NYSE:PRLB Proto Labs Q2 2025 Earnings Report $43.17 -0.02 (-0.05%) As of 01:30 PM Eastern This is a fair market value price provided by Polygon.io. Learn more. ProfileEarnings HistoryForecast Proto Labs EPS ResultsActual EPS$0.41Consensus EPS $0.33Beat/MissBeat by +$0.08One Year Ago EPS$0.38Proto Labs Revenue ResultsActual Revenue$135.06 millionExpected Revenue$128.05 millionBeat/MissBeat by +$7.01 millionYoY Revenue Growth+7.60%Proto Labs Announcement DetailsQuarterQ2 2025Date7/31/2025TimeBefore Market OpensConference Call DateThursday, July 31, 2025Conference Call Time8:30AM ETConference Call ResourcesConference Call AudioConference Call TranscriptSlide DeckPress Release (8-K)Quarterly Report (10-Q)Earnings HistoryCompany ProfileSlide DeckFull Screen Slide DeckPowered by Proto Labs Q2 2025 Earnings Call TranscriptProvided by QuartrJuly 31, 2025 ShareLink copied to clipboard.Key Takeaways Positive Sentiment: We delivered record Q2 revenue of $135.1 million, up 6.5% year-over-year, surpassing guidance and generating EPS of $0.41, while returning $3.1 million through share repurchases. Positive Sentiment: CNC machining revenue grew 20% year-over-year (30% in the US), driven by aerospace and defense demand from customers like NASA, Boeing, and Lockheed Martin across both digital factories and the Proto Labs Network. Neutral Sentiment: New CEO Suresh Krishna, in the role for two months, plans no radical strategy shifts and will focus on sharpening execution through enhanced customer and employee experience to reaccelerate sustainable growth. Positive Sentiment: Proto Labs’ Raleigh metal 3D printing service achieved ISO 13485 certification in June, positioning the company to accelerate growth in metal-printed non-active medical implants and devices. Negative Sentiment: Steel and aluminum tariffs created a 90 basis-point gross margin headwind in Q2, though AI-driven pricing adjustments and global manufacturing flexibility restored margins to pre-tariff levels by June. AI Generated. May Contain Errors.Conference Call Audio Live Call not available Earnings Conference CallProto Labs Q2 202500:00 / 00:00Speed:1x1.25x1.5x2xThere are 7 speakers on the call. Operator00:00:00Ladies and gentlemen, good morning, and welcome to the Proto Labs Second Quarter twenty twenty five Earnings Conference Call. At this time, all participants are in a listen only mode. A brief question and answer session will follow the formal presentation. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Jason Franklin, VP and Corporate Controller. Operator00:00:34Please go ahead, sir. Speaker 100:00:36Thank you, Ryan. Good morning, everyone, and welcome to Proto Labs' Second Quarter twenty twenty five Earnings Conference Call. I am joined today by Suresh Krishna, President and Chief Executive Officer and Dan Schumacher, Chief Financial Officer. This morning, Proto Labs issued a press release announcing its financial results for the second quarter ended 06/30/2025. The release is available on the company's website. Speaker 100:01:03In addition, a prepared slide presentation is available online at the web address provided in our press release. Our discussion today will include statements relating to future performance and expectations that are or may be considered forward looking statements and subject to many risks and uncertainties that could cause actual results to differ materially from expectations. Please refer to our earnings press release and recent SEC filings, including our annual report on Form 10 ks, for information on certain risks that could cause actual outcomes to differ materially and adversely from any forward looking statements made today. The results and guidance we will discuss include non GAAP financial measures consistent with our past practice. Please refer to our press release and the accompanying slide presentation at the Investor Relations section of our company website for a complete reconciliation of GAAP to non GAAP results. Speaker 100:02:00Now I'll turn the call over to Suresh Krishna. Suresh? Speaker 200:02:05Thanks, Jason. Good morning, everyone, and thank you for joining our second quarter earnings call. Before getting into the details of our record performance during the quarter, I'd like to quickly introduce myself. I am honored and excited to step into the role of President and CEO at Proto Labs. I'm an engineer by training and have held many leadership positions in supply chain, operations, and general management. Speaker 200:02:38I have overseen profitable growth and shareholder value creation at several manufacturing companies. As a former Proto Labs customer, I have seen firsthand how the company reliably delivers high quality custom parts and accelerates innovation for some of the world's most pioneering companies. In fact, I used Proto Labs' digital manufacturing capabilities to accelerate product development and beat the competition to market. I have long admired the company's leadership in digital manufacturing, its strong culture, and its commitment to innovation and customer service. Proto Labs' next chapter is going to be an extraordinary one, and I'm thrilled to be leading this talented team. Speaker 200:03:32I also want to take a moment to thank Rob Boudour for his many contributions and leadership over the past several years. Rob played an important role in helping set the company's direction, and I'm grateful for the foundation he helped build. I have been in the role just over two months now, and I've spent much of that time listening to employees in our manufacturing facilities and offices, meeting with customers, and taking a fresh look at our strategy and how we are executing it. These experiences have only reinforced my conviction in Proto Labs' potential. We have a very innovative and resilient culture and a pervasive mindset for continuous improvement. Speaker 200:04:23I believe in this company. I have personally seen the value Proto Labs delivers to its customers, and I'm excited about the opportunity to lead this great organization. This is a wonderful company with best in class profitability and cash flow generation, and a history of rapid growth. But in recent years, our growth has not kept pace with expectations. That said, I see this as a significant opportunity and I'm energized by the work ahead to help reaccelerate the business towards sustainable, strong growth. Speaker 200:05:02I'm confident in our strategy of delivering high quality custom parts across the full product lifecycle, from prototyping to production. With a strong foundation already in place, I believe we can sharpen our execution, particularly when it comes to customer and employee experience. These may sound like simple concepts, but done right, they can unlock meaningful long term growth. They will be my top two focus areas. I'm sure many of you are eager to hear about my long term strategic vision, and that's an appropriate question. Speaker 200:05:46Let me reassure you that in the near term, there will be no radical shift in our current strategy. My immediate focus is to listen, learn and engage closely with our teams, customers and partners to identify the highest impact opportunities. I look forward to sharing more in the coming quarters. Now, on to our second quarter results. We delivered a very strong quarter, exceeding expectations in both revenue and EPS. Speaker 200:06:21This included record revenue, highlighting our ability to execute effectively in a dynamic and uncertain environment. Our best in class profitability also