NYSE:PRLB Proto Labs Q1 2023 Earnings Report $35.02 +1.21 (+3.56%) As of 03:53 PM Eastern This is a fair market value price provided by Polygon.io. Learn more. Earnings HistoryForecast Proto Labs EPS ResultsActual EPS$0.10Consensus EPS $0.06Beat/MissBeat by +$0.04One Year Ago EPSN/AProto Labs Revenue ResultsActual Revenue$125.86 millionExpected Revenue$118.24 millionBeat/MissBeat by +$7.62 millionYoY Revenue GrowthN/AProto Labs Announcement DetailsQuarterQ1 2023Date5/5/2023TimeN/AConference Call DateFriday, May 5, 2023Conference Call Time8:30AM ETUpcoming EarningsProto Labs' Q1 2025 earnings is scheduled for Friday, May 2, 2025, with a conference call scheduled at 8:30 AM ET. Check back for transcripts, audio, and key financial metrics as they become available.Q1 2025 Earnings ReportConference Call ResourcesConference Call AudioConference Call TranscriptSlide DeckPress Release (8-K)Quarterly Report (10-Q)Earnings HistoryCompany ProfileSlide DeckFull Screen Slide DeckPowered by Proto Labs Q1 2023 Earnings Call TranscriptProvided by QuartrMay 5, 2023 ShareLink copied to clipboard.There are 9 speakers on the call. Operator00:00:00Greetings. Welcome to the Proto Labs Q1 2023 Earnings Call. At this time, all participants are in a listen only mode. A question and answer session will follow the formal presentation. Please note this conference is being recorded. Operator00:00:18I will now turn the conference over to your host, Jason Frankman, Vice President and Corporate Controller. You may begin. Speaker 100:00:25Thank you, Shamali, and welcome everyone to Proto Labs' Q1 2023 earnings conference call. I'm joined today by Rob Adore, Proto Labs' President And Chief Executive Officer and Dan Schumacher, Chief Financial Officer. This morning, Proto Labs issued a press release announcing its financial results for the 1st Prepared slide presentation is available online at the web address provided in our press release. Our discussion today will include statements relating to future Actual results to differ materially from expectations. Please refer to our earnings press release and recent SEC filings, including our annual report on Form 10 ks for information on certain risks that could cause actual outcomes to differ materially and adversely from any forward looking statements made today. Speaker 100:01:28The results and guidance we will discuss include non GAAP financial measures consistent with our past practice. Please refer to our press release and the accompanying slide presentation at the Investor Relations section of our company website for a complete reconciliation of GAAP to non GAAP results. Now I will turn the call over to Rob Bedor. Rob? Speaker 200:01:48Thanks, Jason. Good morning, everyone, and thank you for joining our Q1 earnings call. I am pleased to share that this morning we reported 1st quarter revenue and earnings above our guidance ranges. Amidst uncertain macroeconomic I am pleased with how our employees executed on our goals in the 1st few months of the year. On the top line, we outperformed our expectations in 2 main areas: A strong start of the year in our European operations and continued strength in demand through our Hub's digital manufacturing partner network. Speaker 200:02:35Strong first quarter performance in Europe was driven by greater than anticipated demand in January February, driven in part by large orders from key customers. Revenue through our digital manufacturing network grew very nicely in the Q1 At over 70% growth in constant currencies, as we continue to realize value from our unique offering that combines the digital factory and the digital network, We are proving out our strategy and getting significant traction with customers and we are only scratching the surface of the demand of our combined offering. As more and more customers become aware of our network capabilities, we are seeing strong growth in the number of customers utilizing both factory and network services. The strong network growth is also a testament to the power of our customer facing go to market teams now that they have the combined wider envelope of services to sell. As customers are looking to purchase high quality custom manufactured parts from 1 single source vendor. Speaker 200:03:35Several of our recently launched expanded offerings continue to resonate in the market, including longer lead times in CNC machining and 3 d printing as well as our network offer with its increased breadth and wider range of prices and lead time options. The current economic cycle, longer lead time, lower priced offers are more attractive to a certain subset of our customer base and growth in these areas has been even stronger than we expected. Now for a brief update On our two priorities for 2023, 1st, drive revenue growth in our 2 primary focus areas and second, Increase shareholder value through expanding profitability in the factory and the network. On revenue growth, Proto Labs has narrowed its focus and investments to drive growth in 2 priority areas: injection molding and our new integrated comprehensive CMC offer. Injection Molding has had a good start to the year with growth year over year in constant currencies and excluding Japan and double digit sequential growth over the Q4. Speaker 200:04:43Strengthen injection molding was largely driven by follow on parts. We will continue to roll out go to market strategies and other offer improvements to drive growth in molds. As it relates combined offer, I'm very encouraged by the early performance in injection molding orders fulfilled through the combination of our internal factories and manufacturing partners. We are winning more orders due to the breadth of our combined injection molding offering. For example, Philips domestic appliances division Has relied on Proto Labs for high quality injection molded parts for over a decade. Speaker 200:05:17Our recent project required both quick turn molded prototype parts and more complex Our internal factory delivers molded parts faster than anyone on the market and we now offer additional complexity to the digital network. Prior to the Proto Labs and Hub's combined offer, Philips would have gone elsewhere for these parts. Due to our combination of speed and complexity with almost limitless capacity, We can deliver for Philips and many other customers in similar situations. This is the value of the combined offer. As for the accelerated innovation pipeline within injection molding, we recently launched an industry leading 7 day standard lead time for molds, Cutting our lead times in half, we continue to improve our digital quality offering in injection molding, which will enable additional growth in our production follow on parts In addition, our factory teams continue to improve efficiency in our manufacturing operations through innovations like automated mold polish. Speaker 200:06:17Our next priority growth area, CNC Machining, is also performing very well with strong growth in the Q1, driven by cross selling between the digital factory and the digital network. As I've discussed in the past, extended lead time and pricing options in CNC through both the factory and the network Will allow us to drive growth through challenging macroeconomic conditions. Customer preferences shift with macro cycles And our unmatched breadth enables Proto Labs to be the single source supplier for all custom CNC machine parts. The next priority for 2023 is to increase shareholder value through expanding profitability in the factory and the network. We surpassed our expectations for revenue and earnings in the Q1. Speaker 200:07:03However, our mix of business is different than anticipated. Macro conditions caused our longer lead time lower priced offerings to grow faster than expected early in the year and demand for our quick term business was lower than expected, impacting profitability. Improving our profitability is dependent on increased volume and a higher mix of higher price quick