2 hours ago 2

Q3 2024 Proto Labs Inc Earnings Call

Thomson Reuters StreetEvents

Sat, Nov 2, 2024, 2:44 a.m.31 min read

Greetings. Welcome to Proto Labs third quarter, 2024 earnings call. At this time, all participants are in listen-only mode. A question-and-answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad as a reminder, this conference is being recorded. It is now my pleasure to introduce Jason Frankman corporate controller. Thank you. You may begin.

Jason Frankman

Thank you, Sherry and welcome everyone to Proto Labs. Third quarter, 2024 earnings conference call. I'm joined today by Robert Bodor, President and Chief Executive Officer and Daniel Schumacher, Chief Financial Officer.
This morning, Proto Labs issued a press release announcing its financial results for the third quarter ended September 30, 2024. The release is available on the company's website. In 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-K 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.
Now I'll turn the call over to Robert Bodor.

Robert Bodor

Thanks Jason, good morning everyone. And thank you for joining our third quarter, 2024 earnings call.
We had solid execution in the quarter with results coming in above expectations.
Despite continued dynamic challenges in the manufacturing sector, our disciplined approach and resilient business model drove solid financial and operational results year-to-date. We've grown non-GAAP earnings per share over 10%.
Additionally, in the third quarter, Pro labs generated its highest quarterly operating cash flow since 2020 before the acquisition of 3D hubs. This was driven in part by continued gross margin improvements in the factory and the network and is a testament to the profitability of our business model against any macro fact drop driven by our unique comprehensive fulfillment model.
However, our revenue growth is flat year-to-date and I believe we can accelerate our growth by continuing to invest in our priorities and execute our strategy under the realigned organizational structure.
As a reminder, last quarter, we announced a realignment, separating regional go to market teams from a new global fulfillment organization in order to focus our regional teams on our customers to drive growth and to enable global efficiency and fulfillment.
Before expanding on the progress made across our realigned structure. I'd like to first cover our strategic priorities.
We have made substantial progress on our 2024 priorities today. As previously mentioned, increasing the number of customers using our comprehensive services across factory and network is critical to our growth strategy.
In the last 12 months, the number of customers using the combined offer grew 35% year over year.
We are still in the early stages of exposing the full combined offer to customers and there is a huge growth opportunity for prolapse.
Our other main priority for the year is to increase revenue per customer contact.
We've made great strides here as well. Year-to-date revenue per customer contact is up 5%. Demonstrating progress on our shift toward higher value production orders.
Let me now bring this progress to light through the following recent examples of how customers in leading industries with high requirement needs are using proto labs for production.
The first example comes from a world class clean energy customer that went to market earlier this year with a fully integrated solar and battery system for labs manufactured and assembled multiple parts in the factory to assist the customer's production.
Our world class manufacturing lead times and complete assembly help the customer ramp more efficiently than ever. That's just one way that we win in production.
In another recent case, a high profile medical instrumentation customer relied on pro labs to solve a key need in their supply chain, low to mid volume injection molding production parts.
In this customer's case, we have had a strong relationship for many years supporting early prototypes through 3D printing.
Our recent expanded focus on quality and increased inspection capabilities allowed us to win production business with this customer and they were able to benefit from our quality and speed to keep their new product launch time line intact.
These examples illustrate how our established brand and position in prototyping enable us to grow in production with our existing customers.
I also want to highlight our recent collaboration with Harley Davidson factory racing which we detailed in a press release at the end of September.
Harley's engineering team utilizes proto labs, digital manufacturing services to manufacture critical components for their racing motorcycles. In a few days after a Sunday race, the team has a week to prototype test, learn iterate manufacture and replace critical parts using specialty materials all before the next race. The following weekend, this continuous improvement enabled by protolabs. Rapid manufacturing has resulted in significant year over year improvements in race times and podium damages.
Harley Davidson factory racing has not only leveraged PROTO labs for quick turn parts but also our global network of manufacturing partners for larger and more complex parts.
These examples demonstrate the power of proto labs to enable our customers to drive innovation, accelerate time to market and improve performance throughout the prototype to production cycle.
Now, I'd like to provide an update on the realigned organizational structure with regional go to market teams now solely focused on revenue generation.
The newly created global operations organization is tasked with fulfilling customer part orders by a factory and network in the most efficient manner.
We continue to refine our portfolio fulfillment options to optimize consolidated gross margin at times. This means leveraging our own unique manufacturing capabilities through the factory and at others, it involves network partners.
Since our announcement last quarter, the global organization has already begun to find ways to improve fulfillment of customer orders.
Specifically, we will leverage our global operations to better fulfill customer orders for metal additive parts and some injection molded parts in Europe accordingly. In October, we announced portfolio reshaping decisions to streamline our operational efficiency.
We will close our prototype injection molding facility in Germany, and we will discontinue direct metal laser centering or DMLS manufacturing services through our factory operation in Europe.
We remain fully committed to continue offering all our manufacturing services to customers across Europe including injection molding and metal 3D printing through other existing factory and network fulfillment options.
The only change is in how these services are fulfilled. Consistent with the realignment to a new global fulfillment strategy.
This decision was not taken lightly. And I want to take a moment to thank all impacted employees for their commitment to proto labs and to serving our customers.
The closure, the closure and discontinuation are in no way, a reflection of their efforts.
We will provide transition services to those impacted.
We truly wish them all the best looking ahead. We believe these decisions will improve operational and fulfillment efficiency while bringing the full capabilities of our global operations footprint to our customers.
We are acting with urgency to capitalize on our unique ability to meet customer needs, accelerate our growth and continue to drive industry leading profitability and cash flows.
In summary, we posted solid third quarter results while continuing to manage through ongoing manufacturing sector challenges, we remain committed to accelerating our growth as highlighted by the actions we initiated at the end of the second quarter to reorganize our internal structure.
We continue to win in production as I illustrate a few examples of customers using pro labs for high requirement and use parts that continued shift will better position the company for growth and value creation. Over the long term, we are the clear profit and cash flow leader in the industry and are committed to executing on our priorities and increasing value for shareholders.
I want to thank our entire pro labs team for the tireless efforts to best serve our customers and execute accordingly. I'll now hand it over to Daniel to cover our financials in detail. As well as our outlook for the fourth quarter.
Yes.