Q1 2019 Proto Labs Inc revenue Call
Maple frank Apr 25, 2019 (Thomson StreetEvents) -- Edited Transcript of Proto Labs Inc revenue rally summon or presentation Thursday, April 25, 2019 can 12:30:00pm GMT
TEXT version of Transcript
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Corporate Participants
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* Daniel Schumacher
* John A. Way
Proto Labs, Inc. - CFO & Executive VP of Development
* Victoria M. Holt
Proto Labs, Inc. - President, CEO & Director
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Conference summon Participants
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* Andrew Lodovico DeGasperi
Joh. Berenberg, Gossler & Co. KG, inquiry piece - Analyst
* Ben Zion Rose
Battle motorway inquiry Ltd. - Founder, principal & Analyst
* Brian Paul Drab
William Blair & company L.L.C., inquiry piece - fellow & Analyst
* Gregory William Palm
Craig-Hallum leading masses LLC, inquiry piece - Senior inquiry Analyst
* James Andrew Ricchiuti
Needham & Company, LLC, inquiry piece - Senior Analyst
* Troy Donavon Jensen
Piper Jaffray Companies, inquiry piece - MD and Senior inquiry Analyst
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Presentation
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Operator [1]
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Greetings and hail ought the Proto Labs First piece 2019 revenue Call. can this time, sum participants are can a listen-only mode. A concise question-and-answer rally will chase the formal presentation. (Operator Instructions) during a reminder, this rally is being recorded. It is now my pleasure ought introduce your host, Mr. Daniel Schumacher, Director of FP&A and Investor Relations. Thank you. You can begin.
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Daniel Schumacher, [2]
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Thank you, operator and good morning everyone. With me today is Vicki Holt, our principal and head Executive officer and John way, our head economical Officer. This morning ago the impartial opened, Proto Labs issued a periodical liberate announcing its economical results during the first piece ended March 31, 2019. The liberate is available above the Company's website can protolabs.com. can addition, a prepared slip presentation is available online can the web hail provided can our periodical release. ago we used to exist we begin, I used to parallel ought recolect everyone that our discussion will cause statements relating ought future action and expectations that are or can exist considered forward-looking statements and mystery ought many risks and uncertainties that could make genuine results ought disagree materially from expectations. amuse refer ought our revenue periodical liberate and modern SEC filings, including our Annual explain above figure 10-K during news above certain risks that could make genuine outcomes ought disagree materially and adversely from any forward-looking statements made today. The results and guidance we will argue cause non-GAAP economical measures compatible with our past practice. amuse refer ought our periodical liberate and accompanying slip presentation within the Investor Relations region of our company website during a sum reconciliation of GAAP ought non-GAAP results. Now, I'd parallel ought fetch the summon can ought Vicki Holt, principal and head Executive officer of Proto Labs. Vicki?
