Proto Labs Inc (PRLB) 2013 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the Proto Labs first quarter 2013 conference call. During today's presentation, 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, Thursday, April 25, 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 first quarter financial results for the period ended March 31, 2013. 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 subject to many risks and uncertainties that would 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 annual report filed on Form 10-K 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 projections 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 first quarter 2013 conference call. With me today is Jack Judd, our Chief Financial Officer. I will begin with a brief overview of our first-quarter 2013 financial results and 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 second quarter of 2013. At the end of our remarks, we will be glad to take your questions.

Our first quarter 2013 results once again demonstrated the strength of our business model and its solid execution. Proto Labs generated record consolidated revenue of $37.3 million, an increase of 25% over the very strong first quarter of 2012. These excellent results in the first quarter were once again 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 able to achieve record quarterly earnings. Our net income for the first quarter was $8.3 million or $0.32 per diluted share. Our growth and profitability are driven by execution on our growth vectors and the efficient management of our business. I'm proud to say this past quarter, our entire team came through.

Elements of our revenue growth strategy include acquisition of new customers and increasing business from our existing customer base. This past quarter, we served 710 new customers, generating $3.1 million in revenue and 3528 existing customers generating $34.2 million in revenue. While we would always like to be selling to as many new customer companies as possible, these customer company numbers are very consistent with our long-term quarterly performance and demonstrate the strength and ongoing support from both existing and new customers.

Once a customer uses Proto Labs, we find they get hooked on our speed and quality of service and keep coming back for additional parts and molds. We continue to invest in creative marketing initiatives to positively impact both the new customer acquisition and increase orders from existing customers.

In addition, we make regular additions to our selling teams worldwide. This past quarter, our spending on marketing increased to 12% over the first quarter of 2012 and we hired 13 new direct team members to our sales force since December.

Another critical area of customer growth in the future will be based on our international operations. As I said earlier, our European operations achieved record revenue during the quarter, growing 20% as measured in pounds sterling, above last year's first quarter. This growth rate exceeds 2012's overall growth rate and we are hopeful that as the European economic conditions improve, our customers will return to us, as they have in the past.

On a related note, we were very excited to learn recently that we have been selected for the second time as a 2013 Queen's Award for Enterprise in International Trade. Our first Queen's Award was in 2010 and these prestigious awards are highly visible recognition in the United Kingdom. I would like to congratulate all of our colleagues in Europe for this impressive accomplishment.

Although our Japanese results continue to be a small fraction of our consolidated results, we are also pleased to report that our first quarter 2013 revenue in Japan grew 16% as measured in yen above the very strong first quarter of 2012. I would like to issue a special thank you to my key US and UK colleagues that have traveled several times to Japan to share our global capabilities around sales and operations. Our Japanese colleagues continue to work hard to grow revenue and improve margins. We still have work ahead of us to achieve our goal of breaking even before the end of 2014, but we have made very significant progress in the last few quarters.

We also continue to make solid advancements with the new materials introduced in the past six months. We believe that the machining of stainless steel offers a promising opportunity with significant revenue from both existing and new customers, and we plan to share more on that as we go through this fiscal year. Our efforts to increase the complexity and size of parts we manufacture is also ongoing and our software engineers regularly enhance our code in these areas, and these improvements emerge gradually over time.

Of course, all of this revenue growth gets combined with continuous improvements in our manufacturing centers which have shown up recently in the form of increasing gross margins. As our new facilities come online over the course of the next few quarters, we may very well see some temporary negative impact on our margins.

Our final growth vector has to do with the expansion of the accelerated standard manufacturing processes offered by Proto Labs. Since our last quarterly earnings call in February of this year, we have continued to make steady progress in both of our metal molding initiatives. Our magnesium thixomolding process has multiple presses up and running and we continue to ship sample parts to a small group of selected customers for their review. Our steel metal injection molding process is operational and we are deeply into testing the material properties of those parts. So, in both cases, we have established the ability to make real prototype and low-volume parts extremely quickly. Now the next step is to start to ramp up our marketing and sales initiatives to see what sort of demand we can find with our more forward-looking customers.

