Q3 2023 Proto Labs Inc Earnings Call
Breathing spoken to probably doesn't have the third quarter fiscal year 'twenty 'twenty earnings call. At this time, all participants are in a unless you'd only mode. A question and answer session will follow the farm up his intuition if anyone should require operator assistance during the conference. Please press star zero on your telephone keypad. Please.
This conference is being recorded.
I will now turn the conference over to Jason Franklin, Vice President and corporate controller. Thank you you may begin.
Thank you Sherry and welcome everyone to Proto Labs third quarter 2023 earnings conference call I'm joined today by Rob door, 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 third quarter ended September 32023. The releases are available on the company's web site in.
In addition, a prepared slide presentation is available online at the web address provided in our press release our.
Our discussion today will include statements relating to future performance and expectations that are or may be 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 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 Robert or Rob.
Thanks, Jason Good morning, everyone and thank you for joining our third quarter earnings call.
Proto labs had an excellent third quarter from a financial perspective, I'm very pleased with our results, which surpassed our expectations on the top and bottom line.
In the third quarter, we generated record revenue improve profitability generated substantial cash flow and return capital to shareholders.
We reported revenue of $131 million, the highest quarterly revenue figure and Proto labs 24 year history.
Revenue was up broadly both year over year and sequentially across injection molding CNC machining and three D printing.
Along with record total revenue network revenue in the third quarter was a record $23 million growing over 80% year over year in constant currencies.
Our digital network powered by hubs continues to take share in the market and an outstanding pace.
Our digital factory business fulfilled through our internal factories rebounded nicely from the second quarter with sequential growth, we continued to accelerate innovation for customers with the fastest and most reliable lead times in the industry.
Our strategy is working and record revenue in an uncertain macro climate demonstrates this.
Proto labs is becoming a one stop shop for custom prototypes and low volume production parts.
As we integrate the factory in network offers we continue to realize significant value from the hubs acquisition.
Our comprehensive offer through the digital factory and the digital network continues to resonate with customers, we're increasingly adopting it.
This is clear to us as a significant portion of third quarter network growth was driven by Proto labs customers.
Okay.
We serve the largest customer base in our industry.
In the third quarter alone over 23000 unique design engineers and production buyers ordered parts controllers.
While we have the scale infrastructure and automation to serve all of these customers. A notable portion of our third quarter revenue growth was from larger strategic customers.
These customers are taking advantage of our comprehensive offer.
Filled through the combined digital factory and additional network.
This unique hybrid offer unlocks our ability to go deeper with customers and serve them more strategically.
Spanning our share of wallet.
From prototyping to production.
Delivery overnight to over time and from quantity wanted to quantity 1 million, we can serve customers needs better than any other company in our industry.
In addition to reporting record revenue.
We also further improved our industry leading profitability.
Third quarter earnings per share increased both year over year and quarter over quarter.
We generated our highest quarterly non-GAAP EPS in three years.
Earnings outperformance was largely driven by higher volume and improved gross margins in both the digital factory and the digital network, which resulted in prolapse highest quarterly consolidated gross profit dollars since 2019.
Third quarter network gross margin was also a record and we have now expanded.
Consolidated gross margin and operating margin for three consecutive quarters.
We're not just talking about profitable growth, but we've been executing on it.
Expanding profit allows us to drive investments in innovation and improvements to our customer offer.
During the third quarter, we received external recognition for one such innovation.
Our instant design for additive manufacturer ability analysis tool.
This proprietary software provides customers with rich design for manufacture ability feedback to help them design. The best three D printed parts and it does so instantly.
For this innovation from labs, one of 2023 idea award there's an award presented by several industry publications that recognizes the best new product innovations of 2023.
This is another example of how our commitment to innovation helps us maintain our position as industry leader.
While our offer continues to delight customers and the broader economic environment is still uncertain Manny.
Manufacturing conditions in the U S and Europe remained soft and have not consistently improved throughout 2023.
