning, to Call. Labs Financial I'm joined Officer; morning, announcing Chief Executive year results and for December and President press the Proto its Officer. This fourth financial today by and XX, Rob Dan XXXX. Bodor, issued release a full quarter Chief ended Schumacher, The release is available on the company's website.

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

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

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

Robert Bodor

full increased year million strong our prototyping. cash call. our continue the quarter revenue we the everyone, morning, year. expanded year a XXXX, Good XXXX capital in our returning production use and Customers several XX% business results customer beyond from operations. while generated Labs. At year, our of of $XX elevate explained fourth the outgrew expectations and flows earnings shareholders. In of in Proto cash and thank and in reorganization earnings beginning quarter share you expanded strong to XXXX Jason. success financial of consolidated margin, as teams and gross per our closed expanding serve generate using year, the cases of Thanks, go-to-market we year Furthermore, model with from joining revenue out demonstrated into of the earnings to of the the per for We transformation note on prototyping strategy our Then the we better. above the production. fourth combined we customer grew order last was to we empower offer and ways of and announced a to the middle

manufacturing capability operation our the As optimize part to our global and any customers formed region. to new of footprint full ensure reorganization, a or we global also are available in

not progress has transformation just is key my customers years of indicators revenue our adopt production growth I said, and in the demonstrates recent the shared more more across That as working offerings. expectations. Our met

offer are in and at right investments. the we're making deliver beyond, drive and organized to XXXX following have scale. To We revenue growth the

are First, a in as manufacturer. to brand our build we significantly marketing investing production

make sure offering expanded across their our and a marketing manufacturer on XXXX narrative. up work really videos life of out to of check company collateral. There's you teams. all I shift message and heard. we Protomold capability. includes and great our synonymous recently creates encourage and and are name We solve that set an earnings. has a a as of Pro would The awareness been that X new continuing of customer preview our Labs. Since other Slide that founding Proto Proto prototyping, series It's have until to the like with we by of began capabilities to work cycle in and campaign in critical is our Labs' This of products, that needs January want unmatched at

buyers. production to messaging new We this will bring focused through on market channels additional

the to our with interact drive reorganization, customers teams labs sales needs it growth easier this with allocating better Pro consistent by enabling and enablement This for understand in our context. make resources processes. our production are go-to-market to will improve to tools additional strategic we and our of Second, customers

expand initiatives Third, organizational we to are continue several to funding capabilities. improve production our and

Our our production quite quoting streamlined reports, with And offer include years. pleased further. other robotics, processes, leaning automation our dramatically industry has and additional expanded additional recent improvements. manufacturing a I've in inspection refined factories. more we're initiatives even proprietary certifications, in in production been These process,

grow evolution invest delivered solid customers' to We needs and to results our resources revenue production network. better our expand serve business. of and year strong focused expand and production investment the factory both to to margins drive We have on X capabilities areas will our been to the we levers continue XXXX, organization, a our Across grow in to of in for company. the redeploying growth. These

to last teams go-to-market have As discussed year, the production. prototype to our we ensure customer regional experience refocused possible from best

others. production. sales and success from team-based approach Greg efforts, responses across understanding production joined the better provide who needs deeper teams led our and customers January. prototyping penetration, marketing, experts, better Forsberg, Our engineering, ensures support collaborative customers' and we've To operations established by application This customer these faster team a support through targeting solutions of selling for new company revenue in customer

a cases. by efficiently will announced global improvements our most these of customers the footprint the They example the the serving while As Operations of to to begun Greg systems factory orders organization across manner fulfill or has operations Board the an facility executive how October, manufacturing bring formed oversee our process leadership effectively team, ensure has and of use needs. optimizing complete global our customer Germany, efficient global Meanwhile, we in responsibility to each customer Global closure the every already in network. newly capabilities a in we customer In a a serve and the member region.

