Release Date: May 02, 2025

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Proto Labs Inc (NYSE:PRLB) delivered revenue of $126 million, near the upper end of their guidance range.
• Earnings per share were $0.33, also near the top end of expectations.
• The company achieved sequential gross margin expansion and strong free cash flow, with free cash flow representing 14% of revenue.
• The hybrid model continues to yield positive outcomes, with customers utilizing the combined offer growing more than 45% over the trailing 12 months.
• Production revenue exceeded expectations in the first quarter, with significant customer engagement in expanded production capabilities.

Negative Points

• First quarter revenue was down slightly versus the prior year due to macroeconomic headwinds and manufacturing contraction.
• Injection molding revenue declined 7% year over year, mainly due to non-recurring larger part orders in the first quarter of 2024.
• 3D printing revenue was down 6% year over year as order trends lagged expectations.
• Non-gap operating expenses increased by $3.6 million sequentially, driven by higher incentive compensation and additional investments in demand generation.
• The current economic uncertainty is causing customers to be more cautious about demand forecasting, potentially extending the timeline for shifting supply chains.

Q & A Highlights

• Warning! GuruFocus has detected 3 Warning Signs with PRLB.

Q: Can you elaborate on the sequential improvement in gross margin and its sustainability? A: Dan Schumacher, CFO: The improvement was primarily due to increased volume in our factory, which led to higher factory margins. However, network margins were slightly down due to challenges like sourcing during the Chinese New Year. For the rest of the year, margins are expected to be flat to slightly down due to a higher proportion of network revenue. Achieving higher margins will depend on the volume distribution between network and factory.

Q: Is the current trade war causing challenges for the Proto Labs network, especially with manufacturing partners in China? A: Rob Badour, CEO: We haven't seen significant challenges. Our network is highly adaptable, allowing us to move work around in real-time based on customer needs and pricing. This flexibility helps us mitigate any impact from tariffs, showcasing the strength of our model.

Q: How is the current economic environment affecting customer behavior and order growth? A: Dan Schumacher, CFO: We've seen consistent improvement in orders month-to-month. Initially, network orders were softer, particularly in Europe, but they are now trending up. The comprehensive offering of Proto Labs is appealing to customers, especially in times of supply chain disruptions.

Q: Are you considering expanding your network base in the US due to tariffs? A: Rob Badour, CEO: We are satisfied with our current network and have excess capacity with US manufacturing partners. As we grow, we can onboard more partners, but currently, we feel well-prepared with our existing network.

Q: How does the 3D printing business align with your strategy of driving production parts, given recent declines? A: Rob Badour, CEO: While 3D printing is primarily used for prototyping, we do see production growth in this segment. The macroeconomic environment has slowed new product launches, affecting prototyping demand. However, our pivot to focus on production is yielding growth, including in 3D printing for production applications.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.