Yes, we grew in the quarter, especially our digital manufacturing network business with year over year growth of over 80%.
Proto labs offers the most comprehensive digital manufacturing service in the world in terms of pricing lead time options and part envelope. Our combined factory in network model as effective as you can see in our financial results.
And it resonates with our customers, which I'd like to highlight a few tangible examples of how customers are driving value out of sourcing prototypes and low volume production parts from total apps through the factory in the network.
And my first example, a fortune 500 medical companies production vendor had a wind down situation and could not deliver time sensitive components.
Leaving a large gap in delivery and use equipment for surgical rooms.
Because of this medical company is irregular customer Proto labs in injection molding.
And is familiar with our speed and reliability.
They turned to Proto labs to help solve this issue.
The customer initially leveraged our digital factory, that's world class lead times for CNC machine parts.
Proto labs has always been a great candidate for wind down situations due to the industry best lead times and on demand production that our digital factory before it.
However, prior to the establishment of the digital network.
Production in these types of situations would often shift away from Proto labs as volumes increased.
That is no longer the case because of the digital network.
Through the network, we were able to support production for the medical customer and delivered over $500000 in production grade and use components over the course of a few months.
The combination of the factory and network capabilities provided immense value, enabling this fortune 500 medical customer to avoid an extended production shut down.
Having them significant time and money.
In addition to increasing number of customers using the combination of the factory in the network for less also continues to accelerate innovation through our digital factory.
As the industry leader, we are called upon.
Why the most innovative companies in the world to help develop next generation products.
Recently, a luxury high end automotive manufacturer selected Proto labs to assist with its first foray into the electric vehicle market.
For labs work with Hutchinson, a multinational design firm and manufacturer to prototype the battery pack cooling system for the luxury automakers first electric vehicles, we rapidly manufactured injection molded parts, which met stringent project timelines and quality standards.
Utilizing our speed reliability and quality, we deliver parts to specification for testing and to be mounted on the electric Supercars prototypes.
Reducing validation and testing times and accelerating their innovation.
This is the power of Proto labs and illustrates why we are often the partner of choice wherever innovation is happening.
Now for a brief update on our 2023 priority areas as we approach the end of the year.
As a reminder, our 2023 priorities are first.
To drive revenue growth, particularly in our largest services injection molding and CNC machining and second.
To increase shareholder value through expanding profitability in the factory in the network.
We are successfully delivering on both priorities.
Revenue growth and profitability.
Starting with revenue.
At the beginning of this year, we stated that our goal for injection molding was to grow 2023 revenue year over year.
Year to date I am revenue was up organically and we believe we will achieve our goal for the full year.
We continue to win more injection molding orders that leverage both factory and network fulfillment. Additionally.
Additionally, we are winning larger orders demonstrating our expansion into more production use cases.
CNC machining is also up year to date.
Like injection molding, we expect our CNC machining service to achieve revenue growth for the full year over 2022.
Third quarter revenue through our digital factory grew sequentially as more customers took advantage of our world class reliability and the fastest lead times in our industry.
Meanwhile, third quarter CNC machining revenue via the digital network grew over 85% year over year.
Highlighting the effectiveness of the combined model.
And the value of Proto labs customers get from our broad offerings fulfill through the network.
We have also delivered on our profitability priority in the third quarter, we exhibited.
Our robust earnings power of our business model.
Even in an uncertain macro climate, we expanded profitability.
Margin expansion in both the digital factory and the digital network were the result of solid execution by controlling our cost structure and gaining efficiencies and leverage.
Fulfilling increasing demand.
In addition, we continue to invest in our executive leadership team.
I am excited to have Agnes hemmingsen join our team as our new Chief Human Resources Officer.
<unk> has extensive experience in human resources leadership across manufacturing and digital companies and will guide our HR team and strategy as we continue to make Proto labs, a great place to work.
