Q1 2020 Earnings Call
Welcome to be Proto labs first quarter 2020 earnings call.
Time, all participants are name listen only mode. A brief question and answer session will follow the formal presentation. If you watch require operator system.
Please press star zero and your telephone keypad.
As a reminder, this conference is being recorded and it's now my pleasure to introduce your host Mr., Dan Schumacher director of Investor Relations at S.P. and I. Thank you Sir you may begin.
Thank you Michelle good morning, everyone.
With me today, its Vicki Holt, our president and Chief Executive Officer.
One way or Chief financial Officer.
This morning for the market open Proto labs issued a press release announcing its financial results.
First quarter.
March 31st 2020.
Releases are available on the company's website Proto labs dotcom and.
In addition, the parents slide presentation is available online.
To address provided in our press release.
Before we begin.
I'd like to remind everyone.
Discussions will include statements relating to future performance.
And expectations that are for maybe considered forward looking statements and subject to many risks and uncertainties that could cause actual results to differ materially from expectations.
Please refer to earnings press release on recent that's easy filings, including our annual report on form 10-K for information on certain risks that could cause actual results to differ materially.
Personally 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 within the Investor Relations. Our company website for a complete reconciliation of non-GAAP the GAAP results.
Now I'd like to turn the call over to Vicki Holt, President and Chief Executive Officer, Proto Labs Vicki.
Thank you Dan.
Good morning, everyone and thank you for joining us on our first quarter 2020 conference call.
As Youre all aware, we are in the midst of global crisis.
We are guided by our number one priority, which is the health and safety a part of life employees, our communities and our customers.
The outbreak of the novel CRADA fires cope with my team has impacted everyone individuals families and businesses around the world at Proto Labs is no exception.
Our response to this pandemic.
We have established a covert 19 task force on February 20 seconds that quickly developed and began to implement action plans as part of a thoughtful and Swift response to ensure the safety of our employees our communities and our customers.
Due to the services, we provide they'd have to request of our customers Proto labs has been deemed essential business all our global manufacturing operations have remained open.
We continue to monitor it follows CDC and World Health organization guidelines.
To ensure the health and safety of our employees, we quickly implemented new cleaning <unk> sanitizing standard operating procedures at all our manufacturing facilities.
We also implemented new Swift no shift change procedures to minimize employee interaction and changed out layout in employee workstations to achieve social thing.
We minimize exposure of external vendors and ceased customer tours.
We continue to evaluate solutions, such as screening for fever, and other symptoms to maintain the health of our employees.
That's where our office employees, we implemented travel restrictions in early March and cancelled all trade show attended we halted face to face meetings and began transitioning as many employees as possible to working from home.
We continued to make changes to support our employees and set them up for success in their new work environments.
Work from home orders began in Japan in early March followed by Italy, France, Germany, and the UK.
On March 27 will stay at home orders were issued in Minnesota, New Hampshire in North Carolina, The U.S. States in which we operate most of our employees who could work from home from whole remotely we're already working from home.
And we transitioned the remaining individual swiftly and safely.
Our technology team has worked tirelessly to ensure our employees can continue to be productive with this new way of working.
We now have over 90% of our nonmanufacturing employees working from home.
I've been very impressed with the agility and creativity with which our employees have adapted to the changes while continuing to embrace our core values teamwork Trust achievement.
Well, we do work hard to slow the spread of chronic virus.
We also continued to quickly deliver the high quality cards that our customers have expected to have come to expect from Proto labs.
We are grateful and proud to do whatever we can to assess during this global pandemic.
Our mission is to help companies accelerate innovation and optimized supply chain.
Our ecommerce digital manufacturing model is uniquely positioned to help innovators quickly get their inventions into the hasn't doctors and nurses or to respond to supply chain challenges that must be overcome to meet the needs of the medical community.
We are very quickly producing critical parts that has enabled our customers to get products to the fourth blinds quickly to help bite the fires.
Our customers are turning to us at this time of need because our ability to manufacture hundreds of thousands of production park with turnaround times and quality control that cannot be achieved by other organizations.
To support our customers in our communities. During this health crisis, we created our Proto labs Covance commitment.
To remain fully operational isn't a central business.
To prioritize all cold related customer needs.
And to wasteful expedite fees for cobot customers.
We launched a cobas 19 customer response team with dedicated sales and engineering professionals to respond quickly with design assistance and customer support.
We've received cobot 19 orders from over 150 customer companies and there are additional opportunities active in our system.
We've had this delay some non cope its 19 orders to ensure the prioritized orders are delivered as soon as possible and we will continue to prioritize covert 19 orders as long as is necessary.
We have thankful for the understanding of our customers.
