Proto Labs (
) shareholders capped last year with plenty to celebrate.
The quick-turn manufacturer's stock price has tripled since it
went public Feb. 24, 2012.
It was 2012's second-best IPO performer, tied withGuidewire
), says Cindy Profaca, managing director of IPOFinancial.com. As
of the March 15 close, Proto Labs' stock was up 192% since it
came out of the gate.
Proto Labs is an online, tech-enabled manufacturer of custom
parts for prototyping and short-run production. It provides
customers with real parts made of various plastics and metals
real fast to product developers, who are under increasing
pressure to bring their finished goods to market faster than
rivals. It uses computer numerical control, or CNC, machining and
injection molding to manufacture custom parts. A CNC machine is a
computer-controlled milling machine. It carves the desired part
out of plastic or metal.
Proto Labs' value proposition is all about speed. It's the
world's fastest producer of injection molded or CNC machined
parts, Chief Executive Brad Cleveland told IBD.
The company's secret sauce lies in its proprietary software.
Its Web-based interface and software automate many of the manual
and time-consuming processes typically required to obtain custom
CNC machined or injection molded parts from conventional
suppliers. Customers upload a 3D computer-aided design (
) file of their required part through its website, and often
within minutes its software analyzes the manufacturing potential
of the product and, if it's able to make the part, returns a firm
price quote with any recommendations for design
Once a customer places an order, Proto Labs' software
automates processes such as mold design, which normally require
skilled labor. As a result, it can quote orders in minutes. And
it can ship parts in as little as one business day for a premium
"Proto Labs created a new service that's unprecedented," said
William Blair & Co. analyst Brian Drab. "They have developed
a system that has seamlessly integrated a collection of
proprietary software applications with a manufacturing operation
that's highly tuned for quick-turn manufacturing."
Proto Labs has developed a process where it can make injection
molded parts overnight, says Drab, and at a 60%-plus gross
margin. He says it can take its competitors, the traditional
injection molding shops, three months to make the same parts and
it costs them more to do it.
Proto Labs boasts a business model and a track record that
have made heads turn on Wall Street.
"Investors recognize this is a one-of-a-kind, sophisticated
operation and that the company is only beginning to penetrate its
addressable market and 30%-plus revenue growth with 50% -plus
return on invested capital is impressive," said Drab.
Proto Labs' customers include product developers and engineers
of all stripes. Drab says one of the "beauties" about the company
is no one customer accounts for more than 2% of sales and less
than 10% of its revenue comes from Fortune 1,000 companies.
That's a sign Proto Labs is still in the very early stages of
building its market, he says. Another sign: Drab says since its
inception in 1999 through Sept. 30, 2012, Proto Labs has filled
orders for around 26,000 product developers and has roughly
275,000 customers in its database that represent current or
future users of its services. Overall, adds Drab, there are more
than 3 million users of 3D CAD software globally, almost all of
which are potential customers.
Proto Labs offers its services in the U.S. -- its biggest
market -- Europe and Japan. Its manufacturing operation in Europe
is located in Telford, England, which services the entire EU. Its
manufacturing operation in Japan is in Tokyo and only services
Japan. Any other location in the world, it exports from the
Piper Jaffray analyst Troy Jensen says the total addressable
market for CNC machined and injection molded parts is around $80
billion in North America. Even if 5% of that was in Proto Lab's
target market, he estimates it would still be a $4 billion
opportunity for the company in North America alone.
On a global scale, Proto Labs has penetrated less than 1% of
its addressable user market, he estimates.
"There's a huge opportunity for these guys to add new accounts
and take share from the traditional machine shops," he said.
Judging from its results, Proto Labs has been gaining lots of
momentum. Earnings gains have accelerated in each of the past
three quarters. In the most recent fourth quarter, released Feb.
13, earnings soared 121% to 31 cents a share, topping views.
Sales grew 31% to $33.6 million, also ahead of analysts'
But Cleveland says because the 2011 fourth quarter was a
"little soft," it made the 2012 fourth quarter look a lot
"It was pretty good," said Cleveland. "But we think we can do
better. And I think as we go forward, we will work hard to do
Cleveland's growth strategy involves stepping up Proto Labs'
direct marketing and sales efforts to find, and acquire customers
in the U.S., Europe and Japan at a faster and faster pace.
Another initiative involves enhancing the size and complexity
of the materials of the parts it makes, says Cleveland. Keeping
that in mind, it recently announced the availability of stainless
steel and other new metals through its Firstcut CNC machining
service. And it now has the ability to make high-temperature
plastics through its Protomold service.
The third prong to Cleveland's growth strategy involves adding
more manufacturing processes. For the past several years it's
been working on the ability to mold metal parts.
Analysts polled by Thomson Reuters expect Proto Labs to stay
on the growth track. They see 2013 earnings rising 24% to $1.33 a
share. They expect a 23% gain in 2014.
Proto Labs often gets grouped with3D Systems (
) and newly publicExOne (XONE), which sell 3D printing machines.
But Proto Labs provides a service only, part-making.
It uses no 3D printers. It only uses injection molding and CNC
machining. Stratasys, 3D Systems and ExOne make equipment as well
as offer a service to make parts, primarily on 3D printing
equipment, says Drab. He says many engineers use a 3D printer for
an early-stage design and then go to Proto Labs for the