Proto Labs Inc (PRLB) 2014 Q1 法說會逐字稿

Good day ladies and gentlemen and welcome to the Q1 2014 Proto Labs, Inc. earnings conference call. My name is Mark and I will be your operator for today. At this time, all participants are in a listen only mode. Later, we will conduct a question and answer session.

(Operator Instructions)

As a reminder this conference is being recorded for replay purposes. I would now like to turn the conference over to Bill Dietrick, Vice President of Marketing. Please proceed, Sir.

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, 2014. 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 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 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 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'd like to turn the call over to Vicki Holt, President and Chief Executive Officer of Proto Labs. Vicky?

Thanks, Bill. Good morning, everyone. Thank you for joining us today on our first quarter 2014 conference call. With me today is Jack Judd, our Chief Financial Officer, it is an exciting time for Proto Labs, as we completed another record quarter as well as our first acquisition, FineLine Prototyping just last week.

I will provide a brief overview of our first quarter 2014 financial results, review the fine line acquisition again for those who were unable to review our call from last week, provide an update on some of our new services and our cool idea marketing program, and finally share with you some of my first impressions of the company. I will then turn the call over to Jack who will provide a more detailed look at our financial results and offer our views on the outlook for the second quarter of 2014. We will then be glad to take your questions.

I'm pleased to report that for the eighth consecutive quarter, Proto Labs received record revenues. First quarter revenue was $46.1 million a 23% increase over the first quarter of 2013. Our revenue came from nearly 7,700 unique product developers, an 18% increase over the first quarter of 2013. Like many US companies, we did notice the effects of the unusually harsh winter on our customers on our revenue line. Our customers lost several workdays in January and February, but because our business is naturally violate day to day and week to week, we find it hard to quantify the impact on our sales. But looking at this another way, lost workdays create tighter time schedules for product developers meaning our value proposition is even more in play. Our business built significant momentum in March.

Looking forward, we are expecting a more normal order flow for the second quarter. Our record consolidated results were accomplished through record revenue in both the United States and Japan and while not record revenue, very impressive revenue results in Europe. Proto Labs US achieved record revenue of $35 million, a 19% increase over the same quarter in 2013. This marks the ninth consecutive quarter of sequential revenue growth in the US. As our largest location, this is a very impressive result. Japan revenue was $1.9 million, 40% above the first quarter of 2013. With this revenue growth, Japan was able to reach profitability in the quarter well ahead of schedule. Proto Labs Europe's impresses first quarter revenue with $9.2 million, a 42% increase over the first quarter of 2013.

Our record quarterly revenue allowed the global consolidated Proto Labs organization to achieve record net income for the first quarter of 2014 of $10.1 million or $0.39 per diluted share. This compared to $8.3 million or $0.32 per share in the same quarter of 2013. I have now been CEO for three months and all I can say is I sure jump on a train that is going at very high speed. When I started in February, I knew Proto Labs with a high performing business with the culture of getting things done. Well, we sure got things done in the first quarter of 2014.

Our new manufacturing facility in Plymouth, Minnesota is up and running. We started the moving process this past weekend and should have all our employees and equipment in place and operating by the middle of May. We held our open house for employees and the press on April 24th, and all reviews were very positive. The building is designed to efficiently house our first cut operations with room to spare. We look forward to growing our business over the next few years as we fill up this space.

We launched two new services on April 1st with full market launch. Liquid silicone rubber or LSR and metal injection molding or MIM. Of note, we launched LSR in both North America and Europe concurrently, our first multi-region lunch. Our thixo molding process is still in limited market lunch. For us, full market launch means our website is fully operational and product developers can order the service directly in the same way as our first cut and protomold services.

We are actively promoting the new materials to our large database of customers and are quite pleased so far with order flow. Both these services will ramp throughout the year and we expect they will generate considerably more revenue in 2015. As far as the biggest accomplishment from the past quarter, the acquisition of FineLine Prototyping was just completed last week. The team was working on this well before I came aboard. We recognize the strategic opportunity to include additive technologies as part of our service offering last year. We explored both options of acquisition and doing it on our own by purchasing equipment and building the business from scratch.