has proven difficult in the current environment. As a result, we expect continued pressure on operating margin improvement throughout 2023, and we will remain vigilant on operating efficiencies. We are taking direct actions to reduce costs in areas with lower demand, while continuing to invest in high growth areas. Speaker 200:07:43Due to the continued demand softness in our sheet metal service, we furloughed 25% of our sheet metal workforce We have made thoughtful reductions in other areas of the business as well to align with sales volumes. We continue to evaluate the business and reprioritize investments in our focus areas to support growth. During the Q1, we increased our share repurchase program, deploying $21,000,000 through our share repurchase program. Going forward, we will continue to be opportunistic and our repurchase rate will be dependent on market price and other market conditions. Our ability to perform well and achieve financial expectations in this challenging climate is due to the efforts and commitment of our talented employees, We've enabled us to accelerate our innovation and adapt our business to meet customers' needs. Speaker 200:08:37Attracting and retaining talented employees and redesigned our incentive compensation programs. All programs have both revenue and earnings targets and employees are now more directly incented based on the performance of their specific business units. We will continue to invest in our employees throughout 2023 And I want to thank every member of the Proto Labs and Hubs teams for their efforts. As we look ahead to the Q2 and the rest of 2023, Macroeconomic uncertainty remains. In March, the ISM, U. Speaker 200:09:20S. Manufacturing Purchasing Managers Index Declined to its lowest level since May 2020 and has registered 6 straight months below 50 indicating contraction. Consistent with macro data and what several industrial companies have reported, after a very strong start to 2023, quarter rates have tapered slightly, We ended the quarter on a slightly softer note. However, as I stated earlier, the global nature of our business and breadth of our offer enables us to capture Additional share of wallet and new customers even through macroeconomic volatility. In the near term, as macroeconomic weakness weighs on manufacturing, we expect our lower price, longer lead time offers to continue growing faster Then our expedited quick turn business. Speaker 200:10:07This mix shift will continue to influence margins throughout the Q2 and beyond. We will monitor order rates closely and continue to adjust variable expenses accordingly. We have reflected this mix shift impact in our earnings guidance for I am pleased with our results in the Q1 and I'm confident that we will deliver value for our customers and our shareholders over the long term. Our longer lead time lower priced offerings are growing very rapidly As that part of the market performs well during this macro cycle and we are still the industry leader in expedited quick turn digital manufacturing. We are well positioned to weather economic volatility due to our business model's best in class profitability and strong cash flow generation. Speaker 200:10:52This also enables us to continue to invest in innovation and expand our customer offer and capture additional customer share of wallet. Through any economic conditions, we are a great long term strategic partner for our customers. With that, Dan will now cover our Q1 financials in-depth and provide our outlook for the Q2 of 2023. Dan? Speaker 300:11:16Thanks, Rob, and good morning, everyone. Our financial results begin on Page 7 of the slide presentation. 1st quarter revenue of $125,900,000 was above our guidance range and represents a 6.9% Increased year over year in constant currencies and excluding Japan. Sequentially, revenue grew 8.9%. Hubs had a record quarter generating $17,200,000 of revenue, representing year over year growth of 67.3% or 70.7% in constant currencies. Speaker 300:11:53The Hub's network offer continues to resonate with customers in the current macroeconomic backdrop. Changes in foreign currencies continue to negatively impact global revenue growth and represent a $2,500,000 unfavorable impact to revenue in the Q1. 1st quarter revenue by region is summarized on Slide 10. In the Americas, our largest region, 1st quarter revenue increased 2.4% year over year. In Europe, 1st quarter revenue grew 24.4% year over year in constant currencies, driven by a very strong start to 2023 and several larger orders from key customers. Speaker 300:12:34Transitioning to revenue by service. 1st quarter injection molding revenue grew approximately 3% year over year in constant currencies and excluding Japan. As we have discussed at length, one of our top priorities in 2023 is to grow injection molding revenue. CNC Machining revenue grew 11% year over year in constant currencies and excluding Japan. This growth was driven through cross sell initiatives driving demand the network and our longer lead time options in the factory as customers shift to longer lead time lower cost options. Speaker 300:13:101st quarter 3 d printing revenue also grew 11% year over year in constant currencies. Within our 3 d printing service, We saw growth in all geographies and through the network with the strongest growth in Europe on the strength of some larger orders. Sheet metal revenue grew declined sheet metal revenue declined 9% year over year in constant currencies in the quarter. Our sheet metal service is more exposed to the computer and electronics industry vertical and has been negatively impacted by slowing demand in the current environment. We served 23,287 unique product developers in the Q1. Speaker 300:13:50Excluding Japan, unique product developers in the Q1 was 22.2% compared to 25.4% in the Q4 of 2022. The lower network gross margin was driven by shifting fulfillment to other regions and manufacturing partners due to Chinese New Year factory closures. We expect 2nd quarter network gross margin to be in our targeted range of 25% to 30%. Factory gross margins expanded 140 basis points sequentially. The overall sequential gross margin increase was driven by higher volume, especially Molding, partially offset by lower sheet metal demand. Speaker 300:14:48Total non GAAP operating expenses were $45,500,000 in the quarter or 36.2 percent of revenue compared to $42,300,000 or 36.6 percent of revenue in the Q4 of 2022. Sequential operating expense growth was slightly lower than revenue growth as marketing commissions and incentive compensations increased with higher revenue amounts. Moving to taxes. Our non GAAP effective tax rate in the Q1 was more normalized at 23.2% compared to 1.6% in the Q4 of 2022. As a reminder, the lower 4th quarter tax rate was driven by the release of an accrual Our non GAAP earnings per share sequentially. Speaker 300:15:421st quarter non GAAP diluted net income per share was $0.30 compared to 0.26 These benefits were partially offset by mix shift as lower margin network revenue to outgrow internal factory revenue as well as the higher effective tax rate. Turning to cash flow and balance sheet Highlights on Slide 15. We generated $22,600,000 in cash from operations in the 1st quarter, up from $10,500,000 in the Q4 of 2022. Even in a tough macro environment, our business exhibits very strong cash flow generation, enabling us to weather periods of uncertainty while continuing to invest and offer improvements to drive future growth. We repurchased 21,100,000 worth of common shares during the Q1, a significant increase over the Q4 of 2022. Speaker 300:16:47As Rob mentioned, we will continue to purchase opportunistically going forward. We still have a very strong balance sheet. On March 31, 2023, We had $104,700,000 of cash and investments in our balance sheet and 0 debt. Now I'll provide our outlook for quarter of 2023 as outlined on Slide 17. We expect to generate revenue between $119,000,000 $127,000,000 2nd quarter. Speaker 300:17:16At the midpoint, this implies flat revenue year over year in constant currencies, excluding Japan. This revenue range incorporates April performance and typical seasonality patterns, which have been somewhat more difficult to forecast given the dynamic macro environment. The closure of our Japan operations is expected to have a $2,900,000 negative year over year impact on revenue growth. We expect foreign currency to have approximately $500,000 unfavorable impact on revenue compared to the Q2 of 2022. Moving to earnings guidance. Speaker 300:17:55We anticipate non GAAP add backs in the second quarter to include stock compensation expense of approximately $4,700,000 and amortization expense of 1,500,000 We currently estimate our 2nd quarter non GAAP effective tax rate will be 23% in the 2nd quarter, plus or minus 50 basis points. Based on early 2nd quarter order trends and continued macro weakness, we anticipate a continued mix shift towards longer lead time, lower priced offers, which will continue to put pressure on margins and earnings. As Rob described, we are proactively reducing costs in the area of business that are seeing softer demand without sacrificing our best in class speed, reliability and quality in our factories. Our profitable business Model and strong cash flow generation will enable us to take a measured approach to expense reductions, while continuing to invest in the future Through research and development to build out the most comprehensive digital manufacturing custom parts offer in the market. Considering this, we expect 2nd quarter non GAAP EPS between $0.26 $0.34 Now back to Rob for closing comments. Speaker 200:19:08Thanks, Dan. Speaker 300:19:10We are pleased with Speaker 200:19:11our strong start to 2023. We surpassed expectations in revenue and earnings in the Q1 and successfully grew in our 2 focus areas of injection molding and our comprehensive CNC offering. Proto Labs is the most profitable digital manufacturing company We generate the most cash in our industry, enabling us to withstand challenging macroeconomic environments while investing for the future. Our best in class Unique combined offer is gaining significant traction in the market. We will continue to make progress on our focused 2023 priorities, which will enable long term profitable growth and shareholder value creation. Speaker 200:19:49That concludes our prepared remarks. We're happy to take your questions. Operator00:19:56At this time, we will be conducting a question and answer Our first question comes from the line of Troy Jensen with Lake Street Capital Markets. Please proceed with your question. Speaker 400:20:26Hey, gentlemen. First off, congrats on the nice results here. Speaker 200:20:29Thanks, Troy. Thanks, Troy. Good morning. Speaker 400:20:32Good morning. Hey, maybe for Daniel here. Either one of you guys, I guess, could answer. But I guess your comments about less quick turn business and more extended lead times implies Downtick in gross margins. I'm curious if you could kind of give us some color on that. Speaker 400:20:48And then coupled with that to get to the midpoint of your guidance, Does it imply OpEx cuts on a sequential basis? Speaker 300:20:56Yes. So from a gross margin perspective, we do expect the gross margin percent to Improve quarter over quarter, 50 to 100 basis points. The basis behind that is 1, We do expect better network margins quarter over quarter. Like I said, we have a seasonal challenge With Chinese New Year that impacts our gross margins in the Q1. 2nd, as Rob mentioned, we are making reductions And cost cuts in certain areas in the factory to improve the gross margin there as well. Speaker 400:21:34Perfect. Dan, can you share with us what the margins are in the Networking business? Speaker 300:21:40Yes. I said it in the script. So they're 22.2% in the quarter and then I would expect that we're going to get back into the range of 25% to 30%, which is our long term range in the Q2. Speaker 400:21:54Okay, perfect. And then last one for Rob. Just what verticals in Europe do you think were strong? This might have been automotive, but that doesn't mean that's Speaker 200:22:03Yes. We saw strength in automotive And particularly in EV, within that and also in industrial. Speaker 400:22:17Awesome. All right, guys. Keep up the good work. Speaker 200:22:19Yes. Thank you. Thanks, Troy. Operator00:22:24Our next question comes from the line of Jim Ricchiuti with Needham. Please proceed with your question. Speaker 500:22:30Hi, thanks. Good morning. So I'm just looking at the growth Rates in the 2 major regions and you're clearly showing stronger growth in Europe versus the Americas. And it may very well be a function The size of the business in these regions, but I wonder if you could just shed a little bit more color as to why you're Showing the kind of growth in Europe and the slower growth in the Americas. Is it a function of a greater mix of quick turn business in the Americas being impacted or end market. Speaker 500:23:07So I'll turn that over to you. Speaker 300:23:10Yes. So on the Europe side, our factory business had a tremendous first quarter Really do some very large orders. We talked a little bit I talked a little bit about that in my commentary. So that helped. On the U. Speaker 300:23:28S. Side of the business, that business In the quarter because of the quick turn business and the sheet metal business didn't grow in the quarter. Speaker 500:23:41And as you look at areas of the business in the Americas as you went through the quarter Where you did see changes in demand, which end markets was that more pronounced in? Speaker 200:24:03Which end markets were strongest in? Speaker 500:24:06I'm just curious, The end markets in the Americas, where were you seeing Speaker 600:24:13different Speaker 500:24:15trends in the business? Speaker 200:24:17So Aerospace was strong for us. Automotive was strong for us. We saw some weakness in Speaker 500:24:32And finally, I wonder if you'd talk a little bit about the Competitive landscape in the Americas, what you're seeing there and general pricing trends? Speaker 200:24:43Sure. So if you think about our business in the Digital Factory, we Still feel that we are very differentiated there on the Digital Factory side and we're not running into a lot direct competitors with our quick lead time in that part of the space. In the longer lead time part of the space that is a More competitive space, though as you can see, the network business grew exceptionally well in the quarter at 70%. And we were we did not take transactional pricing. And so We were able to execute on our normal pricing strategies in the quarter. Speaker 500:25:32Got it. Thanks very much. Speaker 200:25:34Thank you. Operator00:25:39Our next question comes from the line of Brian Drab with William Blair. Please proceed with your question. Speaker 600:25:45Hi. Thanks for taking my questions. First, I'm just curious if there is an updated thought, given the macro, I mean, there's clearly increased macro Uncertainty in the industrial world since the last call, but is it still the expectation that the injection molding business can grow Year over year in 2023 versus 2022 for the whole year? Speaker 200:26:11Yes. So we are still driving The business to grow injection molding, I think we had a nice result In the quarter, injection molding, I'm pleased with that result, but I'm not satisfied. We're continuing to drive the business to grow Speaker 300:26:33Brian, what I would say, we don't have any better visibility, right, into our quick term nature of the business. So Could we, in the second half of the year, be more impacted in that business by macro trends? Sure, both And negatively, so we're happy with the results that we had in Q1. But I At this point, I'm not making a declaration or guiding anything about any individual service in terms of the full year. Speaker 600:27:05Okay. Okay. And