Proto Labs Inc (PRLB) 2014 Q2 法說會逐字稿

Greetings, and welcome to the Proto Labs' second-quarter 2014 earnings call.

(Operator Instructions)

As a reminder, this conference is being recorded.

I would now like to turn the conference over to your host, Bill Dietrick, Vice President of Marketing. Thank you, Mr. Dietrick, you may begin.

Thank you, operator, and good morning, everyone. This morning, before the market opened, Proto Labs issued a press release announcing its second-quarter financial results for the period ended June 30, 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 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 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 includes the after-tax costs of stock compensation and amortization of intangibles. 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. Vicki?

Thanks, Bill. Good morning, everyone. Thank you for joining us today on our second-quarter 2014 conference call. With me today is Jack Judd, our Chief Financial Officer.

We are very proud today to announce another record quarter for our financial results. I'd like to begin with a brief overview of our second-quarter 2014 financial results, then I'll provide an update on our recently completed FineLine acquisition, including a review of the progress of our integration activities. Finally, I'll discuss a couple of new initiatives pertaining to our growth sectors, and provide an update on our marketing programs. 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 third quarter of 2014. And then we'll be glad to take your questions.

I am pleased to report that Proto Labs has once again achieved record revenue. Second-quarter revenues was $52.9 million, a 33% increase over the second quarter of 2013. Second-quarter revenue includes $2.1 million of additive manufacturing services or 3D printing from our FineLine acquisition. Without these revenues, second-quarter revenue would have been $50.8 million, an increase of 28% over the prior year. Our revenue results give us confidence that any weather-related effects we might have experienced during the first quarter are passed.

In addition to revenue, we track the number of product developers we do business with as a key growth metric. We have not yet completed the integration of the FineLine and legacy Proto Labs product developer and customer databases; therefore, the product developer and customer numbers are presented without FineLine. Considering this exclusion, our legacy Proto Labs revenue came from nearly 8,200 unique product developers, a 19% increase over the second quarter of 2013.

By geography, revenue growth in the US was 34% compared to the second quarter of 2013. Our revenue growth rates in Europe and Japan were less than in the United States.

Our record quarterly revenue allowed the global consolidated Proto Labs organization to achieve record net income for the second quarter of 2014 of $11.0 million, or $0.42 per diluted share. This compares to $8.6 million or $0.33 per diluted share in the same quarter of 2013. Excluding the after-tax costs of stock compensation and amortization of intangibles, the non-GAAP EPS was $0.45 per diluted share during the second quarter of 2014.

I continue to be very excited about our progress on each of our three growth sectors. Sales of both liquid silicon rubber and metal injection molding, both officially launched on April 1 of this past quarter, continue to experience steady growth. These services are exceeding our internal expectations for revenue, and we continue to expect steady revenue growth in 2014. While our results this year will be modest, we are setting the stage for these services to provide a more significant portion of our revenue in 2015 and beyond.

Our Protoworks R&D team continues to work on many processes that will expand the envelope of services for product developers. Today, I would like to introduce one of these processes that is now moving out of research and into development soft launch phase.

Our Firstcut machining service is adding the capability to manufacture turned parts produced on a lathe in as little as one day. This will significantly increase the machined part geometries that we can rapidly manufacture for customers.

While we have manufactured many parts in these geometries in the past using milling, this expansion allows us to increase the efficiency and quality of these parts for our customers. Turned parts will be fully commercially available in metal, such as aluminum and steel, in early 2015.

We estimate the global market for turned parts to be approximately the same size as the market for milled parts. We believe there is a large market demand for turned parts with fast lead times, and customers have expressed a willingness to pay a premium for speed.

Turned parts are used in a broad range of industries, including many industries that have historically been strong for Proto Labs such as medical devices, aerospace, automotive, and industrial products. We have commissioned our first pieces of manufacturing equipment, and have already successfully produced several customer parts.

