Q4 2022 Proto Labs Inc Earnings Call
Greetings and welcome to the Proto Labs fourth quarter 2022 earnings call. At this time, all participants are in a listen only mode.
A question and answer session will follow the formal presentation.
If anyone should require operator assistance during the conference. Please press star zero on your telephone keypad.
As a reminder, this conference is being recorded I would now like to turn the call over to Jason Franklin Vice President and corporate controller. Thank you you may begin.
Thank you Dara and welcome everyone to Proto labs fourth quarter and full year 2022 earnings conference call.
Joined today by Robin door prototypes, 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 fourth quarter and full year ended December 31, 2012 due to the.
The release is available on the company's website. In addition, a prepared slide presentation is available online at the web address provided in our press release.
Our discussion today will include statements relating to future performance and expectations that are or maybe considered forward looking statements and subject to many risks and uncertainties that could cause actual results to differ materially from expectations. Please refer to our earnings press release, and recent SEC filings, including our annual report on.
<unk> Form 10-K for information on certain risks that could cause actual outcomes to differ materially and adversely from any forward looking statements made today.
The 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'll turn the call over to Rob the door Rob.
Thanks, Jason.
Morning, everyone and thank you for joining our fourth quarter earnings call I will provide commentary on the overall state of our business and then Dan will cover our financial performance in depth later on the call.
As we begin 2023.
<unk> team is focused on accelerating our growth through the execution of our strategy.
We are narrowing our focus and investments to drive growth to priority areas. Our two largest services injection molding and our new integrated comprehensive CNC offer.
By the speed and automation or digital factory with the broad capabilities of our digital network powered by hubs.
I am confident that a sharper focus on fewer priorities will allow our organization to succeed in 2023, and ultimately drive greater value for our shareholders.
Reflecting on 2022.
We are not satisfied with our financial results.
Our performance was impacted by an uncertain macroeconomic environment.
And internal challenges, we faced some problems.
Looking ahead I'm optimistic because our investment priorities for 2023 are focused and designed to address these issues and we are already seeing positive momentum.
In addition to focusing on fewer priority areas. We're also accelerating our innovation pipeline launching more new offerings at a faster pace.
And lastly for the current year, we have a financial strategy in place through which we will expand our operating margin.
Focus our investments on areas with the highest potential return.
And return capital to shareholders at an accelerated rate.
Our narrower focus on fewer priorities and enhanced financial strategy will drive for last success and increase shareholder value in 2023.
The two main areas of underperformance in 2022 were injection molding and a decline in our markets.
Although last year's performance did not meet our expectations. There are many positives in our business that we will build on in 2023 or.
Our CNC machining, a three D printing services, both of them double digits year over year.
Our hub business grew over 50% in constant currencies.
We also made great progress on the integrated Proto labs hubs offer last year and our customers began to realize the benefits of the unique integrated offering.
We established a very important platform that is proving out the value of our comprehensive offer strategy.
In 2022, the number of customers that ordered from both the digital factory and a digital network increased over 2021. Furthermore, revenue from these customers increased even faster reflecting strong growth in spend per customer.
I want to share a few customer examples to illustrate the value that our combined factory network model has already created for customers.
Because our digital factory can deliver value that is not available any competing digital network, we can deliver value that customers cannot get elsewhere.
And our first example, a prominent medical company was looking to accelerate the development of a new product with multiple components.
They were looking to procure 12 injection molding tools from a single manufacturing supplier.
Single sourcing of the 12 months was a requirement for the customer.
We manufactured nine to 12 months and the digital factory and the remaining three higher requirement malls, we manufactured outside of our internal capabilities and source those through our digital network partners.
Not only did our combined model creates a comprehensive offering that enabled us to win this entire large injection multiple order more importantly, it enables proto labs to reduce the supply chain complexity for this customer by being a seamless single supplier for their entire project.
A true one stop shop.
Next.
Global Technology company needed help on a fuel cell project with high requirements and tight deadlines.
This customer leverage Proto Labs' digital factory capabilities for quick turn three D printing and CNC machine parts.