We feel FineLine's manufacturing and frontend technologies created the best opportunity to enter the space successfully and become a substantial additive service provider more quickly. Our FineLine acquisition makes Proto Labs a much stronger company in the future from both a strategic and financial point of view. Our emphasis now turns to integration and leveraging both the businesses to higher revenue growth rates and earnings. We see the integration process in three components. First, we will present one interface to our customer base for all services. Product developers will log onto one website to upload their designs and choose from multiple services based on their unique project demand. Second, our marketing team will integrate and oversee all pay-per-click campaigns, e-mail campaigns, trade shows, and other marketing activities immediately.

This provides significantly increased exposure for FineLines services over their reach as an independent company. The third critical area of integration will be turning on Proto Labs sales engine. Sales teams and customer services training will start in May and the Proto Labs team should be selling additive services by the end of second quarter. As the FineLine Proto Labs databases and websites are combined more training will occur in the second half of the year. We will start promotions to our 300,000+ product developer database this may. When integration in North America is complete, we will turn our attention to launching our FineLine additive manufacturing services in Europe in 2015. While these above integration efforts will not be easy or quick, we are confident that most of the critical activities can be done in the next couple of quarters and set us up for a great end of 2014 and an even better 2015.

Once integration is successfully completed, our additive business should have higher growth rates than Proto Labs legacy services. We believe that our stewardship of FineLine will help their services grow much faster than they could have achieved as an independent company. We expect revenues from additive services to grow to more than 10% of total revenues in the future compared to less than 6% based on 2013 revenues. Once our deal and integration costs are behind us, the acquisition is nicely accretive and will not drag on our stated target model margin. Rolling fast at fantastic margins is in our DNA and we welcome FineLine to our team.

As reported in our last call, the Cool Idea! award was enhanced in the first quarter to increase awareness and exposure of the program with the addition of five prestige new judges. I'm happy to report that we're seeing the desired result. Cool Idea! submissions increased an 115% year-over-year in Q1. The new judging panel has reviewed all the first quarter submissions and our first 2014 Cool Idea! winner will be announced on May 6. After the success of our New York Cool Idea! gallery event in January, we've taken the gallery on the road to several other locations to generate even more exposure for Proto Labs. In collaboration with GE, the Cool Idea! gallery was featured prominently at the GE Garages Event in Washington, D.C. from March 21st through April 7th.

The GE Garages Program features a pop-up collaborative fabrication lab that provides individuals with hands on experience with various manufacturing technologies including laser cutters, 3-D printers, CMC machines and injection molders. The gallery was also featured at the Industrial Designers Society of American Southern Conference in Savannah, Georgia and will be featured at the upcoming MakerCon on May 13th and 14th in Redwood City, California. Before I turn the call over to Jack, to review our financials in greater detail, I would like to share with you a few of my impressions after my first three months with the company. I've had a chance to meet our team members at all our locations around the world. I met with over a dozen customers and attended three trade shows which gave me an opportunity to get input from our market.

Each of these interactions has further my confidence in the unique value propositions Proto Labs delivers to our customers and the opportunity we have to grow through further penetration with both new customer acquisition and going deeper and wider with existing customers. Engineering departments with major corporations see tremendous value in Proto Labs web-based front end which helps customers design for manufacturability, produce concept and prototype parts and produce parts for both functional testing and commercialization. And the breadth and scale of our capabilities which has been significantly enhanced this quarter with LSR, MIM and now additive manufacturing, allows us to play a more integrated role with our customers new product development process.

In the first quarter, we increased the number sales and customers support professionals by 14% versus prior quarters. We also continue to develop our national account management and our customer service engineering team of professionals to go wider and deeper within our customer base. An example of this is a new project management support function we launched this quarter. Project management is brought in when a customer has a large family of tools which need to move through our tool and parts production process quickly and in a coordinated manner to ensure success of the final product launch in sales.

In the first quarter, we delighted a major customer by producing 18 new tools and 220,000 parts in only four weeks. Our speed and quality and reliability allowed this customer to exceed the expectations of his customer, a major global automotive OEM. This level of service is truly what differentiates Proto Labs. And finally, I am thrilled with the passion, skill level, and capability of the Proto Labs team around the world. We have great people and have created a culture that supports a very high level of performance and creates a great place to work.

