Proto Labs Inc (PRLB) Q1 2024 Earnings Call Transcript Highlights: Navigating Market Challenges ...

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Sat, May 4, 2024, 1:03 AM 4 min read

First Quarter Revenue: $127.9 million, top end of guidance range, 1% growth year-over-year in constant currency.
Proto Labs Network Revenue: $23.9 million, up 38% in constant currencies, a quarterly record.
US Revenue Growth: 4% year-over-year.
Europe Revenue: Declined 9% year-over-year in constant currencies.
Injection Molding Revenue: Grew approximately 1% year-over-year in constant currencies.
CNC Machining Revenue: Increased 3% year-over-year in constant currencies.
3D Printing Revenue: Flat year-over-year.
Sheet Metal Revenue: Declined 16% year-over-year in constant currencies.
Non-GAAP Gross Margin: Increased to 45.6%, up 30 basis points sequentially.
Non-GAAP Diluted Net Income Per Share: $0.4, above midpoint of guidance.
Free Cash Flow: $21.3 million from operations.
Stock Repurchase: $16 million, equivalent to 85% of free cash flow.
Cash and Investments: $112.9 million as of March 31, 2024, with zero debt.
Q2 Revenue Guidance: Expected between $122 million and $130 million.
Q2 Non-GAAP Earnings Per Share Guidance: Anticipated between $0.30 and $0.38.

Warning! GuruFocus has detected 4 Warning Signs with PRLB.

Release Date: May 03, 2024

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

Proto Labs Inc (NYSE:PRLB) reported first quarter revenue at the top end of guidance and earnings above expectations, demonstrating strong operational and financial execution.
The company has seen a significant increase in revenue per customer contact, which grew 5% year-over-year, indicating successful customer engagement and service expansion.
Proto Labs Inc (NYSE:PRLB) achieved a record quarterly revenue of $23.9 million from the Proto Labs network, marking a 38% increase in constant currencies.
The company's gross margin improved, with a first quarter non-GAAP gross margin increase of 30 basis points sequentially to 45.6%, driven by efficiencies in factory operations.
Proto Labs Inc (NYSE:PRLB) continues to expand its customer base and service offerings, with less than 5% of total customers utilizing both factory and network services, indicating significant growth potential.

Negative Points

Revenue growth was relatively flat, with only a 1% year-over-year increase in constant currency, indicating potential challenges in market expansion or customer acquisition.
European revenue declined 9% year-over-year in constant currencies, primarily due to non-recurring large orders from the previous year, highlighting regional vulnerabilities.
Sheet Metal revenue saw a significant decline of 16% year-over-year in constant currencies, affected by industry-wide softness in the computer electronics verticals.
Proto Labs Inc (NYSE:PRLB) experienced a softening in order growth towards the end of the quarter, particularly around the Easter period, which may impact future revenue projections.
Operational expenses are expected to increase slightly in the second quarter, potentially impacting profit margins if revenue growth does not meet expectations.

Q & A Highlights

Q: Can you elaborate on the order trends observed from the beginning of the year through April? A: Robert Bodor, President and CEO of Proto Labs, explained that the year started off slow but saw an uptick in orders from January through early March. However, order activity softened approaching Easter and continued through April. This trend influenced the company's guidance for the upcoming quarter.

Q: Is the improvement in gross margin sustainable, and what are the current gross margins within the network? A: Daniel Schumacher, CFO, noted that gross margin improvements are sustainable with increased automation and efficiency in their factories. He highlighted that network gross margins were over 31% in Q1, supported by improved algorithms for pricing and sourcing. The company aims to maintain these margins despite the challenging macro environment.

Q: How are you approaching the guidance for Q2 given the order softening in April? A: Robert Bodor mentioned that the guidance is based on current order trends and quotation activities. Despite the uneven macro environment, Proto Labs is focused on growth, as evidenced by their guidance and Q1 performance.

Q: What percentage of customers are currently utilizing both factory and network services, and what are the plans to increase this? A: Robert Bodor stated that less than 5% of customers are using both services. The company aims to increase this percentage by expanding offerings and aggressively marketing to existing customers. This strategy is fundamental to their sales and marketing efforts.

Q: Can you provide insights into the variability in business, particularly the differences between Europe and the U.S.? A: Robert Bodor noted that the general softness is more related to larger orders, particularly in the U.S. He also mentioned that Europe faced tough comparisons due to large orders in the previous year's first quarter that did not recur.

Q: How should we expect operating expenses to trend in the upcoming quarters? A: Daniel Schumacher indicated that operating expenses are expected to be slightly higher in Q2 compared to Q1 due to additional investments and trade show expenses. The company is preparing for a slight uptick in OpEx from Q1 to Q2.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

This article first appeared on GuruFocus.

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