enable us to continue returning capital to shareholders through ongoing share repurchases, further demonstrating the strength and resilience of our business model. I want to thank our teams across the globe for their hard work and dedication. This performance wouldn't be possible without them. In addition to our financial results, we were also honored to receive a 2025 Future of Manufacturing Project Award from the National Association of Manufacturers. Speaker 200:07:07This recognition validates the progress we've made as a technology focused customer centric manufacturer and underscores our leadership in driving innovation and agility across the industry. I'm also excited to announce that in June, our metal three d printing service in Raleigh, North Carolina received ISO 13,485 certification, which is an internationally recognized quality standard for medical device manufacturers. This certification is important to both current and prospective medical customers and demonstrates our commitment to quality and excellence in medical device manufacturing. The ISO thirteen thousand four and eighty five certification will help accelerate our growth in medical, specifically metal three d printed non active implants and other devices. Thanks to our production and quality teams for their hard work to achieve this certification. Speaker 200:08:13Now, shifting to our two key growth indicators in the quarter. Customers utilizing our combined offer grew 44% over the trailing twelve months. And revenue per customer in the second quarter increased 11% year over year. I'm very encouraged by the continued traction we are seeing, particularly in expanding share of wallet with strategic customers. We also continue to make significant progress on our growth investments that we first shared with you on our Q4 twenty twenty four call in February. Speaker 200:08:56First, our marketing investments continue to drive engagement and reinforce our brand in both prototyping and production. We are seeing increased awareness and interest from customers across our target industries, especially aerospace and defense, where our speed, complexity, and domestic capabilities make us a preferred partner. We help accelerate innovation for a wide variety of customers in aerospace and defense. We serve the leaders in space exploration and satellites like NASA, Blue Origin, and Relativity Space, as well as commercial aircraft manufacturers like Airbus and Boeing. Defense contractors including Raytheon, Lockheed Martin, Nottrop Grumman, and Andero all trust Proto Labs to deliver quality parts quickly. Speaker 200:09:54In addition, we manufacture lots of parts for companies on the leading edge of drone development, including defense, electric flying taxis, parcel delivery services, and many more. In an industry with lots of funding and innovation, Proto Labs is a trusted manufacturing partner for many. As our second key growth investment, we have continued to advance our sales enablement tools and processes, allowing our sales teams to better understand the strategic production needs of our customers and make it easier for these customers to interact with Proto Labs in this context. And third, we also continue to make progress to optimize our fulfillment channels. These efforts help us better align our manufacturing footprint and capabilities with customer demand and are central to our ability to deliver a seamless customer experience across both factory and partner network. Speaker 200:11:00We are still early on the journey to improve our production fulfillment capabilities. Our global operations organization continues to refine how parts are manufactured with excellent quality in the right place at the right time for the right price, which vastly improves the customer experience. Turning to tariffs and the evolving trade landscape. This is another area where Proto Labs is well positioned to succeed. As always, we are focused on what we can control. Speaker 200:11:38Speed and agility are central to our operations, and those trends are especially critical in today's environment. Our global manufacturing footprint gives us the flexibility to adapt quickly to shifting supply chain dynamics and serve customers effectively regardless of geography. While trade policies and tariffs continue to change rapidly, we believe tariffs and further investments in American manufacturing innovation are a tailwind for our business in the long term. On the other hand, tariffs and frequently changing trade policies can create short term margin pressures. For instance, if we quote a price for the customer and subsequent trade policies alter our cost structure, we absorb that risk in the short term. Speaker 200:12:31While this may impact margins temporarily, our AI driven pricing and fulfillment systems enable us to adapt in real time, delivering a smoother customer experience than many peers who simply pass tariff related increases directly to the customer. This is a strong example of how we reduce friction for our customers, fostering greater loyalty and expanding share of wallet. Finally, and perhaps most importantly, we continue to generate very healthy cash flows, which gives us the financial strength to invest in growth and innovation while maintaining resilience through market uncertainty. To close, I want to briefly revisit our 2025 priorities, which are still intact. We are both a prototyping and a production company, delivering through our digital factories and our partner network. Speaker 200:13:32And we execute with excellence across all these areas. Sharpening our strategy and execution are top priorities of mine, and it's essential for driving our growth. As I mentioned earlier, that focus extends to both customer and employee experiences. In the near term, we will work to remove friction for both customers and employees, and we will increase our speed of execution. I'm deeply committed to not just what we deliver to our customers, but how we deliver it by our employees with speed, clarity and discipline. Speaker 200:14:14Our priorities remain as follows: drive growth in our key performance indicators expand our production capabilities and reinforce our core prototyping business. I am pleased with the progress our employees have made through the first half of the year, and I'm confident that we have the foundation, the team and the strategy in place to drive sustainable growth while maintaining our industry leading profitability and cash flow generation. I'm excited about the path ahead. We'll continue to drive innovation, execute for our customers and deliver long term value to our shareholders. With that, I'll turn it over to Dan to walk through the financials. Speaker 200:15:03Dan? Speaker 300:15:05Thanks, Suresh, and good morning, everyone. Second quarter revenue was a company record, dollars 135,100,000.0. This is above our guidance range, up 6.5% year over year in constant currencies, and up 7% sequentially. Revenue fulfilled through our digital factories grew 4% year over year in constant currencies, and revenue fulfilled through Proto Labs Network was up 16%. Turning to revenue by service in constant currencies. Speaker 300:15:42Second quarter CNC machining revenue was also a company record, growing 20% over the prior year. And in The US alone, CNC machining revenue grew 30%. We continue to see very strong demand from aerospace and defense customers, specifically in high requirement parts. The value we deliver via our factory and network CNC machining offer is really resonating