Our XXXX through with proper as enter established annual full went into goals effect planning. realigned objectives structure we and our

year more use to In to cases. offers full manufacturing at the cycles. under release product benefit press of we end-to-end expansion of stage first a from serve the production life every manufacturing highlighted this Labs capabilities. operating in full-service continued journey we services Proto their are XXXX, set customers new production We serve January, our structure. Throughout help up our to

includes critical production that pricing offering focused industry production. options certifications orders, in are and documented larger for control enhanced part improved quality Our

the a to manufacturing ourselves we provide our Proto products. of the with is the of their in As differentiator cycle serve best value customers. enables Proto we parts our processes across capability. for these offerings life a manufacturer across quick-turn over is X to prototyping to XX techniques manufacturing world's years deep of continue a of and low-volume The Labs experience Labs industry key combination the multitude our offer producing and expertise And customer

our we are of sales shop marketing actively fact, in driving awareness industry and our one-stop only expanded In and teams our capabilities. are truly the

consolidating to production We immense focused as offer, is and are a great that on Proto at cycle, life evolving. throughout customer simplifying value customers experience chains, maintaining partner are our agility resilience providing the the and while entire Labs supply product broader of part

projects. connect to addition of have for access experts customers In with management to online program immediate complete production to directly on quoting, the team a instant option

and already have for in We regulated are serve use their X customers. With our who innovation. top production cases. complex to We it's low vendor, serve as focused predominantly these to verticals, production XX,XXX positioned Labs strong us relationships mid-volume relying on is and production customers to used to advance We with industries. product with these over Proto uniquely prototyping on already Proto Labs into annually a us. them qualified for are advantageous industry

carries a winning are we work manufacturing. production commodity high-quantity low-value higher the addition, In than the margin

our policy current for companies developments, period differently. proven them. With and recent to have potential partner So with into opportunity efficiency Proto that being Labs remind resource and for is supply This to supply may years, around global have record I'd Labs environment. manufacturing disruptions. a during end-to-end we for build resiliency any as been their the respect truly macroeconomic look chain track catalyst supply in evolved disruption has to provide a Labs chain world customers there a has along valuable set and single shocks been chains Proto of to you global an customers the a trade Proto of customers global In

XXXX for the reliably over future footprint. and fourth quarter capacity reorganize In full we solid year transforming the and growth. I've our across deliver company highlighted manufacturing early and results delivered and the to use creation and structure cases We for better XXXX summary, our position the transformation through while XXXX company and made investments value many during global can and have long growth term.

continue growth use we revenue customer. per We are in how first under as cases do organizational we're offer plan that combined And XXXX metrics I structure, to evaluate more is XXXX in cycles to revenue. new and product customers and is to life full grow here's drive to will our the in. serve using metrics, that priority leaning continue Those customer across we key so. our year our and the to

have to growth the improve and efficiency. transformed We accelerate business

we As future positions for success. I've grow business faster the much believe better our I said, in realignment internal can

are and length will and is investing more go-to-market cases. our in we fulfillment. serve Production I've Second, capabilities we they're the accordingly expanded and prototyping, production use outgrowing about at spoken production investments in.

We are of to more full support massive forging production with committed production ensuring deeper our market. customers, capturing partnerships this and

world, will prototype also services continue expand the core we reinforce the advantage. best by investing to prototyping. Proto we will in our Third, Labs the offers in and

combination life to cycles, high our us life. network, fastest molding Proto already injection printing customers' unique machining further our the requirement makes technologies use serve our our What is enables lead through accelerating which of and across expanding CNC and materials from at cases adding and product end Labs We times, speeds. and of are XD prototyping additional capabilities industry-leading factory to production

all to want hard commitment say our thank work. to Proto at their I and Finally, for employees you Labs

about expertly our our their lot advance We to and in mission customers. I'm have excited and tireless grateful to a be efforts XXXX for serve

increasing our you. growth dedicated the to inspire working revenue committed drive continue to to to are and great business a foster engage In value driving employees shareholders. Thank for and we're XXXX, and forward. environment We

