Q3 2024 Proto Labs Inc Earnings Call
Greetings and welcome to the Proto Labs third quarter 2024 earnings call. At this time all participants are in a listen only mode. A question and answer session will follow the form of an institution.
Speaker Change: 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 it is now my pleasure to introduce Gees infrequent corporate control. There. Thank you you may begin.
Speaker Change: Thank you Sherry and welcome everyone to Proto Labs third quarter 2024 earnings conference call.
Gees: I'm joined today by Rob the door, President and Chief Executive Officer, and Dan Schumacher Chief Financial Officer.
Speaker Change: This morning, Proto labs issued a press release announcing its financial results for the third quarter ended September 32020 for.
Speaker Change: The release is available on the company's website.
Speaker Change: In addition, a prepared slide presentation is available online at the web address provided in our press release.
Speaker Change: 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.
Speaker Change: 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.
Speaker Change: The results and guidance, we will discuss include non-GAAP financial measures consistent with our past practice. Please.
Speaker Change: 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 route.
Rob Door: Thanks, Jason Good morning, everyone and thank you for joining our third quarter 2024 earnings call.
We had solid execution in the quarter with results coming in above expectations.
Rob Door: Despite continued dynamic challenges in the manufacturing sector, our disciplined approach and resilient business model drove solid financial and operational results.
Rob Door: Year to date, we have grown non-GAAP earnings per share over 10%.
Rob Door: Additionally, in the third quarter Proto labs generated its highest quarterly operating cash flow since 2020 before the acquisition of three hubs.
Rob Door: This was driven in part by continued gross margin improvements in the factory and the network and is a testament to the profitability of our business model against any macro backdrop, driven by our unique comprehensive fulfillment model.
Rob Door: However, our revenue growth is flat year to date and I believe we can accelerate our growth while continuing to invest in our priorities and execute our strategy under the realigned organizational structure.
Rob Door: As a reminder.
Rob Door: Last quarter, we announced a realignment separating regional go to market teams from our new global fulfillment organization in order to focus our regional teams our customers to drive growth and to enable global efficiencies in fulfillment.
Rob Door: Yeah.
Rob Door: Before expanding on the progress made across our realigned structure I'd like to first cover our strategic priorities.
Rob Door: We have made substantial progress on our 2024 priorities to date.
Rob Door: As previously mentioned, increasing the number of customers using our comprehensive services across factory in network is critical to our growth strategy.
Rob Door: In the last 12 months the number of customers using the combined offer grew 35% year over year.
Rob Door: We are still in the early stages of exposing the full combined offer to customers and this is a huge growth opportunity for Proto labs.
Rob Door: Our other main priority for the year is to increase revenue per customer contacts.
Rob Door: <unk> made great strides here as well.
Rob Door: Year to date revenue per customer for contact is up 5% demonstrating progress on our shift towards higher value production workers.
Rob Door: Let me now bring this progress to life through the following recent examples of how customers and leading industries with high requirement needs are using proto labs for production.
Rob Door: The first example comes from our World class clean energy customer.
Rob Door: That went to market earlier, this year with fully integrated solar and battery system.
Rob Door: But a lot is manufactured and assembled multiple parts in the factory to assist the customers production.
Rob Door: Our World Class manufacturing lead times, and complete assembly help the customer ramp more efficiently than ever.
That's just one way that we went to production.
Rob Door: In another recent case, a high profile medical instrumentation customer relied on Proto labs to solve a key need in their supply chain low to mid volume injection molding production parts.
Rob Door: And this customer's case, we've had a strong relationship for many years supporting early prototypes through three D printing.
Rob Door: Our recent expanded focus on quality and increased inspection capabilities allowed us to win production business with this customer and they were able to benefit from our quality and speed to keep their new product launch timeline intact.
Rob Door: These examples illustrate how our established brand and position in prototyping enable us to grow in production with our existing customers.
Rob Door: I also want to highlight our recent collaboration with Harley Davidson factory race.
Rob Door: Which we detailed in our press release at the end of September.
Harley's engineering team utilizes Proto labs' digital manufacturing services to manufacturers of critical components that are racing motorcycles.
Rob Door: Yes.
Rob Door: After a Sunday race. The team has a week to prototype test learn iterate manufacturer and replace critical parts using specialty materials all before the next race weekend.