then, I guess I gather that the parts business did really well In the quarter, in part because there were some large orders. Is that correct? And then what did you see in terms of that type of As we ended March and into April, I guess, it's closed. Speaker 300:27:27Yes. So yes, you are correct, right? The strength in injection molding in the quarter really was on the parts side, and we saw that More of that momentum earlier in the quarter than later in the quarter. But that comes from we've got this large installed base, right, of I'm customers. And I think coming off of What was a very strange year last year from a supply chain perspective, we're seeing them come back and order parts. Speaker 200:28:06And I would say that this is both true in the Visual Factory side of the business, but also we're seeing more and more demand from customers to use the network side of the business as the example I shared on the call regarding Philips. Speaker 600:28:23Yes. And then last question is just regarding the network side of the business and the legacy business and the integration And the user interface and Proto Labs 2.0, can you just kind of step back and remind us like where we are in terms of The integration timing, is it going to be completed? And I still I don't know, maybe it's just maybe when I go to use the website, I still I go to Proto Labs, but then Hubs is like a link that I have to go to, to get to the other to get to the Hub site. Are people finding Hubs Recro Labs and independently still largely, I'm just curious how all of that kind of comes together and what we'll see In the future, yes. Speaker 200:29:07Yes, absolutely. So we are as we stated before, right, we started with CNC And 3 d printing will be coming shortly to the website. Within CMC, you can now Access the full Hub's capabilities, right, just as you said, from protolabs.com. We do still have, the Hub's website, up At this time, but we're seeing really good flow of customers to hubs And to the network capabilities through hubs, our cross selling teams are, I think, doing a great job. Our go to market teams are doing a really nice job of driving revenue growth as you can see from the 70% growth in our network business. Speaker 200:29:56So I think the integration is progressing well. And most importantly, we're exposing the broad capabilities of our combined offer to our customers and it's resonating with them. Speaker 600:30:07Okay. Thanks very much for taking my questions. Speaker 200:30:10Thank you. Operator00:30:14Our next question comes from the line of Greg Palm with Craig Hallum. Please proceed with your question. Speaker 700:30:20Yes. Good morning. Thanks for taking the questions here. Following up on the injection molding commentary, I'm just curious, Does the ability to grow this year, does it hinge on maybe the molding business Accelerated, I understand that the parts business was strong, but do you need to get some more molded business And grow those parts later this year to get to growth? Or what's sort of the assumption behind on the growth if you can achieve that in 2023? Speaker 200:30:55Yes. We are working to drive increased molding business, absolutely, as well as the parts business. As Dan said, we've got a great broad customer base who are continuing to do production with us and order molds from us. And we are continuing to drive more and more mold growth. That's our objective in the business. Speaker 200:31:21As I mentioned as well, we're seeing more opportunities for cross selling and customers being And working with us end to end as we have the network capabilities to expand our offering them on the molding side. So we're continuing to drive that. Speaker 700:31:41Okay. And then shifting over to Gross margin for hubs, it's just a little bit unclear. So it was down, I think, a couple of 100 basis points. You ran into the same presumably headwinds last year with Chinese New Year and a lot higher revenue this year. So was there something else Structure or one time in the quarter that impacted it at least on a year over year basis? Speaker 300:32:08Yes. What we end up doing is as we're walking from the Q4 into the Q1, we know amongst our manufacturing partners there's going to be a bit of a tightening within Supply chain with Chinese New Year. And so we actually price a little bit higher as we go into that. Last year, we were a little more aggressive on that pricing, which meant a higher gross margin than we were this year. What we learned from last year, we constantly learn each year as we're optimizing the price is We felt like there were some opportunities we may not have won by increasing the price as much. Speaker 300:32:53And so this quarter, we weren't as aggressive With that pricing change for the Chinese New Year time, Our margin was not as high, but our growth rate was higher at 70%. Okay. Speaker 200:33:13And we Speaker 300:33:16expect to be back in the range for next quarter of 25 to 30. Speaker 700:33:21Yes. Okay. And then just last one, on the gross margin for sort of the core, I think you had mentioned Increased quarter over quarter due to some furloughs. I think you mentioned furloughs in sheet Mattel, but were you alluding to something else across other parts of the business or not? Speaker 300:33:49We're also managing our costs within our factories that are seeing slower demand as well, which includes reducing temps, it's reducing over time. It's making measured reductions in those areas so that We're aligning the cost, the value without sacrificing the ability to turn apart as quick as a day. Yes. Speaker 700:34:13Okay. Understood. All right. Thanks. Speaker 600:34:16Thanks, Greg. Operator00:34:20Our next question comes from the line of Ben Rose with B. Riley Road Research. Please proceed with your question. Speaker 800:34:28Thank you for taking my question. Question for Rob, which is with regard to your larger accounts, Strategic accounts that are using Proto Labs primarily from a factory standpoint In your core businesses, curious to get your thoughts on what progress you're making To reach out within those accounts beyond product designers to the procurement officers In those accounts that might have higher volume orders and Whether that's driving whether that's a factor in driving business to the Hub's network at this point? Speaker 200:35:15Yes. Thank you for the question. I absolutely think it is. And you can see that by some of the larger orders that We've mentioned and the success that we're starting to have with the cross selling and driving business to the network and combined factory and network capabilities. We're fortunate to serve tens of thousands of customers. Speaker 200:35:43And certainly, across those, It's both engineers and product designers as well as procurement professionals. And you can see that we've got strong Growth in our Production Parts business, which is in part attributed to that. Speaker 800:36:03Okay. Thank you very much. Operator00:36:05Thanks, Matt. And we have reached the end of the question and answer session. This concludes today's conference. And you may disconnect your lines at this time. Thank you for your participation.Read morePowered by Conference Call Audio Live Call not available Earnings Conference CallProto Labs Q1 202300:00 / 00:00Speed:1x1.25x1.5x2x Earnings DocumentsSlide DeckPress Release(8-K)Quarterly report(10-Q) Proto Labs Earnings HeadlinesStockNews.com Downgrades Proto Labs (NYSE:PRLB) to BuyApril 24 at 2:17 AM | americanbankingnews.comProto Labs Insider Ups Holding By 11% During YearApril 23 at 12:11 PM | finance.yahoo.comTrump purposefully forcing markets to crash…Whether you agree with the plan or not doesn’t matter. It’s happening. The only question is – are you ready for it?April 24, 2025 | Porter & Company (Ad)Proto Labs: Good Intentions, But Still StagnantApril 12, 2025 | seekingalpha.comProto Labs (NYSE:PRLB) investors are sitting on a loss of 46% if they invested five