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proto labs (prlb) victoria m. holt on q1 2016 results - earnings call transcript

by:QY Precision      2019-10-18
Original laboratory company(NYSE:PRLB)
At 8: 30 a. m. on April 28, 2016, etexecueswilliam M. Q1 2016 Earnings CallDietrick -VP-
Head of Global Marketing
Media Relations Victoria M. Holt -
President, President and DirectorWay -
Chief Financial Officer D. Jensen -
Piper Jaffray & Co (Broker)Brian P. Drab -
William Blair
Hernsberg-Stephens, Inc.
Robert Bryson.
Canaccord Genuity, Inc. Jim Ricchiuti -Needham & Co.
Roy Weisberg
LPOperator capital management at Crestwood. . .
After the formal speech.
As a reminder, the meeting is being recorded.
Sir, I would like to hand over the meeting to your host today. Bill Dietrick.
Sir, please proceed. William M. Dietrick -VP-
Head of Global Marketing
Thank you, operator. good morning, everyone.
This morning, prior to the opening of the market, Proto Labs issued a press release announcing its financial performance for the first quarter ended March 31, 2016.
This version can be found on the protolabs company website. com.
Before we start, during this conference call, the company will provide financial forecasts and make other statements about its future business
Faced with many risks and uncertainties that could lead to significant differences between actual results and expectations.
A detailed discussion of the risks and uncertainties affecting the business is contained in the company\'s annual report submitted on Form 10 --
K and other SEC documents, especially under the heading of risk factors.
Copies of these documents can be obtained online from the SEC or the original Laboratory website.
Company forecasts and other advances-
Looking at reports is based on factors that may change, so these reports speak only when the date is given.
The company does not undertake to update any projection or forwarding-
Statement.
In addition, in order to supplement the GAAP figures, we provide continuous monetary revenue growth for the total revenue and income obtained through traditional operations, adjusted Consolidated operating statements and adjusted net income as well as basic earnings per share and diluted net incomeGAAP basis. The non-
Combined operational and non-operational report adjusted by GAAP
GAAP\'s adjusted net income does not include stock compensation, amortization of intangible assets and the cost of unrealized foreign currency activities.
We believe that
The GAAP indicator provides meaningful additional information that demonstrates our core operational outcomes and helps to assess our history and future performance.
Form for checking information of recognized accounting principles with information of non-recognized accounting principles
GAAP information is included in our financial version.
Now, I want to transfer the call to wiki Holt, president and CEO of Proto Labs. Vicki? Victoria M. Holt -
Thank you, Bill, president and director.
Good Morning, everyone.
Thank you for attending our first quarter conference call.
John Way, our CFO, was with me today.
Starting today, I will outline our financial performance and operational highlights for the first quarter.
John will provide more
With an in-depth look at our financial position for the quarter and our outlook for second quarter revenue and revenue, we will be happy to answer your questions.
Total revenue for the first quarter of 2016 was $72.
6 million, up 24% from the first quarter of the previous year, and within the guidance provided during our February fourth quarter conference call.
Taking into account the negative impact of foreign exchange on the quarter of $400,000, revenue grew by 25% on a currency-unchanged basis.
Alphaform, a German company we acquired in 2015, contributed $4.
Income is 9 million.
Excluding Alphaform, traditional revenue for the first quarter was $67.
7 million, an increase of 16% over the same period in 2015.
From our geographical position, our income in the United States, our performanceS.
Growth of 15%, excluding the alpha form of European income on the same basis as the currency increased by 28%.
Fixed-currency income in Japan grew by 2%.
In terms of service revenue, injection molding revenue totaled $43 in the first quarter.
2 million, an increase of 15% over the previous year.
CNC processing revenue increased by 15% year on yearover-year.
3D printing is still very strong, with revenue doubling from the previous year, excluding alpha form, up 46%.
Demand for 3D printing services continues to grow in North America and Europe.
We are going into a new 3D printing facility in Raleigh in stages and are now making SLS parts there.
We hope to finish this work in the second quarter and are very happy with the smooth transition of our team, at the same time, we ship a record number of 3D printed parts with excellent service, make our customers happy.
The integration of Alphaform is the tracking plan.
We have been working on integrating our 3D printing operation software into our factory in Munich, and we used this software for live broadcast this week.
With our software, we believe that our digital manufacturing business will meet the brand promise of our customers.
As a result, we started a more proactive 3D printing service marketing in Europe this week to attract new customers and drive sales.
This acquisition offers many opportunities and we look forward to taking advantage of this opportunity.
While revenue for the first quarter is within our guidance, our growth in three areas of the business is lower than our long-term goal.
The income from injection molding, especially the income from parts, the income from CNC machining and the growth in Japan.
I would like to review these factors and how we can address them.
In this quarter, our injection molding products grew at a slower rate than the same period in history.
