Proto Labs Inc (PRLB) 2012 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by here and welcome to the Proto Labs fourth-quarter 2012 conference call. During today's presentations all parties will be in a listen-only mode. Following the presentation the conference will be open for questions. (Operator Instructions).

This conference is being recorded today Wednesday, February 13, 2013.

I would now like to turn the conference over to Bill Dietrick, Vice President of Marketing at Proto Labs. Please go ahead, Mr. Dietrick.

Thank you, operator, and good morning, everyone. This morning before the market opened, Proto Labs issued a press release announcing its fourth-quarter and year-end financial results for the period ended December 31, 2012. The release is available on the Company's website at ProtoLabs.com.

Before we get started, during the course of this conference call, the Company will provide financial projections and make other statements about its business that are forward-looking and are subject to many risks and uncertainties that could cause actual results to differ materially from expectations. A detailed discussion of the risks and uncertainties that affect the business is contained in the Company's IPO prospectus and other SEC filings particularly under the heading Risk Factors. Copies of these filings are available online from the SEC or on the Proto Labs website. The Company's projections and other forward-looking statements are based on factors that are subject to change and, therefore, these statements speak only as of the date they are given. The Company does not undertake to update any projection or forward-looking statement.

In addition, to supplement the GAAP numbers, we have provided non-GAAP adjusted net income and basic and diluted net income per share information that excludes the after-tax cost of stock compensation. We believe that this non-GAAP number provides meaningful supplemental information and is helpful in assessing our historical and future performance. A table reconciling the GAAP information to the non-GAAP information is included in our financial release.

Now I would like to turn the call over to Brad Cleveland, President and CEO of Proto Labs. Brad.

Good morning, everyone. Thank you for joining us today on our fourth quarter of 2012 conference call. With me today is Jack Judd, our Chief Financial Officer. I will begin with a brief overview of our fourth quarter and 2012 fiscal year financial results as well as provide some related commentary. Then Jack will provide a more detailed look at our financial results and offer our views on the outlook for the first quarter of 2013.

At the end of our remarks, we will be glad to take your questions.

In our recently completed fourth quarter of 2012, Proto Labs generated record revenue of $33.6 million, an increase of 31% over the fourth quarter of 2011. For the full year we generated revenue of $126 million, 27% above our 2011 revenue of $98.9 million. These excellent results in the fourth quarter were the result of record quarterly revenues from each of our global operations in the United States, Europe, and Japan.

As a result of this strong global revenue, we were also able to achieve record quarterly earnings. Our net income for the fourth quarter was $7.4 million or $0.29 per diluted share. This in turn allowed us to grow our annual net income to $24 million or $0.98 per diluted share.

The number of customers we have served also continues to grow. During the full year of 2012, we served 2,991 new customers, generating $20.8 million in revenue, and 4,763 existing customers generating $105.2 million in revenue. Jack will walk through our record financial results in greater detail later. Right now, though, I would like to provide an update on each of our geographic locations, our Protoworks initiative and our Cool Idea program.

During the just-completed fourth quarter, record revenue from our US operations increased to $26 million, 36% over the fourth quarter of 2011. US revenue for our full year 2012 increased to $98.7 million or 29% above that of 2011. I would like to congratulate our outstanding US marketing and sales colleagues for their successful efforts.

Our European operations achieved record revenue of GBP3.9 million during the fourth quarter increasing our full-year 2012 European revenue to 17% over that of 2011 in constant currency.

In recent meetings with investors, one of the more common questions we have been asked is how we go about monitoring the impact of economic variables. So we thought we would offer a couple of examples specifically related to Europe.

During economic slowdowns, new product development cycles are extended and customers, while still active, generally order fewer parts for a smaller number of projects. When we look at the growth of Protomold orders in Europe, we can see that the follow-on orders for production parts grew more slowly than those for initial sample parts.

As another example, looking at the growth of new European customers during 2012, we see that the number of new customers was well down from what we saw in 2010 or 2011. Clearly, these are indications of the economic challenges our European sales team has encountered in 2012 and they have earned our thanks for a job well done despite them.

Although our Japanese results continue to be a small fraction of our consolidated results, we are also pleased to report that our fourth-quarter revenue in Japan of JPY113 million was 46% above the fourth quarter of 2011 which increased our annual Japan revenue to JPY384 million or 71% above 2011.