with our innovative customers. Injection molding declined 4% year over year. Speaker 300:16:16Three d printing revenue was down 1% year over year amidst continued weakness in prototyping. And lastly, sheet metal grew 9%, bolstered by improved offerings and additional go to market efforts. Revenue in The US grew 12% year over year, while Europe revenue declined 15% in constant currencies. Manufacturing activity in Europe continues to contract. We reorganized our European go to market teams at the start of the second quarter and remain focused on identifying and executing opportunities to drive demand across the region. Speaker 300:16:59Shifting to margins. Second quarter consolidated non GAAP gross margin was flat sequentially at 44.8%. On a year over year basis, gross margin was down 90 basis points, driven by higher growth in network revenue and a lower US network margin due to changing tariffs. We responded to these changes by adjusting pricing, and in June, network margins were back to pre tariff levels. Non GAAP operating expenses increased $2,700,000 compared to the prior year, an increase of 6%, consistent with revenue. Speaker 300:17:40The majority of the operating expense increase was in variable expenses tied to revenue, namely incentive compensation and commissions. Second quarter adjusted EBITDA was 19,700,000.0 or 14.6% of revenue. Non GAAP earnings per share were $0.41 in the quarter, above our guidance range and up $08 sequentially on higher than anticipated volume. EPS was up $03 on a year over year basis. Proto Labs continues to lead the digital manufacturing industry in terms of cash generation, reflecting the strength of our business model. Speaker 300:18:24We generated $10,600,000 in cash from operations during the second quarter, and we returned $3,100,000 to shareholders in the form of repurchases. On June 30, we had $123,200,000 of cash and investments on our balance sheet and zero debt. Our outlook for the 2025 is outlined on slide 13. We expect revenue between $130,000,000 and $138,000,000 At the midpoint, this implies 6% growth year over year in constant currencies. We expect foreign currency to have an approximately 400,000 favorable impact on revenue compared to the 2024. Speaker 300:19:13Moving to earnings guidance. We anticipate non GAAP add backs in the third quarter to include stock based compensation expense of approximately $3,900,000 and amortization expense of $900,000 We currently estimate a non GAAP effective tax rate between 2425% in the third quarter. In summary, we expect third quarter non GAAP earnings per share between $0.35 and $0.43 That concludes our prepared remarks. Operator, please open the line for questions. Operator00:19:54Thank you. Ladies and gentlemen, we will now begin the question and answer session. A The first question comes from the line of Brian Drab from William Blair. Please go ahead. Speaker 400:20:35Hi, good morning. Thanks for taking my questions. Speaker 200:20:40Thanks, Brian. Speaker 400:20:40Can you hear me okay? Yes, good morning. I just wanted to first start with the strength that you're seeing in CNC. And I'm curious, I know you mentioned aerospace and defense, that makes sense. I'm just wondering, are you seeing more of that strength in one area or the other in terms of the factory or the network? Speaker 400:21:02Or is that driving growth across both of those business lines? Speaker 300:21:09Yes. Thanks for the question, Brian. We are seeing similar growth both in the factory and the network from year over year growth percentage perspective. As I talked about in the call, it's 30 CNC growth in The US that's really driving the overall 20% for the company. Speaker 200:21:33Brian, this is Suresh. I'd like to just add, we grew revenues with our larger accounts, and that's based on the focus for our go to market reorganization that we've done. I'd like to give a huge shout out to our go to market team in The Americas for continuing to drive great customer service and great customer relationship. Also, huge shout out to our production teams based in Nashua, New Hampshire and Brooklyn Park, Minnesota for being able to jump 30% more revenues year over year. That shows the agility that we have in the organization to be able to respond to customers' needs. Speaker 400:22:13That's great. And are those I'm just wondering if you could give us any insight to those orders and CNC work. Is that leaning more toward production or is it leaning more toward prototyping or all of the above? What's the breakdown there? Speaker 300:22:30Yeah, I would say all of the above. We don't give a split at that level, but it is a combination of both production and there is some prototyping that is in there as well. But yeah, obviously the performance there, as Resh talked about, helped increase our revenue per contact year over year double digits. Speaker 400:22:54Okay. And can you comment on whether you're seeing that strength continue into the third quarter and is still pretty robust in July? Speaker 300:23:04Yes, the midpoint of our guide indicates that we're continuing to see the strength and it's in the same areas, Brian. Speaker 400:23:14Yeah, yeah, okay. I'll just ask one more for now. Can you just add a little more color around the injection molding business? Know you said prototyping is relatively soft, but just how the injection molding business is what's putting it under pressure and what could turn that around and how it's performing across the network versus the factory? Speaker 300:23:42Yeah, so let me answer the last part of your question first. The network is a relatively small portion of our injection molding business. The majority of it is through the factory. A couple of things to comment on. Last year we had some larger injection molding production orders, specifically in automotive that provided some headwind year over year, but in general we're seeing weakness within medical, and that is impacting what we have around injection molding. Speaker 300:24:14That being said, we're continuing to innovate in that space. We see that as a real big driver for us in the future from a production perspective. So we're continuing to add capabilities to that to win more of that production business. Speaker 400:24:31Got it. Okay. I'll more later. Congrats on the record revenue result. Speaker 200:24:35Thanks, Brian. Operator00:24:38Thank you. The next question comes from the line of Greg Palm from Craig Hallum Capital Group. Please go ahead. Speaker 500:24:46Hey, good morning. I'd also like to offer my congratulations on good quarter and Suresh, welcome aboard. Speaker 200:24:54Thanks, Greg. Thank you. Speaker 500:24:59Maybe Suresh, I'd like to just start with you in kind of a broader question on not necessarily why you joined, but maybe it's a little bit early, but you've been there a couple of months, so you've got a little bit of an opportunity to figure out maybe what excites you, what's gone wrong in the past, what's been missing. I mean, just I know we're still waiting for kind of a longer term strategic vision, but can you just tease us a little bit and give a little bit of a bit more color on kind of what's exciting you going forward? Speaker 200:25:31Thanks, Greg, for that question. As I said in my prepared remarks, I believe there is a large opportunity to reaccelerate the growth of this business and that's what excites me about joining Proto Labs at this point in time. I'm spending all my time listening and talking to our employees, customers, and our partners. And right