Customers use our on-
When they need it, ask for manufacturing services for the production parts that are ultimately used for their products.
We believe that the slowdown in parts orders is related to the general reduction in industrial production in our key areas.
As a reminder, there are two components of our injection molding business.
First of all, it is the initial order of the mold that we call the mold business.
About half the time, we receive at least one subsequent parts order on these molds, calling these subsequent orders injection parts.
Our parts business
Therefore, we know very little about the time or number of follow-up services
Our backlog of orders is generally less than seven days.
We believe that the economic conditions have also promoted the development of our CNC machining services.
As we look closely at the data, we continue to see our customers, both long-term and relatively new, re-ordering, but not at the level of historical expectations.
Anecdotal discussions between our sales staff and our customers confirm this caution.
What they want to be clear is that orders for CNC machine parts are growing, just not as we have experienced in recent quarters.
We believe that economic growth will return to historical levels as economic conditions improve.
In Japan, we have seen the impact of the slowdown in the production capacity of traditional injection molding and CNC machine stores.
I met with our sales staff in Japan two weeks ago and they are very confident about the growth prospects for this year.
Japan\'s revenue grew 41% in 2015 and 28% in the following 12 months.
Due to the size of our business in Japan, we expect revenue growth to fluctuate from quarter to quarterto-quarter.
We have increased our sales and marketing teams in both quantity and talent.
They have been trained and are actively driving sales.
We are on track to move to a new plant in Japan in the third quarter to accommodate the expected growth in our operations.
We have no space in our current site. The new factory provides three times the size of our current manufacturing area, which will enable us to support our future growth, and add additional services such as LSR and 3D printing to Japan in the future.
The growth of product developers remains strong.
The number of unique product developers and engineers providing services increased by 20% this quarter to a record 13,249.
Looking ahead, we believe that the initiative to take advantage of new market opportunities that began in the second half of last year is the right strategy.
We will continue these efforts.
They include segmentation and targeted marketing efforts, changes in sales compensation, re-allocation of resources and the continuation of our strategy to become important strategic partners with a wide range of in-depth cooperation with our customers.
An example of building a strategic relationship with customers is the Ethicon surgical products division where Johnson & Johnson manufactures medical devices.
The leaders in their product development team took the time to really understand the power of prototype lab technology and business models.
They often use the manufacturing capability design feedback of the original laboratory to \"improve product design \".
They have integrated our rapid delivery prototype into their strategic product development project plan, reducing the time to market by six months.
The leadership of J & J has told us that this collaborative effort has brought great value by allowing more iterations to improve product design and speed to market.
There are many examples of Proto Labs starting to strategically attract customers, but I must remind you that while we are confident that we are on the right track, it will take time to develop these relationships, is a major change in the company.
We are currently monitoring our service suites to ensure that they meet market needs and our internal goals.
Based on this review, we have decided to withdraw from three services, including metal injection molding or injection molding, magnesium thixomolding, and the resin resale business that comes with the acquisition of alpha form.
In order to produce a relatively low order volume, MIM and thixomodeling require a long sales cycle and a high degree of technical market education.
While the release of Proto Labs is technically successful and customer satisfaction with these services is high, the number of new parts designed each year during these niche manufacturing processes is lower than we expected, the resulting order volatility and related profitability did not meet our target.
Over the past 12 months, these two services account for about 1% of our revenue, a big difference compared to the fourth quarter. to-quarter.
We also determine the resale of resin.
The core business of Proto Labs and will continue to dilute the profit margin.
In the Alphaform business, the company\'s first-quarter revenue was about $1 million.
Customers have been told that we will no longer accept orders for these services and that exiting these businesses will free up time and resources to focus on our services with higher growth and profit potential.
In order to complete our financial performance, we released
Net income of $11 GAAP.
The first quarter was $7 million or $0.
£ 44 per share within our guidance.
As expected, revenue was affected by the lower gross margin of the alpha form when we completed the integration and increased our digital manufacturing efforts there.
John will provide more details about our financial performance in his speech.
While revenue growth for the quarter was lower than our historical and long-term
We believe that our strategic sales and marketing plan will restore our revenue growth rate in the long termterm.
Proto Labs has seen fluctuations in quarterly demandto-
Over the past quarter, we have managed to address these slowdown in revenue growth.
We believe that we will achieve revenue growth in the long term in our target model. term.
Speaking of other highlights, we are pleased to have won several industry and community awards this quarter.
In the third year, we won the Frost & Sullivan Manufacturing Leadership Award for the second year in a row.
On June, I will give a speech at the manufacturing leaders summit on how digital manufacturing can accelerate innovation.
As part of the presentation, I will highlight our support for two strategic clients: Johnson and Johnson, as mentioned earlier, and Lockheed Martin, the relationship we discussed last quarter.
