Q1 2025 Proto Labs Inc Earnings Call
Greetings and welcome to the Proto Labs first quarter 2025 earnings call.
Operator: Greetings and welcome to the Proto Labs first quarter 2025 earnings call. At this time, all participants are in a listen-only mode.
At this time all participants are in a listen only mode.
Operator: A question-and-answer session will follow the formal presentation. If anyone should require operator assistance during a conference, please press star zero on your telephone key. As a reminder, this conference is being recorded.
Question and answer session will follow the formal presentation.
Anyone should require operator assistance during the conference. Please press star zero on your telephone keypad.
Speaker Change: As a reminder, this conference is being recorded it is now my pleasure to introduce your host, Jason Franklin Vice President and corporate controller.
Jason Frankman: It is now my pleasure to introduce your host, Jason Frankman, Vice President and Corporate Controller. Thank you. You may begin.
Speaker Change: You may begin.
Jason Franklin: Thank you Mollie good morning, everyone and welcome to Proto Labs first quarter 2025 earnings conference call.
Jason Frankman: Thank you, Shamali. Good morning, everyone. And welcome to Proto Labs first quarter 2025 earnings conference call. I'm joined today by Rob Bodor, 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 first quarter ended March 31st, 2025. 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.
Speaker Change: 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 first quarter ended March 31 2025.
Speaker Change: 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.
Jason Frankman: 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 practices. 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.
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 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.
Jason Frankman: Now I'll turn the call over to Rob Bodor. Rob? Thanks, Jason.
Rob: Now I'll turn the call over to Rob door Rob.
Rob: Thanks, Jason.
Robert Bodor: Good morning, everyone, and thank you for joining our first quarter earnings call. We started the year strong, delivering revenue of $126 million near the upper end of our guidance. Profitability was solid as well, with earnings per share of $0.33, also near the top end of our expectations. We also delivered sequential gross margin expansion and strong free cash. While first quarter revenue was down slightly versus the prior year amidst macroeconomic headwinds and manufacturing contraction, we remain confident in our strategy and our commitment to driving growth for the full year.
Rob: Good morning, everyone and thank you for joining our first quarter earnings call. We started the year strong delivering revenue of $126 million near the upper end of our guidance range.
Rob: <unk> ability was solid as well with earnings per share of <unk> 33 also near the top end of our expectations were.
Rob: We also delivered sequential gross margin expansion and strong free cash flow.
Rob: While first quarter revenue was down slightly versus the prior year amidst macroeconomic headwinds and manufacturing contraction, we remain confident in our strategy and our commitment to driving growth.
Rob: The full year.
Rob: Our first quarter performance sets, a solid foundation for growth in 2025, and demonstrates our ability to deliver on expectations in a volatile environment reinforcing the resilience of our model.
Robert Bodor: Our first quarter performance sets a solid foundation for growth in 2025 and demonstrates our ability to deliver on expectations in a volatile environment, reinforcing the resilience of our model. In addition, free cash flow during the quarter represented 14% of revenue. reflecting continued industry leading profitability.
Rob: In addition, free cash flow during the quarter, representing 14% of revenue reflecting.
Rob: Continued industry leading profitability.
Rob: Because we believe in the strength of our model. We have continued to return capital to our shareholders by repurchasing our common stock as Dan will discuss shortly.
Robert Bodor: Because we believe in the strength of our model, we have continued to return capital to our shareholders by repurchasing our common stock, as Dan will discuss shortly.
Rob: Shifting to an update on our strategic priorities. Our hybrid model continues to yield positive outcomes and was successful once again.
Robert Bodor: Shifting to an update on our strategic priorities, our hybrid model continues to yield positive outcomes and was successful once again. Customers utilizing our combined offer grew more than 45% over the trailing 12 months. and revenue per customer in Q1 increased by 3% year over year. We also continue to make significant progress in our initiatives to drive growth as outlined last quarter. First, our marketing investments to further establish Proto Labs as a production manufacturer are gaining traction. Our new messaging is resonating within production buyer channels, reinforcing our brand positioning and expanding awareness. At the start of this year, we made an incremental investment in marketing to inform and educate potential customers about our expanded capabilities across the product lifecycle.
Rob: Customers utilizing our combined offer grew more than 45% over the trailing 12 months.
Rob: And revenue per customer in Q1 increased by 3% year over year.
Rob: We also continued to make significant progress in our initiatives to drive growth as outlined last quarter.
Rob: First our marketing investments to further establish proto labs as a production manufacturer are gaining traction.
Rob: Our new messaging is resonating within production buyer channels, reinforcing our brand positioning and expanding awareness.
Rob: At the start of this year, we made an incremental investment in marketing to inform and educate potential customers about our expanded capabilities across the product lifecycle.
Rob: We have seen our share of voice in the market increase as a result of this new marketing with over 2 million views of our prototype to production campaign to date.
Robert Bodor: We have seen our share of voice in the market increase as a result of this new marketing with over 2 million views of our prototype to production campaign to date. This has led to an increase in searches for ProtoLabs as potential customers look to source their custom on-demand manufacturers. Online searches for Proto Labs are up double digit percentage points versus last year, and this progressively increased each month during the first quarter.
Rob: This has led to an increase in searches for Proto labs as potential customers look to source their custom on demand manufacturing.
Rob: Online searches for Proto labs are up double digit percentage points versus last year and this progressively increased each month during the first quarter. So we are seeing accelerated momentum for our production offerings.
Robert Bodor: So we are seeing accelerated momentum for our production. We will continue to invest in this campaign as we progress through 2025, tailoring to our target industry. Production revenue continued to grow nicely and exceeded our expectations in the first quarter. We are very pleased with customer engagement of our expanded production capability.
We will continue to invest in this campaign as we progressed through 2025 tailoring to our target industries.
Rob: Production revenue continued to grow nicely and exceeded our expectations in the first quarter. We are very pleased with customer engagement of our expanded production capabilities.
Rob: To illustrate our success in production applications I'd like to highlight some customer examples in aerospace and defense one of our target industries.
Robert Bodor: To illustrate our success in production applications, I'd like to highlight some customer examples in aerospace and defense, one of our target industries. Our speed, extensive domestic manufacturing capabilities, and ability to produce complex, high requirements parts make us an excellent partner to these innovative organizations. We offer ITAR certified parts. through both the factory and through the manufacturing partners in the Proto Labs network, enabling aerospace and defense customers full access to our combined office. revenue from these customers have increased very nicely in recent years, in part due to increased end user production order. We manufacture flight ready production parts through AS9100 certified facilities and our metal 3D printing service is especially valuable as customers seek to design and procure durable, lightweight parts.
Rob: Our speed extensive domestic manufacturing capabilities and ability to produce complex high requirements parts make us an excellent partner to these innovative organizations.
Rob: We offer I tar certified parts.