This continuous improvement enabled by Proto labs rapid manufacturing has resulted in significant year over year improvements in various times and podium finishes.
Rob Door: Harley Davidson factory racing has not only left with Proto labs for quick turn parts, but also our global network of manufacturing partners for larger and more complex parts.
Rob Door: These examples demonstrate the power of Proto labs to enable our customers to drive innovation accelerate time to market and improved performance throughout the prototype to production cycle.
Rob Door: Now I'd like to provide an update on our realigned organizational structure.
Rob Door: With regional go to market teams now solely focused on revenue generation.
Rob Door: The newly created global operations organization is tasked with compelling customer part orders by a factory a network in the most efficient manner.
Rob Door: We continue to refine our portfolio of film and options to optimize consolidated gross margin.
Rob Door: At times this means leveraging our own unique manufacturing capabilities through the factory and in others. It involves network partners.
Since our announcement last quarter, the global Ops organization has already begun to find ways to improve fulfillment of customer orders.
Rob Door: Specifically, we will leverage our global operations to better fulfill customer orders for metal additive parts and some injection molded parts of Europe.
Rob Door: Accordingly in October, we announced portfolio reshaping decisions to streamline our operational efficiency.
Rob Door: We will close our prototyping injection molding facility and that should lower Germany and.
Rob Door: And we will discontinue direct metal laser sintering or the MLS manufacturing services through our factory operation in Europe.
Rob Door: We remain fully committed to continue offering all our manufacturing services to customers across Europe.
<unk> injection molding and metal <unk> printing through other existing factory in network fulfillment options.
Rob Door: The only changes in how these services are fulfilled consistent with the realignment to a new global fulfillment strategy.
Rob Door: This decision was not taken lightly and I want to take a moment to thank all impacted employees for their commitment to proto labs and to serving our customers.
Rob Door: The closer the closure and discontinuation or no way a reflection of their efforts.
Rob Door: We will provide transition services to those impacted.
Rob Door: We truly wish them all the best.
Rob Door: Looking ahead, we believe these decisions will improve operational and fulfillment efficiency, while bringing the full capabilities of our global operations footprint to our customers.
Rob Door: We are acting with urgency to capitalize on our unique ability to meet customer needs and accelerate our growth and continue to drive industry, leading profitability and cash flows.
In summary, we posted solid third quarter results, while continuing to manage through ongoing manufacturing sector challenges, we remain committed to accelerating growth as highlighted by the actions we initiated at the end of the second quarter to reorganize our internal structure.
Rob Door: We continue to win in production as I illustrated two examples of customers using Proto labs for hydro one and end use parts.
Rob Door: That continued shift will better position the company for growth and value creation over the long term.
Rob Door: We are the clear profit and cash flow leader in the industry.
Rob Door: We're committed to executing on our priorities and increasing value for shareholders.
Rob Door: I want to thank our entire Proto labs team for the tireless efforts to best serve our customers and execute accordingly.
Speaker Change: I'll now hand, it over to Dan to cover our financials in detail as well as our outlook for the fourth quarter.
Rob Door: Yeah.
Dan Schumacher: Thanks, Rob.
Dan Schumacher: Our financial results begin on page eight of the slide presentation.
Dan Schumacher: Third quarter revenue was $125 6 million, representing a 4% decline from the record revenue we achieved in the third quarter of last year.
Dan Schumacher: Revenue was flat sequentially and slightly above our guidance range as order rates picked up more than anticipated through August and September.
Dan Schumacher: Turning to revenue by service on slide nine.
Dan Schumacher: Third quarter injection molding revenue declined 10% year over year in constant currencies as we saw weakness in the industrial and consumer electronics verticals.
Dan Schumacher: To drive growth and molding, we continue to invest in production capabilities and our new regional go to market teams are making production business priorities.
Dan Schumacher: CNC machining was flat year over year in constant currencies, we saw strong growth in our network CNC business.
Dan Schumacher: Third quarter three D printing revenue declined 1% year over year in constant currencies and sheet metal revenue declined 13% year over year.
Dan Schumacher: We served 22511 customer contacts in the third quarter.
Dan Schumacher: New per customer contact declined 1% year over year, largely due to due to the decline in injection molding revenue our highest value per order service.
Speaker Change: As Rob discussed.
Speaker Change: <unk> revenue per customer is a long term priority of ours, yet there may be bumping it from quarter to quarter as we shift to more production work.