And now I'd like to invite Jack to provide a deeper review of our financial results. Jack?

Thank you, Vicky. Revenue in our first quarter of 2014 was $46.1 million, an increase of $8.8 million or 23.5% over first quarter 2013 revenue. Protomold revenue during the just completed quarter was $32.7 million and Firstcut revenue was $13.4 million. During the quarter, Firstcut revenue represented 29% of total revenue consistent when compared to the first quarter of 2013. Our international revenue was $13.1 million or 28% of total revenue during the first quarter of 2014. Compared to $9.2 million or 25% of revenue during the same period in 2013.

The positive effects of currency were approximately $400,000 this past quarter. During the past quarter we did business with nearly 7,700 product developers. This represents an 80% increase over the same quarter in 2013, average revenue per product developer increased 4.5% from the previous year. Our gross and operating margins in the first quarter of 2014 were 63% and 31.4% respectively. During the first quarter of 2013, these were 62.4% and 30.5%.

We stated last quarter our intentions to invest at higher rates for marketing and sales and research and development to increase revenue growth rate into the future. While our spending in these areas was relatively consistent with last year, we continue to explore initiatives that will be financially prudent and successful and worth more investment. Company wide, at the end of December, we had 818 total employees versus 749 at the end of December 2013. Our inside selling force and customer support employees total 167 at the end of March, an increase of 20 employees from December 2013. Diluted earnings per share in the first quarter of 2014 were $0.39. Adding back the after tax cost of stock compensation our non-GAAP diluted earnings per share in the quarter were $0.41.

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 March 2014, our cash and investments totaled nearly $150 million. I would now like to provide some guidance into our projected results for the second quarter of 2014. During the second quarter, we expect our revenue from our new attitudes service acquired through FineLine will approximate $2 million. We expect to expense to operations proximally $600,000 in one-time costs related to deal closing and integration. Due to these cost, the FineLine acquisition will not be accretive in the second quarter.

Including FineLine results, we currently expect revenue in the second quarter of 2014 to be in the range of $50 million to $53 million. Second-quarter operations will include additional cost recorded as part of our cost to revenue related to the move to our new factory totaling approximately $400,000. Stock compensation costs in the second quarter will be approximately $1.3 million. Taking into consideration all of the above, we expect our quarterly non-GAAP EPS to be between $0.40 and $0.44. Our capital spending during 2014 will total proximally $38 million. This concludes our prepared remarks.

Operator, we will now open up the call for questions.

(Operator Instructions)

Brian Drab, William Blair.

Congratulations on another great quarter.

Thanks, Brian.

One metric that I wanted to talk about is the new customer company count and that was down significantly in the first quarter. Can you talk about why that was, and do you think weather had an impact there?

Brian, this is Jack. As we said every quarter of last year, we don't think it is a great metric because it doesn't really do a job of explaining how of marketing and sales efforts are designed. So it's not unusual for us to sell more product developers but within the same company so we don't really track the company side that much. So I just think that it's random and I would concentrate on product developers.

Yes. I clearly think the most important metric -- I see why the product developers are the most important metric, but I just figured that maybe weather would have impacted some of that activity as well.

I don't think so.

Okay.

I think what we have done with our sales force is, really want to focus them on the customers that have a very large industrial base with a focus on new product development. We got contacts with a lot of those major customers and so we want to go wider and deeper with those customers. It is a lot easier to acquire more products developers and accelerate growth by going wider and deeper in our existing customer base.

Okay. Great. And you of course you expand your offerings through the addition of new services like LSR, but I know you are also expanding your existing capability through software and manufacturing process enhancement. Could you just talk a little bit about some of these recent enhancements to the core capability?

Absolutely. So I will hit both of those. I will hit both software as well as manufacturing. On the software side, we continue to make it easier for our customers to order. We have launched a new web front base that is going to allow our customers to be able to, you know, upload easier and allow us to enhance our quoting percentage so that the number of times we can put something out there that can be easily orderable, right after a single load as an increase which will drive our close rates. We're also working on technology that will be launched here soon it will allow our customers to download with a number of different interfaces than they have today, easier to use multiple programs coming into our system.