As we mentioned in our prior releases, Proto Labs promotes a 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. This program continues to be one of our most productive marketing initiatives and one of our recent winners from February was the DRev ReMotion Knee. The ReMotion Knee project started in 2008 in a graduate biomedical engineering class. The class collaborated with the Jaipur Foot Organization, India's largest provider of low-cost prosthetics, and later teamed up with San Francisco-based designer Vinesh Narayan. In 2010 DRev, a nonprofit organization dedicated to improving the health and income of people living on less than $4 per day, continued the project with Narayan who was hired on as a product manager.

About 10 million above-the-knee amputees live in developing countries and the ReMotion knee allows them to walk stably on uneven or unpaved terrain typical of the developing world. Our founder, Larry Lukis, was attracted to the ReMotion knee largely because of its mission to improve the lives of thousands of people.

As part of the Cool Idea! Award, injection mold tooling was produced and injection molded knee joints are being field tested to ensure performance as manufacturing transitions from CNC machining to injection-molded parts. The shift is important for maintaining quality while serving large numbers of people.

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

Thank you, Brad, and good morning, everyone.

Revenue in our first quarter of 2013 was $37.3 million, an increase of $7.3 million or 25% over the first quarter 2012 revenue. Protomold revenue during the just-completed quarter was $26.9 million and Firstcut revenue was $10.4 million. During the quarter, Firstcut revenue represented 28% of total revenue compared to 27% during the first quarter of 2012.

Our international revenue was $9.2 million or 25% of total revenue during the first quarter of 2013 compared to $7.8 million or 26% of revenue during the same period in 2012.

During the just-completed quarter, the negative impact on revenue due to changes in currency was approximately $300,000, mainly due to the weakening of the Japanese yen against the dollar. Our increases in revenue were driven by both new customer acquisition and increased orders from our existing customers. During the quarter, we did business with 710 new customers, generating $3.1 million in revenue and 3528 existing customers, generating $34.2 million in revenue. This compares to 753 new and 2931 existing customers generating $2.9 million and $27.1 million in revenue, respectively, during the first quarter of 2012.

Our gross margin in the first quarter of 2013 was 62.4%, essentially the same as the fourth quarter of 2012 but well above the 59.1% in the same quarter in 2012. While we are very pleased at the quarterly results for our gross margin, I do want to reinforce that our recent gross margin 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 will be on the lower side of our target model. This has been a very normal part of our managing of our business since inception and we expect this to continue.

Our operating income was $11.4 million or 30.5% of revenue in the first quarter. During the first quarter of 2012, our operating income was 25.5%. This increase in operating margins was driven by both higher gross margins and leveraging our marketing and general and administrative operating costs. Company-wide, at the end of March, we had 649 total employees versus 622 at the end of December 2012.

Our tax rate in the quarter was 27.3% and was positively impacted by the recognition of tax credits earned on 2012 research and development activities. Due to the timing of the passage of the legislation regarding federal R&D tax credits, the tax benefit was properly included in 2013, not 2012. Without this, our first-quarter tax rate would have been 30.3%.

Our diluted earnings per share in the first quarter of 2013 were $0.32. After adding back the after-tax cost in stock compensation, our non-GAAP diluted earnings per share in the quarter were $0.35. A 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 March 2013 our cash and investments totaled $112.5 million. Our capital spending so far in 2013 totals $2.5 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 second quarter of 2013. We currently expect revenue in the second quarter to be between $39 million and $42 million. Stock compensation costs in the current quarter will be approximately $1.1 million. We estimate our tax rate for future quarters to be approximately 32%. Taking all of the above factors into consideration our quarterly non-GAAP EPS, adding back the after-tax cost of stock compensation, is expected to be between $0.32 and $0.36 per share.

As we mentioned in our earnings call last February, we are still in discussions to acquire additional factory capacity. Depending upon 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.

Two questions, primarily, for me. Could we just dive into new customers versus existing customers? They were down on a year-over-year basis, but I think your guys' philosophy or approach right now is really to target larger or existing customers. Should we just continue to think that new customers could be below last year's levels because of the focus on larger guides?