Since our last earnings call we have been very busy working with our Japanese colleagues, especially in areas such as marketing, sales, and manufacturing. For example, during the fourth quarter of 2012, we added a key Japanese sales leader and temporarily stationed one of our top US sales leaders in Japan to provide the necessary training. In addition, during the fourth quarter we added a key Japanese manufacturing leader, and we now have our top European operations leader playing the same role in Japan for the next two months.

Our general approach is to work closely with our colleagues in Japan to help them accelerate their marketing, sales and manufacturing processes with the goal of achieving profitability by the end of 2014.

I would like to take this opportunity to personally thank and congratulate our very hard-working Japanese colleagues for their successful efforts during the fourth quarter. We still have work ahead of us to achieve our goal of breaking even before the end of 2014, but it is exactly these types of results that keep us moving forward.

With respect to our Protoworks process development initiatives, the fourth quarter of 2012 was very productive. As you may recall, we have two metal molding processes under development. [Fixel] molding of magnesium and metal injection molding of steel alloys. During the fourth quarter of 2012, we were successful in getting fixel welding processes operational with Protoworks and we have been shipping molded magnesium parts to a small group of very supportive customers.

On the metal injection molding side of Protoworks we successfully installed a complete manufacturing line including injection molding presses, CNC machining centers shared with other Protoworks initiatives, debinding and centering equipment and we are already beginning the process of manufacturing and testing sample parts.

Overall, I am very pleased with the progress of each of these processes and looking forward to seeing how far we get towards their commercialization over the course of 2013.

As I've mentioned in the prior earnings release, Proto Labs promotes the program we call Cool Idea in support of promising product developers with new ideas in need of a little help to get to market faster. We now offer up to $250,000 worth of free Protomold, or first cut parts, to selected developers and in October we selected SOLOSHOT as a winner.

SOLOSHOT, an object tracking system that combines with virtually any camera to track a single subject and capture video from up to 2,000 feet away, received Protomold injection molded production services as part of their Cool Idea award. Ideal for sports enthusiasts looking for a high-quality video footage of themselves, SOLOSHOT employs remote and base units that are in constant radiocommunication, allowing the user to move anywhere within range and keep the camera focused on themselves. If this sounds interesting, I suggest you check them out at SOLOSHOT.com and watch some of their very cool videos.

Over the course of 2012, Proto Labs was featured in dozens of publications including Wired Magazine as a result of our Cool Idea program, which clearly makes it a win-win investment all around.

With that I would like to turn the call over to Jack for a more in-depth review of our fourth-quarter financial results and our outlook for the first quarter of 2013. Jack?

Thank you, Brad, and good morning, everyone. Revenue in the fourth quarter of 2012 was $33.6 million, an increase of $8 million or 31% over fourth-quarter 2011 revenue. Protomold revenue during the just-completed quarter was $23.7 million and Firstcut revenue was $9.9 million. During the quarter, Firstcut revenue represented 30% of total revenue compared to 26% during the fourth quarter of 2011.

Our international revenue was $8.6 million or 26% of total revenue during the fourth quarter of 2012, compared to $7.4 million or 29% of revenue during the same period in 2011. During the just completed quarter the impact of revenue due to changes in currency was insignificant. For the full year, revenue was negatively impacted by approximately $250,000.

Full year 2012 consolidated revenue was $126 million, an increase of $27.1 million or 27% over 2011 revenue. For 2012, our international revenue was $31.1 million, an increase of 20% over $25.9 million in 2011.

Our increases in revenue were driven both by new customer acquisition and increased orders from our existing customers. During 2012, we did business with 2,991 new customers, generating $20.8 million in revenue and 4,763 existing customers generating $105.2 million in revenue. This compares to 2,598 new and 3,429 existing customers, generating $18.4 million and $80.5 million in revenue respectively during 2011.

Our gross margin in the fourth quarter of 2012 was 62.5% compared to 56.8% in the same quarter in 2011 and 60.7% in the third quarter of 2012. While we are very pleased with the quarterly results of our gross margin, I do want to reinforce that our fourth-quarter 2012 results exceed our long-term model for gross margins of 60% to 62%. Our gross margin can vary and generally is based on how well the timing of our capacity investments align with the rate of increasing orders. If order growth exceeds capacity expansion the gross margin will be on the higher side of our target model. In the opposite case it'll be on the lower side of our target model. This has been a very normal part of managing our business since inception and we expect it to continue.