And ordered high requirement production CNC machine parts with tight tolerances and plating.
Phil by the digital network.
We were able to meet stringent deadlines and manufacture high quality finished parts saving the customer eight weeks in their product development process over any competing alternatives.
As these examples highlight the unique combination of Proto lab speed and reliability with the expanded capabilities of hubs digital network is already driving tangible value for customers.
Sally in the form of speed.
Why change simplification.
Breadth of manufacturing capabilities available.
It helps accelerate the journey from prototyping to production and more custom.
Customers are seeing the value in adopting our combined capabilities.
Our long term strategy is gaining traction.
A great offer drives additional demand and accrete share of wallet with both existing and new customers.
And we are just getting started.
Looking ahead to 2023 as I mentioned, we have narrowed our focus and investments to two primary growth areas.
Section molding, our largest service was negatively impacted by macroeconomic factors in 2022.
We are still very confident in the competitive advantage of our injection molding service and we continue to invest to make it even more competitive.
There are several initiatives in place to drive growth in 2023.
And prototyping, we're making our standard lead times even faster.
Already this year, we launched an industry, leading seven day standard lead time for molds in effect cutting.
It has our lead times for many of the parts that we produce an injection.
We're also offering expanded capabilities through our digital network.
In production, we are expanding our offerings through multiple investments first a broader array of additional quality offers and second lower part pricing for high volume orders fulfilled through the hubs network.
And across both prototyping and production optimizing part and more pricing through investments in enhanced pricing capabilities and.
And we're making it easier to use our injection molding service by improving the automated design for manufacturing ability feedback on our quotes and expanding our consultative design services. We expect these actions to drive injection molding growth in 2023.
Our second priority growth area for 2023 ICSC. This is our second largest service has been growing well this.
This year, we're committed to unlocking even greater growth potential.
The most complete and comprehensive offer in the industry through our digital factories are digital network.
Yesterday, we announced that customers now have access to expanded capabilities offered through the digital network on Cn's equals foreseen for Proto labs Dot com customers can now benefit from the combined capabilities of the digital factory and network to leverage advanced machining capabilities designed to lower part costs at longer lead times.
Improved tolerances.
Broad broad provide broader finishing options and make possible larger and more complex part design.
In the fourth quarter, our longer lead time CNC offer fulfilled by both the digital factory and the digital network grew over 48% year over year.
Again, providing evidence that our comprehensive offer strategy is gaining traction.
We've also accelerated our rate of innovation as evidenced by the number of new offering launches in recent months and.
And we strengthened our leadership team with a focus on growth and innovation.
OLED, Rob Boy, our Chief Technology Officer has been driving positive change and accelerated velocity since he started in September .
In January we welcomed Luca might say is strategic growth officer Luca has more than 20 years of experience driving business growth recently as chief growth officer for several industrial companies.
The additions of OLED can Luca highlight our intense focus on strategic growth and accelerated innovation moving forward and as I look ahead, we have several more capabilities in the development pipeline that I'm excited to share with you in the future.
I am confident that our narrow focus on our priority areas for growth will drive shareholder value.
And we must also improve our earnings.
We're committed to driving operating margin expansion in 2023 by reducing and redirecting investments and lower priority areas and aggressively managing spending.
Early this year, we took several actions to better align resources to our two priority areas for growth and ensure those areas, we see adequate investment.
Through our annual planning process, we identified opportunities to shift investments away from lower priority areas of our business.
Proto labs profitable business model generates more operating cash than any public company in our industry and we are a very nimble capital structure.
On February 7th of 2023, our board approved an additional $50 million to our stock repurchase authorization.
This year, we will return capital to shareholders at an accelerated rate through repurchases, reflecting confidence in our long term outlook realized through the execution of our strategy.
And focus on creating value for our shareholders.
Lastly, as part of managing our business, we will continue to evaluate segments or services that are underperforming or noncore to our long term strategy.
This sort of evaluation ultimately led to the closure of our Japan business last year.
Going forward, we will focus on areas with the highest potential return on investment.