I think, if you look back at the last 16 quarters, you will see that new customers have been very flat. The first couple quarters of last year were a little bit higher than normal, but the 710 or whatever was up over the last few quarters. So it really hasn't changed much at all. We would like to get that to go higher. But, yes, our biggest focus is on expanding our business with our existing customers. That's definitely true.

And if you think about the marketing spend last quarter, it was up 12%. Is that like a rate we should think going forward, or is there going to be any moderation in your spending on marketing?

I think that we are going to continue to spend more marketing dollars, and as we get good ideas we are going to spend the money. Creative marketing programs that help drive new leads is a very, very important part of our growth strategy.

But at that type of rate, I guess, should we think about --

I would think so.

Alright, perfect. Then the last question -- can you just talk a little bit more -- you touched on it, but capacity expansion plans. When do you think we make a decision on a new building or a new property (multiple speakers)? If you can just reference that, Brad, to like previously how big of a drag has the capacity expansion been? Is it a couple hundred basis points or will it be more moderate this time?

Sure, I will talk about timing a little bit, and Jack can talk about the scale. Timing wise, I think within the next quarter we ought to be definitive on the decision if we are going to lease a building or buy a building in the United States. We are really talking primarily about United States capacity expansion. In terms of what that may do to gross margin, I will let Jack answer.

Yes, I think for a couple quarters, anyway, we are going to have the same phenomena with gross margins like we had back in the first half of 2012, where the -- bringing the capacity on did tap down margins a little bit. It's hard for me to project right now exactly how much that might be until we know the timing on the purchase of the building and whether we would lease or buy and if we have to do any kind of remodeling or any kind of setup, Windows costs would start to hit our P&L.

So I think you are going to need to give me another couple three months for me to better talk about the financial statement impact.

Okay, so I understand timing, and we will figure that out. Do you think -- like last time, I think we saw a 5 handle on gross margins, 59%, 59.5%. Do you think we can get back down to that level, or do you think we stay about 60%?

Oh, man, that's a tough one right there.

(laughs) I knew you wouldn't --

You are being more exact than I was hoping to be. It's not only the capacity that's brought on, but it's, again, the same thing that affects our margin on a quarter-by-quarter basis. It's just how well we predict the normal increases in orders based upon the people we hire. So I'm going to punt on this one, Troy, and say you've got to give me until June or so for us to understand fully the building option that we might be able to execute on and the timing and how much remodeling might need to be done.

Completely understood. Good luck, gentlemen.

Brian Drab.

Congrats on a great quarter. Revenue per new customer and revenue per existing customer were up year-over-year. And Brad, you just mentioned that you have a strong focus on building business at existing customers, as you have always said in the past. But can you talk a little bit about why we are seeing revenue per customer up on the new customer line?

I think, Brian, the main reason is, as people work with us over time, they find more and more projects to do with us. We are also adding materials on both of our services, so there's more things for them to buy. It's very simple, though. First, they find three projects instead of two, and now they may need some stainless steel or they may need a high temperature resin from Protomold. So it's just the new things we are adding.

Okay, so with your new customers that you saw in the first quarter, was there a different mix of business, a noticeable difference in the mix of business compared with the fourth quarter or 2012 in general?

Not really, not at all. It's the same old, same old, in terms of what it is that people are buying.

Okay, okay. And then you mentioned, Brad, again, your biggest focus is on expanding the business at existing customers, but I know you have a strong focus on building the new customer base as well. Can you talk a little bit more about why you said more of the focus is on expanding at existing customers? Because it seems like the opportunity to add new customers is enormous and really what you need to drive growth over the longer-term.

Yes. You are right, though; we are working on both. The focus on growing our business with our existing customers is primarily in our sales, backed up by marketing. But we have -- as we hired these new salespeople, we give them large accounts, and we say go grow the business with each of these companies.

On the flipside, to grow the business with new customers, that's primarily marketing and is backed up by sales. So I didn't mean to say that one was less important. It's just that our biggest focus lately has been on business from existing customers.

Okay, great. And then I think it would be good, Brad, if you just spent a few seconds addressing your recent stock sale. It's one of the main questions that I'm getting lately and I think you could do well to just kind of clear up or explain the motivation for that.