Our operating income was $10.3 million or 30.5% of revenue in the fourth quarter. For 2012, our operating income was $34.9 million or 27.7% of revenue. Operating expenses were approximately $1.1 million higher in the quarter than the previous year. This increase is mostly driven by greater spending on our R&D initiatives.

Companywide, at the end of December, we had 622 total employees versus 511 at the end of December 2011.

Our diluted earnings per share in the fourth quarter of 2012 were $0.29. After adding back the after-tax cost of stock compensation our non-GAAP diluted earnings per share in the quarter were $0.31. Our reconciliation of net income and EPS to non-GAAP net income and EPS was included in our earnings release this morning.

At the end of 2012, our cash to investments totaled $98.9 million. Our capital spending during 2012 totaled $17.4 million, almost all of which was spent on factory expansion, additional CNC mills and injection molding presses to support our revenue growth. Very little of our capital spending is for maintenance or replacement. The capital we spend supports future growth and pays for itself in quarters, not years.

I would now like to provide some guidance into our projected results for the first quarter of 2013. We currently expect revenue in the current quarter to be between $35 million and $38 million. Stock compensation costs in the current quarter will be approximately $750,000. We estimate our tax rate to be 32% for 2013. Taking all of the above -- taking all the above factors into consideration, our quarterly non-GAAP EPS, adding back the after-tax cost of stock compensations, is expected to be between $0.28 and $0.32 per share.

We are currently in preliminary discussions to acquire additional factory capacity. Depending on the results of these discussions, our full year CAPEX in 2013 could vary significantly. When these plans are finalized, we will provide an outlook on capital spending for 2013.

This concludes our prepared remarks. Operator, we will now open up the call for questions.

(Operator Instructions). Troy Jensen, Piper Jaffray.

Congratulations on a really nice quarter here.

Thank you.

A couple of questions first. Could you talk maybe about the ramp in new materials, specifically various metals? And I think there's also two others that popped up in the quarter also [in peak].

We added some new metals to Firstcut during the quarter. The key ones, the big key one was stainless steel which we have been very pleased with how quickly our customers have started ordering that. And pretty recently we started using steel tools in our Protomold service, which allows us to go to some higher temperature plastics that are very difficult to do in aluminum tools. The additional metals for Firstcut we think could be a significant revenue enhancement over time. I do not expect the higher tincture plastics for Protomold will be that big of deal though.

And those higher temps, that is all temp and peak?

Yes.

All right, perfect, but as far as revenues, modest tribute contribution now, but potential bigger ramp this year?

I would say the additional metals for Firstcut should be a pretty significant revenue. I don't think that the additional higher temperature Protomold resins will be a significant revenue enhancement. That is just a continual thing we are always doing.

Perfect. And then this capacity expansion plan, you kind of alluded to it, are you looking at just buying land, building a property or buying an existing facility? And when do you think you will know whether or not you are going to be pulling off a capital purchase here soon?

We are growing pretty fast so we are constantly looking at all of the different options of expanding factory space. And so, I would guess within the next few months, we will have a decision on that. And we are just talking the United States.

Yes, I would expect by the end of the second quarter all of our plans will be firm. Yes.

It is just normal business for us.

No, no I get that. It is good, I mean I completely understand. So that ties into my next question about the business model targets.

Jack, you say 60% to 62% is your target range, but you just did 62.7%, right, and if we are going to get good sequential growth here in the March quarter and we don't have any new capacity coming on in March, it just things like that 60% to 62% is a little conservative with what you have just proven you can do.

Then arguably, the same discussion on the operating line. I think I am showing 27% plus. You just said 32.6% and it seems to me that there is going to be some more scale efficiencies as you continue to grow.

We sure hope that we can have some more efficiencies. But like we have said in previous quarters, is that we like being conservative and while we think the business has some room to grow, we are -- in terms of margins -- we are really not forecasting that right now.

All right. Keep up the good work.

Thanks, Troy.

Brian Drab, William Blair.

Good morning, congratulations on a great finish to the year.

Thanks, Brian.

Thank you, Brian.

So the first question is just around your expectations for revenue per customer in 2013 and maybe you can talk about it in terms of revenue for customers in total and even specifically what you are expecting for revenue per new customer and revenue per existing customer.

I think, overall, the revenue that we got over all this year for new customer and existing customer at least on a worldwide basis was similar and within the range that we would expect based upon our previous year's experience in those numbers. In terms of as you look at any one individual market, there is honestly a little bit more fair ability. We do not project revenue per new or existing customer as part of our internal metrics that we manage to. We measure it on a historical basis, but we don't have necessarily quarterly goals to reach certain numbers.