Rob: Through both the factory and through the manufacturing partners in the Proto Labs network, enabling aerospace and defense customers full access to our combined offer.
Rob: Revenue from these customers has increased very nicely in recent years.
Rob: In part due to increased end user production orders.
Rob: We manufacture flight ready production parts through a S 9100 certified facilities and our metal <unk> printing services, especially valuable as customers seek to design a procure durable lightweight parts.
Rob: We serve the largest and most advanced companies in this space, including a 100% of aerospace and defense companies in the Fortune 500.
Robert Bodor: We serve the largest and most advanced companies in this space, including 100% of aerospace and defense companies in the Fortune 500. Organizations like Blue Origin, NASA, and Lockheed Martin have all leveraged production at Proto Labs. In one example, Proto Labs is part of a team supporting Blue Origins Blue Moon Mark 1. The single-launch lunar cargo lander will remain on the Moon's surface, providing safe, reliable, and affordable access to the lunar environment. NASA has said that the Mark 1 cargo lander could deliver a scientific payload to the moon's south polar region as soon as this summer.
Rob: Organizations like Blue origin, NASA and Lockheed Martin have all leveraged production prototypes.
Rob: And one example, proto labs as part of a team supporting Blue origins Blue Moon Mark one.
Rob: The single launch lunar cargo lander will remain on the moon surface, providing safe reliable and affordable access to the lunar environment.
Rob: NASA has said that the mark one cargo lander could deliver a scientific payload to the moons South polar region as soon as this summer.
Speaker Change: We've also had several aero and defense customers qualifier production solution after auditing our manufacturing facilities.
Robert Bodor: We've also had several Aero and Defense customers qualify our production solution after auditing our manufacturing facility. These customers, some of which have used our prototyping services for many years, have already placed orders for production parts and injection molding, CNC machining and 3D printing.
Speaker Change: These customers some of which have used our prototyping services for many years have already placed orders for production parts and injection molding CNC machining and three D printing.
Robert Bodor: This is a great example of continued growth driven by existing Proto Labs customers, leveraging both prototyping and Now transitioning to our second initiative to drive growth, our go to market reorganization. I am pleased to say that this is yielding positive results.
Speaker Change: This is a great example of continued growth driven by existing Proto labs customers, leveraging both prototyping and production.
Speaker Change: Now transitioning to our second initiative to drive growth our go to market reorganization I.
Speaker Change: I am pleased to say that this is yielding positive results enhanced sales enablement tools and processes are improving our understanding of customer production needs, enabling us to deliver tailored solutions by a team based selling.
Robert Bodor: Unknown Attendee, Daniel Schumacher, Jason Frankman, Robert Bodor, Proto Labs Inc. better serving our customers and driving growth. And third, the optimization of our fulfillment channels to meet customer needs is advancing very well. The closure of our German molding facility has streamlined our global operations as we continue to improve overall efficiency by aligning our manufacturing footprint with our global fulfillment strategy. This decision, which is part of the broader multi-year reshaping of our portfolio and began with the closure of our Japan operations in 2022. allows us to better leverage both factory and network capability. We are pleased with the results to date and remain focused on continuing to optimize our manufacturing footprint to better serve our customers globally.
Speaker Change: Better serving our customers and driving growth.
Speaker Change: And third the optimization of our fulfillment channels to meet customer needs is advancing very well.
Speaker Change: The closure of our German molding facility has streamlined our global operations as we continue to improve overall efficiency by aligning our manufacturing footprint with our global fulfillment strategy.
Speaker Change: This decision, which is part of the broader multiyear reshaping of our portfolio and began with the closure of our Japan operations in 2020 to.
Speaker Change: Allows us to better leverage both factory and network capabilities.
Speaker Change: We are pleased with the results to date and remain focused on continuing to optimize our manufacturing footprint to better serve our customers globally.
Speaker Change: Okay.
Speaker Change: Turning to tariffs and strategic positioning.
Robert Bodor: Turning to tariffs and strategic positioning. We are closely monitoring the evolving tariff policies and their potential impact on our customers and the broader manufacturing land. As we've demonstrated, most recently during the COVID-19 pandemic, we can adapt faster than anyone to support our customers in times of supply and demand volatility. Speed and agility are central to our operation. While there is still uncertainty in regard to tariffs, we believe the current situation unfolding is a strong opportunity to drive growth for several reasons. First, our diverse and strategically located global manufacturing footprint provides resilience and flexibility. allowing us to adapt to shifting supply chain dynamics and serve our customers effectively regardless of geographical shift.
Speaker Change: We are closely monitoring the evolving tariff policies and their potential impact on our customers and the broader manufacturing landscape.
Speaker Change: As we've demonstrated most recently during the COVID-19 pandemic, we can adapt faster than anyone to support our customers in times of supply and demand volatility.
Speaker Change: Speed and agility are central to our operations.
Speaker Change: While there is still uncertainty in regard to tariffs we believe the current situation unfolding as a strong opportunity to drive growth for several reasons.
Speaker Change: First our diverse and strategically located global manufacturing footprint provides resilience and flexibility, allowing us to adapt to shifting supply chain dynamics and serve our customers effectively regardless of geographical shifts.
Robert Bodor: In fact, 90% of our revenue from American customers is already fulfilled by factories in the US. through both our digital factories and our network. Our international operations are also highly adaptable. With manufacturing capabilities spanning multiple countries, we are not overly reliant on any single region and can and do shift capacity in response to changing demand. This positions us favorably as companies reevaluate sourcing strategies in response to tariff risks.
Speaker Change: In fact, 90% of our revenue from American customers is already fulfilled by factories in the U S.
Speaker Change: Through both our digital factories and our network.
Speaker Change: Our international operations are also highly adaptable.
Speaker Change: With manufacturing capability spanning multiple countries, we are not overly reliant on any single region.
Speaker Change: And can and do ship capacity in response to changing demand.
Speaker Change: This positions us favorably as companies reevaluate sourcing strategies in response to tariff risks.
Robert Bodor: Next Our pricing models are fulfilled and routing platforms. are highly adaptable and driven by artificial intelligence. And finally, we consistently generate strong free cash. underscoring the fundamental strength of our business. This financial stability, which is uncommon in our industry, enables us to invest in growth initiatives and navigate periods of uncertainty. We are actively reviewing pricing strategies to help offset impacts from tariffs where appropriate, ensuring that we stay competitive while preserving value for The current economic uncertainty is causing customers to be more cautious about demand forecasting, which may extend the timeline for shifting supply chains. But again, we believe this environment favors agile players like us.
Speaker Change: Next.
Speaker Change: Our pricing models are fulfilled and routing platforms.
Speaker Change: Our highly adaptable and driven by artificial intelligence and.
Speaker Change: And finally, we consistently generate strong free cash flow.
Speaker Change: Underscoring the fundamental strength of our business model. This.