Both companies use our services to reduce costs, improve design, shorten product development cycles, and bring innovative new products to market.
We also received the 2016 Community Impact Award in Minneapolis city in the youth initiative category as the Proto lab Foundation strives to support STEM education in our underserved areas of the community.
Being active in our community by providing stem support and sponsoring volunteer activities is an important part of our culture and we are recognized for that.
Finally, Don Krantz, our executive vice president and chief technology officer, was recently appointed as a technology giant by Minni aporius/St.
Paul Business Magazine
This is a very prestigious and appropriate award as it is a key contributor to the success of Proto Labs and an excellent way to honor Tang, which will be at 10-
Working in the company for one year.
His successor is to join our Rich Baker next week.
He has 18 years of technical leadership experience in several leading advanced manufacturing companies including nano vox, PaR Systems, MTS systems and Dow chemistry.
As mentioned earlier, Jackie Schneider, vice president of global sales, is leading Proto Labs to pursue her passion for working in a startup.
We would like to thank Jackie for her efforts in establishing a sales organization, and when she started almost $0. 3 billion today, she helped the company stand out from a small business.
We will evaluate how we wish to fill her role, including the most desirable scope of responsibility, skills and experience to achieve our long-term goalsterm growth.
We have a strong sales team in each region and will continue to execute our strategy.
These regional sales teams will report to their respective regional leaders, and Bill dietrik will act as marketing director to assist with sales leadership.
We also announced that Archie Black, president and CEO of SPS Commerce, a global software company, joined our board of directors.
Archie\'s experience in running a fast-growing technology company will be a welcome addition to our board of directors.
With this, I will transfer the call to John for further comments on our first quarter and financial performance. John. John A. Way -
Thank you, Vicki.
Revenue for the first quarter was $72.
6 million, an increase of $14 million or 24% over the same period in 2015.
The traditional revenue for the first quarter came from 13,249 unique product developers.
This is an increase of 20% over 2015.
The number of our unique product developers does not include Alphaform because this information cannot be provided in a comparable format at this time.
Compared with the first quarter of last year, the average revenue per product developer fell by 3% on a fixed-currency basis.
The decline in revenue per product developer reflects the strong growth of our business with 3D printing and the lower growth of the injection parts business.
Gross profit for the quarter was $39.
7 million, an increase of $4.
Up 4 million from the same period last year.
Gross profit margin is 54. 6%.
Alphaform had a negative impact on our gross margin of 380 basis points this quarter.
Apart from Alphaform, the gross profit margin of traditional business is 58.
Compared to 4%, 58.
Fourth quarter 6%, 60.
The first quarter of 2015 was 2%.
Compared to 2015, this volatility is primarily related to additional capacity investments to ensure that we achieve our brand commitment to our customers, as discussed in our previous quarters.
The first quarter was a low point in our gross profit margin.
We will see an increase in gross margin for alpha form and our traditional business in the second quarter and throughout the year.
Our operating fee is $24, in line with our guidance.
5 million, $200,000 less than in 2015.
Sales and marketing costs total $10. 9 million or 15
1% of revenue this quarter. We invested $5. 3 million, or 7.
3% of R & D revenue this quarter.
Operating income is $15.
The first quarter of 2016 was $1 million, compared to $15.
The previous year was 8 million.
After adjustment
Operating income is $17 in accordance with recognized accounting principles. 1 million or 23
5% of the income was $17.
4 million, or 29.
7% of the previous year.
The reduction in operating margins is related to the dilution of Alpha acquisition and the manufacturing capacity investment we discussed in our previous conference call.
Our actual tax rate is 32.
First quarter 4%.
Net income totaled $10.
7 million, resulting in a diluted earnings per share of $0. 40.
After adding back-
The tax cost of stock compensation, amortization of intangible assets, and adjustment of the impact of unrealized gains on foreign currencies, our non-
Diluted earnings per share for the quarter were $0. 44.
Alphaform says $0.
04 negative impact on earnings per share.
In the first quarter of 2016, we received $16 in cash from operations. 9 million.
Cash investment increased by $11.
From $5 million at the end of the fourth quarter to $0. 157 billion in March 31, 2016.
Now I want to talk about our expectations for the second quarter.
We currently expect revenue in the second quarter to be between $75 million and $80 million, up 17% to 25% from the previous year.
This revenue Guide includes a headwind of about $500,000 in the second quarter related to our resin resale, metal injection molding and thixomolding exit.
We also estimate that the exchange rate will have a negative impact of about $300,000 or 50 basis points compared to the second quarter of last year.
The cost of stock compensation for the quarter is about $1. 7 million.
Amortization of intangible assets amounts to approximately $186,000.
In addition, we are evaluating our equipment, which is related to our impairment services that may result in a second quarter charge.