Sure. My stock sales have been two categories. One is sales from my kids' trust, which are controlled by my wife, and sales from my trust, which I control. My wife and her co-trustee decided it was time to get the kids out of the stock, which is their call. And I decided that a chunk of my equity was -- it was time to diversify it a bit, and that's really all there was to it.

Okay, thanks a lot

Jim Ricchiuti, Needham & Company.

Question on the new customers -- is there any color that you might be able to provide in terms of, by geography? So you are down roughly 6% year over year. Was it more pronounced in some of the regions that there are more macro concerns? For instance, Europe -- how were the new customer counts in Europe year-over-year?

As long as we say that Japan is more on the insignificant side, if you look at the US and you look at the European operations, the change year-over-year in customers was very similar between those two markets. So it wasn't as if we had large increases in new customers in the United States and the United Kingdom went way down.

Got it. And what are you seeing in Europe at this point, just given -- it doesn't appear that things are getting much worse economically. But just in general, how to you see that market over the balance of this year, just based on what you are hearing from your customers, your sales force?

We grew by 20% quarter over quarter, so that's better than we did all of last year in England. So, hopefully, that's an indication that things are improving.

Brad, one final question -- I wonder if you could just provide some update on the activities at Protoworks, if there are any things you can talk about maybe in a little bit more detail.

Well, as I said in the script, we have been making steady progress on both of our metal molding initiatives. I don't have any more details to provide on those initiatives at this time.

Is this going to be an active year for some new initiatives in that area, apart from what you have discussed?

Yes.

But beyond that, you can't elaborate?

That's correct.

Okay, thank you.

Steve Dyer, Craig-Hallum.

Maybe just a new -- a different kind of angle on new customers. I think, if I'm not mistaken, in the early days you had a kind of a cluster or a lot of the new customers came from near headquarters, I guess upper Midwest type of the thing. And I don't think that has necessarily been the case lately. But how has that dispersed over the years? And I guess maybe more what I'm thinking about is, are there any changes to maybe the way you think about going to market from a sales and marketing perspective as opposed to a lot of telesales out of the headquarters?

Well, we recently plotted the geographic location of all of our US customers, and I couldn't tell the difference between that plot and a population map of the United States. So we do not see any real differences in the location of our customers geographically, and that's also true in Europe. And there is no geographic focus to our sales and marketing; it's entirely based on going after new customers and going after existing customers.

Sure, okay. Are you finding generally that more of your new customers come from referrals from existing or brand-new leads that are being ferreted out?

About half of our new customers come from referrals, and those referrals come from other new customers as well as existing customers. All the rest come from all sorts of different marketing initiatives and sales initiatives.

Okay, and then just as it relates to additional capacity, I know you haven't made any firm decisions there, but what quarter would you anticipate we should think about that tweak-down in the gross margin line? Is that a Q3 or a Q4 event? I'm just trying to make sure that EPS is modeled out correctly.

I think -- well, as an organization, we hope to have a building decision done in the next three months, even less than three months. So we will have it known shortly. I would say, though, that it will take us three to six months for us to get into the building and get operational. So if there is some degradation to our margins related to opening up another factory, I would think that it would be fourth quarter of 2013 would be the earliest, and more likely maybe the first quarter of 2014.

Thanks, Jack, that's helpful. Last question, cash -- you have obviously stockpiled a pretty good amount and adding to it at a good clip here every quarter. How do you think about capital allocation? What is on the table that you can share?

Currently, we love the cash to be on the balance sheet and we don't have any ongoing discussions amongst our Board or anything of anything large or strategic with our cash beyond keeping it available for operations.

Okay, thank you, guys.

Greg McKinley, Dougherty & Company.

Could you comment at all to the extent that you are seeing any noteworthy trends in terms of industry verticals within your customer base, any higher concentrations in industry verticals or changing growth rates in those that are either creating risk or opportunity in your business?

This is Brad. We watch that really carefully and we do not see anything dramatically changing, either in the United States or in Europe or in Japan. In the United States, our biggest general sector has something to do with medical, and that has not changed over years.

How big is that broader medical definition, if you will? How much of a share of your business does that typically represent?

In the US, it's around a quarter of our business, so it's a very significant fraction.