Speaker Change: This financial stability, which is uncommon in our industry.
Speaker Change: Enables us to invest in growth initiatives and navigate periods of uncertainty.
Speaker Change: We are actively reviewing pricing strategies to help offset impacts from tariffs where appropriate and ensuring that we stay competitive while preserving value for customers.
Speaker Change: Yeah.
Speaker Change: The current economic uncertainty is causing customers to be more cautious about demand forecasting which may extend the timeline for shifting supply chains.
Speaker Change: But again, we believe this environment favors agile players like us.
Robert Bodor: We pioneered on-demand manufacturing over 25 years ago, and we remain the fastest in the world. This is a vital solution for customers whose demand may be volatile or unclear, allowing them to only order what they need and receive delivery in days, not weeks.
Speaker Change: We pioneered on demand manufacturing over 25 years ago, and we remain the fastest in the world.
Speaker Change: This is a vital solution for customers, whose demand may be volatile are unclear, allowing them to ultimately order what they need and received delivery in days not months.
Speaker Change: Before I hand, the call over to Dan I'd like to close with our 2025 priorities.
Robert Bodor: Before I hand the call over to Dan, I'd like to close with our 2025 priority. Our primary focus for 2025 remains driving growth in our key indicators, which are increasing the number of customers utilizing our combined offer and increasing revenue per customer. To achieve this, we are, one, leveraging our newly streamlined organizational structure to enhance efficiency and accelerate growth across all areas of our business. teams are in place and they are properly incentivized. Two, we are expanding our production use cases by investing in advanced manufacturing capabilities and refining our go-to-market strategies to better meet customers where they are, positioning ourselves to capture a larger share of this growing market.
Dan: Our primary focus for 2025 remains driving growth in our key indicators, which are increasing the number of customers utilizing our combined offer and increasing revenue per customer.
Dan: To achieve this we are one leveraging our newly streamlined organizational structure to enhance efficiency and accelerate growth across all areas of our business. Our teams are in place and they are properly incentivized.
Dan: Two we are expanding our production use cases by investing in advanced manufacturing capabilities and refining our go to market strategies to better meet customers, where they are positioning ourselves to capture a larger share of this growing market.
Dan: And three we're reinforcing our core prototyping business by investing in cutting edge technologies, and optimizing lead times, ensuring we maintain our industry leading position.
Robert Bodor: And three, we're reinforcing our core prototyping business by investing in cutting edge technologies and optimizing lead times, ensuring we maintain our industry leading position. Proto Labs' unique combination of factory and network enables us to serve customers across product life cycles, from prototyping, through production, and into end of life.
Dan: <unk> unique combination of factory in network enables us to serve customers across product life cycles from prototyping to production and into end of life.
Dan: So in closing we.
Robert Bodor: So in closing, we are confident in our position to navigate evolving market dynamics and deliver sustainable growth while maintaining industry-leading profitability and cash flow. Our strategic investments and operational efficiencies position us well to capitalize on emerging opportunities and create long-term value for our shareholders.
Dan: We are confident in our position to navigate evolving market dynamics and deliver sustainable growth, while maintaining industry, leading profitability and cash flow.
Dan: Our strategic investments and operational efficiencies position us well to capitalize on emerging opportunities and create long term value for our shareholders.
Daniel Schumacher: Now I'll hand it over to Dan to cover the finance. Thanks, Rob. And good morning, everyone.
Dan: Now I'll hand, it over to Dan to cover the financials.
Dan: Thanks, Rob and good morning, everyone I'll.
Daniel Schumacher: I'll start with a brief overview of our first quarter results, then provide our outlook for the second quarter of 2025. First quarter revenue came in at $126.2 million toward the upper end of our guidance range and down 1% year-over-year in constant currency. first quarter last year included one extra ordering day due to leap year. Our revenue result reflects a 4% sequential increase. Revenue fulfilled through Proto Labs Network was $26.3 million, up 11.5% in constant currency. US revenue was down 1.2% compared to the prior year. In Europe, revenue is flat compared to the prior year and constant current.
Dan: I'll start with a brief overview of our first quarter results then provide our outlook for the second quarter of 2025.
Dan: First quarter revenue came in at $126 2 million toward the upper end of our guidance range and down 1% year over year in constant currencies.
Dan: First quarter of last year included one extra ordering day due to leap year.
Dan: Our revenue result reflects a 4% sequential increase.
Dan: Revenue per billed through Proto Labs network was $26 3 million up 11, 5% in constant currencies.
U S revenue was down one 2% compared to the prior year.
Dan: In Europe revenue was flat compared to the prior year in constant currencies.
Daniel Schumacher: Turning to revenue by service on a constant currency basis. CNC machining revenue grew 6% year-over-year, driven by strong performance in production and high requirement CNC parts. Injection molding revenue declined 7% versus the prior year, mainly due to non-recurring larger part orders in the first quarter of 2024. Injection molding revenue increased 7% as compared to the fourth quarter. 3D printing revenue was down 6% year over year as order trends lagged our expectations in late 2024 and early 2025.
Dan: Turning to revenue by service on a constant currency basis.
Dan: CNC machining revenue grew 6% year over year, driven by strong performance in production and high requirement CNC parts <unk>.
Dan: Jackson molding revenue declined 7% versus the prior year, mainly due to nonrecurring.
Dan: Larger part orders in the first quarter of 2024.
Dan: Injection molding revenue increased 7% as compared.
Dan: Compared to the fourth quarter.
Dan: Three D printing revenue was down 6% year over year as order trends lagged our expectations in late 2024, and early 2025 and.
Daniel Schumacher: And lastly, sheet metal revenue increased 19% over last year, driven by improved offerings and go to market Moving to Margin. first quarter consolidated non gap gross margin increased 140 basis points sequentially to 44.8% mainly due to higher volume and margin improvements on the factory side. On a year-over-year basis, gross margin was down 80 basis points, driven by lower volume and a higher mix of network-fulfilled revenue. Non-GAAP operating expenses increased $3.6 million sequentially in the most recent quarter, driven primarily by higher incentive compensation, as well as additional investments in demand generation. We discussed these gross investments last quarter, and Rob elaborated on the progress we've made.
Dan: And lastly sheet metal revenue increased 19% over last year, driven by improved offerings and go to market efforts.
Dan: Moving to margins.
Dan: First quarter consolidated non-GAAP gross margin increased 140 basis points sequentially to 44, 8%, mainly due to higher volume and margin improvements on the factory side.
Dan: On a year over year basis gross margin was down 80 basis points, driven by a lower lower volume and a higher mix of network fulfilled revenue.
Dan: non-GAAP operating expenses increased $3 6 million sequentially and the most recent quarter, driven primarily by higher incentive compensation as well as additional investments in demand generation.
Dan: We discuss these gross investments last quarter and Rob elaborated on the progress we've made we.