<unk> orders have been delayed in support of these efforts.
[noise], we have either shifts for have onboard are over 4 million apart with covance Nike applications to many different customers in the medical space.
Parts, we have made.
Our <unk> eight in spite of Cobot 19 include components from lifesaving equipment diagnostic systems personal protective equipment and other application.
The majority of these timely medical apart have been manufactured with our injection molding process.
But we have produced cobot 19 parts with every one of our manufacturing services.
Some of the examples of the support we are providing are included on page six of our presentation.
Weve provided thousands of injection molded they shields head down to zero in order to protect healthcare workers on the front line of the battle against Cobot 19.
Proto Labs has also produced component for major medical device companies for the production of ventilators.
Additionally, weve machined parts for an innovative affordable ventilator concept design by a university of Minnesota cardiac anesthesiologist.
We are happy to report that that's been a later prototype received FDA approval on April 15th and we're now working out of production solution.
We also provided quick turn injection molded parts to molecular diagnostic company new boat EPS molecular for their diagnostic system that can detect corona virus and just 80 minutes.
In Europe, our team assisted Mercedes AMG and University College, London.
To develop injection molded tooling in three days to produce thousands of critical part for new breeding eight.
These are just a few of the many example, and we continue to engage customer customers with additional solution.
In addition to ensuring the safety and health of employees communities and customers practicing effect of social just to think techniques and manufacturing parts for critical buyers fighting applications. We're also supporting the fight against Cobas 19 through charitable organizations.
Our employee committee, which direction, yes from the Proto Labs Foundation may two major changes to support the community at this time.
First and Dol by our founder Barry Lucas with continued funding for both Lariat Proto Labs. The foundation has provided a vehicle for Proto labs to get back to the community.
The committee accelerated the foundations and he will stem education grants to assist those recipients in providing food and technology needs. During this time of social distancing.
We also recently increased our match for employee charitable contributions through our pro less foundation.
For every dollar in employee gives the pro less foundational matched to dollars.
This unprecedented worldwide crisis has impacted every once in every business one way or another.
Proto labs is very thankful and proud that we can be part of the solution.
Our employees are working tirelessly to ensure that we can help out in the response to the pandemic.
Our digital industry, leading manufacturing solutions and online orderly ordering platform has enabled our customers to rapidly source.
Plastic and metal parts during this global crisis I.
I'm proud to be parts, such a great company with incredible employees.
Supporting innovative customers.
Now turning to our results for the first quarter.
Today, we reported revenue of $115 million representing growth.
1.5% over the first quarter of 29 team.
Growth of 2.6% sequentially.
And near the Middle of the guidance range, we provided on February six.
First quarter ordering trends were generally in line with our expectations through the first two and a half month of coupon.
And we continue to fulfill those orders and recognize the revenue through the end of March.
I will now walk through how demand shifted as the corridor progressed.
January started relatively slow following the normal seasonality pattern of our business.
This information what's reflected in the guidance, we provided on our call on February six.
When it became clear that manufacturing in China was not going to come back online quickly. We saw an increase in quoting activity in mid February.
This increased quoting activity was presumably due to companies evaluating alternatives well developing contingency plans for potential supply chain disruptions.
Despite the increased quoting activity our orders did not increase at that time.
As a cross virus continued to spread we started to see impacts in the affected regions, including a decline in quoting activity and orders in southern Europe in February.
As the virus reach the United States, we saw an inflection point for our business due to the cobot 19 outbreak at the end of the second week of March.
As a result of the general economic slowdown.
We saw orders declined approximately 20%.
Across our portfolio portfolio, excluding injection molded.
In the last week of March we began to receive cobot 19 related orders primarily in our injection molding service in the United States, which helped mitigate the Q1 impact of the slowdown in our other services.
And in Europe, and Japan.
As we entered Q2 to covert 19 related orders continued in our injection molding surface, resulting in strong year over year growth for the parts component of that service.
We also experienced a surgeon parts orders in our existing exists injection molding production business as customers build their inventory levels.
The order activity in our other services has remained dampened consistent with the back half of March.
The net result is that our projected April revenue.
Well be down mid single digits compared to April of 2019.
[music].
The remainder of the second quarter and the rest of year remains highly uncertain for most businesses and that is especially true with the on demand nature of our business.
As we look at the first quarter 2020 revenue by geography highlighted on slide nine of our earnings presentation. The Americas, our largest market produced revenue growth of 3% over the prior year.
Demand was off year over year out consumer end markets in the Americas, while aerospace show significant growth.
Medical and computer electronics grew low single digits.
Europe revenue declined 2% year over year, but increased 1% in constant currency.
Revenue in our medical end market grew high single digit over the first quarter of 2019 offset by declines in automotive and industrial machinery.