I remain very optimistic about the future of Proto labs, and confident that we will deliver great value for our customers and our shareholders over the long term.
The past three years were filled with disruption and transition in the broader economy that impacted Proto labs, but we cannot restaurant in the past and we will not be guided by factors outside of our control. Our 2023 plan is very focused we're committed on accelerating growth in our key priority areas accelerating our innovation pipeline driving earnings expansion.
And returning capital to shareholders at an accelerated rate.
With that Dan will now cover the financial results and our outlook for the first quarter of 2023.
Thanks, Rob and good morning, everyone. Our detailed financial results begin on page 13 of the presentation.
I'll begin with details fourth quarter results, then move to full year 2022 highlights and wrap up with our outlook for the first quarter of 2023.
As a reminder, we shipped our final quarter in our Japan operation in September 2022.
Any growth rates I provide today will exclude Japan or to provide a better understanding of the organic change. Please refer to the accompanying slide presentation and the financial tables in our earnings press release for additional detail.
Fourth quarter revenue of $115 6 million was just above our guidance range and represents a 1% decrease year over year in constant currencies and excluding Japan.
I just had a very strong fourth quarter generating $14 8 million of revenue in the fourth quarter, representing year over year growth of 49, 6% or 56, 5% in constant currencies.
Fourth quarter revenue by region as summarized on slide 16.
In the Americas fourth quarter revenue decreased five 8% year over year, primarily due to weakness in injection molding parts orders.
In Europe fourth quarter revenue grew 19, 9% year over year in constant currency driven by strong growth in our European CNC machining and three D printing services.
Additionally to revenue by service.
Fourth quarter injection molding revenue declined approximately 12% year over year in constant currencies and excluding Japan.
Fourth quarter CNC machining revenue grew double digits year over year in constant currencies, and excluding Japan, driven by outperformance in our longer lead time offerings fulfilled via both the internal digital factory and the digital network.
Fourth quarter three D printing grew eight 2% year over year in constant currencies.
Sheet metal revenue declined 25% year over year.
We served 22205 unique product developers in the fourth quarter.
Excluding Japan unique product developers served decreased one 1% can measure it with revenue.
Turning to slide 20, and our detailed income statement.
Overall fourth quarter non-GAAP gross margin decreased 200 basis points sequentially to 42, 8%.
The sequential gross margin change was primarily driven by lower volume.
As well as continued growth in our longer lead time network and factory offerings.
Hubs gross margin in the fourth quarter was 25, 4%.
Total non-GAAP operating expenses were $42 $3 million in the quarter or 36, 6% of revenue compared to $40 9 million or 33, 6% of revenue in the third quarter of 2022.
The sequential increase in operating expenses was driven by a third quarter $1 2 million one time gain on the sale of a building and.
And continued investment at hubs.
Regarding the closure of our Japan business.
We continue to incur expenses associated with the shutdown the Japan business closure resulted in $534000 and GAAP operating expenses during the fourth quarter.
Insistent with the prior quarter. These expenses have been excluded from our non-GAAP financial results to enable clean comparisons to prior and future periods.
Moving to taxes, our non-GAAP effective tax rate in the fourth quarter was one 6% compared to 22, 4% in the third quarter.
The lower fourth quarter non-GAAP effective tax rate was driven by the release of an accrual for an uncertain tax position that was resolved in November .
Fourth quarter non-GAAP diluted net income per share was 20 success compared to <unk> 40 in the prior quarter due to lower volume lower internal manufacturing gross margins increased investment in hubs and the onetime gain on the sale of a facility in the third quarter.
Transitioning to cash flow and balance sheet highlights on slide 21.
We generated $10 5 million in cash from operations in the fourth quarter, we repurchased $16 6 million in shares during the quarter as we continue to purchase Opportunistically and.
In addition, our fourth quarter GAAP financial results included a noncash goodwill impairment charge of $118 million as a result of our annual impairment analysis, primarily driven by rising interest rates.
Challenging macroeconomic conditions and cost pressures in our global operations from inflation.