Daniel Schumacher: We will continue to monitor returns on these investments and adjust as necessary throughout the year. Higher incentive comp and demand gen spend was partially offset by lower headcount in the first quarter as we restructured teams as part of the new organizational structure. Non-GAAP earnings per share were $0.33, within our guidance range, and down $0.05 sequentially. This sequential decline was primarily driven by increased operating expenses and a higher tax rate.
Dan: We will continue to monitor returns on these investments and adjust as necessary throughout the year.
Dan: Higher incentive comp and demand Gen spend was partially offset by lower head count in the first quarter as we restructure teams as part of the new organizational structure.
Dan: non-GAAP earnings per share were <unk> 33.
Dan: Within our guidance range and down <unk> <unk> sequentially.
Dan: This sequential decline was primarily driven by increased operating expenses and a higher tax rate.
Daniel Schumacher: As Rob mentioned, we continue to lead the digital manufacturing industry in terms of cash generation. We generated $18.4 million in cash from operations during the first quarter and we returned $20.9 million to shareholders in the form of repurchases, or 122% of free cash flow. On March 31st, 2025, we had $116.3 million of cash in investments on our balance sheet and zero debt.
Dan: As Rob mentioned, we continued to lead the digital manufacturing industry in terms of cash generation.
Dan: We generated $18 4 million in cash from operations during the first quarter, and we returned $20 9 million to shareholders in the form of repurchases or 122% of free cash flow.
Dan: On March 31, 2025, we had $116 3 million of cash and investments on our balance sheet and zero debt.
Dan: Our outlook for the second quarter of 2025 as outlined on slide 15.
Daniel Schumacher: Our outlook for the second quarter of 2025 is outlined on slide 15. We expect revenue between $124 and $132 million. This guidance represents growth of 2% year-over-year at the midpoint and incorporates order and revenue trends to date. We expect foreign currency to have a $300,000 favorable impact on revenue compared to the second quarter of 2024.
Dan: We expect revenue between 124 and $132 million.
Dan: This guidance represents growth of 2% year over year at the midpoint and incorporates order and revenue trends to date.
Dan: We expect foreign currency to have a $300000 favorable impact on revenue compared to the second quarter of 2024.
Dan: Moving to earnings guidance, we anticipate non-GAAP add backs in the second quarter to include stock based compensation expense of approximately $4 $5 million.
Daniel Schumacher: Moving to earnings guide. We anticipate non-GAAP add-backs in the second quarter to include stock-based compensation expense of approximately $4.5 million and amortization expense of $900,000. We currently estimate a non-GAAP effective tax rate between 25% and 27% in the second quarter. In summary, we expect second quarter non-GAAP earnings per share between $0.30 and $0.38.
Dan: Amortization expense of $900000 with.
Dan: We currently estimate our non-GAAP effective tax rate between 25 and 27% in the second quarter.
Dan: In summary, we expect second quarter non-GAAP earnings per share between 30 and 38.
Dan: That concludes our prepared remarks.
Daniel Schumacher: That concludes our prepared remarks.
Speaker Change: Operator open up for questions.
Operator: Operator, open up. Thank you.
Speaker Change: Thank you we will now be conducting a question and answer session. If you would like to ask a question. Please press star one on your telephone keypad.
Operator: We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 to remove yourself from the queue. For participants using speaker equipment, it may be necessary to pick up the handset before pressing the star 2.
Speaker Change: A confirmation tone will indicate your line is in the question queue.
Speaker Change: You May press star two to remove yourself from the queue for participants using speaker equipment. It may be necessary to pick up the handset before pressing the star keys.
Operator: One moment, please while we pull for questions.
Speaker Change: One moment, please while we poll for questions.
Speaker Change: Okay.
Brian Drab: Our first question comes from the line of Brian Drab with William Blair, please proceed with your question. Hi, good morning. Thanks for taking my question.
Speaker Change: Our first question comes from the line of Brian Drab with William Blair. Please proceed with your question.
Brian Drab: Hi, good morning, Thanks for taking my questions.
Brian Drab: I will point out, it seems like maybe the start of a good trend here is seeing the unique customer contacts up sequentially, the revenue per customer up sequentially. a couple of things that, you know, I mean, the customer count up just modestly sequentially with the, you know, moving in the right direction in a tough environment stood out to me.
Speaker Change: Thanks, Brian.
Brian Drab: I will point out.
Speaker Change: It seems like a.
Speaker Change: Maybe the start of a good trend here has seen the unique customer contacts.
Speaker Change: Sequentially the revenue per customer up sequentially.
Speaker Change: Couple of things that you know what I mean.
Speaker Change: The customer count up just modestly sequentially, but the you know moving moving in the right direction in a tough environment.
Speaker Change: Stood out to me, but.
Daniel Schumacher: But I wanted to ask first, you know, on the gross margin, you know, is it a nice, you know, improvement? Unknown Attendee, Daniel Schumacher, Jason Frankman, Robert Bodor, Proto Labs Inc Yeah, thanks for the question, Brian. You know, it's primarily volume, quarter over quarter. And, you know, we had a good pickup in volume in our factory, which which caused our factory margins to increase quarter over quarter. Our network margins actually were slightly down quarter over quarter. You know, I think we've got some challenges usually in the first quarter from a network perspective as it relates to, you know, sourcing and Chinese New Year and so forth.
Speaker Change: But I wanted to ask first on the on the gross margin.
Speaker Change: It was a nice.
Speaker Change: Improvement sequentially in gross margin, obviously, the fourth quarter can be a little soft but.
Speaker Change: Can you just drill into that a little bit more how sustainable this level of gross margin is in and can you get back to some of these 45 and 46 is that we saw in 2024 as we move through 2025.
Brian Drab: Yeah. Thanks for the question Brian.
Brian Drab: You know, it's primarily volume quarter over quarter end.
Brian Drab: We had a good pickup in volume in our factory, which caused their factory margins to increase quarter over quarter.
Brian Drab: Our network margins actually were slightly down quarter over quarter.
Brian Drab: You know I think we've got some challenges usually in the first quarter from a network perspective as it relates to.
Brian Drab: So we're seeing in Chinese new year, and so forth. So.
Daniel Schumacher: So, you know, the main driver quarter over quarter is that is that increase in in factory volume and factory margins. As we look at the rest of the year, you know, my guide implies that margins from Q1 to Q2 will be flat to slightly down. That's really the amount of revenue that we have flowing through network fulfilled versus factory fulfilled. So we expect higher network revenue quarter over quarter. And so that's going to create a, you know, a headwind that being said, you know, we are driving improvements in margin in in both the factory and both the network.
Brian Drab: The main driver of quarter over quarter is that.
Brian Drab: Is that increase in fact in factory volume and factory margins as we look at the rest of the year.
Brian Drab: My guide implies that margins from Q1 to Q2 will be flat to slightly down.