The area and manufacturing that we continue to enhance is around our manufacturing productivity. We have priority technology that allows us to move through our Firstcut CNC operations faster and with lower cost than we did before. So that's really improving the productivity that we've got around of -- around an existing set of assets in CNC machines. And we are employing Lean manufacturing across each of our manufacturing processes both Protomold as well as with Firstcut.

Okay. Thank you. And Jack just quickly, did you said the $400,000 in transition costs will now fall completely in the second quarter?

I think the vast majority of it. We are really, really prepare for the move here. So I think our manufacturing team is going to get everything completed quite easily here in this quarter. I don't expect there's really any cost to filtered over into the third quarter.

Okay. And one more clarification, Jack. I think on the last call you said that the FineLine operating margins were a little bit below the Proto Labs core margins and if I heard correctly today, we expect the long-term target model operating margin won't change. Can you talk a little about why that is?

Yes. You have to separate out the two things. FineLine was not making the percentages that we were making but we think when we combined them with our business and we do things to increase their revenue and other things that we will bring to the table we think that they will fit right nicely within our target model.

Okay. Thanks for taking my questions.

Troy Jensen, Piper.

Good morning, Troy.

Congrats on the nice results.

Thanks, Troy.

Vicki, have a couple for you first. This quarter you had 23.5% year-over-year growth. I know your goal has been to do 25%. Probably some of that was the weakness because of the weather. But I love to hear your confidence and growing we 25% organically for the full year.

Yes. I'm very confident in that. As I mentioned, we gained momentum throughout the quarter. I do think there was a little bit of weather impact, but that it is really hard to quantify. We are going into second quarter very strong and I feel very comfortable with 25% year-over-year for the full year.

Okay. Now Vicki have about we talked you seems like you have great incremental sales ideas. Just curios if you have looked at sales and marketing expense and do you think these new ideas would be movement within your existing expense buckets or is there any risk to increase spending sales and marketing here?

We are focused on increasing spending in sales and marketing and we did increase in the first quarter versus prior quarter. We've got more work that we're doing there. We're continuing to bring in more sales and customer support, functional people to bring in that talent, and we're looking at what we need to do around our marketing spend to create greater awareness and penetration.

So we're beginning to implement some of those and you will as I mentioned the enhancements and continued development of our national account managers and how we go wider and deeper within customers. Were starting to employ some of those tactics and the project management support function is certainly one of those, and we will continue to do more as we go through the year.

How about the last one here for Jack. Asia was up nicely year-over-year sequential. Are we nearing breakeven on your Asian business?

Asian business -- if you mean Japan, Japan did make a little bit of money in the first quarter. We've been around that last year we just never pop above it. I feel really good about what's happening in Japan. But we are still very much in an investment phase in there and so I wouldn't want to give the idea that every quarter going forward that Japan will always be more profitable than it was in the past quarter. We have gone over the breakeven though already.

Good. Keep up the good work.

Thanks, Troy.

Jim Ricchiuti, Needham and Company.

Thanks. Good morning.

Hi, Jim.

I had a question just on the North America just in light of what was possibly some weather-related disruptions. I was wondering if you could talk a little bit about the activity to the extent you can, that you've seen thus far in the quarter.

Do you mean the first quarter or the second quarter?

Second quarter.

Second quarter started up nicely and appropriately for what we would expect the second quarter to start out with. I think our comments regarding the first quarter of January and February, we did notice that when the East Coast with shutdown -- we were not shut down by the way here in Minnesota by the weather. But on the East Coast is that we would have significantly fewer orders for a couple of days period of time when the East Coast with shutdown.

And like we've said, we are a quick turn business so there is a chance some of that came back and I think we did see it. March probably was a lot stronger than it probably would be. March is always a strong month anyway but it would have been still stronger considering January and February.

If you look at March, our quick turns, which we do follow that, was actually a record in the month of March. So I do think in a way sometimes that helps us because we are all about speed. So when these product developers might get a little bit behind on their projects, were there to help them get back on track.