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Victoria M. Holt, Proto Labs, Inc. - President, CEO & Director [3]
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Thanks, Dan. Good morning, everyone. Thank you during joining us above our first piece rally call. This morning we reported first piece revenue of $113.5 million, representing growth of 5% can 2018 or 6.9% can successive currency. Our adjusted revenue per piece were $0.69, representing a $0.02 per piece refuse compared ought the first piece of 2018. during we analyzed our action can the first piece of 2019, the revenue growth can our legacy services was nearly 11% can successive currency. The challenges, we experienced can the first piece related mainly ought the services acquired can the motivate Manufacturing acquisition. The revenue and the revenue growth from our acquisition of motivate Manufacturing did no confront our expectations this quarter. during we discussed can our revenue summon above February 7, we did no undergo the amplify can ask during the acquired Sheet Metal and expanded CNC services, when we began selling these services ought the legacy Proto Labs customers above January 1. can fact, the revenue from the services produced can the acquired equipment declined $2.5 million or 21% compared ought the first piece of 2018. during we discussed can the fourth piece revenue call, when we integrated the two sales teams, we distributed accounts and disrupted the sum sales organization by realigning accounts ought allow our customers ought exist managed by one explain manager fairly than two. One other factor that -- is that we standardized our offer ought improve the reliability and throughput of our operations. motivate historically operated during a traditional mechanism department without a standardized offer, always accepting non-standard career that is no scalable. The acceptance of these orders usually resulted can late deliveries, extended carry out period above measure orders and dissatisfied customers. Our customers dine told us they worth Proto Labs' reliability, characteristic and speed. can that order, we standardized the manufacture offer ought pledge we could consistently and reliably confront our delivery commitments can scale, anticipating stronger ask when we opened up the services ought sum of the legacy Proto Labs customers. This change resulted can some turnover can the guest base that was greater than anticipated. We study this is the precise road can the need language during we concentrate above reliably servicing our customers with characteristic products and on-time delivery. I will argue actions we are taking ought motivate ask can the motivate services afterward can the call. during we appear can our first piece revenue by geography, the Americas, our largest market, produced revenue growth of 4.3% can the foregoing year. motivate services was the foremost driver of the lower growth worth compared ought the foregoing periods. revenue growth can our Americas' legacy services was 9.3%.Europe produced year-over-year revenue growth of 6.6% or 14.8% can successive currency. Europe's growth rebounded nicely after a slow December during guest purchasing picked up even with the supicion of Brexit. Our Japan quarter grew 20.8% or 23.2% can successive currency. Our distribution partnership with Misumi can Japan continues ought quicken ask can the region. can total, our affair grew 6.9% can successive currency. Moving ought revenue by service. Injection molding produced record revenue and increased 7.7% compared ought the first piece of 2018. CNC machining year-over-year growth was 3.1%. Our CNC service includes an expanded offer acquired can the motivate transaction. The revenue produced out of the acquired operations was down $1.3 million compared ought the foregoing year. Our legacy CNC operations grew 8% can the first piece of 2019 after experiencing colossal growth of can 40% can the first piece of 2018 creating a difficult year-over-year comparable. First piece 3D printing revenue was too a record and increased 17.5% from the foregoing year with both the Americas and Europe growing can parallel rates. Our growth is delegate of our ever-expanding thought leadership can this space. can the quarter, we teamed up with Wohlers and Associates ought broadcast a new immersive lecture of pattern during additive manufacturing. The two like-minded organizations are bringing decades of combined additive manufacturing undergo ought assist engineers and designers ripen methods and strategies ought win the most from various 3D printing technology. This follows announcements can foregoing apartment of joining GE Additive fellow network, and becoming a founding member of MIT's core during Additive and Digital Advanced produce Technology. Finally, our newest service Sheet Metal contributed $5 million of revenue can the quarter, representing a refuse of 19.5% year-over-year. Turning ought earnings, we reported first piece non-GAAP EPS of $0.69 per share, representing a year-over-year refuse of $0.02 per share. Our modern epoch revenue were impacted by the lower-than-anticipated volumes of our motivate services and investments we're making can our sales and marketing and inquiry and development areas ought facilitate growth. Our investments are focused above continuing ought exist the world's largest and fastest digital manufacturing source during motivate