Yes, I understand you haven't talked about specific goals, but could you even talk about it directionally? And would you expect that since first-time growth has been outpacing Protomold growth that we are going to continue to see some modest decline in revenue per customer? Or are there initiatives ongoing here that are and new materials that might even push up revenue per customer slightly?

I would say that the initiative that we have going that could create some variability in the numbers is our efforts to go deeper and wider into national accounts. And so, we have more and more of our sales efforts going into trying to find more engineers within our present customer base and so that that would create more revenue, but it wouldn't necessarily create new customers. And so that is an active thing going on.

But overall in this past year it didn't seem to influence our numbers too much. And even though we had obviously an increase in Firstcut business versus total revenue, the numbers are still in line.

Brad, I don't know if you want to say anything additional.

I would add to that is, sure, the Firstcut sales point is a little bit lower than the average price. But as we ramp up our molded metal products over the next couple of years, that should more than offset that. So I would agree. I don't really see a whole lot changing on a revenue per customer, new or existing.

Thanks. That is very helpful. And then I will ask one more for now. And that is, if you look at the new customer growth in 2013, it was about 15% and it had been stronger than that in past periods. What would you expect for 2014 -- well, first of all in that 15% growth and new customers make your expectations or was it kind of depressed, I guess, with some of the macro factors that you mentioned earlier on the call and have been putting some pressure on the business. Would you expect it to be better than 15% going forward?

What I would say is that if you will look at our 10-K when it comes out and look at the new customer counts for the US versus Europe, you will find that it was really slow in Europe. US really wasn't too bad. So I really associate it with the economic conditions. And if things pick up, my assumption is that that will pick up as well, which is what we have seen in the past.

Great. Thank you.

Jim Ricchiuti, Needham & Co.

Good morning. Just to pick up on that last point. Is there anything we can -- in terms of the sequential growth in new customers in Europe, is there anything you can tell us about what you are seeing in Q4 versus Q3?

I think the new customer growth in third quarter and fourth quarter in Europe wouldn't be significant enough that it would really cause any special research or special comments. We did see slowing of new customers. We attribute it to the recession in the Eurozone and, overall, the new customer growth is better overall consolidated in the first half of the year than it was in the last half of the year. But I would still like to say that we still exceeded our revenue growth numbers that we all had projected for the year. And so there is a little bit of vagaries in the numbers too.

If we look at the verticals in 2012 versus 2011, is there anything that stands out either from a new customer standpoint or perhaps from a revenue standpoint?

Yes, we just got done looking at that. And it's the same breakdown of markets that we serve. The pie chart that breaks down the biggest market that we serve versus the next biggest and so on looks almost exactly the same for 2012 as it did for 2011. So there's very little change in the who is our biggest market. Obviously we grew significantly, but the breakdown is about the same.

Brad, do you see that relatively steady in 2013 or it looks like with some of the new materials that there, perhaps, is a bigger focus on medical markets. Do you see the profile changing at all?

We have not looked at 2013 yet, but I would say I would be surprised if it changes very much.

And just one final question, just with respect to the facility expansion. Jack, you are saying by Q2 we will know a little bit more, but it is capacity expansion in the US. Is it going to be close to your corporate headquarters or are you looking at other sites?

We anticipate it will be in the Twin Cities area. We are just being careful because if we would choose to buy a building versus lease a building, whether it would include buying land all that has a lot of different financial numbers to it. And so we do expect our decision to be made by the end of the second quarter. But, again, it is for expansion, it is because our revenue is growing.

And presuming you make that decision, when possibly could we see that facility began operating? Is that looking out to 2014?

It may be as early as the fourth quarter of 2013.

Thank you.

Steve Dyer, Craig-Hallum.

Good morning and let me add my congratulations, nice quarter.

Thank you.

Most of mine, I think by now, have been answered. A couple of questions just as it relates to the CAPEX and the facilities expansion.

I guess my understanding going forward was that it would be more, was that the Rosemount facilities certainly had the footprint that would you set you up well for a while and it would be more adding machines and adding lines. Is that not the case or is it probably another facility as well or is it just an expansion of what you have?

Yes, this is Brad. Yes, we have some empty space in one of our plants here in Maple Plain. And I think the Rosemount building is only about half-full right now. But the reason that we are looking at yet another building is because we have Protomold and we have Firstcut and within Protomold we have got our toolmaking versus our production. So we are trying to stay ahead of the game.