We expect to soft launch this expansion of our Firstcut service in the middle of August, and will continue development over the next several months as we update our website and selectivity take orders. We expect to be promoting this service and fully accepting orders in early 2015.

Our software and manufacturing teams have been working diligently for several quarters on another enhancement of our online quoting service, which will further improve our customer experience. We are happy to announce that we recently launched an exciting new capability in the Protomold service called Proto Labs Proposed Revision, or PPR. With PPR, we provide solutions to customers' most common manufacturability issues, quickly and clearly when we return the quote.

Designs we receive from customers often need some form of modification to ensure manufacturability. Our unique online quoting interface has always highlighted these issues for customers in 3D, right on their parts, communicated via our online interactive quote in a CAD model. Our new proposed design changes feed issue resolution, making it even easier and faster for customers to order parts. We have always offered free design for manufacturability feedback, which customers appreciate. And many have said they use it to gain design insights on all their parts.

Our new service extends the value of our design feedback, from pointing out problems to recommending and implementing solutions. A market test confirmed customers appreciate this service. It is unique, fast, and reduces design effort.

Building on this success, we automated the process so we can offer it in a highly scalable way. We believe this capability will help us close more orders, and further increase our customer satisfaction. Since we do not always know the design intent of our customers, we expect that we will be able to offer meaningful change suggestions for about 15% of the parts we quote.

Integration of the FineLine acquisition proceeded on plan in the second quarter. We have teams working on integrating sales, marketing, customer service, financial systems, IT systems, and human resources. The sales team in Maple Plains was trained on the FineLine product offering during the month of May, and began selling efforts during June. The sales pipeline has started filling, and we have seen the expected increase in part upload and quoting activity in the FineLine area of the website, as legacy Proto Labs' customers start checking out the FineLine offering.

In order to support the expected increase in FineLine sales, and to allow us to improve FineLine delivery times, we have purchased approximately $2.5 million in new capital equipment for the FineLine operation. The new equipment is divided between stereolithography and selective laser centering product lines. All of the equipment is on site in Raleigh, North Carolina, with about half the equipment already commissioned, and the other half of the equipment going into service in late July and August.

The increase in capacity will allow us to offer expedited delivery options for customers who are in a hurry for their parts, similar to what we offer in Protomold and Firstcut. Equipment for the DMLS product line was expanded earlier this year, and is adequate to support sales. We will continue to monitor the demand in the DMLS product line, and will add equipment as needed to support sales.

In order to support the FineLine sales effort, we also merged the legacy FineLine and legacy Proto Labs databases. This step allows our sales staff to sell all three product lines, and enables us to cross market services to the entire customer base. The database merge is part of the integration of FineLine into our CRM and marketing automation systems.

We've also integrated our marketing activities, which will allow us to leverage all of our marketing activities, including internet marketing, trade shows, and print advertising. Other areas of integration during the quarter included: interconnecting the IT infrastructures, transitioning HR systems, and transitioning finance and financial tracking systems.

The largest integration task still lies ahead of us. We are in the process of merging the customer-facing sections of our online quoting and ordering systems. The legacy FineLine and Proto Labs quoting systems are already best in class. We are keeping the best of each system, and enhancing the rest.

These systems are at the core of our business model, and we are taking the time to ensure the results deliver an exceptional customer experience. We expect the integrated capabilities to roll out incrementally over the next 12 months.

On our marketing front, Proto Labs continues to work with companies that are developing inventive products to bring to market. We document some of the most interesting stories through our in-depth case studies each month. In July, we published a piece on Understory, a three-person start-up team with a seed stage fund in Boston, to secure nearly $2 million in funding to launch its ground-level weather stations.

In coming months, we're covering a fairly diverse mix of companies. Our next case study will look at InSleep Technologies, a Florida-based company readying an unobtrusive sleep apnea device; that will be followed by the first-ever minimally invasive surgical knee stapler that uses biodegradable staples.