Our Japan region declined 3% or 4.5% in constant currency.
Overall, our business grew 2% in constant currency.
Revenue by service for the quarter is presented on slide 10.
Notable highlights include the strong growth in Threed printing up 10% and sheet metal of 12%. Despite the slowdown in these services in the back half of March.
Turning to earnings we reported first quarter non-GAAP EPS of 61 cents per share.
Our earnings were above our guidance range of 50 to 58 cents provided on February six.
These financial results.
Were the result of effectively managing our variable cost to match the volume as we progressed through the quarter.
As a reduction of certain expenses, such as trade shows and travel as we actively responded to the chronic krona virus developments.
John will provide more detailed financial information on the quarter a little later in the call.
As we look forward to the remainder of the year, our top priority is to maintain the health and safety of our employees in communities as we continue to manage through the cobot 19 crisis, we are fortunate to be in a position to serve our customers. During these uncertain times.
We will continue to adjust our variable and discretionary costs to match customer demand, while focusing on the long term health of our business.
On our Q4 2019 call in February we discussed Proto labs 2.0, as our top priority.
This project remains a priority for our business. However, it takes a back seat to the health and safety of our employee.
As a reminder, portal left 2.0 is a systems project, we have undertaken to enhance involve our systems and processes to support our customers and our strategy, but the next decade and beyond.
There are two main components of Proto left 2.01 to enhance our ecommerce platform and customer experience and to to improve folks functionality and interconnectivity of the back end systems, which support our operation.
The benefits for like 2.0 as outlined in our Q4 call include improvements in the customer experience our internal productivity.
Speed and scale ability of the business and expanded internal business insights.
For the last 2.0 is still extremely important to our business and we're continuing to work diligently.
But our timeline will likely be slightly delayed.
Many employees.
<unk> other resources indicate dedicated to this project are now working remotely.
We are focused on maintaining the same productivity the product project had prior to the pandemic, but obviously, we're not we now need to work differently.
Working sessions planning sessions in group meetings, they used to be held in front of a conference from whiteboard are now online using video conferencing that other tools to facilitate information gathering collaboration and decision making.
We continue to make progress on this project. It will we will keep you informed as we progressed through the year.
We remain confident in the long term prospects of our business equivalents 2.0 will increase our position as the leading digital manufacturing source for rapid prototyping and onto me in production.
In the near term, we will push forward up sort of left to point out while continuing to manage through the cobot 19 pandemic, ensuring employee safety, while continuing to delight our customers.
The future hold uncertainty.
And we are preparing contingency plan for a range of different scenarios.
Our business model has generated strong cash flows over the year and we have a very strong balance sheet with sizable cash and investments and no debt.
We are focused on managing our business for the long term as we serve all our stakeholders, including our employees are communities are customers and our shareholders.
The decisions, we make in a lunch we coal will ensure that Proto labs will continue to be a strong viable company long into the future.
With that I'd like to turn the call over to John [noise].
Thank you Marty.
The Q1 financial results begin on page 12 of our presentation.
Revenue in the first quarter was $115.1 million and an increase of $1.7 million or 1.5% over the same quarter in 2019.
Foreign currency had a slightly larger than making an impact than I expected, representing a 600000 dollar headwind in the corner.
Hoping in constant currency growth of 2%.
Turning to product developer girls or first quarter unique product developer served increased to 20876 or 9.5% growth compared to the prior year and inline with our overall revenue growth.
Gross profit for the corner was $58.1 million, a decrease of 760000 or the comparable corner of the prior year and a sequential increase of $1.5 million.
Gross margin was 50.5% relatively flat what the 50.6% airport in the fourth quarter of 29.
This compares with 51.9% in the first quarter last year.
Year over year gross margin pressure of 140 basis points in the first quarter was due to the problem factors.
Our annual Merit increase on general wage inflation resulted in a 90 basis point headwind in Q1 person personal Q1 at 29 team.
We invested in our operations and equipment to support the business, particularly in three D printing and Japan, resulting in a 70 basis point headwind in the quarter.
These headwinds were offset by improvements in our gross margins and our new Hampshire operations, resulting in a 30 basis point benefit to the overall gross margin.
Moving to page 13.
Our non-GAAP operating expenses totaled $38.4 million or 33.3% of 10 revenue in the first quarter of 20 Twond.
$10 million from Q1 Im trying to maintain.
Sales and marketing was 15.3% to revenue on a quarter compared to 15.9% than the prior year.
Production and sales and marketing was primarily driven by lower trade show and other marketing activity as well as lower travel and entertainment starting the quarter.