Speaker Change: In that respect year to date revenue per customer is up 5% over 2023.
Speaker Change: Third quarter consolidated non-GAAP gross margin increased 50 basis points sequentially to 46, 2% with improvements in both the factory and the network factor.
Speaker Change: Factory gross margin was 49% in the third quarter up sequentially from 48, 8% driven by continued automation improvements and excellent work by our plant management teams to align staffing with volumes.
Speaker Change: Proto Labs network gross margin was 35% up from 32, 8% in the second quarter driven by our.
Speaker Change: AI powered pricing and sourcing algorithms.
Speaker Change: Year to date non-GAAP gross margin was 45, 8% up 130 basis points compared to the first three quarters of 2023.
We are very pleased with our gross margin improvement a testament to both our hard working employees and our resilient and profitable business model.
Speaker Change: No other company in the digital manufacturing services space can match the margin profile of our combined factor in network model.
Speaker Change: Third quarter non-GAAP operating expenses declined $1 8 million compared to the second quarter of 2024.
Speaker Change: As a percent of revenue non-GAAP operating expenses decreased to 35, 3% from 36, 8% in the prior quarter, driven primarily by lower incentive compensation.
Speaker Change: In summary, third quarter non-GAAP earnings per share were <unk> 47 cents.
Speaker Change: Up nine cents sequentially on flat revenue growth.
As Rob mentioned earlier year to date, adjusted EPS is up over 10% year over year on flat revenue.
Speaker Change: We will continue to invest our profits to drive future growth through our priority areas further enabled by the previously addressed realignment.
Speaker Change: Transitioning to cash flow and balance sheet highlights on slide 11 cash.
Speaker Change: Cash flow from operations was $24 8 million, our highest quarterly figure since 2020 prior to the acquisition of three D hubs.
Speaker Change: As I say on every earnings call our business model generates industry, leading cash flows, allowing us to invest in organic growth and return capital to shareholders to that end, we repurchased 19 million of common shares in the third quarter.
Speaker Change: On September 30th 2024, we had $117 6 million of cash and investments on the balance sheet and zero debt.
Speaker Change: Our outlook for the fourth quarter of 2024 as outlined on slide 13, we expect.
Speaker Change: To generate revenue between 115 and $123 million.
Speaker Change: This guidance incorporates order and revenue trends through the first four weeks of the fourth quarter.
Speaker Change: Another sequential revenue decline in the fourth quarter is normal seasonality in our business due to fewer working days and lower orders during the holiday season.
Speaker Change: We expect foreign currency to have an approximately 1 million favorable impact on revenue.
Speaker Change: Third to the fourth quarter of 2023.
Speaker Change: Moving to earnings guidance.
Speaker Change: We anticipate non-GAAP add backs in the fourth quarter to include stock based compensation expense of approximately $4 $4 million.
Speaker Change: Germany closure expenses of $4 million in amortization expense of $900000.
Speaker Change: We currently estimate our non-GAAP effective tax rate of 20% plus or minus 50 basis points.
Speaker Change: In summary, we expect fourth quarter non-GAAP earnings per share between 28 and 36 cents.
Speaker Change: That concludes our prepared remarks.
Speaker Change: Sherry Please open the line for questions.
Thank you if he would like to ask a question. Please press star one on your telephone keypad is confirmation 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 may be necessary to pick up your handset before pressing the star he is.
Speaker Change: Our first question is from Brian Drab with William Blair. Please proceed.
Brian Drab: Hi, good morning.
Brian Drab: Good morning.
Brian Drab: Hey, Dan.
Dan Schumacher: Hey, Rob.
Speaker Change: And just finally, starting gross margin so the gross.
Speaker Change: Gross margin.
Speaker Change: Solid and and.
The higher than it's been in a while you know where where do you expect to be able to sustain that and and how do you.
Speaker Change: Like how do you see the fourth quarter in terms of gross margin and.
Speaker Change: And then I'm also asking this question looking at the network you know which is the <unk>.
Speaker Change: Of course, yeah.
Speaker Change: Somewhat lower gross margin.
Speaker Change: And it looks like growth there decelerated. Some so I'm just wondering if you're seeing maybe.
Speaker Change: You know a convergence in the growth rates are eventually here and.
And the overall business between the network and the factory and maybe you don't have this.