now, I'm very focused on removing friction for our customers and our employees. And through these efforts, we'll be able to identify, you know, what our future opportunities are, and we'll be able to share those with you in the coming quarters. Speaker 500:26:15Okay. Fair enough. We'll we'll be looking forward to that. In terms of the quarter and the gross margin, I want to maybe dig into that a little bit more. Presumably, maybe that's more related to some of the longer lead time offerings. Speaker 500:26:31But just can you give us a sense the negative impact from the tariffs? And I don't know if you're able to kind of quantify that. And just to be clear, it sounds like that was maybe a temporary issue that's now been resolved. So what's kind of the implied outlook for gross margin here in Q3? Speaker 300:26:51Yes, absolutely. So great, yes. Part of our pressure in the quarter on margins was tariffs. So it was our US network margins that were impacted by that. And that had happened midway through the quarter. Speaker 300:27:17We were able to, like I said on the call, adjust our pricing and adjust our fulfillment so that in June, our network margins in The US were back to normal. So that provided part of the headwind quarter over quarter from a gross margin perspective. In addition, we had soft volume through the factory within Europe as well, which also challenged the margins quarter over quarter, and we had a higher mix of network revenue from Q1 to Q2, which also provided margin pressure. Now on the positive side, as we talked about, we grew 4% in the factory. So we had some strong factory margins in The United States that was able to offset those things, allowing gross margins to be flat quarter over quarter. Speaker 500:28:09What exactly though in terms of the tariffs was the impact? Because I mean, you're a quick turn business. So I guess I'm a little bit confused on kind of what I mean, what was happening in May, for instance, if you said it was midway through the quarter. What was the surprise that impacted the margin specifically knowing that I mean, a lot of it, I think the tariffs that were originally enacted were actually kind of early April, right? Speaker 300:28:39So I mean, the specific impact was when we talked about in the quarter last time, if a tariff was put on a certain country from our network perspective, we can then source it from a different country to avoid those tariff impacts. But the tariff that took hold was the one that was on aluminum and steel. So it didn't matter what country it was coming from, you were going to get a tariff impact from that. And so as that happened in the network, which has longer lead times, you have more like twenty to thirty days of backlog that's through the network, that is priced at a different price than what our assumption was on the cost on the tariff. And so it was really, at the time, adjusting our pricing so that and looking at different ways in which our algorithm is working in terms of what we're charging MPs and so forth, working through those dynamics to offset the tariff impact, but then it takes thirty days for that backlog to come through and then you get your margin right on the other side. Speaker 300:29:50So I know a bit of a clunky answer, but it was the aluminum and the steel tariff impact, it was the fact that we have thirty days of backlog. And then once we've adjusted for that, then we don't have a margin impact, but you still have that backlog coming through at a lower margin. Speaker 500:30:09No, that's more color. I would have assumed it would have been a pass through, but the lag makes sense. By the way, what was did you give a network? Speaker 300:30:19Greg, just real quickly. We don't pass that through to the we honor the price we give a customer. And that's part of we think is going to value us over the long term, right, in terms of maintaining that relationship. Speaker 500:30:35Yes. Okay. And then just, I guess, two quick housekeeping. Did you give a gross margin for the network business as a whole in the quarter? And then in terms of A and D, what percent of your business is A and D in terms of mix today? Speaker 300:30:51Yes. So our network margin was just below 30%. It was 29% in the quarter. In terms of percent of A and D, it's north of 20% in the quarter. Speaker 500:31:03North of 20% in the quarter. Okay. I will leave it there. Thanks. Speaker 300:31:07Yes. Operator00:31:10Thank you. The next question comes from the line of Troy Jensen from Cantor Fitzgerald. Please go ahead. Speaker 600:31:17Hey, gentlemen. Congrats on the nice results. And Suresh, welcome. Speaker 200:31:21Thank you. Speaker 600:31:23Hey, so Ken, just a follow-up on a comment you just said about thirty days of visibility. I always thought of you guys as having much less than that. I thought like lead times were like kind of seven to ten days. So can you explain that comment? Speaker 300:31:37Yeah, I have longer visibility for 15% of the business that goes through the network. For 85% of the business, I have a limited visibility. Speaker 600:31:46Okay, so I get it, this network business. All right, perfect. And then I know like the last couple of quarters, you've had this new initiative to push into production. Is there any update you can give us, any kind of stats that you can see if you're being successful? Speaker 400:32:01Yeah. Speaker 300:32:03Obviously, the stats that we talk about on the call, right? So we're seeing an 11% increase in revenue per customer contact, right? So we're really happy with that. And in addition, we find customers that are fulfilling their orders through both the factory and the network in general are doing about twice the amount of business overall with us. Right? Speaker 300:32:27So it's another indication of moving more into production or fulfilling that customer more holistically. And so that was up 44 year over year. So those are the two external metrics that we talk about. That is driving a decent amount of growth and the growth that you saw within the quarter. Speaker 600:32:53Okay. And last question for me. Can you just talk about would you expect to get normal seasonality in Q4? Or are some of these initiatives going to help offset what we've typically seen as kind of a down slightly sequential quarter? Speaker 300:33:07Yes. I would speak to the midpoint of our guidance. From where we see things, obviously coming off the earnings call last quarter, orders were stronger than what we anticipated, continued, and and that's indicative of where we are in the guide. So for our Q3 seasonality, we gave a midpoint of the guidance, I think that's where we think that that's going to fall. In terms of the fourth quarter, I would expect typical seasonality Q3 to Q4 just because of the holiday periods. Speaker 300:33:45So that ends up being down slightly from the third quarter. Speaker 600:33:49Awesome. All right, guys. Keep up the good work. Speaker 200:33:52All right. Thanks, Troy. Thank you. Operator00:33:54Thank you. Ladies and gentlemen, with that, we conclude the question and answer session. On behalf of Proto Labs, that concludes the conference. Thank you for your participation. You may now disconnect your lines.Read morePowered by Earnings DocumentsSlide DeckPress Release(8-K)Quarterly report(10-Q) Proto Labs Earnings HeadlinesCantor Fitzgerald Remains a Buy on Proto Labs (PRLB)August 4 at 4:46 AM | theglobeandmail.comCantor Fitzgerald Boosts Proto Labs (NYSE:PRLB) Price Target to $51.00August 4 at 3:41 AM | americanbankingnews.comIs