The travel restrictions have provided our marketing team the opportunity to express their creativity by developing a virtual trade show as a tool to containing here to educate potential an existing customers on our capabilities.
You can listen our merchant trading show.
And the Webinars and trade show section of our website at Proto labs Dot com.
Research and development expense increased to 70.4% of revenue compared to 6.7% of revenue in the prior year.
These investments primarily related to an increase in our external contractor expense associated with Proto labs to pay though as we continue to advance that's important project.
General and administrative expenses were 10.7% of revenue compared to 9.4% in Q1 of 2019 and 10.2% in the fourth quarter.
The increase was predominantly related to the recording of an estimated central bad debt.
What's the uncertainty created by the Cobrand maintain pandemic many businesses are or will be based on cash flow challenges.
Pardon measure to cover potential exposures, where cardinal additional allowance for doubtful accounts of approximately $1 million on the first quarter.
GAAP operating income was $16.8 billion or 14.6% of revenue in the first quarter.
Adjusted non-GAAP operating income was $20.6 million or 17.9% of revenue.
On a GAAP basis, our tax rate was 20.8% up from 29.1% in the first quarter of 20 octane.
The GAAP tax rate is influenced by a number of factors each quarter, but the mix, sometimes last between countries and safe driving the largest portion of the increase this quarter.
On a non-GAAP base has a tax rate was 21.9% in the first quarter compared to 21.3% in acquiring.
On a GAAP reporting basis net income totaled $14 million, resulting in diluted earnings per share of 52 cents.
Adjusting for the after tax costs and stock compensation amortization intangibles and unrealized foreign currency gains our non-GAAP diluted earnings per share in the quarter was 61 cents, representing an eight cents per share decreased from the pioneer and the sequential decrease of two cents per share.
In summary, our financial performance this quarter was relatively strong compared to many other companies operating in this environment.
Our revenues held up through the quarter, what the assistance set of some cold and maintain orders, allowing us to deliver revenue inline with our guidance.
We managed our costs in line with the volumes in each facility and realize the financial benefit from lower trade show another travel spending resulting in earnings above our guidance range.
Now turning to cash flow.
Our business continues to produce strong cash flows and we have a very striking a balance sheet with no debt.
We generated $22.4 million in cash from operations during the quarter.
Our cash from operations and seasonally lower in the first quarter each year, primarily driven by the timing of payments certainly liabilities, including annual incentive payments.
Capital spending in the first quarter was $13.4 million, including investments in putting web 2.0.
<unk> equipment and facilities projects in Europe.
We also returned capital to shareholders by repurchasing $12 million or 161000 shares of common stock at an average price of $74 to make 10 cents.
Given our strong cash generation and solid cash position, we continued our opportunistic stock buyback strategy under a tenbfive one plan during the and then the first quarter and into April.
We have $35 million remaining under our buyback program and anticipate taking a conservative approach as we continue to deploy our opportunistic strategy.
We ended the first corner with a cash and marketable securities balance of $167 million.
Turning to our outlook for the second quarter.
We have historically provided quarterly guidance.
When the uncertainty in the market, we feel it's best to provide information on what May have seen to date and provides additional details as to how we're managing the business rather than to provide formal revenue and earnings per share guidance.
Starting with April ordering and revenue trends to date as picky described order trends began to decline in the third week of March. Shortly thereafter common maintain related orders started to ramp up in total we have received approximately $9 million suncoke and maintain orders and rose rock.
Nice approximately 5 million.
Of revenue on these orders in April.
These orders combined with increasing production orders have resulted in projected in April injection molding parts revenue growth of approximately 25% and overall injection molding growth of approximately 15%.
Collectively our other service since our down approximately 20% in April compared to the prior year.
Then the net result for April as a year over year.
Revenue decline of approximately 5%.
Excluding the covert 19 orders that you plan revenue decline would have been approximately 15%.
We are receiving a covenant I cant related orders in each of our regions. However, the majority of these orders are in the Americas.
Airplane revenue in the Americas is approximately flat.
Down 15% without the benefit of the Cobot 19 orders.
On a per day basis, Europe is down approximately 15%. Thank you Pam is down approximately 20% compared to April 20, I take.
As we turn the calendar to me we have a backlog of coping 19 orders of approximately $3 million that are expected to shift in may.
We're still in receiving some common 19 orders, but a lower rate than earlier in April.
The current market dynamics create significant uncertainty, particularly for the on demand quick 10 nature of our business.
[noise] as we look to the expense components of the income statement, we have prudently manage costs since the common 19 outbreak Dan and we will continue this practice.
We are managing our cost structure in response to the revenue levels in each of our services.
Our manufacturing in our manufacturing facilities, we continued to adjust our variable cost and a corresponding volumes by ensuring appropriate and agile staffing levels, given current and expected future ordering trends, including.