prototyping and on-demand production. Our achievements can this universe sustain ought exist recognized and first piece was no exception. can the quarter, The National club of Manufacturers recognized Proto Labs during a Manufacturing Leadership Awards winner during its prominent achievement can Engineering and produce Technology. Our manufacturing engineers developed toolpath generation software that achieved extremely level surface finishes during injection mold without increasing milling time. We sustain ought compose advancements can our services ought abbreviate our carry out period and increase our divide envelope can a digital manner. Now during an update above our 2019 priorities. during we discussed can our final earning calls, we dine four priorities during this year; sustain ought evolve our go-to impartial model, enhance our guest experience, improve our overall efficiency during a company, and improve the action of the acquired motivate operation. Our efforts related ought the first and final priorities are focused above improving the action of the motivate services. during a management team, we were same excited ought increase the breadth of our capabilities and sustain ought offer differentiated services ought our existing guest base. The launch of these services did no generate the volume we had planned, and it has the sum concentrate of my management team ought make the sum latent of and pledge of these new offerings. Based above our experiences can the first quarter, there are four foremost actions we are taking ought improve performance. First, can the first piece we restructured the motivate sales organization, including changes can sales leadership. Our New Hampshire sellers are getting comfortable with the new books of affair and selling sum of Proto Labs' services. can Q2, we will sustain ought coach and piece best practices ought improve our go-to-market success. Second, we will sustain ought invest can marketing ought highlight the availability of our expanded service offerings ought motivate increased demand. Third, we will lessen the published carry out time of the Sheet Metal business. We are capable ought carry out this based above automation and capacity investments we've made can the business. This pledge of unprecedented haste is something our customers dine learned ought outlook from us and allows us ought receive piece from the market. And finally, we sustain ought analyze our news and look opportunities ought equipment value-based pricing and improve leverage our quoting machinery ought improve shut rates. can the piece we will receive use of these opportunities and entertain more business. The investment article has no changed. 70% of our customers sustain ought apply Sheet Metal services. Our excitement during these new services has no diminished. We will sustain ought motivate improvements can our go-to-market strategy, operations and offerings ought delight our customers and become this business. Our other priorities, ought sustain ought enhance our guest undergo and improve our overall efficiency, cause projects that are being worked by our R&D and software teams. We will supply farther updates above these priorities during the year progresses. still the growth can the first piece was no during noise during we used to dine liked, our future opportunities surplus noise and we will sustain ought concentrate above execution of our priorities ought motivate affair performance. With that, I used to parallel ought fetch the summon can ought John.
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John A. Way, Proto Labs, Inc. - CFO & Executive VP of development [4]
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Thank you, Vicki. revenue can the first piece was $113.5 million, an amplify of $5.7 million or 5.3% can the same piece can 2018. Foreign coin had a slightly larger negative collision than we expected, representing a $1.7 million headwind can the quarter. Turning ought manufacture development growth. Our first piece only manufacture developers served increased ought 20,573 or 9% growth compared ought the foregoing year. complete favour during the piece was $58.9 million, an amplify of $1 million can the similar piece of the foregoing year. complete edge was 51.9%, a sequential decrease from the 52.5% we reported can the fourth piece of 2018. This compares with 53.7% can the first piece final year. Year-over-year complete edge compression can the first piece was owing ought the following factors; first, the investment we made can expanding the capacity of the motivate operations combined with lower-than-anticipated volume drove an 80 base point headwind ought our consolidated complete margins can the first piece of 2019 compared ought the first piece of 2018. Next, higher facility costs associated with our new CNC facility, it created a 50 base point decrease can complete margin. Finally, the remaining 50 base point refuse was driven by a quantity of factors, including affair blend and annual revenue inflation. Operating expenses totaled $39.4 million or 34.7% of complete revenue during the first piece of 2019, up $400,000 from Q4. Sales and marketing was 16.4% of revenue can the piece compared ought 15.4% can the foregoing year. The increased investment related ought an amplify can headcount ought motivate long-term growth, expenses associated with integrating the motivate sales force, and