Got it. And next question. This is a little further out, but as we think about the additive manufacturing piece of the business, the plans to I believe offer the service in Europe in 2015, do you anticipate that being early in the year? And to what extent would you be servicing that market from the US or are there plans to bring equipment into the facility there and what are the plans for Asia in that area? Thanks.

Right, Jim. Thanks for the question. I tell you, we are really excited about combining our additive service offering -- additive manufacturing service offering with Firstcut and FineLine. The combination of all those help us capture the product developers right there at the concept phase and move them all the way through commercialization. So it's just going truly endear us to the customer base.

We're very focused right now on the integration here in North America. We are jumping into it already, launching those integration teams. We expect to move as quickly as we can through that process and will be turning our attention to Europe as we complete that. I would expect that to happen during -- throughout 2015. We will be putting manufacturing on the ground in 2015 in Europe so it will not be service only from North America. In the short-term, we can export from North America into Europe.

FineLine has done in the past so that is certainly a way we can begin to see the market but we will be putting that in place throughout 2015. And the timeline will become a lot more clear as we move through the integration process here in 2014. Japan will be closely behind. There is an growing additive manufacturing service market in Japan as well. Again, being able to work with our customer base all the way from concept to commercial production is going to be very, very powerful to endearing ourselves to those product developers.

John Baliotti, Janney Capital Markets.

Good morning.

Good morning

If we could focus on profitability, you guys obviously telegraphed increased spending this quarter and for the year, and that showed up in the quarter. Given I guess the leverage that a gross margins provides -- the increasing gross margin, you have the ability to absorb those costs. Despite that you're still getting -- it seems were getting a great efficiency out of those other areas whether it is marketing and sales or G&A. Can you talk about maybe just the inputs that you used to decide those levels? Because it seems like you're getting a pretty efficient benefit out of that even on the near term on that spending.

I think last quarter, John, we did say that we were getting efficiencies out of our gross margin and our G&A line. We changed our target model because of that. I think it's smart for long-term sales growth and for our shareholders that we try to do smart increased spending on the sales and marketing side and on the R&D side. We are always looking for good efficient ideas, in marketing especially. They can actually do a good job of driving product developers to us and were always trying to find new people that can do a good job selling.

So it's always not even in terms of our efforts, but it sure is part of our strategy through smart increased spending in those areas. I do think the G&A offers the greatest opportunity for leveraging which would be common in businesses and I think that our manufacturing teams continue to do a fantastic job of maintaining efficient manufacturing environments.

Yes. I will just build on that too, that were a very disciplined Company in terms of making sure that when we do increase the spending, were expecting to get the return on it. You see we did increase our sales, our marketing and our R&D spending in the quarter and we will continue to do that. I think our target model margin of 29% operating earnings is still the right one and we're a little bit higher than that now. I think as we increased spending throughout the rest of the year to drive sales, marketing and R&D, we'll be right on that number.

Yes. Obviously R&D is more of a lag. Is hard for anybody to get immediate benefit on R&D spending. It usually has a future benefit, but I guess the way I look at it is nice to see even the marketing and sales tends to have maybe a little bit shorter of a lag. But your efficiency seems to be showing up consistently in the last couple of quarters.

Right. Yes. They are really good. We hire great people. We've got great programs and were very disciplined about the spend. I also do want to give good credit to our manufacturing team because that gross margin line, that manufacturing productivity has been really good this quarter and we continue to work on things to drive that. You're never done with that.

Great. Congratulations.

Thank you.

Peter Misek, Jefferies.

Good morning. Just a couple of additional details if you guys could on FineLine. Maybe you can help us understand how we should layer in the contribution of FineLine and 2014. I know you talked about more of a longer term target. Also I wanted to understand the competitive dynamic of FineLine. How is it different from folks like Shapeways and other folks.

And then you did a great job on the CNC side of talking about new metals and materials. Maybe you can help us understand how you can add that expertise on the additives side. You have a much broader palette of metals and materials than I think of any additive manufacture I've heard of. So -- and I think that will shock people but maybe you can help us understand that as well. That would be great. Thank you.

