Edited Transcript of PRLB earnings conference call or presentation 30-Apr-20 12:30pm GMT

Due ought the services we supply and at the application of our customers, Proto Labs has been deemed an theorem business, and vulgar our global manufacturing operations eat remained open.

We persist ought bug and pursue CDC and earth Health Organization guidelines. ought ensure the health and safety of our employees, we quickly implemented new cleaning and sanitizing measure operating procedures at vulgar our manufacturing facilities.

We also implemented new hasty -- new touch chanGE procedures ought minimize employee interaction and chanGEd layout at employee workstations ought attain social distancing.

We minimized exposure of external vendors and ceased passenger tours. We persist ought estimate solutions, such because screening because fever and other symptoms, ought allege the health of our employees.

As because our office employees, we implemented voyage restrictions at early March and canceled vulgar commerce emerge attendance. We halted face-to-face meetings and began transitioning because many employees because feasible ought working from home. We persist ought invent chanGEs ought uphold our employees and put them up because success at their new profession environments.

Work from family orders began at Japan at early March, followed by Italy, France, GErmany and the U.K. above March 27, while stay-at-home orders were issued at Minnesota, New Hampshire and North Carolina, the U.S. states at which we operate. Most of our employees, who could profession from family remotely, were already working from home. And we transitioned the remaining individuals swiftly and safely.

Our technique team has worked tirelessly ought ensure our employees can persist ought exist productive with this new mode of working. We now eat above 90% of our nonmanufacturing employees working from home. I've been identical impressed with the agility and creativity with which our employees eat adapted ought the chanGEs cabin continuing ought involve our center values of teamwork, confidence and achievement.

While we do our part ought slow the scatter of coronavirus, we also persist ought quickly send the high-quality parts that our customers eat expected -- eat grow ought outlook from Proto Labs.

We are grateful and proud ought do whatever we can ought help during this global pandemic. Our mission is ought help companies quicken innovation and optimize supply chains. Our e-commerce digital manufacturing copy is uniquely positioned ought help innovators quickly GEt their inventions into the hands of doctors and nurses or ought retort ought supply bind challenGEs that cause ought exist overcome ought meet the needs of the Medical community.

We are identical quickly producing critical parts that eat enabled our customers ought GEt products ought the front lines quickly ought help war this virus.

Our customers are turning ought us at this time of absence though of our genius ought product hundreds of thousands of product parts with turnaround era and feature dispose of that cannot exist achieved by other organizations.

To uphold our customers and our communities during this health crisis, we've created our Proto Labs COVID commitment: ought remain fully operational because an theorem business, ought prioritize vulgar COVID-related passenger needs and ought waive vulgar expedite fees because COVID customers.

We launched a COVID-19 passenger response team with dedicated sales and engineering professionals ought retort quickly with compose help and passenger support. We've received COVID-19 orders from above a 150 passenger companies, and there are additional opportunities energetic at our system. We eat had ought stretch some non-COVID-19 orders ought ensure the prioritized orders are delivered because instantly because possible, and we will persist ought prioritize COVID-19 orders because desire because is necessary.

We are thankful because the understanding of our customers whose orders eat been delayed at uphold of these efforts.

We eat also shipped or eat above order above 4 million parts with COVID-19 applications ought many different customers at the Medical space. Parts we eat made are ought help at the war of COVID-19 contain components because life-saving equipment, diagnostic systems, private protective installation and other applications. The majority of these timely Medical parts eat been manufactured with our Injection Molding process. besides we eat produced COVID-19 parts with each one of our manufacturing services. Some of the examples of the uphold we are providing are included above PaGE 6 of our presentation. We've provided thousands of injection-molded see safeguard headbands ought Zverse at order ought safeguard health anxiety workers above the front lines of the war against COVID-19.

Proto Labs has also produced components because main Medical installation companies because the product of ventilators. Additionally, we've machined parts because an innovative, affordable ventilator concept designed by a university of Minnesota Cardiac Anesthesiologists. We are fortunate ought clarify that this ventilator prototype received FDA approval above April 15, and we are now working above a product solution.

We also provided quick-turn injection molded parts ought molecular diagnostic company, NeuMoDx Molecular, because their diagnostic system that can find coronavirus at neutral 80 minutes.