Managing our contractor in overtime hours.
Shifting employees to areas, some paid and deploying shorter workweeks among other labor management activities.
But the enhanced care sac and governmental support programs and other geographic regions were focused on keeping our employees employee compensation as close to haul that's possible.
Our business is built to handle a certain amount of volatility. However, the magnitude of the decline in certain areas of the business, maybe greater than we can effectively flex on the short term.
Employees, our greatest asset and our goal is to keep our dedicated employees working and treated fairly during these uncertain times.
With respect to our administrative costs, we have to scrutinize many areas essentially eliminating all discretionary spend including travel and return and hiring among others.
Continue to prudently manage costs.
As our topline uncertainty persists.
Our incentive compensation, well adjust based on what's going to kick market conditions and our performance.
In addition in support of our employees since like locations have been impacted much harder work weeks or from us the executive leadership team and the board of directors.
Led by proactively taking reductions in our base salaries in Q2.
We remain committed to Proto labs to Paulino and we will continue to invest to drive that projection that project to completion.
For your modeling purposes, the largest lever for Q2 is incentive compensation.
Remaining costs are expected to be slightly below Q1 levels.
We are managing a bit has spent a long term.
Nevertheless, as well position with our strong cash flow and balance sheet to whether this crisis as we managed or the uncertainty.
We're currently evaluating monitoring and adapting to the ever changing landscape, but the objective of being in the strike position to capitalize on the opportunities as the economy recovers.
I'll now turn the call over to thinking for some final comments.
Thank you John.
I want to reiterate first and foremost are focused on our employees community customer health and safety.
This includes our commitment to continue serving our customers as an essential manufacturing business.
Black Swan event.
Like the global outbreak of covert 19 have three phases respond to recover and thrive.
We are currently responding to the Coke 19 pandemic with our employees communities and customers in Mike.
We're also keenly focused on the long term and based on conversations I've been having with business leaders. It is clear this pandemic, it's causing manufacturers to consider changes going forward, which presented favorable conditions for Proto labs.
This pandemic, it's going to accelerate the digitization of manufacturing and the openness and preference.
Manufacturers have to conduct business through E commerce.
In addition manufacturers are going to be taking steps to strengthen their businesses by adapting supply chains to allow more flexibility and reduce logistical challenges of long supply chain.
As an E commerce digital manufacturer, we are very well positioned to help our customers navigate these changes in their business in the future.
Not all companies get to get to the third stage following up Black Swan event and have the opportunity to thrive in the future environment.
I believe Proto labs E Commerce digital manufacturing business model our agility.
Culture.
And our people position us to thrive in the new World.
We will continue to respond and make adjustments to our costs, where we can to manage our business in the short term.
We will not sacrifice our opportunity to recover and thrive as we emerge from this crisis.
This concludes our formal remarks, now John and I would be happy to take your questions.
Michelle can you. Please open the line the QNX.
Thank you will now be conducting a question and answer session. If he would like that the question. Please press star one new telephone keypad.
<unk> for me can you tell in one eight your line is enough like in Q you might start to if you like you have your question from the Q.
Do you think speaker, then maybe necessary to pick up your hands that before passing the stark fees. One moment. Please all we pull for your question.
Our first question comes from the line of Brian Drab with William Blair. Please proceed with your question.
Hey, good morning, John and Vicky and just opening by saying isn't it's incredible what you guys are doing to support the fight against a pandemic and and thank you for doing that [laughter].
Okay.
Yeah, and now I have to shift asking your questions about financial modeling. So [laughter] is there.
Anyway that you could help give us some insight into some more insight into what gross margin.
Is going to do in the second quarter.
Or in April what are you, saying because it seems like you have about 10% to 15% <unk> total revenue.
At no expedite fee.
And I know in general no typically about half for more than half a little more than half of your orders go out with an expedite fee, which really can support gross margin.
And then of course with the balance of the business, maybe down 20% up outside of Cogan related activity. There's some deleveraging there. So just any any help on gross margin in the near term.
Yeah, I'm trying to think that's worth looking at it all your points or are very valid and things. So we continue to manage through I think that the biggest variable that they were dealing with is is volumes and.
Trying to predict what volumes are in each of the individual facilities and just started labor to match those volumes Yeah, I think as I said in my prepared comments in our business is built to handle a certain amount of volatility of them and we can flags.
Thank you.
No it in periods of of declining volumes. It it's a little harder 41 to adjust those costs I'm just trying to on a relative percentage basis. So I think as we're looking at gross margins and what's the potential of revenue being <unk> a little bit lower.
Gross margins likely will have a little bit of pressure on on them in Q2.