That is a huge question you just asked there, Peter. Hopefully I'll remember to answer all of it. Regarding how to model FineLine. Of course it's up to you to decide how you want to model it and how you want to present it in your reports.

The thing I wanted to get across with FineLine is we are going to spend some money getting the thing integrated and the cost of the transaction those are going to an extra cost. I think I said they were $600,000. They should be put in G&A and in sales and marketing, and probably a little bit of a hit to gross margin based upon where we would have been at 63%. But overall, they were a profitable business before we bought them. So they were nicely profitable for a service bureau and so I think that you can model them before the $600,000 is making probably less money than we would on the same amount of revenue but they still would have make money.

And I'll go ahead and comment on the other two parts of your question, Peter. First, about the competitive nature of our additive manufacturing business, and I'd like to do that in two pieces. First, FineLine is -- alone and in the combination with Proto Labs full-service offering. We focused on FineLine as an acquisition target for a couple of reasons. They are unique. First they really focus on the product developer and the industrial customer, and they do so with a high degree of focus on quality and technology. They have MicroFine technology that allows us to produce precision parts with additive manufacturing.

In addition, they've got what I would call acquired technology through manufacturing where the company has done a fascinate job in both in operating and maintaining this equipment for consistency as well as developing skills around finishing to make sure we make high-quality parts for the product developer. In the third area of technology that the customers really -- that FineLine has really refined is around software. It has developed two really important software developments.

One is around manufacturing production planning which is absolutely critical to scale additive manufacturing and meet the customer's needs rapidly with quick turns which is very important to our value proposition. And secondly, it has developed great technology on the front end and that is their web interface with the product developers. As a matter of fact, when we start integrating that with Proto Labs front-end, were going to be selecting the best from both those front-ends to make even a better customer experience for our product developers.

Now let me comment about us together. There will be no company out there that will -- addictive manufacture, that will have the breadth of capabilities and the scale that we have across additive manufacturing, machining, and injection molding. So when you look at the breadth that we can bring to a company that is looking for a partner to help accelerating their innovation, we will be second to none. I think that is continuing to build on that with our continued investment in R&D is going to allow us to stay ahead of the competition in both technology and scale.

The last part of your question was talking about metals, and we are very excited about that. As you know, our FineLine additive manufacturing service offering has direct metal laser sintering, DMLS and that will allow us to make precision prototype parts. We also as you know have our CNC machining that will allow us to scale some of those part, and then we just launched MIM, metal injection molding which will allow us to produce small volume of production scale-up part as well. So we'll be able to help those customers move straight through that product development phase right from concept all the way through to small volume production. So very, very exciting.

But again, you hit on one that is exciting that's got strong -- plastic interface is also very, very strong, but that metal will be second to none. So we're excited about it.

Perfect. Thank you.

BG Dickey, Stephens Inc.

Yes. Good morning. Vicki, just can of building on the comments you just made about the continued investments in R&D. Obviously we had a slight uptick in the quarter in R&D as a percent of sales. I think it was around 7.5%, up 50 BPS. Maybe Jack you can help here but in terms of just modeling is that a good run rate or should we expect that R&D number to kind of ticked up throughout the remainder of the year?

A lot of it will of course depend upon us having going ideas to carry forward in R&D but our long-term target model is 7% to 8% for R&D and I would love to have it be close to 8%.

Yes. I would say, I would get it up closer to 8%. We have great opportunities to continue to develop technology in each of our services. The nice thing about Proto Labs is we are relatively technology agnostic. So we really have an opportunity to take a look at what's out there and develop it and bring it into the fold and remember our technology development is -- we got big pieces around process, big piece that is around software development to make sure that we can integrate it into our model which is speed and repeatability and scalability of a service. So we've got investment that is which is a place on both of those sides and a real exciting future there.

Okay. Great. Thanks. My next question is just talking about the unique product developers. You know, I think that was up 18% year-over-year in the quarter. We kind of seen a deceleration in this growth overtime I'm just wondering if you could maybe provide a little color around that trend. Especially in the context of, you know, you've added this new vertical and in sense of additive manufacturing, so have a reach kind of plateau? That absolute new number of product developers is quite significant so I'm just curious how we should think about that number and that growth rate going forward.