Dan cover hand over it I'll to Now financials. Dan? to the

Dan Schumacher

our start quick brief on of financials. overview and good a provide on and few then note Rob, outlook I'll Thanks, the our finally the year XXXX. quarter highlights results, morning. full a of touch quarter One first fourth financial for with

of Germany. of facility quarter select discontinuation of $X.X Our costs injection related an XD closure operations fourth molding and printing results to in include GAAP the million

and $X.XX to million, expenses XXX in third We by have costs for revenue driven share and to basis down quarter from in employee-related excluded XX.X%, rate costs the General margin. organization and October filing mainly tax favorable up effective reshaping above write-down range by lower These $X.XX XX.X% sequentially quarter a streamline fulfilled lower of tax points information. Financial dated declined the on guidance non-GAAP the and financials currencies. in to and non-GAAP the came gross within SEC $XX.X nonrecurring Please our these XXXX, XX, are through global were margin presentation. EPS than lower for positions. costs, discretionary the discussed quarter, due accurate outstanding operating the our consolidated of We X sequentially currencies. Labs works results departure our decisions comparisons. to fulfillment our to in slide a $XXX,XXX and our came gross compared range begin constant utility Manager. Non-GAAP expenses related portfolio. X.X% Fourth guidance volume see down Non-GAAP more lower of resolution a our Page to in asset primarily quarter portfolio sequential operations Revenue due because are to in XXXX. driven as third volumes. quarter of a network $XXX.X year-over-year earnings expense lower decreased decline Fourth million, fourth Proto at anticipated, was constant more per European

points Network our per year in million year-over-year. X% of We $XXX.X XX,XXX XX.X% basis and by year-over-year. up Despite for contacts down generated XXXX to currencies. Protolabs million margin results. from network revenue, driven improvements gross XXX both was to to increased network financial Factory basis We customer increased points non-GAAP in XX Now points factory grew and XX.X%, basis served XXXX lower $XXX.X revenue, full gross and year-over-year margin in constant increased fulfillment. gross revenue margin XX.X%. customer XX.X%, XX consolidated X%

the so I gross driver a and company in other improvements profile this to want combined testament In execution continue network. can here business model. lower space and big by both No the offerings resilient and services both and margin, digital margin factory is our our manufacturing on operational pause teams and margins volume our a model, accomplishment. highlight in of we to of factory revenue is higher the business network a to match the will drive

expenses. to Turning operating

expenses severance additional This offset spend. over employee and by $X.X compensation was the lower million license including by operating by XXXX. increased utility costs, For higher partially driven increase non-GAAP incentive full year, spend and

from EPS lead $XX.X Rob continues operations million $XX.X free flow. the the of in X% industry X, We in approved generated terms of XXXX, As million in of repurchase digital Labs share to mentioned million and earlier, XXXX grew in cash and generation. $X.X $XXX form Board XXXX million to returned XX% manufacturing non-GAAP new up from of On cash a or in shareholders our $X.XX year-over-year. Proto we repurchases cash February program.

XX, cash remains to We allocation and shares capital will $XXX.X on sheet X repurchase balance debt. unchanged. On we strategy December investments opportunistically our continue our of million and XXXX, had and

expect between as on of incorporates We and order typically million quarter first seasonal revenue $XXX Slide uptick trends guidance we revenue see slight This the to million. XX; the from fourth for to the quarter outlook XXXX a quarter. date. first Our $XXX and outlined

foreign $XXX,XXX unfavorable the have to first expect XXXX. to We impact currency revenue of an on quarter compared

guidance. We between currently stock-based the expense compensation earnings of add approximately quarter. non-GAAP a non-GAAP XX.X% expense rate anticipate to $XXX,XXX. first the to and in million estimate quarter backs amortization effective Moving of first include in $X.X tax XX.X% and We

due and first as every payroll increase bonus, to operating will sequentially vacation quarter, on such in items As taxes. refunding expenses our timing the

cause new the $X.XX quarter step-up described, enablement addition, for an That between leaning growth. call per including continuing in in will expenses. our In open and Those marketing additional questions. up earnings for can investments, share summary, first $X.XX. campaign our sales to non-GAAP as expect remarks. Operator, we are tools In operating you Rob the and we concludes invest and prepared