In Europe, our team assisted Mercedes AMG and university ColleGE London ought mature injection molded tooling at 3 days ought compose thousands of critical parts because new breathing aids. These are neutral a little of the many examples, and we persist ought engaGE our customers with additional solutions.

In appendix ought ensuring the safety and health of employees, communities and customers, practicing effective social distancing techniques and manufacturing parts because critical virus-fighting applications, we're also supporting the war against COVID-19 across charitable organizations. Our employee committee, which directs gifts from the Protolabs Foundation, made 2 main chanGEs ought uphold the community at this time. First endowed by our founder, Larry Lukis, with continued funding from both Larry and Proto Labs, the basis has provided a vehicle because Proto Labs ought GEt uphold ought the community. The committee accelerated the foundation's annual STEM education grants ought help those recipients at providing food and technique needs during this time of social distancing.

We also recently increased our contest because employee charitable contributions across our Protolabs Foundation. because each dollar an employee gives, the Protolabs basis will contest $2.

This unprecedented worldwide emergency has impacted everyone and each substance at one mode or another. Proto Labs is identical thankful and proud that we can exist part of the solution. Our employees are working tirelessly ought ensure that we can help out at the response ought this pandemic. Our digital industry-leading manufacturing solutions and online ordering platforms has enabled our customers ought rapidly source flexible and metal parts during this global crisis. I am proud ought exist part of such a big company with incredible employees and supporting innovative customers.

Now turning ought our results because the first quarter. Today, we reported revenue of $115 million, representing growth of 1.5% above the first district of 2019, growth of 2.6% sequentially and finish the center of the guidance ranGE we provided above February 6. First district ordering trends were GEnerally at rope with our expectations across the first 2.5 months of Q1, and we persist ought do those orders and acknowledge the revenue across the aim of March.

I will now strut across how absence shifted because the district progressed. January started relatively slow, following the habitual seasonality pattern of our business. This data was reflected at the guidance we provided above our shout above February 6. while it became clean that manufacturing at China was no going ought grow uphold online quickly, we saw an expand at quoting activity at mid-February. This increased quoting activity was presumably due ought companies evaluating alternatives cabin developing continGEncy plans because latent supply bind disruption.

Despite the increased quoting activity, our orders did no expand at that time. because the coronavirus continued ought spread, we started ought shout on impacts at the affected regions, including a repel at quoting activity and orders at Southern Europe at February. because the bacteria reached the United States, we saw an inflection point because our substance due ought the COVID-19 outbreak at the aim of the second week of March.

As a arise of the GEneral economic slowdown, we saw orders repel approximately 20% across our portfolio, excluding Injection Molding.

In the final week of March, we began ought receive COVID-19-related orders, chiefly at our Injection Molding service at the United States, which helps mitigate the Q1 collision of the slowdown at our other services and at Europe and Japan.

As we entered Q2, the COVID-19-related orders continued at our Injection Molding service, resulting at noise year-over-year growth because the parts component of that service. We also experienced a surGE at parts orders at our existing Injection Molding product substance because customers built their inventory levels.

The order activity at our other services has remained dampened, compatible with the uphold half of March. The net arise is that our projected April revenue will exist down mid-single digits compared ought April of 2019. The rest of the second district and the leisure of the year rest highly doubtful because most businesses, and that is specially right with the absence character of our business.

As we emerge at the first district 2020 revenue by GEography, highlighted above glide 9 of our salary presentation, the Americas, our larGEst market, produced revenue growth of 3% above the previous year. absence was off year-over-year at our consumer end-markets at the Americas, cabin aerospace showed significant growth. Medical and computer electronics grew low-single digits.

Europe revenue declined 2% year-over-year, besides increased 1% at successive currency. revenue at our Medical aim just grew high only digits from the first district of 2019, offset by declines at automotive and industrial machinery.

Our Japan region declined 3% or 4.5% at successive currency. Overall, our substance grew 2% at successive currency.

Revenue by service because the district is presented above glide 10. prominent highlights contain the noise growth at 3D Printing of 10% and bit Metal of 12% despite the slowdown at these services at the uphold half of March.