Okay. Can you just remind us of, from a personal standpoint, what have you done with your sales reps and marketing department in terms of the size of that group? I think occasionally you've shared employee counts in that group and I wonder if you could talk about how that fits into your plans for expanding your sales and marketing team over time.

Great question. I don't know whether this is a simple answer or a more difficult one, but we will continually be adding people throughout this year and, I would expect, into next year. We tend to hire -- in our greater sales area, we tend to hire them in groups of people, and so we make a hire of six or eight people and then we absorb the training time and everything else. And when they get up to speed we then hire another block.

But we also need to remember that it takes to support people, not only the people that are on the phone contacting customers, but support people also in sales. And so those get hired at the same time we hire salespeople. And on the marketing side, Bill has ideas for adding people and we have budgets. And I would expect that a couple quarters from now, we will have more people supporting more programs and marketing.

Can you share with us how many people you have in those groups?

Why don't we wait until the Q comes out? We will have that kind of disclosure in the Q.

Okay, thank you.

Chris Godby, Stephens.

Good morning, thanks for taking my call. Last quarter, you mentioned that a good determinate of macro conditions for you can be the mix of new orders versus follow-on orders. Can you discuss the trends you saw in the quarter and how it is impacting your current outlook?

I think that Brad would say that part orders off of existing molds is one of the ways that we can go in and we can see the vibrancy of the economy. And I would say that this first quarter was fairly normal against long-term averages in terms of new molds, parts and Firstcut.

Which was nice to see.

Which was nice to see.

Okay, great, thank you. And then as a follow-up, and you touched on this a bit in your prepared remarks, that last quarter you discussed in detail some of the efforts you are taking to accelerate your business in Japan, including adding a new sales leader there and temporarily stationing some US sales leaders. Can you discuss in more detail the results of your efforts? And are things performing to your expectations there?

Yes. Well, we did two things. We hired a sales leader and we stationed a US sales leader over there for a number of months. And I personally believe that that had a significant role in the success that they saw there in the first quarter.

And at the moment, we have also hired a new leader for the manufacturing operations and our top UK operations person is currently in Japan getting that person up to speed. Initial reports are very, very good. So they are extremely efficient and they make very high-quality parts. So I think both of those efforts have gone very well, and that's why I put that in the remarks.

Great, thank you very much for taking my call.

Tom Hayes, [Thompson's] Research Group.

I noticed you kind of danced around the customer issue and the additions to your sales headcount, but maybe we could dive in little bit on your expectations for national account programs. You had talked about, I think, on previous calls just how that program is progressing.

It's actually progressing quite well. A lot of the salespeople that we've hired have been national account managers, and so we are working very hard getting them up to speed, and I'm very encouraged by the early results.

Okay, and then I guess --

Also, Tom, keep in mind that if we are very successful at digging into a national account and we do three times the business this year that we did last year and we are doing business with a dozen product developers, that that strategy pays off in existing customer business, not in new customer business.

Okay. And just jumping back to some of the new materials you mentioned, some progress you are making on the steel/metal injection molding, could you maybe just remind us what -- is there an industry vertical that product typically would go into, or is it spread across your platform?

It's spread across the platform, for the most part. The magnesium is pretty big in automotive and electronics and a lot less in medical. The steel/metal injection molded parts are a sizable component in half a dozen different industries that we serve.

Alright, thank you.

Peter Misek, Jefferies.

A couple quick questions, first some more housekeeping. Can you help us understand yen movement and how you guys are dealing with that? Obviously been pretty violent; don't really want it to whipsaw going forward. That's my first question, then I have a couple of others, please.

Yes, the yen has devalued quite a bit in the past year. It affects us more in terms of our revenue. We lose money in Japan. And so it's a revenue -- when you evaluate revenue, you have to know what's happening in the currency. By the time you get down to the net income effect, it's far less significant because the expenses are also revalued.

We aren't in a situation where we are taking cash from Japan back to the United States, so the cash side of it is not really an issue. So it's more of a financial statement reporting issue than it is a strategy with cash. We don't hedge the yen at all.

Great. The next couple questions really have to do, one, with customer timing and visibility, and then one on expense timing. So when you do get a new customer, and you added a nice chunk of them this quarter, how long before you start to see that ramp? Can you give us an idea of a stereotypical or how you model it in terms of a ramp for revenue there?

