On-demand digital manufacturing provider Protolabs has reported its financial earnings for the second fiscal quarter of 2020.
Revenue for the period ending June 30, 2020, was $106.5 million, with a gross profit margin of 49.2 percent. This can be compared to the comparative of $115.9 million for Q3 2019 and a GPM of 51.9 percent. Net income for Q2 2020 was down to $12.6 million from $16.1 million reported in Q2 2019.
Protolabs’ tight control over its expenditure has enabled it to deliver a relatively flat revenue performance, despite the ongoing challenges associated with COVID-19. Other 3D printing companies such as 3D Systems have introduced cost-cutting measures such as furloughing staff, in order to manage their spending.
On a call with investors and analysts, the focus was on the impact of the COVID-19, and the company’s internal and external responses. “A crisis like the COVID-19 pandemic provides an opportunity for Protolabs to demonstrate the value that our digital business model can provide,” said Vicki Holt, President, and CEO of Protolabs. “Our purpose is to accelerate innovation from development through commercialization, and we’ve been able to deliver on that purpose during this crisis.”
“I would like to express how proud I am of this Protolabs team, and how we’ve handled the first-half of 2020,” Holt continued, “I would like to thank them all for what they do to make Protolabs a great organization.”
Protolabs’ Q2 2020 performance
Protolabs reports revenue across four segments: Injection Molding, CNC Machining, 3D Printing, and Sheet Metal. Injection Molding accounted for more than half of the company’s total revenue, posting $57.8 million for Q2 2020, a 4.3 percent increase on the comparative of $55.4 million.
CNC Machining reported $28.7 million in revenue for Q1 2020, a decline of 35.2 percent on the $38.8 million posted in the same period last year. Protolabs’ Sheet Metal revenues also dropped, reporting $4.6 million in revenue for the second quarter, compared to $5.4 million in Q2 2019.
The company’s 3D Printing segment delivered $14.2 million in revenue for Q1 2020, a 7.2 percent decrease against $15.2 million for the same quarter last year. Protolabs still reported an increased income for its 3D Printing business across H1 2020 though, with revenues up to $30.1 million from $29.7 million in H1 2019. This growth was largely achieved in an impressive first quarter, which saw the company’s 3D printing revenue rise by 10.1% compared to Q1 2019.
|Revenue (USD)||Q2 2020||Q2 2019||H1 2020||H1 2019|
Revenues for the second quarter were flat for the company across Europe and the United States, when compared to Q2 2019. In the United States, Protolabs’ revenue fell from $91.1 million in Q2 2019 to $86.8 million for the same period this year. Similarly, the business’ European revenue marginally dropped in the first quarter, from $17.1 million in Q2 2019 to $16.7 million in Q2 2020.
Despite the challenging macroeconomic climate, total revenue for the company fell just three percent in the first half of 2020 compared to H1 2019 and only dropped 1.1 percent in the United States. In Q2 2020, Protolabs’ mitigated the hit to its bottom line by decreasing its operating expenses from $40.6 million in Q2 2019 to $38.1 million in Q2 2020, and cutting its marketing spending by 13.8 percent during that period. The absence of cuts to Protolabs’ R&D spending, which rose from $8.1 million in Q2 2019 to $8.6 million in Q2 2020, indicates the company is still planning for the long term.
|Operating Expenses (USD)||Q2 2020||Q2 2019||H1 2020||H1 2019|
|Marketing and Sales||$16.9m||$19.2m||$35.1m||$37.8m|
|General and Admin||$12.5m||$13.2m||$26.6m||$26m|
Kicking on from COVID-19
During the earnings call, Holt explained that following Q2 2020, the company had expected a decline in revenue, but highlighted that its income had “rebounded” since the start of June. Protolabs’ reduced income was offset slightly by the $5 million earned via COVID-19-related orders in April, and its aerospace division in particular recorded “really strong” revenues in Q2 2020.
“I don’t think anything really surprised us,” said Holt. “Europe has been very slow to recover. Some of our speculation is that a lot of the European economies are very export-oriented, so with the weaker export economies, that could be impacting on Europe, even though they’re opening up a little bit.”
Holt also provided an update on “key strategic initiatives” for future growth such as Protolabs’ 2.0 systems project. The program, which aims to enhance the company’s e-commerce platform and the interconnectivity of its back-end systems, remains on course for the European launch by the end of 2020. “I am so proud of our teams and their work on Protolabs 2.0 to date. The level of teamwork across all functions and regions, all while transitioning to a remote working environment, is extremely impressive,” said Holt.
Echoing the CEO’s statement, CFO John Way said: “Many of our customers have been impacted by COVID-19 stay-at-home orders and business shutdowns.” Despite this, Way emphasized that the company still has a “strong balance sheet” with no outstanding debt and that he expects the business’ June recovery to continue into July. Way also underlined that recovering the company’s sales volume was key to returning it to gross profitability during the fourth quarter of 2021.
Given the company’s strong revenue performance in Q1, it continued to invest in its facilities and expanding its product range throughout Q2. In May 2020 for instance, Protolabs invested £10.5m in the construction of a new 3D printing facility. Once open, the 5000 square meter factory in Germany will increase the company’s production capacity by 50 percent. This was followed by the launch of its new cobalt chrome superalloy printing material for its metal laser sintering process. It’s anticipated by Protolabs that the powder will disrupt a number of industries including oil and gas, where customized cobalt chrome parts were not previously possible.
Protolabs’ plans for Q3 2020
For the coming quarter, Protolabs is committed to the digitization of its marketing strategy. “We’ve been shifting to a much more digital appearance in marketing,” explained Holt, “That’s one of the advantages that we have. We can pivot digitally very easily since we are such a digital company.”
The remainder of the year will see Protolabs pursue spending reduction opportunities. CFO Way noted many COVID-19 related expenses were a one-off, and wouldn’t recur. “We had some expenses in Q2 related to the safety of our employees, making sure that we’ve got masks and protective equipment and things like that,” said Way. “We’ve got most of that stuff on hand now.”
Many of the company’s large industrial testing facilities also remain closed, and Protolabs is still considering when they should re-open. In the firm’s recently conducted survey, 73 percent of respondents said they were working remotely. As a result, some of its factories will either remain closed or re-open on a part-time basis. “We really wanted to understand what was happening with our customers, in particular our product developers, and how they are able to do their job during this period of time,” said Holt.
“Their development cycles have been pushed out or seen reduced funding, so the survey helped us understand a little bit about what’s happening with our product developers,” she added. They’re just out there with fewer projects today, and that’s what we’re seeing reflected in the underlying weakness in our revenue.”
In her closing remarks, Holt summarized that the challenge of COVID-19 was far from over, but reiterated that the company was confident that its staff and business model would “push forward” in the coming quarter: “We are committed to pushing this company forward through the challenges and changes,” she concluded. “We will continue to improve our offering, our company culture, and our financial performance. In the near-term, we will continue to adapt and grow as an organization, and over the long-term, we’re committed to driving great shareholder value.”
Protolabs’ shares had been rising steadily since its Q1 results were announced, moving from a low of $93.58 per share to a high of $137.93. Since the release of its Q2 figures, the company’s shares have dipped again, but only slightly, to a low of $118.48.
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Featured image shows a Protolabs CNC machining facility. Photo via Protolabs.