years agoMarch 28, 2025 | finance.yahoo.comIs Proto Labs, Inc. (NYSE:PRLB) the Best 3D Printing and Additive Manufacturing Stock to Buy?March 23, 2025 | insidermonkey.comSee More Proto Labs Headlines Get Earnings Announcements in your inboxWant to stay updated on the latest earnings announcements and upcoming reports for companies like Proto Labs? Sign up for Earnings360's daily newsletter to receive timely earnings updates on Proto Labs and other key companies, straight to your email. Email Address About Proto LabsProto Labs (NYSE:PRLB), together with its subsidiaries, operates as a digital manufacturer of custom parts in the United States and Europe. The company offers injection molding; computer numerical control machining; three-dimensional printing; and sheet metal fabrication products. It serves developers and engineers, who use 3D computer-aided design software to design products across a range of end-markets. Proto Labs, Inc. was incorporated in 1999 and is headquartered in Maple Plain, Minnesota.View Proto Labs ProfileRead more More Earnings Resources from MarketBeat Earnings Tools Today's Earnings Tomorrow's Earnings Next Week's Earnings Upcoming Earnings Calls Earnings Newsletter Earnings Call Transcripts Earnings Beats & Misses Corporate Guidance Earnings Screener Earnings By Country U.S. Earnings Reports Canadian Earnings Reports U.K. Earnings Reports Latest Articles Seismic Shift at Intel: Massive Layoffs Precede Crucial EarningsRocket Lab Lands New Contract, Builds Momentum Ahead of EarningsAmazon's Earnings Could Fuel a Rapid Breakout Tesla Earnings Miss, But Musk Refocuses and Bulls ReactQualcomm’s Range Narrows Ahead of Earnings as Bulls Step InWhy It May Be Time to Buy CrowdStrike Stock Heading Into EarningsCan IBM’s Q1 Earnings Spark a Breakout for the Stock? 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There are 9 speakers on the call. Operator00:00:00Greetings. Welcome to the Proto Labs Q1 2023 Earnings Call. At this time, all participants are in a listen only mode. A question and answer session will follow the formal presentation. Please note this conference is being recorded. Operator00:00:18I will now turn the conference over to your host, Jason Frankman, Vice President and Corporate Controller. You may begin. Speaker 100:00:25Thank you, Shamali, and welcome everyone to Proto Labs' Q1 2023 earnings conference call. I'm joined today by Rob Adore, Proto Labs' President And Chief Executive Officer and Dan Schumacher, Chief Financial Officer. This morning, Proto Labs issued a press release announcing its financial results for the 1st Prepared slide presentation is available online at the web address provided in our press release. Our discussion today will include statements relating to future Actual results to differ materially from expectations. Please refer to our earnings press release and recent SEC filings, including our annual report on Form 10 ks for information on certain risks that could cause actual outcomes to differ materially and adversely from any forward looking statements made today. Speaker 100:01:28The results and guidance we will discuss include non GAAP financial measures consistent with our past practice. Please refer to our press release and the accompanying slide presentation at the Investor Relations section of our company website for a complete reconciliation of GAAP to non GAAP results. Now I will turn the call over to Rob Bedor. Rob? Speaker 200:01:48Thanks, Jason. Good morning, everyone, and thank you for joining our Q1 earnings call. I am pleased to share that this morning we reported 1st quarter revenue and earnings above our guidance ranges. Amidst uncertain macroeconomic I am pleased with how our employees executed on our goals in the 1st few months of the year. On the top line, we outperformed our expectations in 2 main areas: A strong start of the year in our European operations and continued strength in demand through our Hub's digital manufacturing partner network. Speaker 200:02:35Strong first quarter performance in Europe was driven by greater than anticipated demand in January February, driven in part by large orders from key customers. Revenue through our digital manufacturing network grew very nicely in the Q1 At over 70% growth in constant currencies, as we continue to realize value from our unique offering that combines the digital factory and the digital network, We are proving out our strategy and getting significant traction with customers and we are only scratching the surface of the demand of our combined offering. As more and more customers become aware of our network capabilities, we are seeing strong growth in the number of customers utilizing both factory and network services. The strong network growth is also a testament to the power of our customer facing go to market teams now that they have the combined wider envelope of services to sell. As customers are looking to purchase high quality custom manufactured parts from 1 single source vendor. Speaker 200:03:35Several of our recently launched expanded offerings continue to resonate in the market, including longer lead times in CNC machining and 3 d printing as well as our network offer with its increased breadth and wider range of prices and lead time options. The current economic cycle, longer lead time, lower priced offers are more attractive to a certain subset of our customer base and growth in these areas has been even stronger than we expected. Now for a brief update On our two priorities for 2023, 1st, drive revenue growth in our 2 primary focus areas and second, Increase shareholder value through expanding profitability in the factory and the network. On revenue growth, Proto Labs has narrowed its focus and investments to drive growth in 2 priority areas: injection molding and our new integrated comprehensive CMC offer. Injection Molding has had a good start to the year with growth year over year in constant currencies and excluding Japan and double digit sequential growth over the Q4. Speaker 200:04:43Strengthen injection molding was largely driven by follow on parts. We will continue to roll out go to market strategies and other offer improvements to drive growth in molds. As it relates combined offer, I'm very encouraged by the early performance in injection molding orders fulfilled through the combination of our internal factories and manufacturing partners. We are winning more orders due to the breadth of our combined injection molding offering. For example, Philips domestic appliances division Has relied on Proto Labs for high quality injection molded parts for over a decade. Speaker 200:05:17Our recent project required both quick turn molded prototype parts and more complex Our internal factory delivers molded parts faster than anyone on the market and we now offer additional complexity to the digital network. Prior to the Proto Labs and Hub's combined offer, Philips would have gone elsewhere for these parts. Due to our combination of speed and complexity with almost limitless capacity, We can deliver for Philips and many other customers in similar situations. This is the value of the combined offer. As for the accelerated innovation pipeline within injection molding, we recently launched an industry leading 7 day standard lead time for molds, Cutting our lead times in half, we continue to improve our digital quality offering in injection molding, which will enable additional growth in our production follow on parts In addition, our factory teams continue to improve efficiency in our manufacturing operations through innovations like automated mold polish. Speaker 200:06:17Our next priority growth area, CNC Machining, is also performing very well with strong growth in the Q1, driven by cross selling between the digital factory and the digital network. As I've discussed in the past, extended lead time and pricing options in CNC through both the factory and the network Will allow us to drive growth through