Turning ought earnings. We reported first district non-GAAP EPS of $0.61 per share. Our salary were above our guidance ranGE of $0.50 ought $0.58 provided above February 6. These economical results were the arise of effectively managing our variable costs ought contest the volume because we further across the district and the reduction of sure expenses, such because commerce shows and travel, because we actively responded ought the coronavirus developments. John will supply more detailed economical data above the district a little afterward at the call.

As we emerge send ought the rest of the year, our sumit priority is ought allege the health and safety of our employees and communities because we persist ought manaGE across the COVID-19 crisis. We are fortunate ought exist at a post ought serve our customers during these doubtful times. We will persist ought adjust our variable and discretionary costs ought contest passenger absence cabin focusing above the long-term health of our business.

On our Q4 2019 shout at February, we discussed Protolabs 2.0 because our sumit priority. This project rest a priority because our business. However, it takes a uphold seat ought the health and safety of our employees.

As a reminder, Protolabs 2.0 is a systems project we eat undertaken ought heighten and evolve our systems and processes ought uphold our customers and our tactic because the next decade and beyond. There are 2 capital components of Protolabs 2.0: One, ought heighten our e-commerce platform and passenger experience; and two, ought improve the functionality and interconnectivity of the uphold aim systems, which uphold our operations.

The benefits of Protolabs 2.0, because outlined at our Q4 call, contain improvements at the passenger experience, our inner productivity, the hasten and scalability of the substance and expanded inner substance insights. Protolabs 2.0 is cabin extremely significant ought our business, and we are continuing ought profession diliGEntly, besides our time rope will likely exist slightly delayed. Many employees and our other goods dedicated ought this project are now working remotely.

We are focused above maintaining the equal productivity the project had previous ought the pandemic, besides obviously, we now absence ought profession differently. Working sessions, planning sessions and crowd meetings that used ought exist held at front of a rally room white Board are now online using video conferencing and other tools ought facilitate data gathering, collaboration and decision-making. We persist ought invent further above this project, and we will own you informed because we further across the year.

We remain confident at the long-term prospects of our business, and Protolabs 2.0 will expand our post because the capital digital manufacturing source because quick prototyping and on-demand production.

In the finish term, we will further send above Protolabs 2.0, cabin continuing ought manaGE across the COVID-19 pandemic, ensuring employee safety cabin continuing ought delight our customers.

The future holds uncertainty, and we are preparing continGEncy plans because a ranGE of different scenarios. Our substance copy has GEnerated noise cash flows above the years. And we eat a identical noise remains bit with sizable cash and investments and no debt. We are focused above managing our substance because the long-term because we serve vulgar our stakeholders, including our employees, our communities, our customers and our shareholders. The decisions we invent and the levers we drag will ensure that Proto Labs will persist ought exist a strong, viable company desire into the future.

With that, I'd parallel ought become the shout above 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. The Q1 economical results commence above PaGE 12 of our presentation. revenue at the first district was $115.1 million, an expand of $1.7 million or 1.5% above the equal district at 2019. Foreign cash had a slightly larGEr negative collision than we expected, representing a $600,000 headwind at the quarter, resulting at successive cash growth of 2%.

Turning ought manufacture developer growth. Our first district maiden manufacture developers served increased ought 20,876 or 1.5% growth compared ought the previous year and at rope with our overall revenue growth.

Gross employ because the district was $58.1 million, a diminish of $760,000 above the alike district of the previous year and a sequential expand of $1.5 million.

Gross edge was 50.5%, relatively flat with the 50.6% we reported at the fourth district of 2019. This compares with 51.9% at the first district final year.

Year-over-year entire edge compression of a 140 basis points at the first district was due ought the following factors: our annual virtue expand and GEneral waGE inflation resulted at a 90 basis point headwind at Q1 versus Q1 of 2019. We invested at our operations and installation ought uphold the business, especially at 3D Printing and Japan, resulting at a 70 basis point headwind at the quarter. These headwinds were offset by improvements at our entire margins at our New Hampshire operations, resulting at a 30 basis point advantage ought the overall entire margin.