We currently estimate that our tax rate is about 32. 5% in Q2.
All of the above factors are taken into account, including about $0.
Alphaform Diluted 02 per share, we expect our quarterly non-
EPS is between $0. 46 and $0.
$50 per share in the second quarter.
This concludes our official statement.
Vicki and I answer your question now.
Operator, would you please open the line? Question-and-
Answer the session operator.
Our first question came from Jason Troy and Piper Jaffray.
Please continue with your question. Troy D. Jensen -
Piper Jaffray & Co (Broker)
Hey, thank you for taking my time.
Good morning, Yuping and John. Victoria M. Holt -
Good morning Troy, president, chief executive and director. John A. Way -
Good morning, Troy, chief financial officer. Troy D. Jensen -
Piper Jaffray & Co (Broker)
So, Vicki, if we can focus on injection modeling, I mean 60% of your income and the biggest part.
Just curious, it feels like an area you mentioned on your previous call, as an area that needs attention, it actually tries to re-accelerate growth there, maybe 3D printing is also prevented?
So, just curious about how much you guys are going to spend on injection molding, I mean the story there is always huge and the huge market share growth can really bring you good growth? Victoria M. Holt -
President, President and Director.
We still believe that TAM is big there, the market is big, and we bring a lot of value in injection molding.
In the first quarter, we did put a little bit of effort back into injection molding, but achieved great results in the mold, so we pushed the needle in the right direction.
Injection molds are more challenging than 3D printed parts, almost because you are considering a larger investment from your customers.
So we saw some improvement.
But what we are reporting is injection molding if we report the mold and parts at the same time, we actually see the growth of the mold and parts, but when you look at the details below, we actually see a few pieces, especially one or more sets of contraction affected by the economic cycle.
So, for example, industrial equipment, such as 3D printers, we actually saw a quarter-on-quarter decline in revenue.
Industrial equipment may also fall by 1/4 to 1/4 in applications that enter semiconductors, oil, and gas, despite the reduction, which we grew up in, when you see injection molding up by 15%, so we develop the market there, but in some parts areas we are used for production. We do see a little bit of what we think is the economic impact. Troy D. Jensen -
Piper Jaffray & Co (Broker)
I mean, do you think we can restore this within the business model of 50% to 50%? Or excuse me, is the growth of 20% 25%? Victoria M. Holt -
25% president, chief executive officer and director? Absolutely.
There is absolutely no doubt about this.
We have brought great value in the injection molding stage, in helping customers commercialize products to small batch production, and then in fact, when a customer\'s product has a relatively small number of production parts due to customization or just the niche they are serving, for them, we are sometimes the only option to get a low volume part.
So I think we have a lot of opportunities for continuous brand recognition in the injection molding industry and we are very confident to bring this back to the range of 20% to 25%. Troy D. Jensen -
Piper Jaffray & Co (Broker)All right. Good to hear.
Maybe soon for John though, so, John in the alpha form acquisition, I think it says the 380 basis points effect on profit margins, and I know I\'m just curious how many of them are
The time cost that will be down now, if we exclude this resin business, then how much of it will go down, so this is the other revenue category that comes with the alpha form.
What I\'m trying to say is, can you help us with the gross margin issue for the second quarter? Victoria M. Holt -
President, President and Director.
So the biggest part is revenue, so if you look at our current cost structure, we already have excess capacity.
So, we have this building, we have our labor force and they line up to produce more than we produce.
What affected us this quarter was a mix of business.
So, like you said, the resin business is actually getting stronger, which actually increases our costs, because this is our third-party outsourcing costs in the third quarter, so this creates a gross profit margin.
This is about 50 or 60 basis points and over time we will see improvements in the next two quarters.
There is also a component that we are reconfiguring the floor space and I have spent a lot of time setting it up so that we have more streamlined operations to support larger workflows, involve employees and employees.
In the fourth quarter, they had a lot of holidays, so they got paid off the balance sheet, which was good in the fourth quarter, depending on the cost in the first quarter profit and loss.
So, these are the big drivers there.
Therefore, we will see an increase in gross margin, and as the resin resale business disappears, the gross margin will also increase, while we also start adding new quantities from 3D printing.
We will be able to keep costs relatively stable, but growth in revenue will have a significant impact. Troy D. Jensen -
Piper Jaffray & Co (Broker)
Okay, I see.
I think, can you help us like a number or range?
I know you said historically or three months ago that the 2016 target for gross margin is 56 to 59.
Do you think we can get back to the low end of this range in June? John A. Way -
Chief Financial Officer yes, I think this is-the whirlwind of this range may be the right way to look at it, and then we will continue to climb down from there. Victoria M. Holt -
President, President and Director.
The biggest factor that helps drive the alpha form margin is sales and sales revenue, which is where we need it, because when we buy the business of the workforce and the equipment we need to cover, we got a fixed cost section.