Moving into the fall, we'll be talking with Zero-G Crew at Stanford University, who are sending some Proto Labs produced parts on a satellite payload being launched into space. And we'll also be writing a case study on our recent Cool Idea Awards winners, Robotics, who have created a compact personal robot with security monitoring and mapping capabilities. All these quality organizations and their product developers depend on our value proposition of parts produced through real manufacturing processes, and getting their parts quickly, resulting in accelerated innovation.

Before I turn the call over to Jack to review our financial results in greater detail, I would like to share a few words regarding the announcement today in our press release of his planned retirement. We have reluctantly accepted Jack's desire to retire to pursue other personal interests, and we are grateful he's given us until the end of the year, if needed, to accomplish a smooth transition. Jack has been on our team since 2011, and has had considerable influence. He was instrumental in successfully leading our Company through the process of becoming a public company in 2012, and developing the processes and communications to be successful in today's public markets. His collaborative style has been appreciated by our entire team, and he has helped so many of us make great decisions on our growth and success.

On a personal note, I've valued his experience and counsel as I've made the transition to CEO of our Company. We have big shoes to fill, and I'm happy that Jack has left us in a very strong position that will facilitate our recruiting efforts. I'm sure I speak for the Board of Directors and the entire Proto Labs team when I say we wish Jack the very best, and we're thankful he'll be with us for several more months as we prepare for an orderly transition.

Jack?

Thank you, Vicki, for the kind words.

Revenue during the second quarter of 2014 was $52.9 million, an increase of $13.1 million or 33% over the same quarter in 2013. Additive services revenue or 3D printing relating to our acquisition of FineLine in April was $2.1 million. Without these revenue related to the acquisition, our revenue would have increased $11 million or 28% when compared to the previous year. Protomold and Firstcut revenues were $36.3 million and $14.5 million, respectively. Revenue splits between Protomold, Firstcut and FineLine services were 69%, 27% and 4%.

International revenue during the second quarter of 2014 totaled $12.9 million or 24% of total revenue, compared to $9.6 million or 24% during the second quarter of 2013. The positive effects of currency were approximately $700,000 this past quarter.

Within our legacy Protomold and Firstcut services during this past quarter, we did business with 8,222 product developers. This represents an increase of 19% over the same quarter in 2013. Average revenue per product developer increased 7% from the previous year.

As we forecasted, our gross margin decreased to 61.8% for the second quarter of 2014. The second quarter's gross margin was heavily impacted by the move of our US Firstcut operation to our new factory in Plymouth, Minnesota. We are proud of our entire team who completed this complicated move on time and under budget, without missing shipment deadlines or quality standards. The move negatively impacted margins by approximately 60 basis points. All costs related to the move have been absorbed in our operations.

In addition to the above, our margin was impacted by our additive services revenues being at a lower margin than our legacy Protomold and Firstcut revenues. We estimate this mix-of-business effect on gross margins to be approximately 70 basis points. We feel, though, that through a combination of pricing enhancement and leverage over the next two years, FineLine's gross margin will approach both Protomold and Firstcut, and we will stay within our target model.

Operating income was $16 million in the second quarter of 2014, compared to $12.6 million in the same quarter of 2013. As a percentage of sales, 2014's operating income was 30.2%, and 2013's was 31.8%.

Companywide, at the end of June, we had 953 total employees, versus 749 at the end of December 2013. Our inside selling force and customer-support employees totaled 179 at the end of June, an increase of 32 employees from December 2013.

Diluted earnings per share in the second quarter of 2014 were $0.42 per share. Adding back the after-tax costs of stock compensation and amortization of intangibles, our non-GAAP diluted earning per share in the quarter were $0.45. A reconciliation of net income and EPS to non-GAAP net income and EPS was included in our earnings release this morning.

The out-of-pocket transaction and integration costs for the FineLine acquisition for this past quarter approximated the incremental net income the Business earned. Therefore, the acquisition was not dilutive to our earnings as forecasted.

As our integration of FineLine continues in the coming quarters, it will be more difficult to make comments on the profitability of just this aspect of our Business. Therefore, I do not expect that we will offer separate comments on the profitability of FineLine in future conference calls, barring material events.