I'd like to thank all Proto labs employees for their contribution thus far in 2023.
The efforts and commitment of our employees enable us to continue to succeed and grow profitably.
In summary.
<unk> combination of factory network offers has enabled us to outperform peers in the current environment and we believe we will outgrow the market over the long term.
Third quarter revenue growth was broad based including sequential and year over year growth in our three largest services for many different customers, we are well positioned to weather economic volatility to our best in class profitability and strong cash flow generation.
We will continue to reinvest profits into the business as we seek to further expand our offer and capture additional share of wallet.
In the third quarter, we generated record revenue improve profitability generate a substantial cash flow and return capital to investors.
Okay.
We are great long term strategic partner for our customers and believe we will deliver value for shareholders over the long term.
Dan will now provide additional financial detail on our third quarter results as well as our outlook for the fourth quarter of 2023.
Dan Thanks, Rob and good morning, everyone.
Before I begin I would like to remind you all that we made the strategic decision to exit our Japanese operations last year. In September 2022 was the last month in which we generated revenue in Japan as such this will be the last quarter of year over year comparisons excluding Japan.
Our financial results begin on page 11 of the slide presentation.
Third quarter total revenue came in at $130 7 million up seven 1% year over year in constant currencies and excluding Japan.
Revenue exceeded our guidance range to due to a pickup in order trends. After the first few weeks of July that continued through the end of the quarter.
Revenue fulfilled through our digital network of manufacturing partners was $22 6 million in the third quarter a record for the network business and up 81, 2% in constant currencies.
Our network offer with its broad range of manufacturing capabilities and lead times continues to gain share even in uncertain macroeconomic conditions.
Changes in foreign currency represented a $1 $7 million favorable impact to revenue in the third quarter in line with our expectations Rev.
Our revenue by region as summarized on slide 12 in the Americas revenue grew 5% year over year and Europe third quarter revenue grew 16, 9% year over year in constant currencies.
Looking at revenue by service.
CNC machining grew 11% year over year in constant currencies, and excluding Japan, driven by continued growth through our integrated CNC offer.
Injection molding revenue grew approximately 6% year over year in constant currencies and excluding Japan the.
The increase was largely due to higher orders for follow on parts.
Based on part orders increased as customers still take advantage of our best in class lead times and reliability and uncertainty economic conditions.
Third quarter three D printing revenue grew 7% year over year in constant currency.
Sheet metal revenue declined 18% year over year in constant currencies in the third quarter.
As Youll recall, our sheet metal service experience revenue headwinds earlier in the year.
In response, we furloughed, 25% of our sheet metal work force in the second quarter, we saw signs of improvement in the third quarter.
Revenue increased 9% sequentially.
We serve 23080 unique product developers in the third quarter, a decrease of three 1% year over year.
As Rob mentioned, our unique hybrid offer allows us to go deeper with customers and serve them more strategically expand share of wallet and grow our overall revenue.
Turning to slide 18, and our detailed income statement overall third quarter non-GAAP gross margin increased 190 basis points sequentially to 46%.
This is the second this is the third consecutive quarter.
Sequential gross margin expansion.
Both factory and network gross margins expanded over the second quarter.
On the digital factory side sequential gross margin improvement was driven mainly by higher volume labor efficiencies and continued investments and increased automation.
Our manufacturing.
So the teams manage cost to volume levels, well in the third quarter, including flexing overtime and contractors as needed while maintaining our industry best lead times.
On the network side third quarter gross margin increased to a record 33, 7%.
From 31, 2% in the second quarter of 2023 throughout 2023, we have continued to refine our network sourcing and pricing algorithms.
Our long term target for network gross margin, it's still between 25% 30%.
Turning to operating expenses total non-GAAP selling general and administrative expenses were $43 7 million in the quarter or <unk> 33, 5% of revenue compared to $43 1 million or 35, 2% of revenue in the second quarter of 2023.