Elon's empire crumbling?The Tesla Shock Nobody Sees Coming While headlines scream "Tesla is doomed"... Jeff Brown has uncovered a revolutionary AI breakthrough buried inside Tesla's labs. One that is helping AI escape from our computer screens and manifest itself here in the real world all while creating a 25,000% growth market explosion starting as early as October 23rd.August 4 at 2:00 AM | Brownstone Research (Ad)Proto Labs (NYSE:PRLB) Raised to Strong-Buy at Wall Street ZenAugust 4 at 2:41 AM | americanbankingnews.comEarnings Beat: Here's What Proto Labs, Inc. (NYSE:PRLB) Analysts Are Forecasting For This YearAugust 3 at 6:42 PM | finance.yahoo.comCraig-Hallum Sticks to Its Hold Rating for Proto Labs (PRLB)August 2 at 3:29 PM | theglobeandmail.comSee More Proto Labs Headlines Get Earnings Announcements in your inboxWant to stay updated on the latest earnings announcements and upcoming reports for companies like Proto Labs? Sign up for Earnings360's daily newsletter to receive timely earnings updates on Proto Labs and other key companies, straight to your email. Email Address About Proto LabsProto Labs (NYSE:PRLB), together with its subsidiaries, operates as a digital manufacturer of custom parts in the United States and Europe. The company offers injection molding; computer numerical control machining; three-dimensional printing; and sheet metal fabrication products. It serves developers and engineers, who use 3D computer-aided design software to design products across a range of end-markets. Proto Labs, Inc. was incorporated in 1999 and is headquartered in Maple Plain, Minnesota.View Proto Labs ProfileRead more More Earnings Resources from MarketBeat Earnings Tools Today's Earnings Tomorrow's Earnings Next Week's Earnings Upcoming Earnings Calls Earnings Newsletter Earnings Call Transcripts Earnings Beats & Misses Corporate Guidance Earnings Screener Earnings By Country U.S. Earnings Reports Canadian Earnings Reports U.K. Earnings Reports Latest Articles Amazon's Earnings: What Comes Next and How to Play ItApple Stock: Big Earnings, Small Move—Time to Buy?Why Robinhood Just Added Upside Potential After a Q2 Earnings DipMicrosoft Blasts Past Earnings—What’s Next for MSFT?Visa Beats Q3 Earnings Expectations, So Why Did the Market Panic?Spotify's Q2 Earnings Plunge: An Opportunity or Ominous Signal?RCL Stock Sinks After Earnings—Is a Buying Opportunity Ahead? 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There are 7 speakers on the call. Operator00:00:00Ladies and gentlemen, good morning, and welcome to the Proto Labs Second Quarter twenty twenty five Earnings Conference Call. At this time, all participants are in a listen only mode. A brief question and answer session will follow the formal presentation. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Jason Franklin, VP and Corporate Controller. Operator00:00:34Please go ahead, sir. Speaker 100:00:36Thank you, Ryan. Good morning, everyone, and welcome to Proto Labs' Second Quarter twenty twenty five Earnings Conference Call. I am joined today by Suresh Krishna, President and Chief Executive Officer and Dan Schumacher, Chief Financial Officer. This morning, Proto Labs issued a press release announcing its financial results for the second quarter ended 06/30/2025. The release is available on the company's website. Speaker 100:01:03In addition, a prepared slide presentation is available online at the web address provided in our press release. Our discussion today will include statements relating to future performance and expectations that are or may be considered forward looking statements and subject to many risks and uncertainties that could cause actual results to differ materially from expectations. Please refer to our earnings press release and recent SEC filings, including our annual report on Form 10 ks, for information on certain risks that could cause actual outcomes to differ materially and adversely from any forward looking statements made today. The results and guidance we will discuss include non GAAP financial measures consistent with our past practice. Please refer to our press release and the accompanying slide presentation at the Investor Relations section of our company website for a complete reconciliation of GAAP to non GAAP results. Speaker 100:02:00Now I'll turn the call over to Suresh Krishna. Suresh? Speaker 200:02:05Thanks, Jason. Good morning, everyone, and thank you for joining our second quarter earnings call. Before getting into the details of our record performance during the quarter, I'd like to quickly introduce myself. I am honored and excited to step into the role of President and CEO at Proto Labs. I'm an engineer by training and have held many leadership positions in supply chain, operations, and general management. Speaker 200:02:38I have overseen profitable growth and shareholder value creation at several manufacturing companies. As a former Proto Labs customer, I have seen firsthand how the company reliably delivers high quality custom parts and accelerates innovation for some of the world's most pioneering companies. In fact, I used Proto Labs' digital manufacturing capabilities to accelerate product development and beat the competition to market. I have long admired the company's leadership in digital manufacturing, its strong culture, and its commitment to innovation and customer service. Proto Labs' next chapter is going to be an extraordinary one, and I'm thrilled to be leading this talented team. Speaker 200:03:32I also want to take a moment to thank Rob Boudour for his many contributions and leadership over the past several years. Rob played an important role in helping set the company's direction, and I'm grateful for the foundation he helped build. I have been in the role just over two months now, and I've spent much of that time listening to employees in our manufacturing facilities and offices, meeting with customers, and taking a fresh look at our strategy and how we are executing it. These experiences have only reinforced my conviction in Proto Labs' potential. We have a very innovative and resilient culture and a pervasive mindset for continuous improvement. Speaker 200:04:23I believe in this company. I have personally seen the value Proto Labs delivers to its customers, and I'm excited about the opportunity to lead this great organization. This is a wonderful company with best in class profitability and cash flow generation, and a history of rapid growth. But in recent years, our growth has not kept pace with expectations. That said, I see this as a significant opportunity and I'm energized by the work ahead to help reaccelerate the business towards sustainable, strong growth. Speaker 200:05:02I'm confident in our strategy of delivering high quality custom parts across the full product lifecycle, from prototyping to production. With a strong foundation already in place, I believe we can sharpen our execution, particularly when it comes to customer and employee experience. These may sound like simple concepts, but done right, they can unlock meaningful long term growth. They will be my top two focus areas. I'm sure many of you are eager to hear about my long term strategic vision, and that's an appropriate question. Speaker 200:05:46Let me reassure you that in the near term, there will be no radical shift in our current strategy. My immediate focus is to listen, learn and engage closely with our teams, customers and partners to identify the highest impact opportunities. I look forward to sharing more in the coming