Operator

first Drab Instructions] of line [Operator Our with comes William question from Blair. Brian the

Brian Drab

lot this morning. going A here on

think don't Dan, with of XXXX the terms spent the you tools for or know, line sales if dollars incremental sales the quantify start items? how should spending about I'll and I any model further in So could and enablement marketing there. we of percentage in those

Dan Schumacher

Yes.

have first simply, I we the think higher expect to expense operating quarter. in

non-GAAP through that from watching to be doing the that get to get we're the growth, think to on be forward, and to is the going as we're adjusting expenses as that growth. the over from going quarter-over-quarter. as see a increase we'll spending $X that -- I non-GAAP little because quarter-over-quarter that, higher a we -- up -- up cause to this get return we that revenue really about be bit we will our little traction move continue that. the to that expect will we invest is We're revenue our $X.X million million a closely we in end and operating investing go increase And to revenue we that would year.

Brian Drab

Okay.

OpEx [indiscernible] Just to non-GAAP up, million down did clarify, you $X.X say much how

Dan Schumacher

to QX quarter-over-quarter. million $X.X $X.X QX million.

Brian Drab

Yes.

of been don't us think production sense Okay. And give talk mix today ultimately. versus are and going that production prototyping. -- the said it's how margin And How that you lower lately one prototyping. of a any Yes, revenue about And percentage today specific you bit production little talk what concerns is prototyping. outgrowing production guys versus you could growing? your maybe the helpful. about in how could always you breakdown, that's for margins a of have then to is I that is has

Robert Bodor

Thank Yes. question. for Sure, Brian. you the

some am the today the about about cases well, broadly our prototyping and and and is year. our just The healthy. of of production adoption We're went terms customers what metrics, our engagement offering. motion it. seeing categories terms XX% remaining been team past. we new good I continue quite the this quite pleased We're our beyond. customers. business, that in pivot growth in in it. the production. I'm fall we're of the our the adoption about that that business. our and business it. hearing We X/X. for shout We're from and those think see really very drive behind changed from why through right, to Prototyping we're adopting really So by we're And same in are terms and of the rooftops. we're got the major is it shared those way these serve really XXXX of growing X/X really of We've growing in quite revenues is and think And a to that's and to I delivering investing really, our this teams last key production in to our customers comprehensive of say, think, it, right, revenue the of and per I'm all it you don't encouraged encouraged growth our that operations production profiles, customers as go-to-market is use with the into reorganization gets right? in where by on going global I would also broader and customer, to confident offerings, certain growth has talked margin We've which in in kind way great, is I structured about mix seeing. And on fulfilled has branding capabilities leaning

Brian Drab

Great.

that then there. in one shot Injection But On think outlook you our just here you had year-over-year. And of Molding the always down can Molding, you question? a capability. very and which the and overall have do 'XX? business, I I've thought, Okay. that a Is down in studies terms more all at just sequentially, I special the plant ask think German and speed what's that it's function Injection have just of confirmed offering for

Robert Bodor

change production, Again, you how take of plant. expect, that configuration us that we the and from No, and particularly question. German we throughout of was say headwinds the of not a seeing not kind small I started to in back the it's in right? in as all did Now we're as our prototyping it think production. to and that the year, I'll contraction did we nice would continue about growth the that. operational exiting business with did plant. That of for Thanks Yes. function 'XX, XXXX a manufacturing

more a has, the the they're economies, about year. It particularly products see more last right, macro business. sensitive. really what prototyping fewer contraction, injection manufacturing we those slower in the side and Now sensitivity think, are launched customers talked less price prototyping our we've that's affected in molding and to I was as new before, They hurry. on And to

