Proto Labs Builds More Than Dreams

 | May 11, 2012 | 1:30 PM EDT  | Comments
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What if you had an idea for the greatest new thingamabob in the world and two-dimensional diagrams just weren't cutting it with your lenders, partners or potential vendors?

In olden days, you would have spent a fortune getting a machine shop to turn your idea into something tangible, and god forbid you needed more than one.

But now there's Proto Labs (PRLB), a specialized technology firm that caters to the manufacturing sector. The company bills itself as the "world's fastest provider of machined and injection molded parts." It uses proprietary software along with an automated manufacturing system to produce prototype and short-run production parts for inventors and developers in a quick and low-cost environment.

The company's shares went public at $16 in late February, shot to $30, and are now holding firm at around $32. It looks like another potential long-term winner, so let's see what makes it tick.

Proto Labs operates through two service divisions, Firstcut and Protomold, depending on the needs of its client. Firstcut CNC Machining delivers real parts generated directly from 3-D computer-aided drawing models. CNC, or computer numerical control, machining has been around since the 1970s, but was largely a manual process. Automating the process is ideal for prototypes and test parts when time is of the essence. Protomold is a rapid-injection molded process that also manufactures parts from 3-D CAD models, but can utilize hundreds of different engineering-grade materials.

Chief Technology Officer Larry Lukis founded Proto Labs in 1999 with the first manufacturing facility in Maple Plain, Minn. The company expanded overseas just a few years later, launching operations in the U.K. in 2005 and Japan in 2009.

Lukis started with the idea of using software to help cut down on the costs and time to make custom plastic-injection molded parts. Clients run the full gamut, from aerospace, automotive, and electronics to medical instrument manufacturers and design houses. In the company's short history, it has shipped more than 130,000 unique parts to more than 10,000 customers across the globe.

The management team has been stable, with Bradley Cleveland coming on in the early days to serve as CEO, a role he continues to hold today. Cleveland had prior experience with startups years earlier, having co-founded AeroMet Corp., a laser additive manufacturing firm.

Despite the quick turnaround and low-cost parts manufacturing process, what really sets Proto Labs apart from its peers is its online quoting systems, ProtoQuote and FirstQuote. They were created to streamline the order process and reduce typical lead times. Clients use an Internet-based launch pad that allows them to upload their CAD models, receive price quotes, and design assessments typically within a few hours.

Analysts at research firm Piper Jaffray estimate the addressable market for Proto Labs to be around $3 billion, and with the firm notching $100 million in 2011 sales, you can see the tremendous opportunity that sits in front of it. In the last five years, the company has been able to grow annual revenue and net income by 30.8% and 31.8%, respectively.

The original Protomold segment generates three-quarters of total revenues, while the Firstcut division generates the remainder. The fast-growing Firstcut division was only added in 2007, but sales have grown at nearly an 80% clip since.

Source: StockCharts.com

Proto Labs initially went public at a price that valued the firm at roughly $375 million. Driven by a record of outstanding growth, shares have since doubled to close above $32 on strong investor interest and the market cap is just shy of $750 million. It presented first-quarter results a week ago, with revenue increasing to a record $30 million for the first quarter. I suspect that will be the first of many record-setting quarters to come, so put PRLB on your buy list for summer when stocks go on sale.

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