Proto Labs, one of Minnesota's hottest stocks of the year, got a rough reception Thursday after it releasing its first quarterly earnings report as a public company.
The Maple Plain-based maker of molds and quick-turn parts, saw its stock price cut by $10 per share, or 27 percent, to $27.36 in late morning trading. It was off about 33 percent in early trading.
Yet Proto Labs beat the consensus first quarter earnings estimate of four analysts who follow the firm, earning $4.8 million, or 22 cents per share, compared with $2.4 million, or 19 cents per share during first quarter of 2011. Sales during the first three months of 2012 rose 34 percent to a record $30 million.
Traders took down the stock after management said in a conference call that increased research and development costs and manufacturing expansion in Minnesota and Japan, considered good in the long term, will cut second quarter-profit margins and result in earnings per share of 16 cents to 20 cents per share on revenue of up to $31 million.
Proto Labs management had signalled earlier this year that revenue would be slowing from the torrid 50 percent-plus pace of the last couple years. But that didn't stop Wall Street from bidding up the stock price in recent weeks to well above analysts estimates for the entire year.
Proto Labs, which went public in January at $16 per share in its initial public offering, peaked at $39.08 on Tuesday, before closing at $32.01 on Wednesday.
Proto Lab management said the company is making smart investments in research and development and plant expansion in Minnesota and Japan.
"We've always wanted to emphasize R&D more," chief financial officer Jack Judd said Thursday morning. "We now have some live projects with costs attached that will be good for the company and shareholders in the long run. Our operating margin will be less in the second quarter."
Management said the company was performing well, adding customers, generating cash and investing in more of the promising technologies and people that have made it a $100 million-revenue company that employs more than 600 people thanks to software that eliminates much of the programming and machining usually required for each customer order.
Proto Labs' proprietary software automates the process as molds and parts are made of plastic, steel or aluminum without much human contact.
CEO Brad Cleveland said the establishment of a "Protoworks" R&D facility on the Maple Plain campus, headed by chief technologist Larry Lukis, will result in a "material payback" on the stepped-up investment within two to three years.
Lukis, a veteran technologist and inventor, is the company's founder and single-largest shareholder.
"We strengthened our balance sheet in the quarter, enhancing our cash position and providing us with the financial resources necessary to pursue our growth strategy to drive revenue and enhanced profitability," Cleveland said in statement. "We are focused on opportunities to increase penetration of existing customer accounts, acquire new customers in existing markets, expand into new markets overseas, and ... introduce new manufacturing processes to serve a broader range of customers."
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