Brian Drab: But that's really the amount of revenue that we have flowing through.
Brian Drab: Network fulfilled versus factors were filled so we expect higher network revenue.
Brian Drab: Quarter over quarter.
Brian Drab: And so that's going to create.
Brian Drab: A headwind that being said we are driving improvements in margin in both the factory in both the network.
Daniel Schumacher: I think getting to, you know, 45, you know, some of those higher margins that we saw before, it will be impacted by how much of that volume does go through the network versus what goes through the factory as we look at the rest of the year.
Brian Drab: I think getting to 45 or some of those higher margins that we saw before.
Brian Drab: Will be impacted by how much of that volume does go through the network versus what goes through the factory as we look at the rest of the year.
Brian Drab: Okay. Thank you.
Brian Drab: Okay, thanks. Thank you.
Rob: Go ahead Rob.
Robert Bodor: Go ahead, Rob. Yeah. No, sorry. Thank you for your comments on on on the business and the sequential performance. You know, I'm quite pleased with that 4% sequential performance. And we're, you know, as our guide indicates, we're seeing continued growth, right? And expect that growth to continue into Q2.
Brian Drab: Alright. Thank you for your comments on on on the business on the sequential performance.
Rob: I'm quite pleased with that 4% sequential performance at <unk>.
Brian Drab: As our guide indicates where.
Brian Drab: Seeing continued growth rate and expect that growth to continue into Q2, we made major changes in a pretty substantial pivot last year in support of our customer focus and in support of our production strategy and I'm very pleased with the growth that we're seeing in our.
Robert Bodor: You know, we made major changes and a pretty substantial pivot last year in support of customer focus and in support of our production strategy. And I'm very pleased with the growth that we're seeing in our production business as a result of this. You know, at that time, we came forward with a number of critical metrics that we're gonna use to measure this. And frankly, they're all up, right? We're seeing average order values increase. We're seeing revenue per customer increase. We're seeing the number of customers who are buying our combined offer up substantially. and our production revenues are growing.
Brian Drab: Production business as a result of this you know at that time, we came forward with a number of our critical metrics that we're going to use to measure this and frankly, they're all up right. We're seeing average order values increase were seeing revenue per customer increase.
Brian Drab: Seeing our the number of customers who are buying our combined offer up substantially.
Brian Drab: And our production revenue rolling.
Brian Drab: No.
Brian Drab: You know, I want to just recognize the work of our of our go to market teams who are out there educating our customers on this. This is our focus. We're investing behind it. We've got a successful brand campaign that will continue to drive. And I'm very encouraged with how we're starting this year. Okay, got it.
Brian Drab: I wanted to just recognize the work of our of our go to market teams, who are out there educating our customers on this this is our focus we're investing behind it.
Brian Drab: We've got a successful brand campaign that will continue to drive and I'm very encouraged with how we're starting this year.
Brian Drab: Okay got it I mean, maybe.
Brian Drab: Maybe, uh... I'll just ask one more for now, since you guys just gave me a lot of detail on my first question.
Speaker Change: I'll just ask one more for for now since you guys. Just give me a lot of detail on my first question, but.
Brian Drab: Is there anything to be concerned about related to the hubs network? And I know that it's a global network, obviously, but I think there are quite a few manufacturing partners in China. Is this the tariff situation, which I know could, you know, be a positive driving on shoring and get positive for you in a lot of ways, but is this trade war causing challenges for hubs?
Speaker Change: Is there anything to be concerned about are related to the hubs network and I know that it's a global network, obviously, but I think there are quite a few manufacturing partners in China.
Speaker Change: Is this.
Speaker Change: As the tariff situation, which I know it could be a positive driving onshoring and get positive for you and a lot of ways, but.
Speaker Change: Is this a trade war, causing challenges for hubs.
Speaker Change: Yeah.
Speaker Change: Yeah. Thanks for the question you know no we really haven't seen that Oh.
Robert Bodor: Yeah, thank you for the question. You know, no, we really haven't seen that. We've got a network that is extremely adaptable, right? And so we routinely are able to, and on a real time basis, you know, move work around across the network and redirect orders based on the customer needs, pricing and so forth. And so that flexibility really allows us to adapt very quickly. And in fact, even in a normal year, we see substantial shifts across the network in terms of where we're sourcing components. And that's what we've been able to do here to adapt to the tariffs.
Speaker Change: We've got a network that is extremely adaptable right and so we.
Speaker Change: We are routinely.
Speaker Change: Are able to and on a real time basis.
Speaker Change: Move move work around across the network.
Speaker Change: And and redirect orders based on customer needs pricing and so forth and so that flexibility really allows us to adapt very quickly and in fact, even in a normal year, we see substantial.
Speaker Change: Substantial shifts across the network in terms of where we're sourcing components and and that's what we've been able to do here too adept adapt to the tariffs so.
Robert Bodor: So the network continues to grow and we've been able to be quite flexible and adaptive to mitigate any impact, both to our MPs and to our customers during this period. In fact, this is one of the strengths of our model.
Speaker Change: The network continues to grow and we've been able to be quite flexible and adaptive to mitigate any impact.
Speaker Change: Both to our MPS and to our customers. During this period. In fact this is one of the strengths of our model.
Speaker Change: Okay, Thanks, and sorry to slip back to old terminology I I'll go right down Proto Labs network 10 times on a piece of paper.
Brian Drab: Okay, thanks. I'm sorry to slip back to old terminology. I'll go write down Proto Labs Network 10 times on a piece of paper. That's the right name. All right. Thanks. Thanks, Brian. Thanks. Thank you.
Speaker Change: It's the right name.
Speaker Change: Alright, thanks, Thanks, Brian.
Speaker Change: Thank you. Our next question comes from the line of Greg Palm with Craig Hallum Capital Group. Please proceed with your question.
Greg Palm: Our next question comes from the line of Greg Palm with Craig Hallam Capital Group. Please proceed with your question. Yeah, good morning. Thanks for taking the questions and congrats on the quarterly results.
Greg Palm: Yeah. Good morning, Thanks for taking the questions and congrats on the quarterly results can you maybe yeah can you maybe talk a little bit more about what you're seeing in April specifically, just you know in terms of kind of order growth in customer behavior.
Greg Palm: Can you maybe Yeah, can you maybe talk a little bit more about what you're seeing in April, specifically, just, you know, in terms of kind of order growth and customer behavior, and you know, specifically, the guide implies a lower gross margin, I think, Dan, you mentioned, it's based on a mix of networks. So you've seen a higher proportion of revenue going to the network so far this month, or previous month, April. Yeah, you know, from a trend perspective, you know, we, we've seen orders consistently improved month to month as we've, as we've gone through the year.
Greg Palm: And you know specifically is that the guide implies a lower gross margin I think.
Speaker Change: Dan You mentioned, it's based on a mix of networks. So you've seen a higher proportion of revenue go into the network. So far this month or previous month April.