We are doing this integration.
Before we installed the software, we didn\'t plan to open our marketing and sales engine to a large extent, and we really opened it this week.
We went live this week.
So with this, we\'re actually going to live with our marketing now-our marketing sales, a more active sales and marketing campaign for 3D printing in Europe, when we open it up, I am confident that we will begin to attract Proto Labs customers for the price of our European business in 3D printing, and we will be able to start increasing those profits. Troy D. Jensen -
Piper Jaffray & Co (Broker)All right.
Good luck to Vicki and John. Victoria M. Holt -
Thank you, president, chief executive and director. John A. Way -
Thank you. chief financial officer.
Thank you.
The next question comes from Brian Blanche and William Blair.
Please continue with your question. Brian P. Drab -
William Blair
Good morning, LLCHi. Victoria M. Holt -
Good morning, Brian, president, chief executive and director. John A. Way -
Good morning, chief financial officer. Brian P. Drab -
William Blair
LLCSo, Vicki and John, are you surprised that the macro economy was not very good in 2015, especially in the second half of 2015, when you achieved an organic income increase of more than 25%, from the fourth quarter to the first quarter, do you see this decline or decline?
I think the growth in the second half of last year surprised a lot of people. Victoria M. Holt -
President, President and Director. Brian P. Drab -
William Blair
We started thinking we might have missed something, but now you\'re saying the parts business has slowed down.
Can you give me more colors? Victoria M. Holt -
Yes, Brian, the president, the chief executive and the director, this is a good question.
I would say that we were a little surprised when we were sitting here in the fourth quarter-I think at the conference call in February, we have a few problems that have not seen the economic decline we have seen in many companies in the field of industrial production, but we have not.
What I want to say is that we grew 16% in the first quarter, so we had an organic increase of 24%, a total increase of 16%, an organic increase.
But in a range, it\'s a little lower than we expected, but at the low end of the range.
When we look at the data, we do find that there are some departments, especially in the production parts where we see the impact.
I also think that we were at the beginning of this year, and many companies looked at it-we believe that many companies looked at some of their spending in this somewhat uncertain environment, maybe adjust some spending on some of the projects they have.
So, we are
Demand manufacturers, so we quickly saw the lead time we had.
So, it\'s just a little bit, but again we believe that with the recovery of the business model, our customer base is still very, very strong and we will be back in the range of 20% to 25%. Brian P. Drab -
William BlairLLCOkay.
Thanks, Vicki is you-have I heard you specifically say that customers of your 3D printer manufacturer have seen a slowdown in orders or have you at least seen a slowdown in them? Victoria M. Holt -
Yes, the president, the president and the director, it\'s a space.
I mean, in addition to industrial equipment, there are three other companies that have purchased our products that have entered their 3D printers in total and have dropped this yearover-year. Brian P. Drab -
William BlairLLCOkay.
There is also the last question about stopping injection molding, thixo and reselling the resin.
So, for the whole year, we\'re going to come up with about $2 million or $3 million in thixo and MIM revenue, maybe $3 million-$1 million a quarter, or I guess it doesn\'t sound like the second quarter, how much should we pay for these suspension all year round? Victoria M. Holt -
First of all, I would say that we will continue to produce parts for our customers in the next six months to help them complete the transition.
So we want to work closely with our customers so that we can help them transition to the different sources they plan to use us for the production of parts.
So we will still be selling-we will continue selling the molds they want to continue ordering here in the coming months.
So we will see some sales. John A. Way -
The chief financial officer is, so we will feel that in the next two quarters.
The resin business will be completed by the end of May, so we will feel the impact of about $350,000 in the second quarter, and then about $700,000 in the third quarter.
Then, as Vicki said, the MIM and thixo will gradually decrease and we will take orders and talk to our customers to see what these quantities are.
But in the next 12 months, the range of these figures is what you\'re talking about with the end of the business, the pressure of $2 million to $3 million. Brian P. Drab -
William Blair
LLCJohn, what was the resin business in the fourth quarter of last year? John A. Way -
The chief financial officer is a bit low. Brian P. Drab -
William BlairLLCOkay. John A. Way -
Chief financial officer, I think we have broken through another category, which is about $800,000. Brian P. Drab -
William BlairLLCGot it.
OK, thank you very much. Victoria M. Holt -
Thank you, Brian, president and director.
Thank you.
The next question comes from Ben Hearnsberger from Stephens.
Please continue with your question.
Ben hernsbergStephens, Inc.
Hey, thank you for answering my question.
I would like to revisit the full year guide you guys posted on your last call, taking into account the slowdown in growth of 1Q and the implied growth of 2Q under 25% for revenue growth of 25% to 30%, is the guidance still good throughout the year, or do we need to rethink or re-evaluate? John A. Way -
Chief Financial Officer Yes Ben, we do have a very short time in our business
Need manufacturers.