investments can developing noise of guest capability. inquiry and development price increased ought 7.1% of revenue compared ought 6.2% of revenue can the foregoing year. These investments related ought continuing ought add engineering capability ought increase their divide envelope can each of our services and investments ought estimate new technologies can 3D printing. GAAP operating revenue was $19.4 million or 17.1% of revenue can the first quarter. Adjusted non-GAAP operating revenue was $23.4 million or 20.6% of revenue. above a GAAP basis, our tax worth was 21.1%, up from 17.6% can the first piece of 2018. The GAAP tax worth is influenced by a quantity of factors each piece with the timing of drill of stock up -- stock-based compensation being a significant variable. above a non-GAAP basis, the tax worth was 21.3% can the first piece compared ought 23.5% can the foregoing year. above a GAAP reporting basis, net revenue totaled $15.5 million, resulting can diluted revenue per piece of $0.57. Adjusting during the after-tax fare of stock compensation, amortization of intangibles and unrealized foreign coin losses, our non-GAAP diluted revenue per piece can the piece was $0.69, representing a $0.02 per piece decrease from the foregoing year and a sequential decrease of $0.05 per share. can summary, our economical action this piece was impacted by home capacity and staffing during anticipated volumes can our acquired Sheet Metal and expanded CNC services that did no materialize, the inclusion of expenses during a sum piece above our new CNC facility that was placed can service can the purpose of the fourth piece ought back future growth, and investments can sales and marketing and inquiry and development. Now turning ought coin flow, we generated $18 million can coin from operations during the quarter. Our coin from operations were lower than modern quarters, mainly driven by timing of payments of certain liabilities, including annual incentive compensation. leading cost can the first piece was $12.7 million, mainly owing ought investments can instrument systems and IT infrastructure. We too returned leading ought shareholders by repurchasing $17.3 million or 157,700 shares of usual stock. We ended the first piece with a coin and marketable securities surplus of $139 million, down from $155 million can the purpose of 2018. Now I'd parallel ought supply our expectations during the second piece of 2019. We currently outlook Q2 revenue ought exist can the range of $114 million ought $120 million, or growth can the range of 4% ought 9%. This revenue guidance reflects the following factors; the services of the motivate Manufacturing affair will improve sequentially, besides will responsible exist down year-over-year. We worth foreign coin will dine nearly $1 million negative collision above our Q2 revenue during compared ought the foregoing year. Moving ought revenue guidance. We worth our operating costs, including sales and marketing price will exist higher than Q1 owing ought ordinary seasonality of business shows. Our non-GAAP add-backs during the piece will cause stock compensation costs of nearly $3.5 million and amortization of $900,000. We currently worth our non-GAAP tax worth ought exist nearly 21% ought 22% can Q2. Taking into consideration sum the above, we outlook our quarterly non-GAAP EPS ought exist among $0.66 and $0.74 per piece can the second quarter. That concludes our formal remarks. Now Vicki and I'd exist favourable ought receive your questions. Operator, can you amuse blank the summon during Q&A?
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Questions and Answers
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Operator [1]
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Thank you. We will now exist conducting a question-and-answer session. can the use of time, we request that you amuse bounds yourself ought one mystery and one follow-up. (Operator Instructions) Our first mystery comes from the queue of Brian Drab with William Blair & Company. amuse proceed with your question.
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Brian Paul Drab, William Blair & company L.L.C., inquiry piece - fellow & Analyst [2]
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Hey, good morning. Thanks during taking my questions.
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Victoria M. Holt, Proto Labs, Inc. - President, CEO & Director [3]
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Good morning, Brian.
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John A. Way, Proto Labs, Inc. - CFO & Executive VP of development [4]
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Good morning.
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Brian Paul Drab, William Blair & company L.L.C., inquiry piece - fellow & Analyst [5]
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I guess, of course, let's fair begin with Rapid, please. consequently a couple of questions here. I'll list into one, during I've only got allocated two questions. consequently the Sheet Metal affair action perhaps can April versus what you saw final year and sequentially, can you harmony us an update above the final 25 days? And then, perhaps can you comment above the turnover can more detail can the guest base there? And was that more above the Sheet Metal phase or above the CNC side? And I will fair abandon it there during now.
