Proto Labs, Inc. (NYSE:PRLB) Delivers Solid Q1 2024 Results, Sees Softening in Larger Orders Towards End of Quarter

Published on September 24, 2024 | Ticker: PRLB

Proto Labs, Inc. (NYSE:PRLB), a leading provider of digital manufacturing services, reported its financial results for the first quarter of 2024, showcasing strong operational and financial execution. The company delivered revenue at the top end of its guidance range and earnings above expectations, driven by continued progress on its strategic priorities.

Financials

For the full year 2023, Proto Labs reported annual revenue of $503,877,000 and net income of $17,220,000. The company generated annual operating cash flow of $73,274,000 and free cash flow of $44,158,000.

In the first quarter of 2024, Proto Labs reported revenue of $127,890,000, up 1.6% year-over-year. The company's U.S. segment revenue grew 3.8% year-over-year, while the Europe segment declined 6.1% due to tough comparisons from large orders in the prior year period. Revenue from the Protolabs Network, which provides access to a global network of premium manufacturing partners, reached a quarterly record of $23,900,000, up 38% in constant currency.

By product line, the company saw a 3.8% increase in CNC Machining revenue, a 1.2% increase in 3D Printing revenue, and a 1.4% increase in Injection Molding revenue. This was partially offset by a 16.4% decrease in Sheet Metal revenue and a 31.6% decrease in Other Revenue, as the Sheet Metal business is more exposed to the softening computer electronics vertical.

Gross margin for the quarter improved 30 basis points sequentially to 45.6%, driven by improvements in the company's factory gross margins. Proto Labs Network gross margin was 31.7%. Non-GAAP diluted earnings per share came in at $0.40, above the midpoint of the company's guidance range.

Executive Commentary

"We demonstrated strong operational and financial execution in the quarter, delivering first quarter revenue at the top end of our guidance range and earnings above expectations," said Rob Bodor, President and Chief Executive Officer of Proto Labs. "These results were driven by the continued execution of our two strategic priorities: increasing the number of customers using our comprehensive offer and driving higher revenue per customer through larger orders and all services."

Strategic Priorities

The company made progress on its first strategic priority, noting that less than 5% of its 53,000 total customer contacts purchased parts through both its factory and the Protolabs Network. Bodor sees this as a significant growth opportunity, as customers that utilize both the factory and network spend approximately double compared to all other customers.

On the second priority, Proto Labs is benefiting from recent technological advancements in its factory, including investments in robotics, automated mold polishing, and machine perception for quality verification. The company has also expanded its production capabilities and pricing options through the Protolabs Network.

Outlook

Looking ahead, Proto Labs provided guidance for the second quarter of 2024. The company expects revenue between $122 million and $130 million, with non-GAAP earnings per share between $0.30 and $0.38. This guidance reflects some softening of larger orders towards the end of the first quarter and into April, though the company still expects year-over-year revenue growth in the second quarter.

Financial Position

"We are pleased with the improvements we've seen in factory gross margins as we drive continued innovation in automation and efficiency as the world's most advanced digital manufacturer," said Dan Schumacher, Chief Financial Officer of Proto Labs. "Our industry-leading cash flow generation model produced $21.3 million in first quarter cash from operations, and we remain in a strong financial position with $112.9 million of cash and investments on our balance sheet and zero debt."

Conclusion

Proto Labs' unique combination of speed, reliability, and quality through its digital manufacturing capabilities has enabled the company to serve customers across a wide range of industries, from medical devices to aerospace. The company's focus on expanding its comprehensive offering and driving higher revenue per customer positions it well for continued growth, despite the current macroeconomic uncertainties.

Overall, Proto Labs' first quarter 2024 results demonstrate the company's ability to execute on its strategic priorities and deliver strong financial performance, even in a challenging environment. The company's innovative digital manufacturing solutions, diversified customer base, and solid financial position make it well-equipped to navigate the evolving market conditions and capitalize on the significant growth opportunities ahead.

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