Speaker Change: This headwind in terms of gross margin from the faster growth in the on the network side.
Speaker Change: Yeah, Let me I'm, Brian I think there's two questions in there I think one is related to gross margin and what about the growth from the network I'll take the gross margin one first.
Speaker Change: Yeah, what I would tell you is the gross margin percent improved as I said, both in the factory and the network.
Speaker Change: And so you know in terms of the network gross margins as we've talked about before.
Speaker Change: We're experiencing gross margins that are.
Speaker Change: Above you know the range that we've given and you know, we're really happy with our sourcing algorithms and and and how we're able to use.
Speaker Change: Use that model to drive more profitability through that area.
Speaker Change: Now you know we've been in a state in which manufacturing continues to contract.
Speaker Change: You know, we're keeping our range at that 25% to 30%.
Speaker Change: Even though it's it's it's at 35%, but I don't expect conditions to change much quarter over quarter and would expect that we're going to be above the range on network gross margins in the fourth quarter as it relates to the factory improvements.
Speaker Change: We continue to add automation to do on the factory side of our business and.
We're doing a better job in terms of magic.
Speaker Change: Labor cost as that goes through so you know there's improvement there as well so I know you've kind of alluded to is there a mix in which the you know the network maybe not growing as high as it was last year. You know there there may be some aspect to that but if you look at the core.
Both the network gross margins and the factory gross margins are improving.
Rob Door: Rob did you want to take the question on Mexico, Yes.
Rob Door: Yes, certainly thank you Brian for the question so yeah.
Rob Door: Yeah, I think you know what.
Rob Door: Look so cute in Q3 of last year we.
Rob Door: We saw absolutely stupendous growth in the network right north of 80%.
Rob Door: On the.
Rob Door: On a year over year comparison, you know we grew our network of 11% in the third quarter of this year.
Rob Door: Building upon that and we did that in the context of a difficult macro I think I read. The report we're now at 22 consecutive months of contraction in manufacturing and so I'm you know I'm pleased with it I'm very confident that we can grow the network even higher.
Rob Door: You know in the future and fully expect that.
Rob Door: And that work is going to continue to be a strong growth engine for our business and we're seeing customers adopting it right I mean, we had 35% growth.
Rob Door: Year over year in customers adopting a comprehensive offer buying.
Rob Door: Buying more than network.
Rob Door: So I'm pleased with that and do expect it will continue to be a strong growth engine for us, but one more thing Brian that was in your question that do not cover on gross margin. We do we do expect gross margin to come down quarter over quarter as we go into the holiday season, we're a little more inefficient with their labor as we're using contractors and such in the volume.
Rob Door: Ends up being a little more uneven as you go through that holiday period. So we would expect.
Rob Door: The gross margin to come down Q3 to Q4.
Brian Drab: Right, Okay, and Thats, what I figure I mean, obviously, that's typical in the fourth quarter free Yeah, It's technical.
Rob Door: Right.
Rob Door: Rob.
Rob Door: The blend of where like you know the.
Rob Door: The idea that you're getting more people using the blend of the services you know what.
Rob Door: What can you tell me about where that stands now in terms of like it's still very early in that opportunity right.
Rob Door: Is it a low single digit percentage of the customer contacts that are using both services.
Rob Door: Yeah, we're still in an early innings with this.
Rob Door: Absolutely so I see it as a as a really big continued growth opportunity for our business, but I'm quite pleased to see the rate of adoption that we're getting.
Rob Door: In terms of customers buying the comprehensive offer and also more and more customers using us for production and bringing value.
Rob Door: You know to that like in the examples that I shared in.
Rob Door: In the prepared remarks, but but yes overall, we're still in the early innings I would consider you know less than 5% of customers.
Rob Door: So there's a lot of opportunity for us to continue to penetrate and that's what our go to market teams are focused on.
Speaker Change: Okay, Great and then maybe I'll just ask one more and then pass it on you touched on it in the prepared remarks.
Speaker Change: I think that the increased inspection capabilities that you know I've talked to you guys a lot about and seeing the capabilities and the facility and its impressive.
Speaker Change: It seems like that's it.
Speaker Change: A key strategic.
Speaker Change: The initiatives that you have and it's making a difference can you just talk a little bit more about the traction that you're getting some of the high volume work because I mean.
Speaker Change: Obviously the.