quarters. Now, on to our second quarter results. We delivered a very strong quarter, exceeding expectations in both revenue and EPS. Speaker 200:06:21This included record revenue, highlighting our ability to execute effectively in a dynamic and uncertain environment. Our best in class profitability also enable us to continue returning capital to shareholders through ongoing share repurchases, further demonstrating the strength and resilience of our business model. I want to thank our teams across the globe for their hard work and dedication. This performance wouldn't be possible without them. In addition to our financial results, we were also honored to receive a 2025 Future of Manufacturing Project Award from the National Association of Manufacturers. Speaker 200:07:07This recognition validates the progress we've made as a technology focused customer centric manufacturer and underscores our leadership in driving innovation and agility across the industry. I'm also excited to announce that in June, our metal three d printing service in Raleigh, North Carolina received ISO 13,485 certification, which is an internationally recognized quality standard for medical device manufacturers. This certification is important to both current and prospective medical customers and demonstrates our commitment to quality and excellence in medical device manufacturing. The ISO thirteen thousand four and eighty five certification will help accelerate our growth in medical, specifically metal three d printed non active implants and other devices. Thanks to our production and quality teams for their hard work to achieve this certification. Speaker 200:08:13Now, shifting to our two key growth indicators in the quarter. Customers utilizing our combined offer grew 44% over the trailing twelve months. And revenue per customer in the second quarter increased 11% year over year. I'm very encouraged by the continued traction we are seeing, particularly in expanding share of wallet with strategic customers. We also continue to make significant progress on our growth investments that we first shared with you on our Q4 twenty twenty four call in February. Speaker 200:08:56First, our marketing investments continue to drive engagement and reinforce our brand in both prototyping and production. We are seeing increased awareness and interest from customers across our target industries, especially aerospace and defense, where our speed, complexity, and domestic capabilities make us a preferred partner. We help accelerate innovation for a wide variety of customers in aerospace and defense. We serve the leaders in space exploration and satellites like NASA, Blue Origin, and Relativity Space, as well as commercial aircraft manufacturers like Airbus and Boeing. Defense contractors including Raytheon, Lockheed Martin, Nottrop Grumman, and Andero all trust Proto Labs to deliver quality parts quickly. Speaker 200:09:54In addition, we manufacture lots of parts for companies on the leading edge of drone development, including defense, electric flying taxis, parcel delivery services, and many more. In an industry with lots of funding and innovation, Proto Labs is a trusted manufacturing partner for many. As our second key growth investment, we have continued to advance our sales enablement tools and processes, allowing our sales teams to better understand the strategic production needs of our customers and make it easier for these customers to interact with Proto Labs in this context. And third, we also continue to make progress to optimize our fulfillment channels. These efforts help us better align our manufacturing footprint and capabilities with customer demand and are central to our ability to deliver a seamless customer experience across both factory and partner network. Speaker 200:11:00We are still early on the journey to improve our production fulfillment capabilities. Our global operations organization continues to refine how parts are manufactured with excellent quality in the right place at the right time for the right price, which vastly improves the customer experience. Turning to tariffs and the evolving trade landscape. This is another area where Proto Labs is well positioned to succeed. As always, we are focused on what we can control. Speaker 200:11:38Speed and agility are central to our operations, and those trends are especially critical in today's environment. Our global manufacturing footprint gives us the flexibility to adapt quickly to shifting supply chain dynamics and serve customers effectively regardless of geography. While trade policies and tariffs continue to change rapidly, we believe tariffs and further investments in American manufacturing innovation are a tailwind for our business in the long term. On the other hand, tariffs and frequently changing trade policies can create short term margin pressures. For instance, if we quote a price for the customer and subsequent trade policies alter our cost structure, we absorb that risk in the short term. Speaker 200:12:31While this may impact margins temporarily, our AI driven pricing and fulfillment systems enable us to adapt in real time, delivering a smoother customer experience than many peers who simply pass tariff related increases directly to the customer. This is a strong example of how we reduce friction for our customers, fostering greater loyalty and expanding share of wallet. Finally, and perhaps most importantly, we continue to generate very healthy cash flows, which gives us the financial strength to invest in growth and innovation while maintaining resilience through market uncertainty. To close, I want to briefly revisit our 2025 priorities, which are still intact. We are both a prototyping and a production company, delivering through our digital factories and our partner network. Speaker 200:13:32And we execute with excellence across all these areas. Sharpening our strategy and execution are top priorities of mine, and it's essential for driving our growth. As I mentioned earlier, that focus extends to both customer and employee experiences. In the near term, we will work to remove friction for both customers and employees, and we will increase our speed of execution. I'm deeply committed to not just what we deliver to our customers, but how we deliver it by our employees with speed, clarity and discipline. Speaker 200:14:14Our priorities remain as follows: drive growth in our key performance indicators expand our production capabilities and reinforce our core prototyping business. I am pleased with the progress our employees have made through the first half of the year, and I'm confident that we have the foundation, the team and the strategy in place to drive sustainable growth while maintaining our industry leading profitability and cash flow generation. I'm excited about the path ahead. We'll continue to drive innovation, execute for our customers and deliver long term value to our shareholders. With that, I'll turn it over to Dan to walk through the financials. Speaker 200:15:03Dan? Speaker 300:15:05Thanks, Suresh, and good morning, everyone. Second quarter revenue was a company record, dollars 135,100,000.0. This is above our guidance range, up 6.5% year over year in constant currencies, and up 7% sequentially. Revenue fulfilled through our digital factories grew 4% year over year in constant currencies, and revenue fulfilled through Proto Labs Network was up 16%. Turning to revenue by service in constant currencies. Speaker 300:15:42Second quarter CNC machining revenue was