Greg Palm: Yeah.
Greg Palm: A trend perspective.
Greg Palm: We've seen.
Greg Palm: Orders consistently improved month to month as we as we've gone through the year.
Greg Palm: I think you know on the network side there it was.
Greg Palm: I think, you know, on the network side, there, it was to start the year softer, and had to do more with kind of bigger network orders through Europe. But we're seeing that, you know, begin to overall network fulfilled orders to continue to trend up. And so our, our guide reflects that. So we just continue to see as we, as we're going through the year, improvement in demand. And you talked about, you know, the benefits of your offering, you know, comprehensive offering in times like this.
To start the year.
Greg Palm: Softer and had to do more with kind of bigger network orders through Europe.
Greg Palm: But we're seeing that.
Greg Palm: Begin to overall network fulfilled orders to continue to trend up and so are our guide reflects that so we just continue to see.
Greg Palm: As we as we're going through the year.
Greg Palm: Movement in demand.
And you talked about you know the benefits of of your offering a comprehensive offering and in times like this I'm curious do you have any evidence.
Robert Bodor: I'm curious, do you have any evidence, you know, that this current environment is actually providing some kind of tailwind, whether that's, you know, onboarding of new customers? I mean, I don't know what kind of metrics you'd look for specifically, but what are you seeing out there? Yeah, sure. Yeah. So as I'm talking to customers, and I talked to several, you know, very recently, even this week there, you know, what we're hearing from them is several things. First of all, excitement around our production offerings, right? And more adoption of those production offerings, right? So this is independent of the macro environment, right?
Greg Palm: You know that this current environment is actually providing some kind of tailwind whether that's you know onboarding of new customers I mean, I don't know what kind of metrics you'd look for specifically, but what what are you seeing out there.
Greg Palm: Yeah sure yeah, so as I'm talking to customers and I talked to.
Greg Palm: Several you know very recently.
Greg Palm: Even this week there you know what we're hearing from them is several things first of all.
Greg Palm: Excitement around our production offerings right and more adoption of those production off right. So this is independent of the macro environment right remember that they've been asking us for these capabilities.
Robert Bodor: Remember that they've been asking us for these capabilities for years, and now we're really bringing them to them and we're promoting it very aggressively. And so we've got these customers who, you know, we're engaging with, they're used to, you know, relying on us for their prototyping. And now we've got these production solutions, so they can stay with us through their product lifecycle, reducing their risk whenever they have to, you know, change a supplier. So, you know, that makes this more streamlined and more cost effective for them. So they're very pleased with that.
Greg Palm: For for years and now, we're we're really bringing them to them and we are promoting it very aggressively.
Greg Palm: Uh huh.
Greg Palm: And so we've got these customers who were engaging with their Houston.
Greg Palm: Relying on us for their prototyping and and now we've got these production solutions. So they can stay with us.
Greg Palm: Through their product lifecycle, reducing their risk whenever they have to change a supplier. So.
Greg Palm: That makes this more streamlined and more cost effective for them. So they are very pleased with that and I think that's I attribute a lot of our sequential growth and what we're seeing to date to that.
Robert Bodor: And I think that's, I attribute a lot of our sequential growth and what we're seeing today to that. That said, in terms of to serve their needs in that way, right? We're super adaptive, we're highly automated, we're very flexible, and we've got tons of scale. And the super majority, right, 90% of our America's revenue is already fulfilled in the Americas, right? So we have very little tariff exposure from that standpoint. Yep, understood.
Greg Palm: That said in terms of.
Greg Palm: Supply chain disruption and tariffs in this environment, we're definitely hearing them talk about.
Greg Palm: About looking at alternatives right for their supply chain and diversification around supply chain.
Greg Palm: And including re shoring to the U S as part of that solution and.
Greg Palm: And so we're having those those dialogues and we're seeing some of them begin that and I see that again as a strong growth opportunity for us I mean, we stand ready.
Greg Palm: To to serve their needs in that way right. We're super adaptive we're highly automated we're very flexible and we've got tons of scale.
Speaker Change: The supermajority.
Greg Palm: Already right, 90% of our Americas revenues already fulfilled in the Americas right. So we have very little.
Speaker Change: Tariff exposure from that standpoint.
Speaker Change: Yep understood and I guess, just kind of going forward thinking about the the the network or are you just given some of the initial tariffs or are you thinking about building a greater.
Robert Bodor: And I guess just kind of going forward, thinking about the network, are you, you know, just given some of the initial tariffs, you know, are you thinking about building a greater, you know, base, let's say here in the US? I mean, do you feel like you've got, you know, the right amount of, you know, sort of production partners here? What do you think? Yeah, I'm pleased with our network and, and the strong manufacturing partners that we have in all parts of the world. And we've got plenty of excess capacity right now, in, in our US manufacturing partners, of course, as, as we grow and scale, you know, we can onboard and do, you know, routinely onboard more.
Speaker Change: No base, let's say here in the U S. I mean do you feel like you've got the right amount of you know sort of production.
Speaker Change: Part part partners here, what do you think.
Speaker Change: Yes, I am pleased with our network and strong manufacturing partners that we have.
Speaker Change: In all parts of the world.
Speaker Change: And we've got plenty of excess capacity right now and in our U S. Manufacturing partners of course is as we grow and scale, we can onboard and do routinely onboard.
Greg Palm: So I feel very ready right now. I think we've got the right, the right network, the right set of partners and we are ready to grow. Okay. All right.
Speaker Change: More so I feel very ready right now I think we've got the right. The right network the right set of partners and we are.
Speaker Change: We're ready to grow.
Speaker Change: Okay.
Greg Palm: Well, best of luck. I'll leave it there. Thanks. Thank you.
Speaker Change: All right well best of luck I'll leave it there thanks.
Greg Palm: Thanks, Greg.
Speaker Change: Thank you. Our next question comes from the line of Troy Jensen with Cantor Fitzgerald. Please proceed with your question.
Troy Jensen: Our next question comes from the line of Troy Jensen with Cancer Fitzgerald. Please proceed with your question. Hey gentlemen, congrats on the multi-quarter results. Thanks, Rob. Maybe to start with you.
Troy Jensen: Hey, gentlemen, congrats on the March quarter results.
Speaker Change: Thank you so maybe to start with you.
Troy Jensen: Welcome, Rob, to start with you, just on the push into production, if you guys are successful, will you see it more in factory or network? And the reason I'm asking, I guess I always thought it'd be more on the factory side, because I think customers are going to want to qualify the partner that they're working with. And you guys can control the quality better in the factory versus the network. But it seems like you're talking up network as the benefit of of Obterus, our production. Yeah, thanks for the question, Troy. So the answer is, is definitely both, right?
Troy Jensen: Hum.
Speaker Change: I think Rob to start with you just on the pushing the production. If you guys are successful will you see it more in factory network.