Our spending on capital year to date through June totals $31.6 million, and includes $12.4 million related to our Plymouth facility and $7.1 million relating to our purchase of our manufacturing facility in Telford, England, that was completed in May. At the end of June 2014, our cash and investments totaled $105.4 million.

I would now like to provide some guidance into our projected results for the third quarter of 2014. Including FineLine's results, we currently expect revenue in the third quarter of 2014 to be in the range of $54 million to $57 million. Of this amount, our additive services or 3D printing revenues are forecasted to be approximately $3 million. Stock compensation costs in the second quarter(Sic) will be approximately $1.4 million. Amortization of intangibles related to FineLine will be approximately $160,000.

Taking into consideration all of the above, we expect our quarterly non-GAAP EPS to be between $0.44 and $0.48 per share. Our capital spending during 2014 will total approximately $40 million, of which half will be for the building purchases noted above, with the remainder being heavily weighted for new equipment to support growth of our present and new services.

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

Thank you.

(Operator Instructions)

Our first question today is coming from Troy Jensen from Piper Jaffray. Please proceed with your question.

Congratulations on the great quarter, Vicki and Jack.

Thank you.

Thanks, Troy.

Can we just dig in a little bit on geographic mix here. The US business was up pretty substantially, but it looks like Europe and Asia was down. I was wondering if you could just give some thoughts on that.

I would not -- no, the Europe's and Japan's businesses were down. The growth rates were less than US's growth rates.

Each region grew, just a little bit less growth rate. We're pleased with the consolidated results, with that 33% increase year-over-year, but the growth rates are not quite as high as the United States.

And remember, we've got the FineLine acquisition that impacted US sales that really didn't impact our sales outside the US much. And our services NIM was launched in North America, not in Europe. LSR was launched in both the US and Europe. So there's some other impacts, but all regions grew.

Okay. I guess was looking sequentially, not year-over-year. But that's fine.

A follow up here on FineLine, given you get about 20% of your business in Europe, would it make sense to roll out additive manufacturing services to the European customer base?

Yes. Our plan is to roll out additive manufacturing in Europe, and we're working on the details of those right now. And I would expect in early -- in the first half of 2015, we will officially be launching additive manufacturing parts being produced in the EU.

Being produced in the EU. Okay, perfect.

And then last question, then I'll concede the floor. But are the Protoworks, this new lathe service or at the turn parts, is this the service that Brad always spoke so highly about being the biggest significant opportunity, or is that still in pipeline?

That one is still in pipeline, but I don't want to detract from the opportunity that we have with lathe that is with turned parts. It is going to open some doors for us to be able produce these type of cylindrical parts, which today, we do produce in a milled part when the customer demands the speed.

But the speed at which we can produce them in our equipment plus the amount of material we use and the quality of the finish, is not as good as we're going to get with a turned part. So we are going to do a much better job satisfying our customers with these parts, and it will open the door for some parts where customers have said, hey, it just doesn't meet my need, I'm going to go somewhere else. So, now we can provide these turned parts with the speed that Proto Labs delivers. So, it's gong to be great.

Okay. Got it. Good luck in the second half.

Thanks.

Thank you.

Our next question today is coming from Brian Drab from William Blair. Please proceed with your questions.

Good morning.

Good morning, Brian.

Good morning.

First one for you, Jack, and good luck in the next phase. But could we talk just a little bit more about what's motivating you to leave such an innovative fast growth company like Proto Labs? I guess we see this often, where someone with public company expertise is of course brought on ahead of an IPO. And I'm just wondering if you feel like the job is completed in a sense, or have you finally grown tired of the weather up there in Minneapolis?

You've asked some big questions. The absolute truth behind all of this is, it fits very well personally in my life. It is a really great time to execute this for the Company also, that everything is well situated. Vicki is very much oriented to the company, and so it fits well for the Company.

This is good news for me. It's good news for Company. This is a fantastic job, and a fantastically well run Company.