Improved operating expense leverage sequentially was driven by efficiencies on higher volume as well as continued focused cost containment efforts, partially offset by higher incentive compensation.
Moving to taxes.
Our non-GAAP effective tax rate in the third quarter was 25% compared to 25, 2% in the second quarter. The sequential decrease in our non-GAAP effective tax rate, which was primarily due to an improvement in earnings and our tax jurisdictions that are fully reserved for net operating loss.
Third quarter non-GAAP dilutive net income per share was <unk> 51.
Compared to 33 and.
In the second quarter of 2023.
The sequential earnings per share consistent of a few items.
First higher value add revenue was up $8 4 million quarter over quarter.
With our profit model, we get significant leverage on increased volume, especially in the digital factory.
Yeah.
The remaining increase was driven by a number of items, including a lower effective tax rate and higher interest income.
Moving to cash flow and balance sheet highlights on slide 19, we generated $24 2 million in cash from operations in the quarter up from $9 3 million in the prior quarter, our business exhibit very strong cash flow generation in any economic climate, allowing us to invest in future.
Your growth and return capital to shareholders through share repurchases and.
In the third quarter, we repurchased $9 million of common shares and we will continue to purchase opportunistically going forward.
Our balance sheet is still very strong on September 32023, we had $114 9 million of cash and investments on our balance sheet and zero debt.
Turning now to our forward looking guidance, which is outlined on slide 21, we.
We expect to generate fourth quarter revenue of between 118 and $126 million at the midpoint. This implies 5% revenue growth year over year in constant currencies.
The fourth quarter of any calendar year, it's difficult to forecast because of the impact of the holiday season.
This revenue guidance takes into account quarter to date order trends as well as our best estimate of the impact of seasonality in the fourth quarter.
We expect foreign currency to have between a <unk> five and $1 million favorable impact on revenue compared to the fourth quarter of 2022.
Moving to earnings guidance, we anticipate non-GAAP add backs in the fourth quarter to include stock based compensation of approximately $4 5 million and amortization expense of $1 5 million.
We currently estimate our fourth quarter non-GAAP effective tax rate will be between 19 and 20%.
Considering this we expect fourth quarter non-GAAP earnings per share between 26 and <unk> 34.
Now back to Rob for closing comments.
Thanks, Dan.
Our third quarter growth, including record total revenue and record network revenue is evidence that our unique combined offer is gaining significant traction in the market.
In addition, gross and operating margins improved sequentially for the third consecutive quarter.
Proto labs is the most profitable and cash flow positive.
And digital manufacturing.
We are focused on executing successfully on our 2023 priorities and driving toward our long term strategy, which creates shareholder value.
Thank you.
Yes.
Yes.
And we are ready for your questions.
Yes.
Great.
To ask a question. Please press star one on your telephone keypad.
<unk> tone will indicate your line is in the question queue. You May press star two if he would like to remove your question from the queue for participants using speaker equipment and may be necessary to pick up here handset before pressing the star keys. Our first question is from James Ricchiuti with Needham <unk> Company. Please proceed.
Hi, good morning congratulations.
Patients by the way on the quarter.
First question is just regarding the guidance and just maybe just simply be a function of the Q3.
Being stronger, but yes, we look at the seasonality and I'm talking sequentially.
The decline it appears at.
At the midpoint of your Q4 guidance, it's a little bit more of a sequential decline than we'd seen in prior years and I Wonder if you could speak to that and then I've got a follow up question. Thanks.
Yes on that I think what we're seeing.
At least from.
From the order trends early in October that.
CNC did not start the quarter as strong as it did.
As the <unk>.
Rates, we were seeing in.
Last quarter and that's why we adjusted the guidance, where it was which is I agree with you Jim it's a little bit softer than our normal seasonality dip third quarter to the fourth quarter.
Got it.
You talked a little bit about that.
Inroads that you've been making in with larger strategic customers and I'm wondering if you might expand on that.