Speaker Change: Reason I'm, asking I guess I always thought it would be more on the factory side, because I think customers going on qualify the partner that they are working with them and you guys can control the quality better than the factory versus the network, but it seems like we're talking up network as the benefit of all.
Speaker Change: Above of terrorists or production excuse me.
Yeah. Thanks for the question Troy. So the answers is definitely both right. We are we served our customers with the production of end use parts out of both our factories and our networks.
Robert Bodor: We, we serve customers with production and use parts out of both our factories and our networks. Actually quite pleased with the quality that that comes out of the network partners. This is an area of strength in our model. And we aggressively audit and control quality with our our own factories, right? We have the same quality. that we apply across our whole organization. Remember now we've got a global operations organization that includes both factory and network, right? So we view that in the same way and hold it to those same standards.
Speaker Change: Actually quite pleased with the quality that comes out of the network partners. This is an area of strength in our model.
Speaker Change: We aggressively audit and <unk>.
Speaker Change: Control quality with our network partners just as we do.
Speaker Change: Within our own factories right, we have the same.
Speaker Change: Quality.
Speaker Change: Standards that we apply across our whole organization remember now we've got a global operations organization that includes both.
Speaker Change: Both factory and network right. So so we view that in the same way and hold it to those same standards.
Robert Bodor: The answer varies a little bit more as we think about it by service, right? Where... you know, some services, we're going to do more, likely more production out of the factory, and in others, you know, more in the network, but we definitely see it across. You know, Troy, I think one other thing to remind you, you know, we think our network is set up as well positioned to do more production type work. We, you know, have, you know, a more discreet defined base of manufacturing partners that we work with. We're making sure that, you know, we are in contact with our crosstalks and the MPs to make sure that the quality of the parts that are coming through is high, and that there's more interaction that a customer can have through some of our digital tools in order to do those production type orders through the network, but I'm going to reinforce what Rob said.
Speaker Change: The answer varies a little bit more as we think about it by service right where.
Speaker Change:
Speaker Change: Some services, we're going to do more likely more production out of the factory and in others.
Speaker Change: And the network, but we definitely see it across the board.
Speaker Change: Sure I think one other thing to remind you you know.
Speaker Change: We think our network is set up is well positioned.
Speaker Change: To do.
Speaker Change: More production type work.
Speaker Change: We.
Speaker Change: How are.
Speaker Change: And.
Speaker Change: More discreet defined base manufacturing partners that we work with we're making sure that you know.
Speaker Change: We are in contact with with our cross docks and the NPA is to make sure that the quality of the parts that are coming through is high and that there is more interaction that a customer can out through some of our digital tools in order to do those production type order through the network, but im going to reinforce what Rob said.
Daniel Schumacher: It's a both. It is both production through the factory and production through the network. And as we're seeing production grow, that's how it's playing out.
Speaker Change: So it is both production through the factor in production.
Speaker Change: Okay, perfect and as we're seeing production grow that's how it's playing out.
Speaker Change: Okay, Perfect and then Dan just a follow up for you I mean, it's been awhile since we've had a normal year can you remind us like normal seasonality that we shouldn't give Q3 traditionally up sequentially in Q4 down.
Troy Jensen: And then, Dan, just a follow-up for you. I mean, it's been a while since we've had a normal year. Can you remind us, like, normal seasonality? I always think of Q3 traditionally up sequentially and then Q4 down. Is that the case, and are tariffs going to maybe offset that, provide growth? Yeah, Troy, I have to laugh when you say what a normal year is, because yeah, it's been a while. Yeah, I mean, you know, you know, normally, what we end up seeing is, you know, Q1, although being up from, from Q4 is a little bit softer.
Speaker Change: Is that the case and are tourists coming to maybe offset that provide growth throughout the year.
Speaker Change: Yeah.
Troy Jensen: Troy I have to laugh because there was a normal year is because yes, it's been a while yes.
Speaker Change: You know normally what we end up seeing.
Speaker Change: As you know Q1, although being up from from Q4 is a little bit softer.
Daniel Schumacher: Because of coming out of the holidays, you know, that January would be softer from a revenue perspective. So we see kind of that a pickup quarter quarter, which is mainly due to having kind of three months, rather than, you know, that and we we see, you know, maybe flattish as you go q2 to q3, if not slightly up, and then it will be it would be down in the fourth quarter really due to holidays again. So that's usually what we see. So so q1 up versus fourth quarter, slightly down versus q2 q2 sees a pickup q3 flat to slightly up and then and then slightly down for the q4 due to the holidays.
Speaker Change: Because of coming out of the holidays.
Speaker Change: That January would be softer from a revenue perspective, so we see kind of bad.
Speaker Change: Ill pick up quarter over quarter, which is mainly due to having kind of three months rather than.
Speaker Change: You know that and we see maybe flattish as you go Q2 to Q3, if not slightly up and then it will be.
Speaker Change: It would be down in the fourth quarter really due to holidays again, so that's usually what we see so so cute.
Speaker Change: Q1 up versus fourth quarter slightly down versus Q2, Q2 see the pick up Q3 flat to slightly up and then and then slightly down from Q4 due to the holidays.
Speaker Change: Got you and do you think terrorists I said that this year.
Daniel Schumacher: Unknown Attendee You can carry us outside of this. Oh my god, Troy. As you said, we haven't had normal in a long time. You know, I feel I feel good about, you know, what our guide is for the second quarter. But it's a it's a changing landscape. But as Rob said, I mean, we really feel that we're well positioned, both from the number of different fulfillment options we can offer customers, as well as our financial strength. Yeah, and the actions that we're taking are gaining direction. Yep.
Speaker Change: Yeah.
Speaker Change: Oh My God Troy.
Speaker Change: As you said, we Havent had normal in a long time.
Speaker Change: You know I feel I feel good about you know what our guide is for the second quarter, but it's a it's a changing landscape, but as Rob said I mean.
Speaker Change: We really feel like we're well positioned.
Speaker Change: Both from the number of different fulfillment options, we can offer customers as well as our financial strength.
Speaker Change: And the actions that we're taking are gaining traction.
Speaker Change: Perfect. Thanks, guys and good luck going forward.
Troy Jensen: Perfect. Thanks, guys, and good luck going forward. Thank you.
Speaker Change: Thanks Luke.
Speaker Change: Thank you. Our next question comes from the line of James Rishi.
James Ricchiuti: Our next question comes in the line of James Ricchiuti with Needham and Company. Please proceed with your question. Hi, good morning. You know, I may have missed it. It may be in your material or you may have said it. What were the networks? I think you said they were down. Did you say what they were? Yeah, we didn't we didn't specifically say what the margins were, but they were a little over 31% for the network. you.
Rishi D: Rishi D with Needham <unk> Company. Please proceed with your question.