The impairment is solely an accounting charge and has no impact on <unk> cash position or liquidity. Therefore, it has been excluded from our non-GAAP financials.
Shifting to full year 2022 financial highlights beginning on slide 22.
Our full year revenue grew 3% over 2021 in constant currencies and excluding Japan.
Excluding the impact of foreign currencies in Japan, CNC machining grew approximately 18% three D printing grew approximately 12% our hubs business had a fantastic year generating $48 5 million in revenue representing over 50% growth in constant currencies.
Full year 2022, non-GAAP diluted net income per share was $1 50 compared to $1 55.
In 2021.
Lower gross margin in 2022 was partially offset by lower operating expenses.
On December 31, 2022, we had $106 $5 million of cash and investments on our balance sheet and zero debt.
Now I'll provide our outlook for the first quarter of 2023 as outlined on slide 31.
We expect to generate revenue between 114 and $122 million in the first quarter. This guidance incorporates January performance and typical seasonality patterns.
The closure of our Japan operations is expected to have a $4 1 million negative year over year impact on our revenue growth.
We expect foreign currency to have approximately $2 2 million unfavorable impact on revenue compared to the first quarter of 2022.
Moving to earnings guidance.
We anticipate non-GAAP add backs in the first quarter to include stock based compensation expense.
Of approximately $4 1 million in amortization expense of $1 5 million.
We currently estimate our first our first quarter non-GAAP effective tax rate will be between 21% and 22% in the first quarter up from one 6% in the fourth quarter. This sequential tax rate increase represents a <unk> <unk> per share negative impact to non-GAAP .
Earnings per share.
In summary, we expect first quarter non-GAAP EPS between 18.
And 2006.
Now back to Rob for closing comments.
Thanks, Dan.
On our fourth quarter call, we normally reflect on our accomplishments in the prior year.
However, I believe more importantly, this is a great time to look forward and focus on the opportunities ahead of US we have sharpened our focus on two clear priority areas for growth for 2023.
We've accelerated our innovation pipeline and we're committed to earnings expansion our.
Our business model is profitable and our balance sheet is strong.
<unk> is poised for strong and sustained financial performance, which will drive long term value creation for our shareholders.
That concludes our prepared remarks.
We'll be happy to take your questions.
Thank you we will now be conducting a question and answer session. We would like to ask a question. Please press star one on your telephone keypad.
Confirmation tone will indicate your line is in the question queue. You May Press Star two if you would like to remove your question from the queue for participants using speaker equipment. It may be necessary to pick up your handset before pressing discharged.
One moment, please while we poll for your questions.
Yes.
Our first question is coming from the line of Brian Drab with William Blair. Please proceed with your question.
Hi, good morning, Thanks for taking my question.
Good morning, Brian good.
Good morning.
First maybe just on the guidance.
It looks like the revenue.
Guidance is quite solid and I'm wondering if you could comment on on what you've seen here in the first 40 days or so of the year.
Yes.
Our typical season.
Pattern Brian is.
How fast do our customers come back from the holidays.
And obviously the guidance reflects it.
It was fairly solid in January .
In terms of it was not a slower pattern.
Then some years so customers came back solidly in January and.
That's what's reflected in the guidance.
Okay. Thanks, and then.
The injection molding business.
It has been declining, especially sequentially in the last two quarters can you talk about.
Number one you know.
And that turnaround and what does it take to do that and you know.
What do you need to correct, what what's been going wrong there.
Then.
Number two.
You know what have you seen in the injection molding business specifically to start 2023.
Sure so.
Yeah, our injection molding business to think about it in two ways right. We've got the malls that we make and then the subsequent parts of the production business that comes off of those malls.
As we as we've talked about in the past our molded parts businesses is the most cyclical of the businesses that we have that we've seen.
Some some headwinds in the math in that portion of the business.
In this economy.
<unk> and <unk>.
So we talked about on last quarter's call.
We're hearing customers, who had excess inventories from large orders that they placed earlier due to the supply chain disruption. So that's what we're working to overcome right now.