These are existing customers, presumably that youre going deeper into can you talk about the types of customers and you know why do you think you've been a little bit more successful than perhaps in the past.
Yes, sure happy to do that thank you for the question so.
Our in our top we have the kind of top five segments or industries, right, where we serve customers.
Medical computer electronics, automotive aerospace and industrial equipment.
In in those.
The industries, we serve many of the most innovative companies in those industries we.
We serve 85% of the Fortune 500 companies in those industries, so and some of them. We've served for two decades right. So.
Large strategic customers have always been part of the mix for Proto labs.
But over that period of time, we've often heard from customers that while they are happy with our services they want to use us more comprehensively in different use cases.
It just didn't prototyping, but in production opportunities and so forth and so that's been really core to our strategy over.
Over the last several years is to expand our capabilities in order to be able to serve them in those <unk>.
<unk> settings and to serve them more holistically and therefore more as a strategic partner.
And I think this quarter we.
We've seen.
Some good traction in that over the last several quarters, you've heard use cases that we've shared on the earnings calls with customers as there is they're using us in those ways.
And this quarter, we saw our average order values increase.
Across both the network and the factory so investments that we've been making in the factory to expand our capabilities as well as our progress we've made in getting our customers to adopt and see the value of our offerings in the network.
Have all.
<unk> been gaining traction for us. So we saw it increase at larger production orders from those customers and larger orders really across the board in multiple services. So very pleased with our with this kind of evidenced that the strategy is gaining traction this quarter.
Got it and just one quick follow up you may have given this in the.
Your presentation could you say, what the hubs gross margin wise.
Yes, we did it is.
There are three.
33, 7% alright.
Alright, thank you.
Yeah.
Okay.
Our next question is from Greg Palm with Craig Hallum Capital Group. Please proceed.
Yeah. Good morning, everyone. Thanks for.
Taking the questions and congrats on the progress here I guess, just maybe following up on that.
Recent question you know why the success now with some of these bigger customers and wallet share expansion opportunities or are you doing anything different internally, that's allowing you to win more share I'm just sort of curious to kind of hear your thoughts on the evolution of some of those wins.
Sure well.
<unk>.
<unk> continues to drive expansion.
We continue to invest in our sales force as well in.
In the Americas.
Invested in a new sales leader.
And.
I think all of those things as we've been rolling out more and more of these capabilities.
And.
And engaging our customers with our broader offerings.
We saw a particularly nice uptick in our in the take rate in the quarter as a result of that.
Okay.
And is it across sort of all offerings, you know injection molding CNC three D printing does it more concentrated with a specific service.
So I think we saw growth pretty broadly across multiple services.
And I would say that.
It was more in kind of larger production orders and <unk>.
Longer lead time offerings, where we saw the most growth.
Okay, and then just wanted to follow up once on the on the guidance.
Because it is a.
Significantly not significantly, but it is quite a bit more of a seasonal decline in Q4 is as Jim had had stated but are you able to maybe quantify order rates.
October versus what Youre seeing in <unk>.
What you saw in Q3 and is there any sort of added level of conservative based on what you're seeing in October just wanted to clear that up.
Okay.
Yes, no I mean, we're using are similar.
Similar model that we're looking at I mean, the challenge Greg right now is.
The macro backdrop, and what is going to happen during the holiday season, which is which is pretty uncertain, but as I said earlier.
Think the the thing that the only thing that has changed from an order rate perspective, maybe Q3 and Q4 is that.
CNC was a touch softer to start October.
Which is why.
Why is that the guide where it was using kind of our order trend in our seasonality model.
Okay fair enough I'll leave it there thanks.
Yes.
Our next question is from Brian Drab with William Blair. Please proceed.
Hi, good morning, Thanks for taking my questions and shockingly. Good result in a tough environment. So congratulations thanks, Brian.
Can you comment a little bit further on the gross margin trajectory hubs had such a strong quarter in terms of gross margin does that moderate if it sounds like you. You did you did reiterate the longer term guidance for that to be.
