5 Must-Read Quotes From Proto Labs Inc.'s Management

By Steve HellerFool.com

The second quarter marked the twelfth consecutive quarter Proto Labs reported record revenue, which grew by 21% year over year to $64 million, translating to $0.44 per share in earnings on a GAAP basis.

The big-picture takeaway from the results was that Proto Labs served a record number of product developers, its international business experienced strong growth in spite of a sluggish Europe and Asia, and its Fineline 3D printing service is growing revenue like gangbusters -- up 86% year over year -- thanks to effective cross-selling between its suite of rapid manufacturing services.

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Beyond the headlines, Proto Labs' earnings conference call provided additional insights about the underlying health of the business. In total, there were five key takeaways from management.

1. Expanding the envelopeOne of Proto Labs' core growth strategies is to expand the number of manufacturing services it offers worldwide, which in turn increases the number of potential product developers it can serve. In the second quarter, all three of Proto Labs' services -- Firstcut CNC machining, Protomold injection molding, and Fineline 3D printing -- were expanded.

On the call, Holt shared the highlights:

2. Update on EuropeIn Europe, Proto Labs' second-quarter revenue increased by 12% year over year to $10.1 million. Had currencies remained constant, the region's revenue would've increased by an impressive 33.5% compared to the year prior.

According to John Tumelty, vice president and general manager of Proto Labs Europe, several factors played into the company's strength in Europe. The most notable was the sales and leadership initiatives Proto Labs initiated in the fourth quarter of last year:

The other factors included the introduction of lathe-turned parts, 3D printing, and software enhancements, which are expected to drive continued growth out of the region for the remainder of the year.

3. Cross-selling opportunities aboundWhen Proto Labs acquired Fineline Prototyping, a 3D printing as a service company, last year, it was delighted that less than 2% of Fineline customers were existing Proto Labs customers. This meant that there would be tremendous cross-selling opportunities for Proto Labs to sell its 3D printing customers rapid manufacturing services, and sell its manufacturing customers earlier stage 3D printing prototyping services.

Aside from measuring the number of unique product developers Proto Labs serves in a given quarter, it's difficult to measure the impact of cross-selling on Proto Labs' business. During the call, Holt offered up an anecdotal account of how its early on cross-selling efforts have been faring:

4. Improving Fineline marginsIn the second quarter, Proto Labs' gross margin declined by 310 basis points year over year to 58.7%, and declined by 150 basis points sequentially. In the earnings release, Fineline was cited for 90 basis points of the annual decline, as 3D printing tends to carry a lower margin than Proto Labs' other services.

It came to light during the call that there could be an opportunity for Fineline's margins to improve, but only if it doesn't dampen demand. CFO John Way weighed in:

5. Keeping its promiseProto Labs is working to establish itself as the world's fastest manufacturer of reliable parts for low-to-mid-volume manufacturing runs. To ensure it has the necessary manufacturing capacity to meet this objective, Proto Labs must invest ahead of expected growth.

In the first half of 2015, Proto Labs has spent approximately $15.7 million on property and equipment, and expects to spend a total of $40 million this year on capital expenditures to support its future growth prospects.

When responding to an analyst's question about the company's slight reduction in its operating margin target, Holt explained that Proto Labs has a brand promise to keep first:

All about the customerAt the end of the day, Proto Labs' entire business is built on providing a great customer experience, which Holt recognizes as "a cornerstone of the company." If Proto Labs fails to deliver on this front, its future prospects would likely weaken.

Fortunately, all signs appear to suggest that Proto Labs continues to remain uniquely positioned to capitalize on the rise of low-cost rapid manufacturing in a way that keeps the customer experience and the company's long-term success in balance.

The article 5 Must-Read Quotes From Proto Labs Inc.'s Management originally appeared on Fool.com.

Steve Heller owns shares of Proto Labs. The Motley Fool recommends and owns shares of Proto Labs. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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