Speaker Change: You know you've got.
Speaker Change: You know a challenging environment that you're operating and revenue is down but still the revenue per customer is up and so this is like a key lever that you're pulling in can you just talk about the traction you're getting in a higher volume orders through that.
Speaker Change: Yeah. So.
Speaker Change: We've been going through this transformation right to really drive production and to serve our customers end to end across their entire product lifecycle.
Speaker Change: And of course, given that we started with prototyping that that means doing more and more production work for them and so adding capabilities around.
Speaker Change: Comprehensive offerings and the ability to produce a much broader range of their part needs and also being able to do the inspection and other documentation.
Speaker Change: Process control documentation and alike that they expected production had been important additions.
And as we've.
Speaker Change: Brought that forward our customers have been adopting it and and we're seeing nice growth there that drives our average revenue per customer.
Speaker Change: B.
Speaker Change: I think the highest in our industry and and we're seeing continued growth in that number as more and more customers are adopting production and and we're seeing that grow.
35% you know in terms of the customers buying the comprehensive offer.
Year over year last quarter. So I'm pleased with it I think it's it's again, we're in the early stages, we're really driving to to grow it and we're seeing strong and positive customer response.
Speaker Change: I think we're on the right track and we're going to keep focused right.
Speaker Change: Alright, great. Thank you very much.
Speaker Change: Thank you our.
Speaker Change: Our next question is from Jim Ricchiuti with Needham and company. Please proceed.
Jim Ricchiuti: Hi, good morning. Thanks.
Speaker Change: That's on a quarter by the way if.
Jim Ricchiuti: If we go back to August.
Jim Ricchiuti: You talked about.
Jim Ricchiuti: Slowing activity and it sounds like the pace picked up a little bit relative to your expectations any sense as to what drove that they're showing in August September was it yeah. Just the overall market some of the things that you've done and I'm just wondering.
Jim Ricchiuti:
Jim Ricchiuti: If you've seen some of the traditional pickup in the daily rates, how has that been trending thus far in October.
Speaker Change: Yeah, Jim the market that we're playing in is just very uneven as what I would tell you as I've talked about in the prepared remarks, we saw it and and really June and into July.
Our order rate and what we did see to your point as we did see a higher pick out the normal seasonality in our order rate perspective in August and September.
Speaker Change: But that was starting from a data point of July that was really lower than historical obviously, because we you know we reported that that revenue was down.
Speaker Change: So we were it was nice to see the.
Speaker Change: Pick up in August to September I would say there wasn't anything in particular that I would point out I would just say that the general business.
Speaker Change: <unk> responded better than than what seasonality would say from a really low June and July and as is on creating the guide.
Speaker Change: Again I'm looking at you know four weeks of data that I have around ship.
Speaker Change: Shipments and orders and our guide is showing kind of a normal decline.
Speaker Change: Decline quarter over quarter Q3 to Q4 that that we normally see.
Speaker Change: I would just say I'm I'm I'm pleased that.
Speaker Change: The go to market teams were able to get better than expected traction right as we kind of ended the quarter.
Speaker Change: Got it and a nice sequential step up in operating margins in the quarter and yeah. I'm wondering if there's a way for you to help us Oh.
Speaker Change: With the global operations organization alignment you know how much of that would you attribute to it.
Speaker Change: It's just mainly a function of the revenues came in at the upper end of the range. We saw some nice solid improvement in gross margins as well.
Speaker Change: Okay.
Yeah, what I would say is.
Speaker Change: Again kind of to repeat the Q2 aspects to that that gross margin one being our network gross margin, which is really about how.
How we continue to.
Speaker Change: Hum.
Speaker Change: Our sourcing algorithms and improve the pricing.
Speaker Change: With.
Speaker Change: That model and then second is.
Speaker Change: Really on a on a plant by plant perspective in terms of the automation that we're putting in and the tools that we're using to manage our costs in those areas.
Speaker Change: And in an environment in which in which the volume can be volatile.
Speaker Change: We just continue to improve in those respects and that's what drove it in terms of the new organization I'll, let Rob talk to that.
Speaker Change: So I think as we look at that longer term.
Rob Door: Again the strategy. There was was a few things one we want to be able to bring our global full capabilities right. So wherever we've got manufacturing capabilities around the world, we want to be able to bring those full capabilities to every customer regardless of what region that they're in a to be able to serve them fully and.