And it should be a job that the Proto Labs should be able to recruit for easily. And be a job that would appeal to a large number of qualified CFO candidates.

Okay. Thanks.

And regarding the milled part opportunity, can you just educate me a little bit more about what the market potential is here? I know that the market for CNC parts, just in the US, has been talked about as roughly a $35 billion market.

What percentage of that $35 billion -- or of that market, might be milled parts, versus turned parts, versus other parts? And I know the opportunity is in turned parts, I think I said mill.

When you refer to a $35 billion total market for machine parts, that's total machine parts. We really focus on that segment of the market that is -- desires speed, and smaller volume.

So as you know, we did a study a year ago to take a look at what our total available market is. And with the services that we had back in 2013, we estimated that total available market to be $6 billion. With some of the added services we've got, we now look at that to be $7 billion range.

The turned parts really opens the door for us to service a wider number of geometries, for particularly for the cylindrical type parts That a turned part via a lathe can produce with much better quality, speed, and at a lower cost, frankly, than with CNC machining. So it opens the door for us there.

We think the market for the turned parts within speed and the size with the capabilities, it's going to be approximately the same size as the milled parts. So this is a big growth opportunity for us and Firstcut.

But it doesn't double your market size for CNC machine parts, so right there is overlap.

Well no, it really does essentially double it. We do produce some parts today that are of that geometry. It's just we're not as competitive, because of that manufacturing capability.

We now will be much more competitive. So, in a way, it does increase the total available market -- doubles almost, the total available market for us in machined parts by having both milling and turned parts via lathe.

Okay. And how many machines do you think that you'll need to have on line maybe in some time frame, maybe by the end of to year, to do the turn parts?

Yes, I'm not going to not give the number of machines. I will say have commissioned several machines already. We do have another one that is on order, and one that's going into Europe as well, expanding Europe. But we do have several that we've commissioned already.

Okay. And is this the same type of expertise going from a CAD model translating that into a language that's interpretable by the turning machine, or the lathe?

Absolutely. And that's why we go through the soft launch phase. Because what we do in soft launch, is we start producing a lot actual customer parts. And as we do that, we find things within the software that needs to be continued to develop.

So by the time we've really opened the door and we let the flood gates of orders come in, which will be early next year, our software will have been developed and it's scalable, and we can handle that level of order activity. So what we'll be doing in the soft launch is working through all of those bugs, and making sure that our software is very, very robust before we launch in a very large scale. Similar to what we did with liquid silicone rubber and MIM, we did a soft launch for about four to six months before we did the full scale launch in April.

Okay. I'll get back in line. Thank you very much.

Our next question today is coming from Jim Ricchiuti from Needham and Company. Please proceed with your questions.

Thank you. Good morning. Just on that topic of the new turning service.

it sounds like you can -- when this is up and running, you'll be able to turn parts around in a day or so. Give us a sense as to traditionally out there, the traditional manufacturers, how long it would take? And what are the -- are they the same technology hurdles for competitors to potentially be able to offer that fast service?

So, again, remember the -- our value proposition of speed is also a value proposition of reliability. Our customers know that at any point in time they can get a part within a day, and they can do that day in and day out, order after order. I think if you went outside to a local machine shop down the street, standard turn for a part via lathe would probably be somewhere between five to ten days.

Could they, on a time to time basis, turn something around quickly? Probably, but with the scale and reliability that our business model affords us, we do that every single day. And also, many of those machine shops, frankly, are not interested in small volume quantities. Our whole business model is attuned to small volume quantities.

Got it. And then one follow up question, just with respect to the revenue generated from FineLine in the quarter, the $2.1 million. Is that -- it sounds like that's primarily from the FineLine sales force.

And what I'm wondering is, as we look at to Q3, you gave some guidance for what your think that business can generate. At what point does the Proto Labs sales force, the legacy sales force, become more engaged and really begin to contribute meaningfully to FineLine?