Okay, but indeed, you pay a little bit sequentially versus a lot I mean, I gotta, yes, there were a little bit makes me feel like you're talking about 800 200 basis points I would've thought.
Beyond that.
Im really will kinda dependent on where that volume ultimately comes and.
Volumes.
Are in the the range, where we were in April.
Your hundred to 200 basis points as is is probably about right steeper than that it will likely have a little more pressure than that but the topline is gonna be one of the the biggest driver as to what our gross margin percentage I was hoping.
Okay, and then I think I think you said that you saw it customer activity driven by customers building. Some inventory is as we've seen across the industrial world have you seen that tailwind dissipate toward the end of April or are you still thing.
Customers building building inventory, yeah, we've seen a little about dissipate as we've gone through April on that same time of course to covert 19 orders were strong in April so it offset some of that and we had that strong injection molding parts revenue growth year over year in April as a result of that but yeah. We did see.
Some of that just a build up inventory from the.
The other segments kind of slowdown.
Okay, and then I'll just ask one one more for now.
[laughter] on on the website right now you're you're offering your you've been offering you know coated related orders to go out without an expert I see up to April Thirtyth, sorry are you going to continue that beyond April 30, s. or or.
<unk> out how do you perceive that playing out.
Yeah. It we're not planning to continue at a internet.
Okay. Okay.
Okay. Thanks, I'll get back in line and good luck.
Thank you nice thing.
Thank you. Our next question comes from the line of Greg Palm with Craig Hallum Capital Group. Please proceed with your question.
Yeah. So morning, everyone hopefully everyone is doing well.
I'll repeat it's great to see everything you're doing to cope with junior.
Hi, Greg.
So I guess I'm still.
Just want to reconcile some of the comments here again, so injection molding revenue was down slightly in Q1 to.
Put up significantly in April I mean, it sort of sort of implies that coal Goodnight teen contribution that you know will be weighted much more heavily to Q2 versus Q1 and I think that's what you implied but can you confirm that and I guess my math is right.
The about 1 million hold that revenue was recognized in Q1, So what was the remainder of the offset.
From the declining services in end markets from from stockpiling or what else you might not taking into account.
Right.
Yeah, So I won't say the.
Most of the cobot impact on its falling into Q2, there was a little bit in March but.
It does and it is mostly in injection molding. So oh, yeah. As you know yeah, we started seeing the big impact on in the United States on kind of in the.
Early March time kind of timeframe and you know injection molding generally has some longer lead times to it. So as you get a tool made it start shipping part C of most of that's gonna be falling into April we have seen they slowed down in the number of new cobot programs coming into our system. So that's why.
Well to project what kind of tail. This is going to have as a lot of the medical community has spent a good part of this you'll stay at home period of time to build up their response and and get protect personal protective gear and and ventilators and all the medical supplies they need.
Now in place so I'm not sure what kind of tail. This is gonna have which is what makes it really difficult for us to.
To project.
Going forward revenue this quarter.
Yeah that makes sense I mean.
Can you talk at all about new customer role I mean, my assumption is you know or at least you've said you gave customers because of everything going on for these code that 19 projects, but you know I also feel like these leases that could significantly increase the awareness.
Or you know your digital odd demand capability. So I mean in terms of lead inbound interest from new customers in non healthcare industries. I mean are you seeing any significant changes or is it too early to think about that.
Yes. It does is it two ways first we have very strong position in the med device market as you know so it represents a yep almost 29% up our sales revenue. So we've got very strong awareness in the medical device community and many of these cobot 19 orders were coming from coal.
Studies that we already done business with no, but that being said, though I think your point is well taken.
This pandemic and our response has been very very visible in social media and I think as companies in other.
And use the verticals begin grappling with what they need to do to shore up their supply chains on Proto labs has made a significant step in working to change that perception that were a lot more than just prototype it and we've been working on that for a long time, but this is the visibility of this pandemic.
It's really helping people realize we are a lot more than just prototype that we make a lot of me very high quality and quick turn approaches to production parts as well so will that help US you know I will just have to see how that progresses as we go forward.
And you might have been alluded to this but you know as it relates to kind of that on demand high volume manufacturing service that you know I think you've been trying to push for last few years I mean, I think you completed several very very large scale projects for toll did.
So I mean, I guess is that one service that you think might see increased adoption from some of your customers going forward now that they know what your capabilities and how successful we some of these recent project work.
Yeah, I don't know for sure, but we are sure going to work to try to leverage that because as I mentioned I believe as a result of this crisis manufacturers are really taking a look at their their supply chains.
They're trying to put in place things that improve their flexibility and really deal with those long supply chains that are high risk we can help them.