Lower than what you did in the third quarter.
How does that looking into the fourth quarter and beyond and then also I guess with.
Slowing down a little bit there is some.
Deleveraging in the fourth quarter.
So just some comments on gross margin please.
So from the hubs gross margin perspective.
We really kind of made the changes coming out of Q1, which is where we saw a higher gross margin than the range in Q2 and Q3.
And to be honest, we want to see.
How we can continually evolve that model.
In different macro markets before we we changed that range as of now right. So.
It is we are very pleased with the results from from what we've had adjusted there.
I would think we should see something similar.
In the fourth quarter.
For for that margin, but like I said, I think we want to see in different.
Macro conditions and so forth that we can continue to maintain that margin before we would adjust the range.
Youre right on.
The factory side.
There's a lot of inefficiency that happens within the factory around the holiday period right. So we've got.
People, taking holidays and vacations, we have to augment that more with <unk>.
Contractors and overtime and so.
We should see the factory margin.
<unk> come down a kitchen in the fourth quarter as it normally does.
Okay. So overall company gross margin down.
Somewhat yes in the fourth quarter sequentially, Okay, yes.
Yes, okay.
Okay.
And then I'll just ask one more question for now I guess the.
The developer count is down a little bit and the revenues up a lot and.
Wondering if you could comment on.
Maybe entering a.
A phase for Proto labs, we're going to see sustained higher revenue per developer and this is obviously a metric that a lot of people are used to.
To build their models around.
Some extent and.
It stepped up significantly revenue per developer right.
Do you expect that to be sustainable.
Yes. Thank you.
I think I think youre right about that I think that the.
The the metric of a number of.
Developers is probably going to be less relevant for us longer term as we go forward because consistent with our strategy.
We are.
Showing signs that we are able to penetrate our customers and increase our average order values with them and so forth and then this quarter even with a.
A modest decrease in that count we were able to grow revenue overall.
You know in the past we were very driven by the product developer count solely given that we were primarily a prototyping company and so those were really our primary customers.
As our strategy of expanding our capabilities, serving our customers more holistically serving them in production use cases, and so forth continues to rollout.
I think we're able to.
Expand expand revenue.
Somewhat independent of that metric, so I think it'll become less and less relevant over time.
Mhm, Okay, alright, thank you very much.
Our next question is from Ben Rose Battle Road Research. Please proceed.
Yes, good good morning, guys.
A few questions.
Okay.
I know that last quarter, you called out some weakness.
In medical devices, and consumer electronics and itself it sounds like those couple of verticals did rebound this quarter.
Is there any commentary you can give as to.
Perhaps why that was the case if in fact that was the case and how sustainable you think that as you know moving into next year.
So.
Ben on the medical side.
Were up quarter over quarter in medical really with some of the strength in injection molding around medical however, it was still down 4%.
Year over year so.
It performed well, but was still slightly declining year over year and computer electronics did not did not improve for us.
Quarter over quarter, but.
Injection molding medical is important to us.
As you can imagine with our quick.
Quick turn business for those in medical that are developing new devices.
We help them succeed at what Theyre doing and bringing.
Those devices to regulatory approval and into production.
Right.
And so just from a from an end market standpoint.
Was was there a relative strength.
Therefore in areas like auto and Aero Aerospace and defense.
Yeah. So the.
Strong industries for us in the quarter were aerospace automotive and in industrial.
Okay.
And Europe was particularly strong in this quarter in contrast to a number of the other manufacturing automation.
Companies that we follow is there any specific commentary you can give as to the <unk>.
<unk> yeah.
Europe's growth is mainly being driven by our <unk>.
Expanded network offer within the region, so that really.
Drove the growth that we saw in Europe.
Okay.
And then.
With regard to the unique developer.
Number in the quarter.
I was curious to know.
Are you or can you size the number of production buyers.