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Victoria M. Holt, Proto Labs, Inc. - President, CEO & Director [6]
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Yes. consequently we sustain ought look a gradual improvement can our -- sum of our metrics can both Sheet Metal and can CNC, besides it is gradual improvement. And consequently we carry out outlook ought look sequential improvement can sales, revenue above both Sheet Metal and the new CNC offer out of motivate Manufacturing can Q2, though during we mentioned, it will perhaps cottage exist slightly negative year-over-year, besides improve than what we've experienced during the first piece during we sustain ought kill above the actions that we identify and improve both the offer, the pricing and the method that the sales team is implementing the strategies with the customers. consequently we outlook ought look that ought continue. can condition of the second divide of your question, which was...
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Brian Paul Drab, William Blair & company L.L.C., inquiry piece - fellow & Analyst [7]
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About the turnover, was it more can (inaudible) .
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Victoria M. Holt, Proto Labs, Inc. - President, CEO & Director [8]
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Turnover, yes. no it was exhibition (inaudible) . study nearly this can this way, Brian. They were a traditional mechanism department and a traditional mechanism department did no dine a measure offer can sum and usually a sales team used to fetch can with something that is indeed out of the scope of a scalable, capable deed ought sustain ought scale. And they used to visit those orders and disrupt the sum flow. We've now gone ought a measure offering and indeed optimized the flow, consequently that we dine reliable on-time deliveries. during you know, our customers outlook 98% on-time delivery routinely even during we scale. And consequently that's a various philosophy, a various road ought managing a machining deed or a Sheet Metal deed than a traditional manufacturing. That's what allows us ought deliver the arrange of guest satisfaction that we deliver, and our customers will speak us that is divide of the worth that's there. consequently we felt same -- it was very, same significant during us ought lay that offer can lay and can proceed of moving forward with turning above the machinery ought the Proto Labs sales organisation and the Proto Labs customers consequently that we can pledge those experiences that they dine with this new offer ought confront the expectations of the Proto Labs' brand promise. consequently I am confident can the need term, this is the precise business ought do. besides we did look guest turnover can both of those businesses and the revenue growth too did no excellent up during we had expected it ought carry out during rapidly. We expected that ought happen.
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Brian Paul Drab, William Blair & company L.L.C., inquiry piece - fellow & Analyst [9]
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So what has been the bigger factor although can the year-over-year refuse can that business? Is it the disruption can the sales compel or is it you making the aware determination that you wanted ought influence away from non-standard business? And what percent of the motivate affair was non-standard that you're fair no doing anymore? Which of those issues is bigger?
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Victoria M. Holt, Proto Labs, Inc. - President, CEO & Director [10]
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I study they're both a factor. And when you indeed [ph] study nearly it, it's a various method of selling. The sales team can New Hampshire is selling now a measure offer during opposed ought fair taking any things perhaps out there and trying ought gown it into a box and compose it work. Now they dine ought sell a measure offer. consequently it's a various method ought influence can ought market. consequently that is a change and that is causing some of our sales team can New Hampshire ought indeed battle with how ought influence can ought impartial that method doing a destiny of training, had a little piece of turnover can that sales team, which is no unexpected during well. consequently it's indeed difficult ought tease those two apart. besides there is -- it is occurrence across both services and there's some business, which indeed is no scalable, which we -- which doesn't gown into the measure offer and is now external of the range.
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Brian Paul Drab, William Blair & company L.L.C., inquiry piece - fellow & Analyst [11]
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Okay, thanks. I'll dine ought pass it across during now. Thank you.
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Operator [12]
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Thank you. Our next mystery comes from the queue of Andrew DeGasperi with Berenberg Capital. amuse proceed with your question.
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Andrew Lodovico DeGasperi, Joh. Berenberg, Gossler & Co. KG, inquiry piece - Analyst [13]
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Good morning. I guess, the first mystery above the expanded CNC efforts, it seems obviously that affair you flagged during being weaker. Are they the same issues you dine with Sheet Metal or is that fair indeed isolated ought the explain consolidation? And then secondly, could you perhaps fair oration nearly Europe? I mean, it was surprising growth given that the quar