And so that's that seeing informed very across I'm year, pleased traction that's in the growth going. this us, drive and confident this that's year. production really that driving board, and I'm we're to our We're going with and how

Operator

from the Troy Fitzgerald. Jensen comes question next Our Cantor line with of

Troy Jensen

just Dan, margins, lower down gross on the up Congrats for results. maybe I them you, get on to being sequentially revenues.

last of on have of if above mix are you margins. guys look you Or going you in to here of $XXX level? you guys more been ability year, same of QX business QX revenues, kind 'XX? million your is get at the Would weigh If north network in of that through gross the north expect XX% to

Dan Schumacher

we is factor, Yes. mix quarter-to-quarter. I how right, comes through as depending going on a think look I that mean play at to

driving things that automation the improvement seeing that margin of in our One factory. that really we're is is

which offerings to network just innovate us about, better and production algorithm have and on that efficiency both within we margins. the to well. have is are We're from continuing do, pricing our the that to production to So automation, that that improve work what AI-enabled as focus we top as that, continue and of On we of Rob with. plants more have through allows in the we speed factory also we talking more volume leaning get this

margins. focus So we're improve we're as goes making those higher continuing year. see investments we to volume the that on to through

going move depending Our focused hit could but focus mix, margins. on both forward, we're said, that improving will be on those the independently. to margins be improving both on have as as But I some we the

Robert Bodor

us it And of how then for or business customers are to to I talked services? XX%. Perfect. continuing percentage into right. of network All you kind know opportunity customers base XX,XXX-plus But cross-sell what here. using can both is is Yes. the or maybe using the you there I'm growing installed tell Rob the curious just about much

We're point. just over So it's this at a small. still little X%

tremendous to see still drive So opportunity to continue that.

to just growth. us going drive the I'm we've scratched surface. that's excited I how really about think help

Troy Jensen

All right.

for -- Dan. and Just last one one

I said taxes think you XX% QX. in

going I we the think QX a of through kind year? like is a 'XX number? Or were previously, to told 'XX. be just that that Is

Robert Bodor

that That's be the a first the tax some favorable through quarter. had the we would then last of had tax lower which We've rates favorable which to resolutions we first we fourth in IRS to than tax what be QX favorable as quarter, in got And year. rate expect. of that caused in again, judgment lower quarter their uncertain year, the rates in items allowed well,

So would year. I for assume the first quarter the tax the through continue would rate

Operator

Our of the comes from Needham line question James next & Company. with Ricchiuti

James Ricchiuti

if some this the of and Rob, early of out be about the that know to of wonder you where if you and talk see some -- type early, seeing more I tend this the you're how these established year? Protolabs. could some talk in customers do to over customer initiatives of I you of these some seeing suggested vertical progress. I traction -- you're maybe Are of initiatives the could it's playing in you wonder the course these production

Robert Bodor

Yes. Yes. thank you Jim, question. the for Certainly,

align year, their customers seeing time, they're used we've many you've And -- customers customers. examples that and in absolutely that shared have to we in heard with. long-standing we're relationships So prototyping. XX,XXX us what last right? them both customers are forth. terms say we on of And that over and think right, with the served use of long-standing, the we is newer existing I earnings it so These But over on established calls and would I case and

we're capabilities engaging branding message about of them to and through talked model we're and our we're bringing campaign serve that and and where So kind that to our them. them really expanded communicating to team we're new a how a of we've sales through about and we to our capacity much more of with sales needs, production team-based them enterprise experts taking their

the be do based And strategy to heard that Our asking can to us early is production flow the been we've their able right? from use whole stages customer, serving in so production customers what around from we tying and naturally what of into cases. they've them

I'm response. very the So encouraged by

A had their And weeks medical our in kickoff them major the accelerate who customer so far, a talked ago, had innovation our about Americas, market present products us we who few we and ways who from faster. sales bring there, the device kickoff, we all right, and is addressed help that to company a