And the best way that we can drive parts businesses by driving molds and new molds with.
With customers.
So I'm pleased to say that we're starting to see positive momentum there.
And some growth in malls, and we're leaning into that with all the new.
Capabilities that I talked about on the call we're expanding the speed of our offerings. We've got seven day standard lead times now for molds, which is twice as fast as our standard lead times.
We're before so we're able to serve our customers have prototyping quick term needs much more effectively.
Effectively that Denny.
Never before in.
We were already the fastest in the market we're leaning into that we're even faster but in addition, we're leaning in on production through.
Quality reporting capabilities and also through cross selling and.
And making.
Our offerings available through hubs and so as a result, just like.
We're building the most comprehensive CNC service.
Right through the combination of the digital factory in the network through hubs, we're really taking that same strategy to injection molding and greatly expanding our capabilities to drive our mold sales, which will then drive injection molding overall and we expect growth this year in injection molding.
Okay. Thank you very much I'll leave it at two questions from known names Panther.
Thanks, Brian .
Thank you. Our next question is coming from the line of Jim Ricchiuti with Needham. Please proceed with your question.
Hi, Good morning, I wanted to go back to some of the commentary that you made about <unk>.
<unk> from some of the lower priority areas.
If you could.
Give us a sense as to how much of a drag on profitability. Some of these lower prior priority areas have been over the past year.
Yes, so just to clarify.
Okay.
Last year.
We grew if you exclude injection molding, we grew double digit.
All of our across our other services and so the focus is in our two biggest areas injection molding being our biggest service right. We're really focused on driving growth there as we drive growth there the whole business benefits us our second biggest services CMC and while there.
It's growing well, we believe we have a tremendous opportunity with our comprehensive offering to make that grow even better. So our focus is on those two largest services.
It doesn't mean that we're not making investments in our other services, we are but but we're reallocating.
Differentially to drive our two biggest services, which are also are among our higher margin businesses.
And through the combination of those two.
Able to drive both revenue growth and margin expansion in the business. So that's the strategy.
One other thing I would stay tuned is the point of focusing investment is.
If we're not putting more resources to our higher margin higher growth larger opportunity area.
We're losing an opportunity there.
So.
As Rob laid out in the call returning injection molding to growth.
Staying on the combined offer within CMP.
We see as some of our highest potential areas and where we're focusing.
Yeah.
Got it.
I Wonder if you can provide.
Some color on where the production parts business may be.
In terms of what you've talked about the last couple of quarters customers rebalancing their inventories.
Where are we in that process do you think.
Yes.
So.
I think that we're making progress there.
But it's.
It's paced right, we're seeing some improvements.
In the macro economy, and as I said, we're seeing.
Some some growth.
Starting in molds.
I feel like these things are improving but the.
These are I mean molding.
Especially production cars coming off of malls are some of our longest lead time.
Kind of offerings and so.
That's why it's taken I think a few quarters.
And then last question that you've seen.
Determined.
And I think with the growth that you are trying to push into the injection molding business getting that back on that.
Our growth path, obviously than we are.
The macro plays into that and.
Is there any.
So you can give us in terms of what youre seeing in some of the larger markets. Thus far this year. It sounds like you've got you've gotten off to a reasonably good start.
In January but just more broadly as youre thinking about some of the end markets and what gives you the confidence that business grows for the year.
Yes.
So Jim I'll.
I'll take this one.
One thing that we saw.
And I, probably should have mentioned this in Brian's question.
No.
We ended up on the high end of our guidance range in the fourth quarter and one of the reasons that that occurred was our market within Europe .
No.
We have seen a source.
October within Europe , and then we saw strengthening in November and December and Europe has started off the year nicely right.
And in Q1.
Okay, So Brian we've seen.
Good start to the year from a from a January perspective, and that would be I would say bolt in Europe . Both in the U S. We've seen we've seen a good start to the year.
And in terms of parts and end markets right.
For sure as we've shown over the last couple of years. We are we are impacted by the macro. However, we're taking some of this into our own hands and you can see that with the offers that we're launching.