Rishi D: Hi, Good morning, I may have missed it it may be in your material or you may have said it what would the network margins in the quarter. I think you said they were down quarter on quarter.
Speaker Change: Did you say what they want.
Speaker Change: Yes, we didn't we didn't specifically say what the margins were but they were a little over 31% for the network.
Speaker Change: Perfect. Thank you.
James Ricchiuti: So on on tariffs, I think I'm trying to get a sense Are you seeing headwinds at all from from the materials you use? And I mean, it sounds like you're already evaluating pricing actions. I'm just curious if that's an issue for you. Yeah, thanks for the question, Jim. You know, I think the strength of our model really helps us here. We've got a very robust supply chain for, you know, raw materials. And so we've been able to mitigate a lot of a lot of that, and have not seen, you know, substantial increases in our costs from raw materials as a result of the tariff landscape.
On tariffs.
Speaker Change: I think.
Speaker Change: Trying to get a sense are you seeing headwinds at all.
Speaker Change: The materials, you use and I mean, it sounds like you are already evaluating pricing actions I am just curious if thats.
Speaker Change: An issue for you at all.
Speaker Change: Yes, thanks for the question Jim.
Speaker Change: I think.
Speaker Change: The strength of our model really helps us here.
Speaker Change: We've got a very robust supply chain for.
Speaker Change: Raw materials, and so we've been able to mitigate a lot of.
Speaker Change: A lot of that.
Speaker Change: I have not seen.
Speaker Change: Substantial increases in our costs.
Speaker Change: Raw materials as a result of the tariff landscape.
Speaker Change: Got it.
Speaker Change: You've had a couple of quarters.
James Ricchiuti: You've had a couple of quarters of declines, I think, year over year in 3D printing. Yeah, I'm wondering how that business aligns with the overall strategy of driving the production parts business. I mean, you alluded to the space market, which just seems like a natural for production. I'm just wondering, is there anything we need to be thinking about as you look at that 3D printing? Yeah, thanks, Jim. You know, I, I think you're thinking about it, right? 3d printing is certainly we do a bunch of production and 3d printing, but still, the majority of that service is really a prototyping service, right?
Speaker Change: Declines.
Year over year, and three D printing I'm wondering how that business aligns with the overall strategy of driving the production parts because I mean, you alluded to the space market, which seems like a natural where production in metals additive, but I'm. Just wondering is there anything we need to be thinking about as you look at that three D printing portion of the business.
Speaker Change: Yes, Thanks, Jim.
Speaker Change: I think youre thinking about it right.
Speaker Change: Three D printing.
Speaker Change: Certainly we do a bunch of production in three D printing, but still the majority of that service is really a prototyping service right and in the macro economy that we've been experiencing for the last two years now.
Robert Bodor: And in the macro economy that we've been experiencing for the last, you know, two years now, with, with manufacturing contraction, what we're hearing from customers is that, you know, they're not launching as many new products in this environment, they're slower to do that. And, and so we are seeing headwinds to prototyping overall. And that was the reason why, you know, we drove the big pivot that we did, in order to focus on production. And, and we're seeing very nice growth in production, pretty well across the board, including in in the 3d printing segments, you know, that tie to production.
Speaker Change: With with manufacturing contraction, what we're hearing from customers is that they're not launching as many new products in this environment.
Speaker Change: They are slower to do that and and.
Speaker Change: And so we are seeing headwinds to prototyping overall.
Speaker Change: And that was the reason why we drove the big pivot that we did.
Speaker Change: In order to.
Speaker Change: I'll focus on production and we're seeing very nice growth in production.
Speaker Change: Pretty well across the board, including in the three D printing segments.
Speaker Change: Tied to production.
Robert Bodor: But, but, but right now, in this, in this economy, there's definitely a headwind for prototyping. And I think that's affecting our 3d printing.
Speaker Change: But but but right now in this in this economy. There is definitely a headwind for prototyping and I think thats affecting our <unk> printing business.
Speaker Change: Last question.
James Ricchiuti: Last question just yeah, if we think about the production Unknown Attendee, Daniel Schumacher, Jason Frankman, Robert Bodor, Proto Labs Inc.
Speaker Change: Yes.
Speaker Change: Think about the production parts opportunity there there are some which some more mature manufacturing markets.
Speaker Change: Obviously, you're going after I'm wondering yes, there's probably some in green culture using traditional methods are you satisfied with how the strategy is playing out in those it's obviously some of the more nimble markets like commercial space and I would think theres good momentum there.
Speaker Change: Yeah. Thanks.
Robert Bodor: Yeah, thanks. So what we're seeing is that we've got a very differentiated offering that competes really well in the higher margin portions of the production landscape that we target. Those are the low to mid volume production kinds of parts of the space. Because of our high levels of automation, digitalization, scalability, flexibility, we're pretty uniquely positioned in production in those categories. And again, those are kind of the higher margin categories. So we like that.
Speaker Change: What we're seeing is that we've got a very differentiated offering that competes really well in the higher margin portions of the production landscape that we target closer to the low to mid volume.
Speaker Change: Production.
Speaker Change: Lines of parts of the space.
Speaker Change: Cause of our high levels of automation digitalization scalability flexibility.
Speaker Change: We're pretty uniquely positioned.
Speaker Change: And production in those categories and again those are kind of the higher margin categories. So we so we like that.
Robert Bodor: Certainly by industry, where we tend to penetrate fastest is in those industries where they're launching more new products. Because that's where we get to be at the table, right? When they're launching the new product and they're developing the supply chain to produce that product, that's where we have great opportunities. And so I think that's why you're seeing that. But over time, I fully expect us to be penetrating through production well in all the industries because we've really got a differentiated production offering in the parts of the industry that we're targeting.
Speaker Change: Certainly by industry, where we tend to penetrate fastest is in those industries, where they're launching more new products because.
Speaker Change: That's where we get to be at the table right plan when they're launching the new product down there and they are developing the supply chain to produce that product.
Speaker Change: That's where we have great opportunities and and so I think thats why youre seeing that but over time I fully expect us to be penetrating through.
Speaker Change: Through production well in all the industries, because we've really got a differentiator production offering.
Speaker Change: Parts of the industry that we're targeting.
Speaker Change: Thanks, guys congrats.
Operator: Thanks guys. Thank you.
Speaker Change: Thank you thanks chip.
Speaker Change: Thank you Andrew.
Operator: And ladies and gentlemen, we have reached the end of the question and answer session.
Speaker Change: And ladies and gentlemen, we have reached the end of the question and answer session and this does conclude today's conference you may disconnect. Your lines at this time, we thank you for your participation.
Operator: And this does conclude today's conference. You may disconnect your lines at this time. We thank you for your participation.
Speaker Change: Okay.
Speaker Change: Yeah.
Speaker Change: Okay.
Speaker Change: Yes.
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Speaker Change: Okay.
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