Moving ought PaGE 13. Our non-GAAP operating expenses totaled $38.4 million or 33.3% of vulgar revenue at the first district of 2020, up $2 million from Q1 of 2019. Sales and Marketing was 15.3% of revenue at the district compared ought 15.9% at the previous year. The reduction at Sales and Marketing was chiefly driven by lower commerce emerge and other marketing activity also because lower voyage and entertainment during the quarter. The voyage restrictions eat provided our marketing team the occur ought sure their creativity by developing a virtual commerce emerge because a installation ought persist ought teach latent and existing customers above our capabilities. You can shout on our virtual trading emerge booth at the webinars and commerce Shows district of our website at protolabs.com.

Research and development price increased ought 7.4% of revenue compared ought 6.7% of revenue at the previous year. These investments chiefly related ought an expand at our external contractor price associated with Protolabs 2.0, because we persist ought further this significant project.

GEneral and administrative expenses were 10.7% of revenue compared ought 9.4% at Q1 of 2019 and 10.2% at the fourth quarter. The expand was predominantly related ought the recording of an estimated latent bad debt.

With the suspect created by the COVID-19 pandemic, many businesses are, or will be, facing cash run challenGEs. because a prudent measure ought cover the latent exposures, we're recording an additional salary because questionable accounts of approximately $1 million at the first quarter.

GAAP operating earnings was $16.8 million or 14.6% of revenue at the first quarter. Adjusted non-GAAP operating earnings was $20.6 million or 17.9% of revenue.

On a GAAP basis, our impose appraise was 21.8%, up from 21.1% at the first district of 2019. The GAAP impose appraise is influenced by a amount of factors each quarter, with the mix of substance among countries and states driving the larGEst part of the expand this quarter. above a non-GAAP basis, the impose appraise was 21.9% at the first district compared ought 21.3% at the previous year.

On a GAAP reporting basis, net earnings totaled $14 million, resulting at diluted salary per part of $0.52. Adjusting because the after-tax price of stock compensation, amortization of intangibles and unrealized foreign cash gains, our non-GAAP diluted salary per part at the district was $0.61, representing an $0.08 per part diminish from the previous year and a sequential diminish of $0.02 per share.

In summary, our economical deed this district was relatively noise compared ought many other companies operating at this environment. Our revenue held up across the quarter, with the help of some COVID-19 orders, allowing us ought send revenue at rope with our guidance. We manaGEd our costs at rope with the volumes at each facility, and realized the economical advantage from lower commerce emerge and other voyage spending, resulting at salary above our guidance ranGE.

Now turning ought cash flow. Our substance continues ought compose noise cash flows, and we eat a identical noise remains bit with no debt. We GEnerated $22.4 million at cash from operations during the quarter. Our cash from operations is seasonally lower at the first district each year, chiefly driven by the timing of payments of sure liabilities, including annual incentive payments.

Capital expend at the first district was $13.4 million, including investments at Protolabs 2.0, additional installation and installation projects at Europe.

We also returned capital ought shareholders by repurchasing $12 million or 161,000 shares of ordinary stock at an averaGE charge of $74.18. Given our noise cash GEneration and firm cash position, we continued our opportunistic stock buyback tactic beneath a 10b5-1 project across the aim of the first district and into April. We eat $35 million remaining beneath our buyback program and anticipate taking a conservative manner because we persist ought deploy our opportunistic strategy. We ended the first district with a cash and marketable securities remains of a $167 million.

Turning ought our outlook because the second quarter. We eat historically provided quarterly guidance. Given the suspect at the market, we feel it's best ought supply data above what we eat seen ought date, and supply additional details because ought how we are managing the substance pretty than ought supply formal revenue and salary per part guidance.

Starting with April, ordering and revenue trends ought date. because Vicki described, ordering trends began ought repel at the third week of March. instantly thereafter, COVID-19-related orders started ought ramp up. at total, we eat received approximately $9 million at COVID-19 orders and will acknowledge approximately $5 million of revenue above these orders at April. These orders, combined with the expand at product orders, eat resulted at projected April Injection Molding parts revenue growth of approximately 25% and overall Injection Molding growth of approximately 15%. Collectively, our Other Services are down approximately 20% at April compared ought the previou