Within injection molding, a seven day standard lead time offer and we have a different pricing that would that we're launching out within injection molding as well. So part of this is yes. There is a macro story here, but part of it is taking this thing.
Under our own control as well and putting things out there that will help grow the business.
Okay.
Got it thanks very much.
Thank you. Our next question is coming from the line of Greg Palm with Craig Hallum. Please proceed with your questions.
Hey, good morning, everyone. Thanks for taking the questions maybe.
Maybe I wanted to start with with margins and kind of be.
The outlook on gross margins going forward, what's your expectation as you know more of the business continues to make.
Mix shift towards lower margin hubs is the expectation that I don't know maybe it maybe just give us some sense of the gross margin outlook for Q1, specifically and thoughts on the full year, if you kind of as well.
Yes, I would say so thoughts on on Q1.
Margins should be flat to slightly up going into <unk>.
Q1, and that's going to be based on volume really are our margin dropped within last year. It was two things one was the lower margin within.
Injection molding and it was also.
Hubs.
And some of our network and longer lead time offers.
Knowing at a faster rate than what our.
Internal manufacturing is.
I would expect.
Throughout the year, our margin story will greatly depend on that growth within the volume right.
And also.
Depending on the mix that we have moving forward of what comes through the network and what comes through.
Our internal manufacturing.
We internally.
<unk> plans and you can see in some of our releases to grow in both right. So that both were growing both injection molding and growing the network.
But.
We're going to see how.
The year plays out in terms of what our customer responses to those things.
And what is driven from a volume and a mix perspective.
And.
With hub specific is there room to expand the margin from these current levels I mean, you've seen a nice revenue increase the last couple of quarters, but margins have actually come down there.
Yes so.
I think there was a slight decrease in margin from Q3 to Q4 within the hubs business, but.
Yes.
We didn't see anything.
That was alarming I mean, we saw in terms of.
What was going on with our NPS and so forth we saw.
Nothing that was kind of out of the ordinary.
We see room for margin expansion within hubs.
And part of that is pricing more efficiently as you get more and more volume and more and more uploads into your system and the.
The math the algorithms and.
Pricing more and more efficiently.
For park.
Such that Youre seeing some margin improvement so I would still hold to our targeted margin range for the hubs business being 25% to 30%.
Okay, Perfect and then I guess just last one on the <unk>.
The growth outlook.
Okay.
Relative to the current level of injection molding.
Growth in 'twenty, three implies a pretty significant.
Tick up versus the run rate here in Q4. So I just wanted to maybe have you focus a little bit on what gives you confidence that you know.
In light of everything outside your control that.
It's going to really I mean, it implies a pretty significant acceleration as we go through the year there just to be clear.
<unk> talked a lot about injection molding growth, but.
Is the assumption that CNC is going to grow as well for the year.
It is it is so.
Yes, So remember we had strong growth last year and every service, but I am as we start this year.
We're seeing growth in and a lot of areas, we had really strong growth in Europe and.
And we're making focused investments to drive growth in injection molding and to even further accelerate growth in C&C by bringing these comprehensive offers to the market.
So we're driving everything that we have control over to really ensure that we're able to drive that level of growth.
The other thing I would say Greg.
We have plans in place and we're executing on those plans to grow the injection molding business.
You can see over the last few years.
Were impacted especially in that business by different changes from a macro perspective. So yes, there is macro uncertainty.
Into 2023 for sure I think what we're saying is as you can see with some of the offer launches that we're doing we're targeting for that business to grow.
Okay fair enough. Thanks for the time.
Thank you.
Thank you. Our next question is coming from the line of Troy Jensen with Lake Street Capital markets. Please proceed with your question.
Hey, gentlemen, congrats on the nice results.
First Daniel I, just wanted to ask you a little bit just love to get your confidence on just gross margins I know you said flat.
Slightly up.
But revenues are kind of just up slightly and most of the growth is coming from hubs should we get more gross margin dilution on that.
Yes.
Can you give us any more detail on that.
Yes so.
A couple of things.
One we.
From from Q4 to Q1.