So I'm customers what we're right in by from I'm on seeing and strategy, convinced really I'm this. the encouraged

James Ricchiuti

mentioned, also have any to kind you And company that growth intend the of I you in think, environment. macro

thus verticals year? that seeing sell you in into of from on major topic, Just what some the the here that far are you

Robert Bodor

a that saw in would of continued we highlight we strength defense. as the has and year, one certainly Last year. definitely and Yes. I That's lot aerospace start that

good strong. has So seeing in overall, this I'm been think that feeling I our with space. what we're And customers very about

James Ricchiuti

of And you overall as out. just are these playing get gauge, Are to to the trying to how initiatives I'm tone demand the some be we're last a environment. saw macro better or exiting entering going I sense year able think, going you a that QX? then forward, seeing to

Robert Bodor

Yes.

had below year, start I I year, rate which but think the more think last the to down that the to that we normal speaking middle guide a indicative is has is the of as been about guide, X% year-over-year. trending

Dan Schumacher

indicated think a the manufacturing by we've So period here, as U.S., the within prolonged had contraction I PMI.

uptick. need points into But a to say a period economy. see type more different lot had or of of January right, the see to to would data going many -- begin a of of there's time moving us uncertainty, a I just also longer kind year. there's slight Now we're to

supply that people's chains. As that things there's may or change impact changes legislation

Operator

of from Palm the line Greg Our Capital next comes with Craig-Hallum question Group.

Greg Palm

I I margin gross have quarter? wanted digging might down a the the revenue but did into gross And it, -- I down you just X% know, missed but bit, sequentially, that to XX%. profit almost give network little in don't

So didn't decrementals being figure really bet. that in I your

bit margin So anything down else gross a is there than more sequentially driving little maybe seasonality-wise? normal

Dan Schumacher

Yes.

network margin the in was gross around quarter the So XX%.

that look down It's If a well, at number, quarter-over-quarter year-over-year. which quarter The the network is volume, network revenue bit what gross the was and million number. a means you fourth take had up lower sequentially in drove grew in the margin Greg. $XXX as that which factory the that really

Greg Palm

Okay. on XXXX talked Rob, growing of the on assumes And a year, QX specifically, digging into year-over-year guidance just for you kind growth still about the for the decline. revenue

you some half? just giving -- comparisons or can I confidence if bit it on I that little the a So at give know color second point, that what's QX might return growth, you that's is back to what don't in whether you more -- guess, what's easy and when the half. clarity But or gives confidence year-over-year you

Robert Bodor

Yes.

we're seeing think I what growth hearing production our about seeing what's as just the and seeing great business, giving me traction I think confidence that -- I'm customers offerings we're there of right? heavy combined And adoption we're in is that. from the

things yes, a Now will start slower, are a that expect nice full as we we we the year, in growth. the to return little but see year do

Dan Schumacher

it to of growth. would second to thing, the piggyback organized I And just see the Yes, another half comments, on for Rob's we Greg, year.

like we right to grow ourselves positioning and we're in as so additional the growing as are those together in feel specifically investments, coming these ways to And we're teams production.

Unknown Analyst

grow think or expense And revenue come you at earnings Or of do does margins you -- level given I'm with curious, this as the revenue well? the lockstep and investments? earnings of growth elevated can does also

Dan Schumacher

Yes.

pickup go give this the top Then we So to in we meaningfully that time, that. is. it, growth, we as investing we're earnings where a through long So line. return that's If we to and the a sure. do investing the -- comes way focus for should term, for the grow right? over line see on see That we're shareholders top and

Robert Bodor

growth We're to revenue. growth. drives Revenue now earnings investing grow

Operator

today. your Ladies this this Q&A session. for our And you concludes and participation. We call our concludes thank and gentlemen, interest

lines. You your now may disconnect

Proto Labs (PRLB) 7 Feb 252024 Q4 Earnings call transcript