Protolabs (NYSE: PRLB) came out with record revenue of $125.3 million for its third quarter in 2021, representing year-over-year growth of 17%. The quarterly report, however, missed earnings estimates after the digital manufacturing service bureau posted net profits of $9.7 million (35 cents per share), a 46% decrease from last year’s $17.9 million (67 cents per share). During an earnings call with investors, CEO Rob Bodor said he was “disappointed” with the company’s performance but is already taking actions to “address the headwinds.” As a result, Protolabs shares were down 20% after the company released its third-quarter results on October 28, 2021, but have since hiked a bit.
Despite soft third-quarter earnings, results were not bad considering that Protolabs–like many other companies in the industry–is operating in an unprecedented environment, with pandemic-related labor, material, and equipment shortages worldwide and trade norm changes due to Brexit in Europe. These factors are impacting the company’s financial results. In addition, Bodor highlighted that the well-documented labor and material shortages are driving inflationary pressures in the form of higher wages, increased recruiting costs, and increased over time, resulting in lower-than-expected gross margin performance.
“The labor shortages and supply chain issues impacting our financial performance are likely to persist through the remainder of the year and into 2022,” revealed Bodor. “To address our near-term challenges, we are taking several measures, including: thoughtful pricing changes to offset labor cost inflation, investing R&D resources to increase internal operating efficiency in the Protolabs 2.0 environment, and investing in robotics automation to reduce the need for additional labor to support growth.”
Bodor, however, anticipated that these near-term actions might not all have an immediate impact on Protolabs’ financial results, and the benefits may be muted in the fourth quarter due to lower seasonal revenues, continued macro weakness in Europe, and additional costs incurred during the holiday season.
Geographically, the Americas generated revenue of $100 million in the quarter, representing growth of 17% year-over-year and all-time record revenue for Protolabs’ legacy business in the region. Otherwise, Europe and Japan generated sales of $22 million and $3 million respectively. What’s more, a revenue breakdown by technology would show that out of the total $125.3 million in sales, 15% corresponds to 3D printing, so total sales in this segment for the full year would be close to $75 million. However, this could change significantly by 2023, once the company finishes the development of an upcoming manufacturing facility in the Raleigh, North Carolina, area.
The location will add 120,000 square feet of manufacturing capacity to its current facility, also located in North Carolina, and will respond to a growing demand for Protolabs’ 3D printing services. Bodor said that the industry’s transition from “just prototyping” to more production opportunities had led the company to invest in the new facility, which will be ready for the workforce to move in by the end of 2022.
Together with its subsidiaries, Protolabs operates as an e-commerce-driven digital manufacturer of custom prototypes and on-demand production parts globally. As part of its expansion strategy, the company has also acquired four organizations, their most recent being 3D Hubs (now called simply Hubs) in January 2021. Protolabs expects the combination of its internal manufacturing capabilities and Hubs’ network of premium partners will help serve more customer needs.
For this quarter ending September 30, 2021, Hubs–which is still operating separately from the core business–contributed $8.8 million of revenue, representing solid year-over-year growth of 35%. However, Hubs’ third-quarter revenue was relatively flat sequentially, primarily due to challenges in the European market and a short-term decrease in organic online search performance, and the brand’s transition from 3D Hubs to Hubs, which caused a temporary decline in sales and impacted the overall revenue for the quarter. Still, Protolabs considers re-branding as the right move for the business’s long-term success, since the name now reflects the broader nature of services provided beyond 3D printing.
Having manufactured roughly 400 million parts since being founded in 1999, Protolabs has become one of the largest players in digital manufacturing services. According to the management team, the firm served 23,450 unique product developers in the third quarter, up 24.8% year-over-year. This growth was driven by its legacy business and the acquisition of Hubs.
Commenting on the company’s future, John Way, Protolabs’ chief financial officer, said the fourth quarter of the year could generate revenue between $112 million and $122 million, which translates to year-over-year growth of between 7% and 16%. He said the revenue assumption includes the seasonality generally experienced by the business in Q4 and anticipates continued softness in the European economic conditions.
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