Proto Labs Inc.’s first quarter was an extraordinary one for the ecommerce-based provider of digital manufacturing services. While its ecommerce-dominated total sales increased by a modest 1.5% to $115.1 million, it made significant gains in other ways important to its future growth, said president and CEO Vicki Holt.
As the Maple Plain, Minnesota-based manufacturer played a critical role in producing parts for medical equipment used to treat patients with COVID-19, it showed how vital its business model is to manufacturing and to supply chains—and particularly so at a time of a major market disruption, Holt said on a first-quarter earnings call yesterday, according to a transcript from Seeking Alpha.
“Our ecommerce digital manufacturing model is uniquely positioned to help innovators quickly get their inventions into the hands of doctors and nurses, or to respond to supply chain challenges that must be overcome to meet the needs of the medical community,” Holt said. “We are very quickly producing critical parts that have enabled our customers to get products to the front lines quickly to help fight this virus.”
“This pandemic,” she added, “is going to accelerate the digitization of manufacturing and the openness and preference manufacturers have to conduct business through ecommerce.”
Customer-response team for COVID-19
Protolabs launched in Q1 a COVID-19 “customer-response team” with dedicated sales and engineering professionals to assist customers with product designs and orders, and it has already processed orders from more than 150 companies for more than 4 million parts with COVID-19 applications, Holt said.
Among those orders were thousands of injection-molded face shield headbands for front-line medical workers, components used in the production of ventilators, and machined parts for a new ventilator prototype designed by a healthcare specialist at the University of Minnesota. That prototype recently received government approval, “and we are now working on a production solution,” Holt said.
Other COVID-related projects have included parts Protolabs produced for NeuMoDX Molecular Systems for a diagnostic system designed for detecting the coronavirus. In Europe, Protolabs worked with automaker Mercedes-AMG and the University College London to “develop injection-molded tooling in three days to produce thousands of critical parts for new breathing aids,” Holt said.
Protolabs, with manufacturing facilities in the United States, Europe and Japan, sells to customers worldwide several types of custom manufacturing that customers can order online at Protolabs.com. Protolabs says it produces custom parts and assemblies in as fast as one day with automated 3D printing, CNC machining, sheet metal fabrication, and injection molding processes. CNC, or computer numerical control, is a process by which machining or milling tools operate via computer programming. The company’s “digital approach to manufacturing enables accelerated time to market, reduces development and production costs, and minimizes risk throughout the product life cycle,” a spokeswoman says.
Dealing with market uncertainty ahead
Protolabs, which routinely does about 29% of its sales in the medical device market, experienced less demand during the quarter in other manufacturing markets including automotive and industrial machinery. “The net result is that our projected April revenue will be down mid-single-digits compared to April of 2019,” Holt said. “The remainder of the second quarter and the rest of the year remains highly uncertain for most businesses and that is especially true with the on-demand nature of our business.”
But Holt said she expects the long-term effect of the pandemic to help to emphasize the importance of both ecommerce and on-demand digital manufacturing services in shoring up manufacturing production and supply chains.
“This pandemic and our response has been very, very visible in social media,” she said, adding, “I believe as a result of this crisis, manufacturers are really taking a look at their supply chains. And they’re trying to put in place things that improve their flexibility and really deal with those long supply chains that are at high risk. We can help them. And I think that the visibility we’ve gotten in this pandemic really helps the manufacturers understand the role that we can play as they work to solve those problems in their business.”
‘Ecommerce can be very efficient and effective’
“Historically,” Holt said, “manufacturers have been a little bit more hesitant in the B2B world to do business over ecommerce.” But they’re learning pretty quickly, she added, that “ecommerce can be very efficient and very effective.”
Moreover, Protolabs’s response to the crisis has involved an increase in its manufacturing focused on the production of final parts used in finished products, as opposed to its traditional market of developing prototypes for its customers. “The visibility of this pandemic is really helping people realize we are a lot more than just prototyping,” Holt said. “We make a lot of very high-quality, quick-turn approaches to production parts as well.”
“We are confident that our ecommerce digital manufacturing business model,” she added, “will thrive as manufacturing adapts in response to this pandemic.”
Operating as an essential business, Protolabs has about 90% of its non-manufacturing staff working at home. For its manufacturing employees, “we continue to monitor and follow CDC and World Health Organization guidelines,” Holt said. “To ensure the health and safety of our employees, we quickly implemented a new cleaning and sanitizing standard operating procedure in all our manufacturing facilities. We also implemented new shift-change procedures to minimize employee interaction and changed our layout in employee workstations to achieve social distancing.”
For the first quarter ended March 31, Protolabs reported:
- Total revenue increased 1.5% year-over-year to $115.11 million;
- Gross profit dipped by 1.2% to $58.1 million, resulting in a gross profit margin of 50.5%, down from 51.9%;
- Net income decreased by 9.8% to $13.98 million.
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