Yes. I feel very comfortable that, that growth rate is going to continue in that 18% to maybe even getting into the low 20%s. Again, when that base gets bigger, of course, it gets more difficult but you brought up an excellent point. By adding another big service offering so we'll now have three legs to our stool. Will have FineLine, additive manufacturing services; Firstcut CNC machining; and Protomold injection molding. Having those three legs is going to allow us to create additional opportunities to drive penetration.

It will help us with our brand awareness, is going to give us -- when you are bringing out new things, it gets you brand out there and has an opportunity to capture more product developers. The other thing we talked about earlier is around going wide and deep with our customers and capturing more product developers in our existing customer base. We are working very hard on that initiative as well. We will continue to drive that number.

So we've got lot of penetration last ahead of us. So I wouldn't call that growth as plateauing. It's going to be lumpy. If not going to be the same every quarter. It's going to move up and down but I expect it to continue to grow throughout the year.

Okay. Great. Thanks guys. My nice job on the good quarter there and I'll pass it along.

Thank you.

Andrea James, Dougherty & Company.

Good morning, Andrea.

Good morning. Thank you for taking my questions. Can FineLine participate in innovations in the additive manufacturing industry? Is that correct to assume -- if new concepts come out they can acquire them and provide those as a service as well?

Absolutely, Andrea. So as I mentioned, were relatively agnostic around manufacturing -- around which manufacturing technologies we bring in. We want to bring in the ones that are relevant to our customer base. So we will be -- will continue to evaluate the developments that are taking place both here in North America and around the world in additive manufacturing.

As many of you know there are lot of R&D development taking place across metals as well as additives, plastic technologies. We intend to stay on top of that and bringing in the kind of talent that we have with the leadership at FineLine, which is Rob Connelly and Craig Goff, will allow us to evaluate those in a timely fashion when it makes sense, invest and bring them in-house to service our customers.

Thank you. On this next one this is me just trying better to understand the business. Your revenue for the customers is growing and the revenues for product developers is growing. What is that? Are they pay more for speed? Are they buying more parts?

I would say that it's not necessarily tied to how many quick turns anybody's buying. I would say it's a combination of us getting the opportunity to do more production side molding for customers and I think is also a reflection of bringing for services and opportunities to product developers so they have more things they can do from us. But thank you for noticing that number goes up. It would up last year nicely too.

Thanks for that. I appreciate that. It sounds like more production side interesting -- is that bridge manufacturing?

No. This will be parts. Oh, you mean bridge manufacturing? Sometimes it's scale up to commercialization. Sometimes it's a small volume part, its the production part. We do a lot of different things for customers. As you know just in the quarter 7,700 product developers were buying from us. So there are a wide variety of needs we meet and the fact that we can turn small volume production in rapid fashion is extremely valuable to companies.

Thank you. And the one final. This new Plymouth facility, you've probably already said this but how much of it has increase your capacity right away? I imagine it's not yet full so what's the full potential capacity increase?

We were not operating at capacity in our building here in Maple Plain for Firstcut. So we were not in danger of not being able to satisfy our customers but we're only going to be occupying probably less than 40% of the manufacturing space in Plymouth. So we have tremendous room to grow and we look forward to filling that up over the next few years.

Yes. Our strategy has always been to add capacity before the demand because it is very, very important that our value proposition which is speed is not comprised as demand grows. What Plymouth does is give us more floor space to add additional machines as we go forward. So what we've done so far is we are moving that Firstcut operation from Maple Plain there. So that will have, like Judd said, about 40% of that floor space will be utilized but we've got plenty of floor space to expand and add new equipment.

Got it. Thank you so much. Congratulations.

Thanks, Andrea.

I would now like to hand the call over to Vicki Holt for closing remarks. Vicki.

Thank you. And thanks for joining us today. I hope through our calls in the past week you feel the genuine excitement that I have for our organization and our opportunities. We clearly have great confidence in the continuing success of our business model and the value proposition we bring to our customers. I'm excited about the growth opportunities ahead of us. Thank you.

Thank you very much. This concludes today's conference. Thank you for your participation. You may now disconnect. Have a great day.