Rob Door: To the best of our ability secondly.
Rob Door: That structure now allows us to also.
Rob Door: Reduce areas of redundancy or.
Rob Door: Parts of the parts of the operation, where maybe we're not operating at healthy margins right. We can.
Rob Door: We can we can we have some more degrees of freedom to really optimize that and so you're seeing these recent announcements is one example of that and I think over time, you'll see more and more opportunity for us to kind of optimize our operations from that standpoint to both drive healthy.
Rob Door: Healthy profitability for the business, but also make sure that we're serving our customers as fully as possible.
Speaker Change: Thank you.
Speaker Change: Our next question is from Troy Jensen with Cantor Fitzgerald. Please proceed.
Troy Jensen: Hey, gentlemen, congrats on the great margins and cost controls here.
Speaker Change: Thanks, Roy Thanks, Charlie.
Troy Jensen: Hey, so maybe I'll first start off with the German facility update I was this deal was it the Alfa <unk> acquisition, mainly additives out in Germany.
Speaker Change: Yeah. That's right. So these were a couple of the components.
Speaker Change: So the business that we acquired from outperformed years ago.
Speaker Change: Oh, Okay. All right did you do much down on us and Europe or it's at all so it's almost like polymers and you did metals in Europe and and Raleigh.
Yeah. So we have we are both polymer and metal additive manufacturing.
Speaker Change: In Europe and in Pittsburgh.
Speaker Change: And with this announcement was specific to the metal with the MLS and so we'll be taking that out of our fulfillment from from Germany and fulfilling it instead through.
Speaker Change: A combination of our capabilities and in North Carolina, and our network partners, but what I would tell you enjoy a similar to our Raleigh operation.
You know do you deem a license is a good chunk of the business, but it's.
Speaker Change: It's not the majority of the business in either location.
Speaker Change: Okay.
Speaker Change: Alright, I guess it was two cushions come that then can you help me out with the Opex savings I know, we probably won't see it in Q4, but you know how much will this reduce opex in like either March or June quarters of next year.
Speaker Change: Yeah.
This choice. So this is more of a savings from a gross margin perspective, and then from an Opex perspective.
Speaker Change: For instance in inputs run.
Speaker Change: We're still maintaining the facility we are just fulfilling the D MLS differently both.
Our manufacturing partners and also to Raleigh.
Yep understood outside of shuttering, a facility, but it's just going to rely on it.
Speaker Change: B I get it so then asking law facility.
Speaker Change: So we do have another facility that is the precision injection molding.
<unk> and.
Speaker Change: And so that one we are closing.
Speaker Change: Okay cool and I get it you are doing this because you can get better margins are you now run into the networks curious if theres other products kind of in your in your portfolio that makes sense I guess I'm wondering primarily about sheet metal I've seen that to me that's like a lower gross margin products segment that hasn't grown for you guys and would it make sense to kind of run that through.
Speaker Change: The network business also.
Speaker Change: Yeah. So.
Speaker Change: Yeah last quarter I think we definitely saw headwinds in sheet metal are you all.
Speaker Change: Remind you that's our.
Speaker Change: Smallest service and it's got a lot of exposure to kind of a computer electronics segment, which which did see slowing our last quarter and actually have seen headwinds.
Speaker Change: For several quarters now.
Speaker Change: Yeah, I'll remind you that we you know we've taken action there.
Speaker Change: Rightsize that business, we're monitoring it and operating it very closely.
Speaker Change: So I would say that.
Speaker Change: The new global structure enables us to I think have some degrees of freedom around this that we haven't had before.
Speaker Change: And.
Speaker Change: We're considering all of these things as we go forward.
Speaker Change: Got you, okay, well keep up the good work.
Speaker Change: Yeah.
Speaker Change: Alright, thank you.
Speaker Change: Our next question is from Greg Palm with Craig Hallum Capital Group. Please proceed.
Hey, thanks for taking the questions here.
Greg Palm: Maybe just kind of starting with the outperformance.
Greg Palm: I'm curious if you can attribute any of the outperformance to the sort of the re org realignment.
Speaker Change: Rob It sounded like maybe you hinted that maybe that was a little bit of that and then just to be clear as it relates to the order trends. You said you know pick up August September have those picked up in October and they stayed at similar rates I'm just trying to gauge kind of a guide of where order rates are for the first four weeks versus kind of what north.