challenging macroeconomic conditions. Customer preferences shift with macro cycles And our unmatched breadth enables Proto Labs to be the single source supplier for all custom CNC machine parts. The next priority for 2023 is to increase shareholder value through expanding profitability in the factory and the network. We surpassed our expectations for revenue and earnings in the Q1. Speaker 200:07:03However, our mix of business is different than anticipated. Macro conditions caused our longer lead time lower priced offerings to grow faster than expected early in the year and demand for our quick term business was lower than expected, impacting profitability. Improving our profitability is dependent on increased volume and a higher mix of higher price quick has proven difficult in the current environment. As a result, we expect continued pressure on operating margin improvement throughout 2023, and we will remain vigilant on operating efficiencies. We are taking direct actions to reduce costs in areas with lower demand, while continuing to invest in high growth areas. Speaker 200:07:43Due to the continued demand softness in our sheet metal service, we furloughed 25% of our sheet metal workforce We have made thoughtful reductions in other areas of the business as well to align with sales volumes. We continue to evaluate the business and reprioritize investments in our focus areas to support growth. During the Q1, we increased our share repurchase program, deploying $21,000,000 through our share repurchase program. Going forward, we will continue to be opportunistic and our repurchase rate will be dependent on market price and other market conditions. Our ability to perform well and achieve financial expectations in this challenging climate is due to the efforts and commitment of our talented employees, We've enabled us to accelerate our innovation and adapt our business to meet customers' needs. Speaker 200:08:37Attracting and retaining talented employees and redesigned our incentive compensation programs. All programs have both revenue and earnings targets and employees are now more directly incented based on the performance of their specific business units. We will continue to invest in our employees throughout 2023 And I want to thank every member of the Proto Labs and Hubs teams for their efforts. As we look ahead to the Q2 and the rest of 2023, Macroeconomic uncertainty remains. In March, the ISM, U. Speaker 200:09:20S. Manufacturing Purchasing Managers Index Declined to its lowest level since May 2020 and has registered 6 straight months below 50 indicating contraction. Consistent with macro data and what several industrial companies have reported, after a very strong start to 2023, quarter rates have tapered slightly, We ended the quarter on a slightly softer note. However, as I stated earlier, the global nature of our business and breadth of our offer enables us to capture Additional share of wallet and new customers even through macroeconomic volatility. In the near term, as macroeconomic weakness weighs on manufacturing, we expect our lower price, longer lead time offers to continue growing faster Then our expedited quick turn business. Speaker 200:10:07This mix shift will continue to influence margins throughout the Q2 and beyond. We will monitor order rates closely and continue to adjust variable expenses accordingly. We have reflected this mix shift impact in our earnings guidance for I am pleased with our results in the Q1 and I'm confident that we will deliver value for our customers and our shareholders over the long term. Our longer lead time lower priced offerings are growing very rapidly As that part of the market performs well during this macro cycle and we are still the industry leader in expedited quick turn digital manufacturing. We are well positioned to weather economic volatility due to our business model's best in class profitability and strong cash flow generation. Speaker 200:10:52This also enables us to continue to invest in innovation and expand our customer offer and capture additional customer share of wallet. Through any economic conditions, we are a great long term strategic partner for our customers. With that, Dan will now cover our Q1 financials in-depth and provide our outlook for the Q2 of 2023. Dan? Speaker 300:11:16Thanks, Rob, and good morning, everyone. Our financial results begin on Page 7 of the slide presentation. 1st quarter revenue of $125,900,000 was above our guidance range and represents a 6.9% Increased year over year in constant currencies and excluding Japan. Sequentially, revenue grew 8.9%. Hubs had a record quarter generating $17,200,000 of revenue, representing year over year growth of 67.3% or 70.7% in constant currencies. Speaker 300:11:53The Hub's network offer continues to resonate with customers in the current macroeconomic backdrop. Changes in foreign currencies continue to negatively impact global revenue growth and represent a $2,500,000 unfavorable impact to revenue in the Q1. 1st quarter revenue by region is summarized on Slide 10. In the Americas, our largest region, 1st quarter revenue increased 2.4% year over year. In Europe, 1st quarter revenue grew 24.4% year over year in constant currencies, driven by a very strong start to 2023 and several larger orders from key customers. Speaker 300:12:34Transitioning to revenue by service. 1st quarter injection molding revenue grew approximately 3% year over year in constant currencies and excluding Japan. As we have discussed at length, one of our top priorities in 2023 is to grow injection molding revenue. CNC Machining revenue grew 11% year over year in constant currencies and excluding Japan. This growth was driven through cross sell initiatives driving demand the network and our longer lead time options in the factory as customers shift to longer lead time lower cost options. Speaker 300:13:101st quarter 3 d printing revenue also grew 11% year over year in constant currencies. Within our 3 d printing service, We saw growth in all geographies and through the network with the strongest growth in Europe on the strength of some larger orders. Sheet metal revenue grew declined sheet metal revenue declined 9% year over year in constant currencies in the quarter. Our sheet metal service is more exposed to the computer and electronics industry vertical and has been negatively impacted by slowing demand in the current environment. We served 23,287 unique product developers in the Q1. Speaker 300:13:50Excluding Japan, unique product developers in the Q1 was 22.2% compared to 25.4% in the Q4 of 2022. The lower network gross margin was driven by shifting fulfillment to other regions and manufacturing partners due to Chinese New Year factory closures. We expect 2nd quarter network gross margin to be in our targeted range of 25% to 30%. Factory gross margins expanded 140 basis points sequentially. The overall sequential gross margin increase was driven by higher volume, especially Molding, partially offset by lower sheet metal demand. Speaker 300:14:48Total non GAAP operating expenses were $45,500,000 in the quarter or 36.2 percent of revenue compared to $42,300,000 or 36.6 percent of revenue in the Q4 of 2022. Sequential operating expense growth was slightly lower than revenue growth as marketing commissions and incentive compensations increased with higher revenue amounts. Moving to taxes. Our non GAAP effective tax rate in the Q1 was more normalized at 23.2% compared to 1.6% in the Q4 of 2022. As a reminder, the lower 4th quarter tax rate was driven by the release of an accrual Our non GAAP earnings per share sequentially. Speaker 300:15:421st quarter non GAAP diluted net income per share was $0.30 compared to 0.26 These benefits were partially offset by mix shift as lower margin network revenue to outgrow internal factory revenue as well as the higher effective tax rate. Turning to cash flow and balance sheet Highlights on Slide 15. We generated $22,600,000 in cash from operations in the 1st quarter, up from $10,500,000 in the Q4 of 2022. Even in a tough macro environment, our business exhibits very strong cash flow generation, enabling us to weather periods of uncertainty while continuing to invest and offer improvements to drive future growth. We repurchased 21,100,000 worth of common shares during the Q1, a significant increase over the Q4 of 2022. Speaker 300:16:47As Rob mentioned, we will continue to purchase opportunistically going forward. We still have a very strong balance sheet. On March 31, 2023, We had $104,700,000 of cash and investments in our balance sheet and 0 debt. Now I'll provide our outlook for quarter of 2023 as outlined on Slide 17. We expect to generate revenue between $119,000,000 $127,000,000 2nd quarter. Speaker 300:17:16At the midpoint, this implies flat revenue year over year in constant currencies, excluding Japan. This revenue range incorporates April performance and typical seasonality patterns, which have been somewhat more difficult to forecast given the dynamic macro environment. The closure of our Japan operations is expected to have a $2,900,000 negative year over year impact on revenue growth. We expect foreign currency to have approximately $500,000 unfavorable impact on revenue compared to the Q2 of 2022. Moving to earnings guidance. Speaker 300:17:55We anticipate non GAAP add backs in the second quarter to include stock compensation expense of approximately $4,700,000 and amortization expense of 1,500,000 We currently estimate our 2nd quarter non GAAP effective tax rate will be 23% in the 2nd quarter, plus or minus 50 basis points. Based on early 2nd quarter order trends and continued macro weakness, we anticipate a continued mix shift towards longer lead time, lower priced offers, which will continue to put pressure on margins and earnings. As Rob described, we are proactively reducing costs in the area of business that are seeing softer demand without sacrificing our best in class speed, reliability and quality in our factories. Our profitable business Model and strong cash flow generation will enable us to take a measured approach to expense reductions, while continuing to invest in the future Through research and development to build out the most comprehensive digital manufacturing custom parts offer in the market. Considering this, we expect 2nd quarter non GAAP EPS between $0.26 $0.34 Now back to Rob for closing comments. Speaker 200:19:08Thanks, Dan. Speaker 300:19:10We are pleased with Speaker 200:19:11our strong start to 2023. We surpassed expectations in revenue and earnings in the Q1 and successfully grew in our 2 focus areas of injection molding and our comprehensive CNC offering. Proto Labs is the most profitable digital manufacturing company We generate the most cash in our industry, enabling us to withstand challenging macroeconomic environments while investing for the future. Our best in class Unique combined offer is gaining significant traction in the market. We will continue to make progress on our focused 2023 priorities, which will enable long term profitable growth and shareholder value creation. Speaker 200:19:49That concludes our prepared remarks. We're happy to take your questions. Operator00:19:56At this time, we will be conducting a question and answer Our first question comes from the line of Troy Jensen with Lake Street Capital Markets. Please proceed with your question. Speaker 400:20:26Hey, gentlemen. First off, congrats on the nice results here. Speaker 200:20:29Thanks, Troy. Thanks, Troy. Good morning. Speaker 400:20:32Good morning. Hey, maybe for Daniel here. Either one of you guys, I guess, could answer. But I guess your comments about less quick turn business and more extended lead times implies Downtick in gross margins. I'm curious if you could kind of give us some color on that. Speaker 400:20:48And then coupled with that to get to the midpoint of your guidance, Does it imply OpEx cuts on a sequential basis? Speaker 300:20:56Yes. So from a gross margin perspective, we do expect the gross margin percent to Improve quarter over quarter, 50 to 100 basis points. The basis behind that is 1, We do expect better network margins quarter over quarter. Like I said, we have a seasonal challenge With Chinese New Year that impacts our gross margins in the Q1. 2nd, as Rob mentioned, we are making reductions And cost cuts in certain areas in the factory to improve the gross margin there as well. Speaker 400:21:34Perfect. Dan, can you share with us what the margins are in the Networking business? Speaker 300:21:40Yes. I said it in the script. So they're 22.2% in the quarter and then I would expect that we're going to get back into the range of 25% to 30%, which is our long term range in the Q2. Speaker 400:21:54Okay, perfect. And then last one for Rob. Just what verticals in Europe do you think were strong? This might have been automotive, but that doesn't mean that's Speaker 200:22:03Yes. We saw strength in automotive And particularly in EV, within that and also in industrial. Speaker 400:22:17Awesome. All right, guys. Keep up the good work. Speaker 200:22:19Yes. Thank you. Thanks, Troy. Operator00:22:24Our next question comes from the line of Jim Ricchiuti with Needham. Please proceed with your question. Speaker 500:22:30Hi, thanks. Good morning. So I'm just looking at the growth Rates in the 2 major regions and you're clearly showing stronger growth in Europe versus the Americas. And it may very well be a function The size of the business in these regions, but I wonder if you could just shed a little bit more color as to why you're Showing the kind of growth in Europe and the slower growth in the Americas. Is it a function of a greater mix of quick turn business in the Americas being impacted or end market. Speaker 500:23:07So I'll turn that over to you. Speaker 300:23:10Yes. So on the Europe side, our factory business had a tremendous first quarter Really do some very large orders. We talked a little bit I talked a little bit about that in my commentary. So that helped. On the U. Speaker 300:23:28S. Side of the business, that business In the quarter because of the quick turn business and the sheet metal business didn't grow in the quarter. Speaker 500:23:41And as you look at areas of the business in the Americas as you went through the quarter Where you did see changes in demand, which end markets was that more pronounced in? Speaker 200:24:03Which end markets were strongest in? Speaker 500:24:06I'm just curious, The end markets in the Americas, where were you seeing Speaker 600:24:13different Speaker 500:24:15trends in the business? Speaker 200:24:17So Aerospace was strong for us. Automotive was strong for us. We saw some weakness in Speaker 500:24:32And finally, I wonder if you'd talk a little bit about the Competitive landscape in the Americas, what you're seeing there and general pricing trends? Speaker 200:24:43Sure. So if you think about our business in the Digital Factory, we Still feel that we are very differentiated there on the Digital Factory side and we're not running into a lot direct competitors with our quick lead time in that part of the space. In the longer lead time part of the space that is a More competitive space, though as you can see, the network business grew exceptionally well in the quarter at 70%. And we were we did not take transactional pricing. And so We were able to execute on our normal pricing strategies in the quarter. Speaker 500:25:32Got it. Thanks very much. Speaker 200:25:34Thank you. Operator00:25:39Our next question comes from the line of Brian Drab with William Blair. Please proceed with your question. Speaker 600:25:45Hi. Thanks for taking my questions. First, I'm just curious if there is an updated thought, given the macro, I mean, there's clearly increased macro Uncertainty in the industrial world since the last call, but is it still the expectation that the injection molding business