Great question, Jim. So we had about two months worth of FineLine revenue in the quarter.

We completed the acquisition in the end of April. And during that quarter, I would agree, that the majority of the sales actually were from FineLine's legacy business model, which didn't have a lot of sales engine to it. It was a web-based interface, and got their customers pulled in through the web.

During the quarter, we trained our sales people, and by the end of May we had our sales people essentially trained, and then we began turning on some selling during the month of June. We did generate some cross selling activity. Recall that less than 2% of our customer databases overlapped, so it gave us an opportunity for some cross selling. But it was very minimal in the quarter. We only really started turning on our full sales force with commissionable sales starting July 1.

So, we will start seeing that impact going forward, and it will ramp slowly but surely. But we felt it was important to get the capacity in place so we can be prepared to delight our customers with the service as they place those orders. So we begin to be more significant as the year rolls forward.

Okay. Thank you a lot.

Our next question today is coming from John Baliotti from Janney Capital Markets. Please proceed with your questions.

Good morning. Jack, Congratulations. Thanks for all your help, and best of luck.

Thank you.

Vicki, we've talked about how you can consolidate more of the customer's prototyping work now that FineLine is part of Proto Labs. And keep those customers at -- if they go up in volume on complex parts and obviously CNC machine the parts if they are less complex or lower volume. Could you see a time when a customer could send the part design into Proto Labs, and your software tech makes that extra decision to route it to whether it's Protomold or Firstcut or FineLine?

Great question, John. I talked a little bit about the most important task we've got ahead of us, next in integration. Which is combining the front end, that web-based and quoting and order processing for our customers. And I mentioned that we are going to, as we do that, take the best of both companies quoting tools and combine them, but also to enhance our entire experience for our customers through that process.

And I mentioned it was going to be taken forward in phases over the next 12 months. We do envision an opportunity to incorporate ways to be a lot more consultative with our customers to help them understand what is the best approach for them to take. Based on where they are in their product development life cycle to have a part made to accelerate their innovation. And do it the most cost effective way, and in a way to help them make the best decisions.

So your question, we are working on that diligently. That kind of thinking will be incorporated in this phased approach of the changes that we make with our combined web quoting and ordering system.

Because it seems like, a lot of these customers who are designers, based on my own experience, they don't necessarily care. They want the part. They don't necessarily want to specify the way it's made, they want it delivered. They want it delivered right, and obviously for the right price, and speed.

And it seems like this is where you could show your added expert -- that you could really reveal your expertise in speed, but also in identifying the right process. Or the most optimal process for them to use.

Correct. One of our major differentiations is the breadth of our capabilities of different processes and materials at that we have to offer. And being able to work with customers to optimize that for their process, is one of the services we want to provide and we want our website to be part of doing that quickly, and in a scalable way.

So, absolutely. That's one of the differentiators and on of the services we'll be providing.

Great. Thanks very much.

Our next question today is coming from Andrea James from Dougherty and Company. Please proceed with your questions.

Hello, thanks. I just have two questions.

Can you give us some color on the types of new customers you're signing? And just, maybe at the high level, whether or not some of the new services you're offering is opening the door to larger organizations with more product developers?

Okay. Good question.

Our sales team is constantly looking to bring new product developers into our system, and become customers. We've got a couple of kinds of selling. One is with larger accounts, these are our national account managers, and they go wide and deep within our customers.

So, it -- this would be where we've got a large company, like you mentioned, a medium to large company, and we've got an entry point. And they use their contacts to go wider and deeper, and get process -- get other colleagues to recommend us and infiltrate us more into the new product and process development process within these companies. And that is part of what's bringing in these new product developers.

In addition, our marketing engine is always bringing new leads in from new customers. And there, we have business development managers, BDRs we'll call them, who actually go in and nurture those customers. And get them from being a non-customer to a customer.

And then, as they get bigger and bigger, we'll go wide and deep with those companies as well. So we do both. We get product developers from larger customers, but going wide and deep and new customers.