Our backlog is seven days.
We have therefore provided guidance and will continue to provide guidance on a quarterly basis.
I do think-this scope will be a challenge when you look at and question this;
I mean, it can be proved by doing math.
So I think we have to re-adjust or look at this issue from this perspective.
But now that we have visibility-we have Q1, and we can provide guidance in the second quarter, when we basically see the economic situation and the impact of our customers, we have to wait for this to happen. up.
Ben hernsbergStephens, Inc. Okay.
Given that growth may slow down, would you stay at a high cost level if we reconsider these cost levels?
Depending on what we see on the backline, your spending range is over, or will you start adjusting down? John A. Way -
Chief Financial Officer yes
So I think we will manage those costs in terms of the percentage of income levels.
So, sales and marketing, I think we will continue to invest at a level of about 15%.
We do want to ensure that our investments drive revenue growth and continue to tap into opportunities.
But we do want to be cautious about how to do that and make sure we are aligned with our income.
Again, in terms of manufacturing, we have put in more processes to ensure that our costs are aligned with the revenue we see, and I\'m sure we\'ll see some benefits there, when we spent the year
So, I think when you see the income-related percentages that we directed, I think those percentages are still valid.
Ben hernsbergStephens, Inc. Okay.
The last question about the cross
You may not be able to take this data out, however, if you can provide some color in the 13,000 + unique developers you have on the platform this quarter, how many services are you likely to use on the platform? Victoria M. Holt -
President, President and Director.
So when you think of it as a separate product developer level, there may be only about 15% to 20% of individual product developerse.
Multiple products, but when you look at it from the customer company level, most of our top customer companies are in these three services.
It makes sense when you think about this, because you have different developers who tend to focus on different parts of the process and, therefore, in customer companies, you can see our top 500 customer companies-the vast majority of which are made up of multiple products.
Ben hernsbergStephens, Inc. Okay. Thank you.
Thank you.
Our next question is from Bobby Bryson, who is smart.
Please continue with your question.
Robert Bryson.
Canaccord Genuity, Inc.
Good morning, yes.
Thank you for answering my question. John A. Way -
Good morning, chief financial officer. Victoria M. Holt -
President, President and Director.
Robert Bryson.
Canaccord Genuity, Inc.
So, I just want to know Vicki, if we look at the injection and thixo molding of those businesses that want to know when to make the initial decision to enter these services.
What if there is a change in the valuation process? Victoria M. Holt -
President, President and Director. Good question. Yes.
As a result, the company started working on MIM and thixo technology development as early as 2013, which is a very challenging technical issue and the team did a very good job in redeveloping
The invention of the manufacturing process of metal injection molding and thixo molding, we can do it economically and efficiently in the case of low volume.
A huge breakthrough.
But I think, in terms of the overall size of the market, we-and the market itself, I think we did a very good job in assessing this and the growth rate of the market, and our assessment did a good job.
It is not until we enter this market that we truly understand that the number of unique new parts designed each year is lower than some of the other processes we serve.
Robert Bryson.
Canaccord Genuity, Inc. Okay. Victoria M. Holt -
Plastic injection molding, hot materials such as liquid, silicone rubber and even machine parts injection molding President, CEO and director, now, due to the actual volume, the unique part is lower, this is the philosophy that we think our model really makes sense.
We just don\'t see that this will be able to scale to the level required for our digital manufacturing model and reach our profit target as a niche manufacturing technology, use a lot of sales and technical sales resources to close a relatively small part.
Robert Bryson.
Canaccord Genuity, Inc. Okay. Victoria M. Holt -
Therefore, this enables us to re-use these resources for metal injection molding of thermoplastic plastic, injection molding of hot water bottles or CNC machine parts, and gain more productivity from sales and market expenses.
So this is a combination that contains a small number of unique products that we really didn\'t expect and gained sales and productivity from sales and marketing. John A. Way -
Chief financial officer, this may also pose a challenge from the perspective of profitability, because from the perspective of capabilities, we have equipment and employees that are not fully utilized, and therefore, we actually take on the cost of running more volumes, but, have lower volumes. . .
Robert Bryson.
Canaccord Genuity, Inc. Understood. Okay. Thank you.
Then, there is a faster strategic partnership, and once the agreement is reached, how long will it take to use Proto Labs in the organization?
Once an agreement is reached, it\'s a long process, do you guys need to do additional sales within the organization, a little more color on how we look at the future? Victoria M. Holt -
Chief executive officer and director.
So at the very least, we would like to talk about examples like J & J that can help you get appreciation for this.
We discussed the J & J Ethicon department this is a division of Johnson & Johnson and also our advantage in the department because the senior leaders really understand our model and it helps to get through faster, because senior managers will go to their developers and their engineers to really encourage the use of Proto Labs, it does accelerate our growth in the team.