also a company record, growing 20% over the prior year. And in The US alone, CNC machining revenue grew 30%. We continue to see very strong demand from aerospace and defense customers, specifically in high requirement parts. The value we deliver via our factory and network CNC machining offer is really resonating with our innovative customers. Injection molding declined 4% year over year. Speaker 300:16:16Three d printing revenue was down 1% year over year amidst continued weakness in prototyping. And lastly, sheet metal grew 9%, bolstered by improved offerings and additional go to market efforts. Revenue in The US grew 12% year over year, while Europe revenue declined 15% in constant currencies. Manufacturing activity in Europe continues to contract. We reorganized our European go to market teams at the start of the second quarter and remain focused on identifying and executing opportunities to drive demand across the region. Speaker 300:16:59Shifting to margins. Second quarter consolidated non GAAP gross margin was flat sequentially at 44.8%. On a year over year basis, gross margin was down 90 basis points, driven by higher growth in network revenue and a lower US network margin due to changing tariffs. We responded to these changes by adjusting pricing, and in June, network margins were back to pre tariff levels. Non GAAP operating expenses increased $2,700,000 compared to the prior year, an increase of 6%, consistent with revenue. Speaker 300:17:40The majority of the operating expense increase was in variable expenses tied to revenue, namely incentive compensation and commissions. Second quarter adjusted EBITDA was 19,700,000.0 or 14.6% of revenue. Non GAAP earnings per share were $0.41 in the quarter, above our guidance range and up $08 sequentially on higher than anticipated volume. EPS was up $03 on a year over year basis. Proto Labs continues to lead the digital manufacturing industry in terms of cash generation, reflecting the strength of our business model. Speaker 300:18:24We generated $10,600,000 in cash from operations during the second quarter, and we returned $3,100,000 to shareholders in the form of repurchases. On June 30, we had $123,200,000 of cash and investments on our balance sheet and zero debt. Our outlook for the 2025 is outlined on slide 13. We expect revenue between $130,000,000 and $138,000,000 At the midpoint, this implies 6% growth year over year in constant currencies. We expect foreign currency to have an approximately 400,000 favorable impact on revenue compared to the 2024. Speaker 300:19:13Moving to earnings guidance. We anticipate non GAAP add backs in the third quarter to include stock based compensation expense of approximately $3,900,000 and amortization expense of $900,000 We currently estimate a non GAAP effective tax rate between 2425% in the third quarter. In summary, we expect third quarter non GAAP earnings per share between $0.35 and $0.43 That concludes our prepared remarks. Operator, please open the line for questions. Operator00:19:54Thank you. Ladies and gentlemen, we will now begin the question and answer session. A The first question comes from the line of Brian Drab from William Blair. Please go ahead. Speaker 400:20:35Hi, good morning. Thanks for taking my questions. Speaker 200:20:40Thanks, Brian. Speaker 400:20:40Can you hear me okay? Yes, good morning. I just wanted to first start with the strength that you're seeing in CNC. And I'm curious, I know you mentioned aerospace and defense, that makes sense. I'm just wondering, are you seeing more of that strength in one area or the other in terms of the factory or the network? Speaker 400:21:02Or is that driving growth across both of those business lines? Speaker 300:21:09Yes. Thanks for the question, Brian. We are seeing similar growth both in the factory and the network from year over year growth percentage perspective. As I talked about in the call, it's 30 CNC growth in The US that's really driving the overall 20% for the company. Speaker 200:21:33Brian, this is Suresh. I'd like to just add, we grew revenues with our larger accounts, and that's based on the focus for our go to market reorganization that we've done. I'd like to give a huge shout out to our go to market team in The Americas for continuing to drive great customer service and great customer relationship. Also, huge shout out to our production teams based in Nashua, New Hampshire and Brooklyn Park, Minnesota for being able to jump 30% more revenues year over year. That shows the agility that we have in the organization to be able to respond to customers' needs. Speaker 400:22:13That's great. And are those I'm just wondering if you could give us any insight to those orders and CNC work. Is that leaning more toward production or is it leaning more toward prototyping or all of the above? What's the breakdown there? Speaker 300:22:30Yeah, I would say all of the above. We don't give a split at that level, but it is a combination of both production and there is some prototyping that is in there as well. But yeah, obviously the performance there, as Resh talked about, helped increase our revenue per contact year over year double digits. Speaker 400:22:54Okay. And can you comment on whether you're seeing that strength continue into the third quarter and is still pretty robust in July? Speaker 300:23:04Yes, the midpoint of our guide indicates that we're continuing to see the strength and it's in the same areas, Brian. Speaker 400:23:14Yeah, yeah, okay. I'll just ask one more for now. Can you just add a little more color around the injection molding business? Know you said prototyping is relatively soft, but just how the injection molding business is what's putting it under pressure and what could turn that around and how it's performing across the network versus the factory? Speaker 300:23:42Yeah, so let me answer the last part of your question first. The network is a relatively small portion of our injection molding business. The majority of it is through the factory. A couple of things to comment on. Last year we had some larger injection molding production orders, specifically in automotive that provided some headwind year over year, but in general we're seeing weakness within medical, and that is impacting what we have around injection molding. Speaker 300:24:14That being said, we're continuing to innovate in that space. We see that as a real big driver for us in the future from a production perspective. So we're continuing to add capabilities to that to win more of that production business. Speaker 400:24:31Got it. Okay. I'll more later. Congrats on the record revenue result. Speaker 200:24:35Thanks, Brian. Operator00:24:38Thank you. The next question comes from the line of Greg Palm from Craig Hallum Capital Group. Please go ahead. Speaker 500:24:46Hey, good morning. I'd also like to offer my congratulations on good quarter and Suresh, welcome aboard. Speaker 200:24:54Thanks, Greg. Thank you. Speaker 500:24:59Maybe Suresh, I'd like to just start with you in kind of a broader question on not necessarily why you joined, but maybe it's a little bit early, but you've been there a couple of months, so you've got a little bit of an opportunity to figure out maybe what excites you, what's gone wrong in the past, what's been missing. I mean, just I know we're still waiting for kind of a longer term strategic vision, but can you just tease us a little bit and give a little bit of a bit more color on kind of what's exciting you going forward? Speaker 200:25:31Thanks, Greg, for