can grow Year over year in 2023 versus 2022 for the whole year? Speaker 200:26:11Yes. So we are still driving The business to grow injection molding, I think we had a nice result In the quarter, injection molding, I'm pleased with that result, but I'm not satisfied. We're continuing to drive the business to grow Speaker 300:26:33Brian, what I would say, we don't have any better visibility, right, into our quick term nature of the business. So Could we, in the second half of the year, be more impacted in that business by macro trends? Sure, both And negatively, so we're happy with the results that we had in Q1. But I At this point, I'm not making a declaration or guiding anything about any individual service in terms of the full year. Speaker 600:27:05Okay. Okay. And then, I guess I gather that the parts business did really well In the quarter, in part because there were some large orders. Is that correct? And then what did you see in terms of that type of As we ended March and into April, I guess, it's closed. Speaker 300:27:27Yes. So yes, you are correct, right? The strength in injection molding in the quarter really was on the parts side, and we saw that More of that momentum earlier in the quarter than later in the quarter. But that comes from we've got this large installed base, right, of I'm customers. And I think coming off of What was a very strange year last year from a supply chain perspective, we're seeing them come back and order parts. Speaker 200:28:06And I would say that this is both true in the Visual Factory side of the business, but also we're seeing more and more demand from customers to use the network side of the business as the example I shared on the call regarding Philips. Speaker 600:28:23Yes. And then last question is just regarding the network side of the business and the legacy business and the integration And the user interface and Proto Labs 2.0, can you just kind of step back and remind us like where we are in terms of The integration timing, is it going to be completed? And I still I don't know, maybe it's just maybe when I go to use the website, I still I go to Proto Labs, but then Hubs is like a link that I have to go to, to get to the other to get to the Hub site. Are people finding Hubs Recro Labs and independently still largely, I'm just curious how all of that kind of comes together and what we'll see In the future, yes. Speaker 200:29:07Yes, absolutely. So we are as we stated before, right, we started with CNC And 3 d printing will be coming shortly to the website. Within CMC, you can now Access the full Hub's capabilities, right, just as you said, from protolabs.com. We do still have, the Hub's website, up At this time, but we're seeing really good flow of customers to hubs And to the network capabilities through hubs, our cross selling teams are, I think, doing a great job. Our go to market teams are doing a really nice job of driving revenue growth as you can see from the 70% growth in our network business. Speaker 200:29:56So I think the integration is progressing well. And most importantly, we're exposing the broad capabilities of our combined offer to our customers and it's resonating with them. Speaker 600:30:07Okay. Thanks very much for taking my questions. Speaker 200:30:10Thank you. Operator00:30:14Our next question comes from the line of Greg Palm with Craig Hallum. Please proceed with your question. Speaker 700:30:20Yes. Good morning. Thanks for taking the questions here. Following up on the injection molding commentary, I'm just curious, Does the ability to grow this year, does it hinge on maybe the molding business Accelerated, I understand that the parts business was strong, but do you need to get some more molded business And grow those parts later this year to get to growth? Or what's sort of the assumption behind on the growth if you can achieve that in 2023? Speaker 200:30:55Yes. We are working to drive increased molding business, absolutely, as well as the parts business. As Dan said, we've got a great broad customer base who are continuing to do production with us and order molds from us. And we are continuing to drive more and more mold growth. That's our objective in the business. Speaker 200:31:21As I mentioned as well, we're seeing more opportunities for cross selling and customers being And working with us end to end as we have the network capabilities to expand our offering them on the molding side. So we're continuing to drive that. Speaker 700:31:41Okay. And then shifting over to Gross margin for hubs, it's just a little bit unclear. So it was down, I think, a couple of 100 basis points. You ran into the same presumably headwinds last year with Chinese New Year and a lot higher revenue this year. So was there something else Structure or one time in the quarter that impacted it at least on a year over year basis? Speaker 300:32:08Yes. What we end up doing is as we're walking from the Q4 into the Q1, we know amongst our manufacturing partners there's going to be a bit of a tightening within Supply chain with Chinese New Year. And so we actually price a little bit higher as we go into that. Last year, we were a little more aggressive on that pricing, which meant a higher gross margin than we were this year. What we learned from last year, we constantly learn each year as we're optimizing the price is We felt like there were some opportunities we may not have won by increasing the price as much. Speaker 300:32:53And so this quarter, we weren't as aggressive With that pricing change for the Chinese New Year time, Our margin was not as high, but our growth rate was higher at 70%. Okay. Speaker 200:33:13And we Speaker 300:33:16expect to be back in the range for next quarter of 25 to 30. Speaker 700:33:21Yes. Okay. And then just last one, on the gross margin for sort of the core, I think you had mentioned Increased quarter over quarter due to some furloughs. I think you mentioned furloughs in sheet Mattel, but were you alluding to something else across other parts of the business or not? Speaker 300:33:49We're also managing our costs within our factories that are seeing slower demand as well, which includes reducing temps, it's reducing over time. It's making measured reductions in those areas so that We're aligning the cost, the value without sacrificing the ability to turn apart as quick as a day. Yes. Speaker 700:34:13Okay. Understood. All right. Thanks. Speaker 600:34:16Thanks, Greg. Operator00:34:20Our next question comes from the line of Ben Rose with B. Riley Road Research. Please proceed with your question. Speaker 800:34:28Thank you for taking my question. Question for Rob, which is with regard to your larger accounts, Strategic accounts that are using Proto Labs primarily from a factory standpoint In your core businesses, curious to get your thoughts on what progress you're making To reach out within those accounts beyond product designers to the procurement officers In those accounts that might have higher volume orders and Whether that's driving whether that's a factor in driving business to the Hub's network at this point? Speaker 200:35:15Yes. Thank you for the question. I absolutely think it is. And you can see that by some of the larger orders that We've mentioned and the success that we're starting to have with the cross selling and driving business to the network and combined factory and network capabilities. We're fortunate to serve tens of thousands of customers. Speaker 200:35:43And certainly, across those, It's both engineers and product designers as well as procurement professionals. And you can see that we've got strong Growth in our Production Parts business, which is in part attributed to that. Speaker 800:36:03Okay. Thank you very much. Operator00:36:05Thanks, Matt. And we have reached the end of the question and answer session. This concludes today's conference. And you may disconnect your lines at this time. Thank you for your participation.Read morePowered by