The new facility would be for expanding things that we are not currently planning to put into our plant one which is up the street here or in our Rosemount building. So we have extra space now if we need it. If our orders ramp up faster than we expect we could expand into our existing building. So we basically have our bets covered twice.

That's helpful. And then as it relates to R&D going forward with the Protoworks and some of the other initiatives, is that -- would you expect that the spending on that is in line with previous indications going forward?

Yes.

All right. Thanks, guys.

Nicole DeBlase, Morgan Stanley.

Good morning. Congrats on a good quarter. So, a couple here. Most of mine have been answered as well. But I think that your outlook is really strong this quarter. You had sales up 13%, return to growth.

Can you just talk about some of the trends outside of new customers that you saw there and what really drove the strength?

I could try a little bit. It is pretty much just steady-state business practices from a marketing standpoint and a sales standpoint. We are looking at going deeper and wider within bigger companies, but it is just our focus in marketing and sales doing the same thing that they have been doing for quarter after quarter after quarter. There really wasn't anything that stands out in terms of a new thrust or a new initiative or any kind of breakthrough. It is just a lot of hard work by some really smart people.

Got it. And maybe shifting a little bit to the US. Growth definitely accelerated there versus last quarter. Have you seen strength continue into the first quarter? We have heard a lot of shorter cycle US manufacturing companies talk about things getting even better in January and into February.

We feel real good about the macro situation in the United States and we have been hiring salespeople and doing marketing programs all throughout the last couple of years. And we expect that good news out of those efforts in 2013.

Perfect. And one more if I may. Marketing and sales growth continue to decelerate. You think we are at a good run rate as a percent of sales for 2013?

Pretty much all of our financial statements, especially in the fourth quarter were at our target model or above our target model. Marketing programs can be somewhat flat. It depends on us having good ideas to go do additional marketing. I can't say that if we come up with additional ideas in marketing we are going to spend the money.

And I expect that worldwide we will continue to regularly hire new sales reps to contact new and existing customers for business. And so those numbers will not stay flat, but they will go up with sales. But they are within the target model.

Perfect. Thanks, guys.

Zach Larkin, Stephens.

Good morning, gentlemen. Thanks for taking my call. I wonder if we could talk maybe a little bit about what your expectations are in the distribution of revenues from Protomold and Firstcut as we move through the year? We are obviously seeing and have seen an increase in the percentage of Firstcut, but are you expecting the growth rate to be similar? How should we think about the distributions of revenues, maybe, as we thought about 2013 versus 2014 on the two segments.

Well, we market the two services to the same customer base with the same sales force. And so if somebody calls us up, it is generally pretty easy to see whether Firstcut is a good solution for them or whether Protomold is a good solution for them. So in that sense, we don't necessarily try to sell one over the other.

Firstcut has a really good price point to it and, so, it is probably a little bit of an easier sell over a quicker sale. So I would expect that Firstcut will increase as a percentage of our total revenue, so, over time I do not think that it is going to be 50-50 in the near future at all. I think the Protomold still will exceed Firstcut by quite a bit.

And the second thing is that, especially when it comes to the gross margin, they are really targeted to be very similar. And so it isn't as if one has a profit point that is significantly different than the others.

Thanks, that's helpful. And, Brad, I wondered if maybe you could talk a little bit about as you are looking at these new materials that you are adding into the overall portfolio, what is the approach that you go through in making a decision on adding a new portfolio -- or a new material? Is there a certain addressable market that you are going after? Is there an internal ROI calculation or how do you go about thinking about let's add magnesium or whatever new product it might be?

That is a good question. What we do is we track everything that people ask for that we currently say no to for some reason. We [parade] of those and then we look at them in terms of why do we say no. Is it just something that let's say it is for Firstcut. Is it something where we would have to develop new machining software or is it for Protomold where maybe the material is too warm for the aluminum mold? So we parade of them, we allocate our development dollars and then we go after them. And that is how we did the stainless steel for Firstcut and that is how we did the high tincture plastics for Protomold. So it is all based on actual market feedback.

Is it kind of like you are saying, all right, we are getting tons of requests for stainless steel, here is the hurdle we would have to jump, obviously that makes sense to do it, let's allocate some money basically?

That's exactly right. And we made that decision about three years ago.

All right. Thank you very much.

Greg McKinley, Dougherty.

Good morning. Could you talk a little bit about where your sales and marketing staff is today from a headcount standpoint versus where it might have been a year ago just so we can get a sense for how aggressively you are investing there?