Thanks. And then your operating margins are tracking really nicely against your 29% target. Is that 29% still a good go forward rate to expect, or do you think you're going to keep tracking higher than that?

I think the 29% is a good number. And the reason I think it's a good number versus the 30% or 31% that we've been operating at, is that we do have plans to continue to spend money in sales and marketing to further our growth rates in future.

And so if we find ideas and we find good people to hire, we will spend more money in sales and marketing. So I think the 29% number is where we would like it to be.

Thank you.

Our next question today is coming from Jason North from Jefferies. Please proceed with your question.

Hello. Can you talk about your gross margin expectations here for the second half with new capacity adds, as well as FineLine and any other variables you think are relevant? Thanks.

I think the best way that is it should stay within our target model, which is 61% to 63%. You are correct, that FineLine does run at a lower gross margin than our legacy businesses. But, our gross margin should still be able to stay within our target model.

Okay. And looking at the MLS, is that function mainly here of do you have enough capacity, or that the growth and demand there is slower than some of the other -- the SLA and SLS offerings of FineLine?

No. It's the former. We -- FineLine made an investment in additional DMLS capacity just earlier this year. So we do have capacity there, we think to satisfy the demand going forward. We'll be watching it closely, and we will add capacity as we need it.

Great. Thank you.

Thank you.

Our next question today is a follow up from Brian Drab from William Blair. Please proceed with your question.

Hello. Yes.

I don't know that anyone has asked for more detail around this record number of new customer company additions in the second quarter. It's almost double what you did in the first quarter at 1,100 new customer companies. Anything specific in the quarter that could have contributed to that?

As we've said before, we provide that information because people ask for it. But it's not really how we run the Company.

So I would say that if it was down in a previous quarter, it would be the variability of our business, and that it is up is the variability of our business. It does not reflect though the successes of our marketing and selling.

We really focus on those individual unique product developers. I was really pleased in the quarter to see a 19% increase, 8,222 product developers in quarter. I think that was a phenomenal performance on the part of our sales and marketing team. So, really pleased with that result.

Okay. So you haven't added any more BDRs, or nothing has changed specifically there -- ?

Oh, we have. No, we have added. We've added 32 customer facing people in the quarter. So we continue to expand sales and marketing.

It's just the metric I would focus is on is that product developer, because we're also going wide and deep within our customer base. Our number of developers per customer continues to go up, because of going wide and infiltrating accounts or customers in a broader way.

That's a good thing, because it builds our credibility within the customer. And it puts us in a better position to be their first go to, as opposed to maybe only when they only need speed.

Because we provide a lot more than speed. We provide our design for manufacturability, our reliability, our speed, and the ability to produce small volumes very quickly.

So, the high, wide, and deep is the approach to take. And I would watch that product developer metric more than the customer metric.

Okay. I think it will be interesting to see if maybe the weather had -- I know on the last call, you told me that you didn't think the weather had much of an impact on the first quarter. But I think it will be interesting to see if the 800 additions that you did in the fourth quarter and the step down in the first quarter, and now up to 1,100, if that would have been more linear if we didn't have the massive ice storms in the first quarter, but I guess we'll see how it goes in the third quarter. It's a great result.

Yes. Great. Thanks, Brian.

Thank you.

Thank you. There are no further questions at this time. I'd like to turn the call back over to Miss Holt for any further closing comments.

Great. Thanks for joining us today.

I want to take this opportunity to thank all the Proto Labs' employees around the world for their dedication, passion, and energy delivering another record quarter for the Company. While at the same time, executing on a number of very important strategic fronts.

To our investors, I hope through our calls over the past few months you feel the genuine excitement I have for our organization and opportunities. We clearly have confidence in the continuing strength of our business model, and the value proposition we bring to our customers. I'm excited about the growth opportunities ahead of us, and I look forward to updating you next quarter on our progress. Thank you.

Thank you. That does conclude today's teleconference. You may disconnect your lines at this time, and have a wonderful day. We thank you for your participation today.