And I think the the the visibility we've gotten in this pandemic really help the manufacturers understand the role that we can play.
As they worked to solve those problems in their business.
Okay, that's great color I'll leave it there are really impressive job. So congrats they've gotten and good luck on board.
Thank you thanks Ryan.
Thank you. Our next question comes from the line of Troy Jensen with Piper Jaffray. Please proceed with your question.
Alright, Thanks first of all congrats on the great results and thanks also for all the efforts you guys do 'cause it.
Yes, Thats right.
Yeah. So I appreciate all these incremental information you guys gave us your April over April.
I apologize if this question was asked but.
Can you talk about a lot of this coty business, because whatever coatbridge manufacturing it just kind of helping pursuits capacity and whatnot. So.
Your thoughts on the strength of what you're seeing right now in your koby pipeline.
Yeah. So that is the that's the challenge we got so some of its bridge some of it is actually producing the parts. So some of the applications were producing tens of thousands all the parts that go into equipment into medical device space. So it's not all bridge tooling in some cases.
Yes, but it's now a bridge to like some of it is actually the final parts that and they're not planning to to make a and additional tool, but as I said.
We have started seeing a they slowed down in the number of new coal that opportunities that are coming into our cobot 19 customer response team and we keep a database of all of these and as they come in as an opportunity and it has they moved through the process of design and whether in fact, there or.
I have been closed so we have a lot of opportunities still in that pipeline, but that number of new ones coming in have slowed significantly. So that's why it's a difficult for us to forecast the tail that's on the search.
Alright, I understood I know, it's tough to figure out.
I'd be curious to know you're just your thoughts to and lead generation I know you just sit on it in the last question, but.
It's not that you guys got a lot of leads through sitting in all the conferences that always you guys. Any then given it seems to be none of those just curious how much of lead generation tenants into those.
Yes, we so the other thing that's been awesome about this particular situation is the is the amount of social media.
Tension that we've been able to get from that as leverage from that and we've seen a lot of.
Comment and activity in social media, that's outside the medical device market in other target markets where.
Our our value proposition can really resonate so yeah like I said, we are we're focused on managing this thing through the short term, but also making sure we position ourselves on the backend to be a solution for companies as they begin to look at how they might want to adapt their business go.
In Florida, and the other things that it's a subtle point, but we're all working remotely now right and historically manufacturers have been a little bit more hesitant in the b to B world to do business over E com, they're learning pretty quick ecommerce can be very efficient and very effective and that's also very.
Positive for us as we always have been working to change the behavior of manufacturers. So they can take advantage of the the unique disruptive business model that we have here Proto labs. So those both of those things are kind of helpful for us going forward, yes, that's it for about a question for John.
No I'd be curious if he could remind us.
Expecting you know granular information here, but just.
This year vertical exposure I mean, obviously health care I believe is your biggest but.
Okay, great quarter, auto and aerospace and consumer products and just to help there would be great.
Yes medical is about a quarter of of our overall business and then let in that mid Twentys range.
Consumer electronics is that mid to upper teens, and then we've got to a bunch that are.
Hovering around that 10%, a general manufacturing industrial machinery and equipment.
Aerospace and automotive is kinda in the mid single digits.
So those those are the here.
Perfect and they said are you guys. Thanks again for all the work and good luck you're doing work.
That's right. Thanks.
Thank you. Our next question comes from the line of Jim Ricchiuti with Needham and company. Please proceed with your question.
Thank you good morning.
I'm wondering if.
With respect to the cope it related business from your traditional medical customers. She did you see any of them diverting resources for Kobe, and I guess, where I'm going with this is I'm wondering as that business the cobot related business.
Begins to slow down if you might be getting to see if this is true a pick up from that traditional medical related business that you'd normally would be singh.
Yeah.
Yeah.
I can't really speculate on that we've always been the had very strong partnerships with the med device space I think there have been very very pleased and complementary of our ability to respond to their needs. At this time, so our relationships with our customers remain very very strong so I would view that as a positive.
But we'll just have to see has this thing progressive as you know outside of.
Many of these cope with related applications with the medical device community, they're seeing declines in their business in other areas because they're not all but the elective surgeries and elective processes are just not taking place so whether that impacts you know some of their spending going forward I don't know.
Okay Fair enough a couple of other questions and I'm curious on the sheet metal side of the business and I think in the presentation. They were pretty may have called out a 12% increase and I'm. Just wondering what was driving that and maybe or are we seeing beginning to see a change there and.
And that portion of the business, which is obviously had some some challenges.
Yeah, we had a pretty easy comp there because how come first quarter was pretty weak, but we are seeing some improvement in in in how that business is going and how our sales team it's moving.