We do have some pricing that we've put in place from Q4 to Q1.
Hi.
We will depending on how the rest of the quarter comes in there is potential risk of higher mix into the lower margin areas, which is why I'm, saying.
Flat to only slightly up.
Okay, all right that's fine thank you.
How about for you.
Thinking back as long as I've known you guys I've always said this.
Expedite service.
Is that if you think about now versus kind of maybe two years back and you talk about how quickly you guys turning molto there.
Has it been more of a trend towards longer lead times on the Molson.
Lastly, the short time higher margin business.
Yes.
Yes, so I think in general the expedite business.
A portion of the business moves.
The macro and strong economies when theres, a lot of innovation and paces faster for our customers, we definitely see more.
Right, right, which come with higher margin.
Slower economies that that lessons so.
That's correct.
Interpretation Troy.
Let's see what's the quickest small time for you guys.
Well that are quickest standard a quick as standard of seven days, but we will expedite to next day to one day.
You can do to Epsilon.
Depending on complexity.
Yes exactly.
How about yes, and then last question.
You talked about extra services too.
Just curious are you talking like Mark ups access cutting any talking about pleading coding is that Seth you guys want to do internally or is that something thats going to be offered.
The channel to have spreads.
So yes. So right now those are those are capabilities that we have made available through the manufacturing partner network.
Over time.
As we continue with our innovation pipeline, we evaluate.
<unk>, which of those we might.
Bring into the factory and thus make them available at the faster lead times, but we would still have some available through the network at the longer lead times.
Okay.
Guys, well, congrats again and good luck.
Thanks, a lot.
Yes.
Thank you. Our next question is coming from the line of Ben Rose Battle Road Research. Please proceed with your question.
Yes, hi, and good hi, good morning.
Couple of questions.
You know Rob you had mentioned last time.
The company was focused on getting the word out.
To your existing customer base about your ability.
Two.
Compete for some of these longer lead time orders on the injection molding side, where do you think you are in terms of customer understanding that you can actually compete for these longer lead time orders.
So our sales teams have been very focused on that.
And aggressively going after it but that said we serve tens of thousands of customers and we've got.
Many many more right that we've served over times and so any kind of.
Significant change to capabilities.
Secondly, our brand right, which was so long known for only the <unk>.
<unk> fastest lead times in the world.
We will take time to fully penetrate the market. So we're starting to see traction now and I expect that to increase as we go forward this year.
Okay and on the <unk>.
<unk> opportunity.
I gather from what Youre, saying the larger opportunity as you move forward.
It is more on.
CNC production parts as opposed to just quick.
Turnaround time on prototypes.
Do I have that right that that is the larger opportunity now in CNC.
So I think the way to think about it is that.
Historically, all we offered was the very fastest lead times.
No.
And so basic.
Basically zero revenue from.
Couple of years ago, we had zero revenue from from anything longer than three or five date machine parts now we've got offers.
That go out to something like 23 day standard lead times for machine parts and so all of that is starting from.
Very low numbers and so we're seeing very strong growth there.
I also believe that in this macro economy that is the area of stronger demand.
Right now so our strategy is to be able to have the whole comprehensive offer from.
Same day, all the way through to 23 days and so forth such that whatever the customers' use cases or whatever their needs are we can serve that and grow.
In whatever part of the economy is strongest at that time.
Okay. That's helpful and finally with regard to.
Yes.
What are the things you also mentioned last quarter was this notion that.
Many industries were showing a lack of urgency in terms of.
New product development projects and so forth. It does sound like you've gotten off to a strong start this year are there any vertical.
Convention that stand out that seem to be moving forward more rapidly in terms of their own new product development.
Yes, I think <unk>.
Aerospace is one that was strong for us in the fourth quarter debt.
That stuck out, particularly I think that'd probably be the one I would highlight for you.
Okay.
Alright, thanks very much.
Thank you.
Thank you there are no further questions at this time and with that this does conclude today's teleconference. We do appreciate your participation you.
You may disconnect your lines at this time and enjoy your weekend.