The best we can do is we can look at our overall customer base. If someone does business with us this year, on average they may do a little bit with us next year but probably not very much. But then they will have another project the year after that, and then they come back pretty aggressively.

So it can vary from continuous to like a three-year gap from the first order to second order. It really depends on the size of the company or the number of projects that they have going on. So the ramp is kind of the wrong analogy.

Okay, and in terms of expenses that you see from new customers, aside from marketing and sales, there's no other incremental expense aside from COGS for producing the part that we should think about, that there's a timing issue of. Correct?

That's correct.

In terms of visibility, obviously something that we've struggled with incorrectly over the last little while, Jack, have you thought any differently about how you model visibility or how you think about your business going out? And maybe some new guideposts for us to think about on that front. We've obviously struggled and would love to have some more guidance, if you have any.

We struggle a little bit, too. While we have internal metrics and we obviously know quoting activity and closing, close rates, and even indirectly are people that are on the phone know somewhat of what's going on in customers in terms of opportunity -- we really model our revenue based upon drawing a line and comparing activity in the past dozen quarters and how things look compared to the year before. And I'm going to pass this back to Brad, but it's not really much more complicated than that.

The other thing I would add is that it's a wonderful place to be when you are selling something that somebody always is going to want more. So as long as we do a good job, they are always going to have another project and they always come back. And it's just a great business to be in.

It certainly is. Congrats, guys.

Jim Ricchiuti, Needham & Company.

I just wanted to follow up on the revenues per existing customer. Can you talk about the growth that you see with your existing customers? Do you have any color as to how much of that growth is coming from working from the same product developers? Or, is it a case where you are expanding your reach within these organizations?

Of course, it's both. We have a pretty large number of customers, and so there will be thousands of them where it's the same person just coming back with another project. And there will be thousands of them where it's somebody else that that person introduced us to. So it's a combination of the two.

Brad, if we look at a large global medical device company or a large global automotive customer, maybe it's worth clarifying. In another geographic region, if you are seeing an uptick in business, that's treated as an existing customer; correct?

That is correct.

But in some respects, isn't it also -- these are, to some extent, new customers when you are talking about organizations of that size, aren't you?

That's also correct. It really depends upon how we break it down internally based on how we go about selling to them. That's why the whole new versus existing customers thing is probably going to get less useful over time because they do blend together.

Okay, and just a final question -- how would you characterize the awareness of Proto Labs right now in the market? And I wanted to follow up -- you made that comment about the US business and your biggest vertical being medical. What have you done in that market, do you think, that has created presumably greater awareness of the technology?

Well, we have looked into that, and it turns out that the medical field in general has a lot more products in development, is a lot less willing to wait for things to come about. They have very, very fixed deadlines. And so the core value that we offer, which is to save time and to save money, is of particularly high importance to the medical community. And we don't do anything very aggressively to make more business in that vertical industry. It's just a really good fit.

Okay. And in general, just how would you characterize -- how satisfied are you with the progress you've made over the last year in building the awareness just across the verticals? Is that an area of focus for this year?

To be honest, I am always optimistic and never satisfied. It never seems like we are making very good progress on visibility. Every single trade show we go to, we've been there for 14 years and the guy comes up and says, where have you guys been? And we're like, we're here every year. But if he didn't need us, he didn't see us.

Brian Drab, William Blair.

Just one more quick one -- I'm looking at this revenue per new customer, still, and up 12% year over year. I'm just wondering if you can -- I'm assuming, since you are not breaking out the stainless steel revenue in any detail, that that's less than 10% of the first cut business in the first quarter?

Yes.

Okay, and does the stainless steel business come in on average at a higher price point than your average Firstcut order?

Yes.

Okay, thanks.

Thank you, ladies and gentlemen, that is the end of your questions and answers. I would now like to turn the call back over to Brad Cleveland for closing remarks.

Thank you for joining us today, everyone. 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.

Thank you, Brad. Thank you, ladies and gentlemen, for your participation in today's conference. That concludes the presentation. You may now disconnect, and have a good day.

Thank you.