But that business is not getting as we mentioned that business is not getting the benefit of cold at the same 'cause it orders the same way injection molding s.. So [laughter], yeah, Jim I think of the way I wouldn't look at it is not.
Our our sales resources and everything that we've been talking about and developing what is gaining traction and then go up it came along and and disrupted that so so we were making nice progress and and that's that's all thrown into uncertainty with with everything else is that's where managing through.
Okay, and then two two final questions I'll jump back into queue. The production parts business I'm wondering if you're seeing any change in behavior from some of your traditional competitors and you have these maybe machine shops injection molding shops that are more aggressively pursuing bid.
Business now yeah, just in light of this unprecedented downturn that we're saying.
In the economy so rapidly.
And now we have not seen that today and that you know were little bit different than some of those companies and so they don't really have the capability injection molding respond as quickly as we can still where speed is important there really is nobody the fastest we are there. So I haven't really seen anything there on haven't really seen much.
In.
We're aware of on the machining side, either but that business has seemed quite the decline we mentioned that outside of injection molding as we looked at April you.
You ever here the rest of our services are down about 20%.
Okay, and lastly, I'd just to point out little bit of.
Shifting out for understandable reasons.
I'm just wondering is or can you put anything.
More of a timeline to that what kind of that delay might we be looking.
So we put the word and they're slightly because if we're talking years, we're talking yeah, yeah months kind of timeline. It it will really depend we we have to be able to isn't going first in Europe, we have to be able to get a team in Europe to to manage hyper.
Care and and that approach there. So we've got to be able to travel and get some folks over there. So we'll see how how the travel restrictions progress as we go through.
Okay, that's it and thanks for all the good work on cobot. Thank you.
Thanks, Jim.
Thank you. Our next question comes from the line as Ben Rose with Battle Road Research. Please proceed with your question.
Yes, good morning, Johnny Vicki I'm also want to offer my congratulations to you for really stepping up during this crisis and I'm doing a lot of great things.
You would put out a press release just before the.
End of the corridor or just before reporting the quarter dealing with the new metal printing initiative, you have with GE and I thought it would be maybe appropriate just to check in with you to see how a that relationship is going and within your Threed printing business is there any update that you can give.
Regarding.
How are metal printed parts are contributing to the growth of that business.
So partnership was G metal Threed printing is very strong weve been a partner with them for quite some time. The press release was around acquiring what's called an ex line. It is a a machine that allows us to make larger part. So it's just got a much.
George or build.
Platform to it that allows us to make bigger parts and customers, particularly in the aerospace.
Satellite space segment.
Looking at large and also frankly on the industrial segments are looking for larger part and so that's what that once about we haven't got the machine yet so we'll wait till it arrived but we're looking forward to be able to serve our customers. There metal threed printing has been performing quite well, but has not really had.
Much of an uptick with respect to the cobot 19, so that general decline that we mentioned would apply to the metal Threed printing business as a result to up the economic downturns, both here and in Europe.
But I think overall.
Got it.
We see a lot of opportunity and in metal Threed printing and I think the ability to produce larger larger parts is is an area where Ah that's service is going.
And you know, we did produce 10% growth in or or Threed printing in the first quarter. Despite at Cowen impact in and metal was a strong contributor there.
Okay, and if I may just one quick follow up I know you mentioned autos still small.
In the scheme of things in terms of 5% to 7% there has been a lot of buzz around next generation product development for [noise].
Oh electric vehicles and batteries and so I'm just I'm wondering if on the margin.
You may be seeing any interesting orders from some of your product design customers in that regard.
Yeah I yeah. It we do tend to move we worked with automotive tend to work on more of the innovative you know electric vehicle kinda side of the equation, but automotive in total.
In both first quarter and going into second remains down.
Okay.
Okay. Thank you very much and I wish you a lot of book.
Yeah. Thanks.
Thank you there no further questions at this time I like kind of call back over to Mr. Vicki Holt for any closing remarks.
Thank you Michelle.
Well, thank the Proto labs employees for their efforts in the beginning of 2020 and through these extremely difficult time I also want to thank our customers for their continued support we are committed to responding to the cobot Nike outbreak recovering and eventually Friday and they said earlier in the call. Our number one priority is managing through the current Craig.
Just while ensuring our employee safety and continuing to serve our customers. Our business is more resilient and many of our competitors and tough macro economic times due to our E commerce platform and industry, leading digital manufacturing processes and infinite capacity model.
Over the long term I'm extremely confident our business model will drive greater shareholder value.
We look forward to reporting to you on our progress during our next call. Thank you very much.
Thank you. This concludes today's teleconference. You may disconnect your lines at this time. Thank you.
And have a wonderful day.
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