Sure. We have sales and marketing staff stabbed in the United States and in Europe in several places. And in Japan. And the overall distribution today is about the same as it was a year ago. Just a little bit bigger in each of those locations. So we did not change our allocation of resources geographically over the last year in any dramatic way.

And in terms of headcount there, did that growth similarly to what you had commented on in terms of your overall employee base? Or is that something you are investing in more heavily?

On the sell side, we invested more heavily. On the marketing side, it is probably aligned with the rest of the Company.

Okay. Could you also talk a little bit about any changes you are seeing in value per quarter trends? I know those are very different between Protomold and Firstcut, but my sense is maybe your value per order improved somewhat in Q4 versus where it had been earlier in the year? Were there any trends of note there? And then, did you also see any mix shift between initial orders and follow-on orders as you suggested you tend to see when economic conditions impact customers?

The average part, the average mold, the average Firstcut part, there was no significant change from the beginning of the year to the end of the year. We do have natural fluctuations in part orders off of our molds. And we did comment that they did vary during the course of the year and like Brad said in his script, that is one of the ways we can tell what is going on in the economy.

But you didn't really see much of a sequential change in those papers from Q3 to Q4?

No.

Thank you.

Tom Hayes, Thompson Research Group.

Good morning. Congratulations on the quarter.

Thank you.

Thank you.

Most of my questions have been answered. I just -- maybe you can talk about the profitability -- you provided some good details and color on your thoughts on improving the profitability in Japan. Just whatever the quarter and for the year, was Europe meeting your expectations and targets for profitability as well?

Yes, Europe does well. Actually their P&L in Europe would look very similar to the P&L in the United States. You know, the marginwise, what it costs to operate and everything are very similar between the two markets. But I would say that considering the tightness of revenue over the course of the year, our European colleagues did a really wonderful job of managing their P&L for us.

I guess, secondly, then maybe on tied into the facility expansion in your R&D spending which is up significantly for the year, would any of the new capacity be for R&D and how are you on R&D space as you continue to build out that wonderful process over there?

The capacity expansions that we talked about in our presentation earlier are entirely for our standard everyday business. They have nothing to do with Protoworks. Most of our capacity expansions for Protoworks are already done.

Thank you.

Patrick Wu, Battle Road Research.

Very nice quarter so congratulations with that.

Thank you.

Most of my questions are also answered. But I just wanted to maybe touch upon OPEX margin real quick. It seemed like it regressed a little bit. What can we expect in 2013 and going forward? It is sort of your target, I guess. I didn't know you guys talked about closed margin target, but maybe you can shed some color on that as well.

I want to see if I heard that question right. You are saying that our operating margins regressed during the year?

No just in the last quarter versus the previous quarter. It seemed like it's at 30.5% and we have it at 30 -- close to 32%. But the previous quarter, I just wanted to see obviously that is attributable to the increase in R&D, but I just wanted to understand maybe for 2013 what is the progression there? Sorry, I am a little under the weather that's why maybe --.

That's okay. I think that our -- you know in the third quarter, excuse me, in the fourth quarter of 2012 our operating margin was 30.5% compared to 29.5% in the third quarter. So I have our numbers would say that our operating margin increased fourth quarter from third quarter. And it was significantly above a year ago. Last year in the fourth quarter a year ago we did 19.1%.

So, I think our operating margin increased nicely Slate during the quarter compared to previous quarters and the same period last year.

I'm sorry. I must be looking at the wrong column. Can you maybe shed some color on the target for 2013 for you guys?

I think our target is the same as we have been talking about and the same as we would like our operating margins on a GAAP basis to be above 27%. And we have had some questions about target model and this past year we had two quarters that nicely exceeded that target model and we had to quarters that were below our target model. So when it comes to trying to say what we would like to have in the future, I think these last two quarters provided as good evidence that our target model is reachable and attainable, especially in 2013.

That's all I have. Thanks.

I think that is the end of our questions.

Operator.

I would now like to had over the call to Brad Cleveland for closing remarks.

Thank you, Michelle. Thank you all for joining us today. I hope we have conveyed a sense of our confidence in the continuing strength of the Proto Labs business model and our excitement about the growth opportunities ahead of us.

We look forward to updating you on our progress during our second quarter conference call. Thank you very much. Thanks, Michelle.

Thank you for your participation in today's conference call. This concludes the presentation. You may now disconnect. Good day.