that question. As I said in my prepared remarks, I believe there is a large opportunity to reaccelerate the growth of this business and that's what excites me about joining Proto Labs at this point in time. I'm spending all my time listening and talking to our employees, customers, and our partners. And right now, I'm very focused on removing friction for our customers and our employees. And through these efforts, we'll be able to identify, you know, what our future opportunities are, and we'll be able to share those with you in the coming quarters. Speaker 500:26:15Okay. Fair enough. We'll we'll be looking forward to that. In terms of the quarter and the gross margin, I want to maybe dig into that a little bit more. Presumably, maybe that's more related to some of the longer lead time offerings. Speaker 500:26:31But just can you give us a sense the negative impact from the tariffs? And I don't know if you're able to kind of quantify that. And just to be clear, it sounds like that was maybe a temporary issue that's now been resolved. So what's kind of the implied outlook for gross margin here in Q3? Speaker 300:26:51Yes, absolutely. So great, yes. Part of our pressure in the quarter on margins was tariffs. So it was our US network margins that were impacted by that. And that had happened midway through the quarter. Speaker 300:27:17We were able to, like I said on the call, adjust our pricing and adjust our fulfillment so that in June, our network margins in The US were back to normal. So that provided part of the headwind quarter over quarter from a gross margin perspective. In addition, we had soft volume through the factory within Europe as well, which also challenged the margins quarter over quarter, and we had a higher mix of network revenue from Q1 to Q2, which also provided margin pressure. Now on the positive side, as we talked about, we grew 4% in the factory. So we had some strong factory margins in The United States that was able to offset those things, allowing gross margins to be flat quarter over quarter. Speaker 500:28:09What exactly though in terms of the tariffs was the impact? Because I mean, you're a quick turn business. So I guess I'm a little bit confused on kind of what I mean, what was happening in May, for instance, if you said it was midway through the quarter. What was the surprise that impacted the margin specifically knowing that I mean, a lot of it, I think the tariffs that were originally enacted were actually kind of early April, right? Speaker 300:28:39So I mean, the specific impact was when we talked about in the quarter last time, if a tariff was put on a certain country from our network perspective, we can then source it from a different country to avoid those tariff impacts. But the tariff that took hold was the one that was on aluminum and steel. So it didn't matter what country it was coming from, you were going to get a tariff impact from that. And so as that happened in the network, which has longer lead times, you have more like twenty to thirty days of backlog that's through the network, that is priced at a different price than what our assumption was on the cost on the tariff. And so it was really, at the time, adjusting our pricing so that and looking at different ways in which our algorithm is working in terms of what we're charging MPs and so forth, working through those dynamics to offset the tariff impact, but then it takes thirty days for that backlog to come through and then you get your margin right on the other side. Speaker 300:29:50So I know a bit of a clunky answer, but it was the aluminum and the steel tariff impact, it was the fact that we have thirty days of backlog. And then once we've adjusted for that, then we don't have a margin impact, but you still have that backlog coming through at a lower margin. Speaker 500:30:09No, that's more color. I would have assumed it would have been a pass through, but the lag makes sense. By the way, what was did you give a network? Speaker 300:30:19Greg, just real quickly. We don't pass that through to the we honor the price we give a customer. And that's part of we think is going to value us over the long term, right, in terms of maintaining that relationship. Speaker 500:30:35Yes. Okay. And then just, I guess, two quick housekeeping. Did you give a gross margin for the network business as a whole in the quarter? And then in terms of A and D, what percent of your business is A and D in terms of mix today? Speaker 300:30:51Yes. So our network margin was just below 30%. It was 29% in the quarter. In terms of percent of A and D, it's north of 20% in the quarter. Speaker 500:31:03North of 20% in the quarter. Okay. I will leave it there. Thanks. Speaker 300:31:07Yes. Operator00:31:10Thank you. The next question comes from the line of Troy Jensen from Cantor Fitzgerald. Please go ahead. Speaker 600:31:17Hey, gentlemen. Congrats on the nice results. And Suresh, welcome. Speaker 200:31:21Thank you. Speaker 600:31:23Hey, so Ken, just a follow-up on a comment you just said about thirty days of visibility. I always thought of you guys as having much less than that. I thought like lead times were like kind of seven to ten days. So can you explain that comment? Speaker 300:31:37Yeah, I have longer visibility for 15% of the business that goes through the network. For 85% of the business, I have a limited visibility. Speaker 600:31:46Okay, so I get it, this network business. All right, perfect. And then I know like the last couple of quarters, you've had this new initiative to push into production. Is there any update you can give us, any kind of stats that you can see if you're being successful? Speaker 400:32:01Yeah. Speaker 300:32:03Obviously, the stats that we talk about on the call, right? So we're seeing an 11% increase in revenue per customer contact, right? So we're really happy with that. And in addition, we find customers that are fulfilling their orders through both the factory and the network in general are doing about twice the amount of business overall with us. Right? Speaker 300:32:27So it's another indication of moving more into production or fulfilling that customer more holistically. And so that was up 44 year over year. So those are the two external metrics that we talk about. That is driving a decent amount of growth and the growth that you saw within the quarter. Speaker 600:32:53Okay. And last question for me. Can you just talk about would you expect to get normal seasonality in Q4? Or are some of these initiatives going to help offset what we've typically seen as kind of a down slightly sequential quarter? Speaker 300:33:07Yes. I would speak to the midpoint of our guidance. From where we see things, obviously coming off the earnings call last quarter, orders were stronger than what we anticipated, continued, and and that's indicative of where we are in the guide. So for our Q3 seasonality, we gave a midpoint of the guidance, I think that's where we think that that's going to fall. In terms of the fourth quarter, I would expect typical seasonality Q3 to Q4 just because of the holiday periods. Speaker 300:33:45So that ends up being down slightly from the third quarter. Speaker 600:33:49Awesome. All right, guys. Keep up the good work. Speaker 200:33:52All right. Thanks, Troy. Thank you. Operator00:33:54Thank you. Ladies and gentlemen, with that, we conclude the question and answer session. On behalf of Proto Labs, that concludes the conference. Thank you for your participation. You may now disconnect your lines.Read morePowered by