We still have to go deep into other products of Johnson & Johnson.
So it\'s a longer time-it\'s a process that takes time, using the word \"agreement\" not only to get the court agreement, the customer really understands how to unlock the power for the lab, because we can bring so much value to them, it usually takes someone with a strategic eye to understand how to integrate us into their business.
Robert Bryson.
Canaccord Genuity, Inc. Okay. Great. Victoria M. Holt -
The president, the chief executive, takes a little time.
We started a very different sales touch very early-we needed time to change our sales model and our trading sales model was very successful for this company.
Therefore, we have not abandoned the trading sales model. what we have done is to increase the strategic sales model based on the trading sales model.
So it takes some time.
Robert Bryson.
Canaccord Genuity, Inc. Okay.
One more thing I forgot to ask, you know. Thanks.
John, I think one of the things I mentioned was the first quarter. over-
On the basis of the constant currency, the annual growth rate has organically increased by 16%. are you within the target range of more than 20%? John A. Way -
Chief financial officer.
The impact of currency change on the quarter was about 70 basis points.
So, yes, I mean, we are below the target in the traditional business.
Robert Bryson.
Canaccord Genuity, Inc. Okay. Thanks.
Thank you.
The next question is Jim Ricchiuti from Needham & Company.
Please continue with your question. Jim Ricchiuti -Needham & Co. LLCThank you. Good morning.
Vicki, you mentioned that I think in the parts business you have a decent demand window almost in real situationstime.
I would like to know how this business attracts you when you go through this quarter, and maybe what you saw in April.
If you can give us some taste geographically? Victoria M. Holt -
January is slow, how attractive the President, the chief executive and the director are.
January was much slower than we expected.
So, once again, I think there is a bit of a wind in going back to the January and industrial rhetoric.
There is a lot of uncertainty in the market.
So, I think we see some companies being very cautious about spending.
Throughout the quarter, it continued to pick up the pace, so it continued to pick up the pace, but it did not soar significantly, which was a very stable and stable improvement.
It is this state that we are in today that provides information for our second quarter guidance, and as John said, we are-
Demand manufacturer for 7 to 10 days backlog order.
We adjust this guidance when we see changes.
So when we see this improvement, we will adjust it.
But at this point, I think it is prudent to be conservative in our position. Jim Ricchiuti -Needham & Co. LLCFair enough.
Next question-my last question is about the new product.
Given the withdrawal from the MIM market and thixo, how should we look at the taboo of new products?
I mean, I think you have worked in these areas for about three years, 1% of your income.
Is there a way we can think about new products for you guys and what do you want to see from them for a while? Victoria M. Holt -
President, President and Director.
So, let me give you an example of how several of the products we\'re launching are expanding at the speed we need for the model we expect.
One is liquid silicone rubber, which is strong all year roundover-
The growth of the year, the increase in the number of new parts, the emergence of new unique parts.
The other will be our lathe parts, the new process introduced in CNC machining, tracking the location we want.
Through this we learned a lot about what a new service we launched needs to really understand and how it needs to fit into our model.
So, I don\'t think we will make this mistake again.
We have some new processes in the research and development of protoworks that are very suitable for our model, and then, as we develop, we will launch new services, which will expand TAM, and allows us to bring the unique digital business model of the original lab to a wider range of services.
So we will continue to do this, and I think we have learned a lot through this process. Jim Ricchiuti -Needham & Co.
You\'re going to look at the LSR and The Lathe Turning parts, is there any way you can help us handle better what\'s the point besides saying it\'s expanding, I\'m just a little curious.
Is there any way we can get our arms around? Victoria M. Holt -
We don\'t really break down individual materials or processes, President, CEO and director.
I can only say that these are certainly helpful to our growth.
While the biggest increase is that I have said many times that it is bringing in more product developers to buy our full range of services. Jim Ricchiuti -Needham & Co.
This is very helpful. Thanks. OperatorThanks.
The next question comes from Michael Weisberg at Crestwood Capital.
Please continue with your question.
Michael Roy Weisberg
Crestwood Capital Management
When I think of your main terminal market, I think of aviation, medical, automotive, and I was wondering if you saw the parts slowdown in these terminal markets in the first place? Victoria M. Holt -
In the medical field, the number of presidents, CEOs and directors is not as large as the number of aerospace, automotive, industrial machinery, which is the biggest drop category we see.
This is difficult because it is also a customer by customer situation, so individual customer companies are just a lot of them, so you have to know what their story is.
So, I\'m not saying there won\'t be anything in the car category or medical category.