Speaker Change: Seasonality is in the quarter.
Sure. Thanks for the question Greg.
Speaker Change: I'm pleased with how we were able to end the quarter and beat our expectations. The work that our go to market team did in terms of driving demand in the second half of the quarter.
Speaker Change: It was great to see I do believe that as we we focused our teams through this reorganization.
Speaker Change: Focusing on go to market teams on a quota.
Speaker Change: Customers within their region, allowing them to specialize and focus on that I do believe health.
And you.
Speaker Change: I expect to see that continue.
Speaker Change: To help provide benefits for growth as we continue to go forward with this model.
Speaker Change: On the order rate question.
They have not picked up.
Speaker Change: I would say it more that June and July were soft and then we got to a more normal kind of seasonality in in August and September. So there hasn't been a pick up in October and that's reflected in the guide.
Okay.
Speaker Change: And.
Speaker Change: You know the the margin performance was impressive I'm curious on the network side have you changed.
Speaker Change: You know the algorithm it all the way you're sourcing stuff or do you attribute some of the outperformance not just this quarter, but you know year to date is that more of a byproduct of the environment. We're in you know the fact that a lot of suppliers just to have more open capacity right now.
Speaker Change: Yeah, I I think youre right. So.
Speaker Change: Two things one is.
Speaker Change: We launched this our pricing algorithm about a year and a half ago, which was a significant improvement.
Speaker Change: Continue to make.
Speaker Change: Incremental improvements in it.
Speaker Change: Over that period, and I think you're seeing that play out in terms of the margin.
Speaker Change: You know as we look at it externally.
Speaker Change: We believe that we are very competitive in terms of our pricing, but weren't able to get in and we've got really strong close rates were also were seeing that ebay competitive.
Speaker Change: Continue to increase.
Speaker Change: The gross margin because of the way the algorithm is working so quite pleased with that at the same time I I I would agree with you though.
We're clearly seeing excess capacity.
Speaker Change: In manufacturing and that is factored in yet right to the civil margins that we're able to get.
Speaker Change: Right now in this macro environment.
Yeah, Okay makes sense.
Speaker Change: And I guess, it's just just lastly, as it relates I just wanted to make sure I'm clear on the P&L impact of some.
Speaker Change: Some of the recent news around.
Speaker Change: The European facility.
Speaker Change: What is the expected P&L impact I guess, so it doesn't sound like much of an opex, but it sounds like potentially some you.
Speaker Change: Cogs savings are you able to quantify anything at all.
Speaker Change: Yes, nothing nothing that we're gonna specifically come out with in terms of specific numbers, but they're there's a there's a precision molding part of the business.
Speaker Change: That.
Speaker Change: Some of that business will be able to be fulfilled through the network and so some of it will not so that there is.
Speaker Change: Some of that business that we looked at as it wasn't strategic for our prototype to production strategy.
Speaker Change: So.
Speaker Change: You know there is some revenue that that won't be there, but we should see some gross margin improvement overall.
Speaker Change: Oh, I would say, it's not a huge amount because of the relative size of <unk>.
Of what those differences are.
Speaker Change: And I assume the revenue impact I mean, it's more like in the hundreds of thousands of maybe business that gets loss versus millions or.
Speaker Change: Yeah.
Speaker Change: Yes.
Speaker Change: It's not a it's not a huge amount and what.
Speaker Change: What I would say is.
Speaker Change: You know what that business was doing was doing much more complex molds, but it was very difficult the way they were doing that to take it to production and so what we're shifting is doing more of those complex molds through the network.
Using steel tools in it and other type so that we can then take that customer from prototype to production as a part of our strategy. So what we feel is.
Speaker Change: Oh, there, although there might be a short term impact from that from the longer term, it's much better aligns with our strategy to move more to production over the long term.
Speaker Change: Yeah, Okay that makes sense, alright, I will leave it there. Thanks.
Speaker Change: Alright, thank you.
Speaker Change: With no further questions. This will conclude today's conference you may disconnect. Your lines at this time and thank you for your participation.
Speaker Change: Yeah.
Speaker Change: [music].
Speaker Change: Yeah.
Speaker Change: Yeah.
Speaker Change: Okay.
Speaker Change: [noise].
Speaker Change: Yeah.
Speaker Change: [music].