That you had in this quarter, perhaps versus versus last year, and perhaps how that how that number is evolving.
Yes.
We don't we don't have a number on production.
But I would say the indicator ends up being as was discussed earlier your revenue per developers as Bryan talked about so.
As that.
Increases it'll be a sign that we are getting.
More of that production business.
And you can see that in the quarter.
Great.
Okay. Thank you very much.
You bet.
And our next question is a follow up from Jim Ricchiuti with Needham <unk> Company. Please proceed.
Hi, Jeff.
Jamie Erotology apologies, Oh, sorry mute.
You may have touched on this but what I'm struck by is the stronger growth.
Europe over the last several quarters.
Versus North America, that's not to say you didn't show progress in North America, this past quarter, but I'm.
I'm wondering.
Okay.
The next year and I'm not looking for guidance, but where are we.
Is that going to be one of the priorities are.
And potentially a more uniform growth rate between the two made.
Patrick regions.
Do you want to but is there any preview you can give us that possibly what some of the priorities might be looking out to 'twenty 'twenty four.
Yes, So let me answer as it relates to kind of the difference in growth rates and Rob can talk about a bit in terms of priorities.
As you know before we acquired hubs the U S business.
From a manufacturing side is much larger.
In the U S than in Europe, and so the higher growth rates the disparity between the growth rates between the U S and Europe.
Is driven by a higher percent of our Europe business is through the network and that is growing as.
As we've talked about over 80% year over year, and so rubble zone, yes.
Yes sure. Thanks so.
We see both Europe and the Americas was very.
Good long term market for us with strong industrial basis.
And standpoints out the mix is somewhat different in terms of.
Our business in those two regions and of course Europe is.
It's smaller relative to the Americas.
Our objectives are to grow in both regions and and we believe that.
From a long term standpoint, theres similar opportunity there now on the short term.
There is somewhat difference in kind of the macro environments and the two regions and so we're gonna have to kind of manage through that as well in the in the near term.
And then yeah.
Again.
To the extent youre willing to.
There are a couple of months away from the end of the year anything you wanted to.
Possibly lay out there in terms of how youre thinking about some of the priorities looking out for 2020.
<unk> 2004.
Okay.
We are going through our budget cycle right now Jim so.
We're meeting with the businesses on the budget and we're putting those plans together and we'll talk more about our goals for 2024 at the next earnings release.
I understand thank you congrats again.
Thank you Jim.
Our next question is a follow up from Greg Palm with Craig Hallum Capital Group. Please proceed.
Yeah. Thanks, just hopefully a quick one I'm not sure if I missed this but did you comment on the mix of kind of a lower price longer lead time.
Versus you know quick turn I know that was a kind of a trend you are seeing year to date and I'm just curious if anything's changed here in Q3.
Yes, I don't think we are.
Addressed it.
Specifically in the prepared remarks.
We saw.
Increase I would say that that are longer lead time lower priced offerings.
Grew faster than the.
The average right for us in the mix in the quarter right and you can see that because the network offerings, which are mostly in that category grew.
80% or better.
Okay.
I mean in terms of the cars because the gross margin was up quite a bit on the factory side of things. So if it wasn't you know mix was it was it just you know utilization and higher revenue any or any other reason why gross margin was quite a bit stronger than recent quarters.
Yes, so Greg the primary driver really was the pick up quarter over quarter in revenue.
And the leverage that we saw off of that I mean, we were able to.
Do a good job of holding our costs on that revenue pick up in the factory, while still meeting our industry best lead times. So that was the main driver I would say we did see.
More customers in the third quarter are asking for things quickly than we have in the past and those are mainly as Rob talked about some of those strategic cuts.
Customers that use us more holistically.
Throughout the portfolio.
Understood. Okay. Thanks for clarifying that.
Yes.
We have no more questions in the queue that will conclude today's conference you may disconnect. Your lines at this time and thank you for your participation.
Hello.
Okay.