But in general, if you look at these 100 customer companies, we will find that the biggest impact is industrial machinery and equipment. John A. Way -
Chief financial officer, I think I\'ll add that when you look at our cross-industry revenues, it\'s not just those three, and a large part of our revenue comes from industries other than those you just mentioned.
Michael Roy Weisberg
LPOkay, capital management company, Crestwood.
Do you see more in the US than in Europe where revenue is growing faster? Victoria M. Holt -
President, President and Director.
Michael Roy Weisberg
The interesting thing about Crestwood Capital Management LPInterestingly is that because I was thinking, like in the 2014 and 4 quarters, isn\'t part growth in Europe really slowing down? Victoria M. Holt -
President, President and Director. John A. Way -
It may be a similar situation, but it\'s actually a year. over-
The same is true for this year\'s comp challenge, and when we look back on 2013 we received very large orders.
So Europe\'s growth at that time had a lot to do with this year --over-
Annual compensation as an economy.
Michael Roy Weisberg
Crestwood Capital Management LPAnd I think you threw away the semiconductors and gas, did you? The company is producing industrial equipment for the gas terminal market. Should we look at it like this? Victoria M. Holt -
President, President and Director.
I mean, I can say that we looked at these hundreds of top client companies and tried to understand that it was a theme when you really looked at the Boys and the company was a little small, why do you look as good as the boys they serve oil and gas, this service Semiconductor.
This is a 3D printing company.
So you can see the themes of some affected industries. Victoria M. Holt -
We matched this analysis with reports such as whether the company has experienced financial challenges and declining revenue --over-
Layoff or something like that.
When you see these customers, our company is that our customers see the impact of these businesses on this.
Michael Roy Weisberg
LPYes capital management at Crestwood.
Because you don\'t do much direct things about oil and gas, only industrial companies have end customers there and the result may slow down. Victoria M. Holt -
Chief executive officer and director. John A. Way -
Chief financial officer.
Michael Roy Weisberg
Crestwood Capital ManagementGot it. Small. . . Victoria M. Holt -
President, chief executive and director sorry, we want to continue to grow even though our business has grown by 16%.
So I think, yes, you can see these little headwinds in a few areas, but we have enough headwinds and growth in our business model that will still grow by 16%.
Michael Roy Weisberg
Crestwood Capital Management
Then Alphaform has resin in other businesses, which is probably gone? Victoria M. Holt -
President, President and Director. John A. Way -
Chief Financial Officer yes
Michael Roy Weisberg
LPAnd, Crestwood Capital Management, looks like there could be $1 million
3D of Alphaform, I don\'t know where you put it, will it stay or disappear as well? Victoria M. Holt -
Will continue to serve as president, chief executive officer and director.
This is injection molding, suitable for this category.
Michael Roy Weisberg
This part will be retained by Crestwood Capital Management. Victoria M. Holt -
President, President and Director.
Michael Roy Weisberg
Is the idea of Crestwood Capital Management LPAnd the same, you expect to make money there in the second half of this year? Victoria M. Holt -
President, President and Director.
So we \'ve been in the integration process for six months now, and we \'ve learned a lot about the trajectory in which we can move profits.
We are confident that we will achieve a balance of payments by the end of this year.
We-so a little slower than we expected.
We don\'t see any reason why we can\'t move the alpha form 3D printing business over time to a profit margin comparable to our traditional 3D printing business.
So there\'s no reason why we can\'t get there, but when we see the trajectory after six months of integration, we think, to really do that, it may be delayed for a quarter or so.
Michael Roy Weisberg
Crestwood Capital Management LPSo, you will lose money, but the odds will be lower in the second half of the year? Victoria M. Holt -
The president, the chief executive and the director, that\'s right.
Michael Roy Weisberg
Crestwood Capital Management LPAnd then. . . Victoria M. Holt -
The profit margins of the company\'s president, chief executive and directors will steadily increase.
Michael Roy Weisberg
LPAnd, Crestwood Capital Management, was probably profitable in 2017? Victoria M. Holt -
President, President and Director. John A. Way -
Chief financial officer.
Michael Roy Weisberg
So the core revenue level for Alpha will be $3 million or $4 million per quarter? John A. Way -
Chief Financial Officer yes
About $4 million and then grow as we start 3D printing marketing and sales.
Michael Roy Weisberg
LPThat\'s great for Crestwood Capital Management. Thanks a lot. Victoria M. Holt -
Thank you, president, chief executive and director.
Thank you.
At this point, I would like to transfer this call back to the management for their closing remarks. Victoria M. Holt -
The president and chief executive once again thank you for joining us today.
I would like to thank our staff around the world for their continued enthusiasm and execution of our strategy.
We are still very confident in our prospects for revenue growth and enhanced profitability in 2016 and beyond, and we look forward to updating you next quarter.
Thank you very much.
Thank you.
This is the end of today\'s conference call.
You may disconnect your line at this time and have a great day.
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