PRLB - Earnings call transcript Q4 2021

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Operator

Greetings. Welcome to Protolabs fourth quarter 2021 earnings call. At this time, all participants will be in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require Operator assistance during the conference, please press star, zero from your telephone keypad. is conference this note being recorded. Please time, Frankman, Vice this I’ll turn Jason to over conference President the At and Controller. Corporate may you now Jason, begin.

Jason Frankman

available and Schumacher, Rob Bodor, and Protolabs’ President and conference Thank everyone Officer, Protolabs’ I’m full and Executive full quarter Dan announcing on The call. by Rob, earnings for the results Chief This Protolabs morning, financial XXXX. year website. Financial today you joined company’s XX, issued Chief quarter XXXX interim the its year and Officer. release December is welcome a press fourth release to ended fourth

In addition, press the release. presentation available our web online a at prepared slide in address provided is

statements that to our and could Relations practice. to from expectations. reconciliation at section non-GAAP to materially from website differ a results annual Our performance financial risks non-GAAP press report may on and company that materially and and discuss on results discussion could to that XX-K for statements consistent Investor recent we many today. forward-looking complete differ the to information of expectations our refer The forward-looking measures release accompanying or with any slide outcomes GAAP filings, made and subject refer include release and cause certain Please guidance adversely risks cause and will our the today actual press will past results. SEC presentation for of to our statements actual uncertainties relating earnings our future are Please considered include Form be including to

to over Rob like Rob? I’d Now call the turn to Bodor.

Rob Bodor

morning good and everyone. Jason Thanks

X.X, opportunity over fundamentals customer external very Protolabs Protolabs and strong. will years, new profitable Throughout Despite year, disruptions, past operating challenging invest strategic continued and the companies, remain we hubs, and business many overcame and that and our faced offerings. like of market shocks environment the our internal. two employees, disruptions growth, fair the further areas external to in future these drive including our and XXXX, share During

massively Protolabs for growing technology-enabled variants add continue and added we disrupted services; to four of to and manufacturing Protolabs’ cash As Supply operate best-in-class truly nature The flow. Hubs’ the unique complexity particularly given and enter combination rate shortages. all certainly services market, additional manufacturing business recently XXXX, our strong that experienced labor continued is has States known. XXXX manufacturing. companies network been The are with manufacturer is a The the partner fastest inflation digital to turn that profitable, region, quick of of but digitalization a chains its rapidly manufacturing to this decades. of complications disruptions outsourced Protolabs grown with model not external import-export a uncertainty and in new and businesses. in material rapid global market Brexit have in our due well the the in and logistics least, last United pandemic

manufacturing company’s game-changing platform, transformations one highlighted offerings, executed despite in challenging to top was XXXX by priorities: digital our an customer create on However, of employees. operating was to of our history. The year and to transformative most the We our years two in for the industry-leading our XX-year expand portfolio us. environment, invest

history we customer more and expand with cases. serve completed largest in use acquisition the our our to and First, offerings joined Hubs forces

shortages to quoting that through through any and hybrid to offer network allows orders partners. of offer reiterate geometry, platform, integrated part We are or and seamless fulfilling outsourced but our manage industry-leading lead through with or to us very want our excited to about customers digital premium I excess not internal capabilities, this our unique virtually manufacturing is facilities capacity. quantity also our ordering time, combined supply size customers in effectively Protolabs’ in-house It model and an of manufacturing one network type providing only market. economic manufacturing or an cycles

game XXXX second of was changer and power The made in to we and in adapted of and and to continuing team overcame upgraded Protolabs challenges of the set our Protolabs very success is In Americas been launch while Customer ourselves company the by revenue. employees. and to launch continue traction. and what delight example order response up operating of Our X.X digital of of X.X, can possible XXXX record delivering customers the our do. positive the was has internal transform systems. we revamped for This gain efforts in quoting our and an platform beyond, incredible Protolabs customer-facing Europe hundreds

flexible We also machining, first, lead launched CNC digital-quality times second, offering an injection new the molding. and customers: to in our offerings the in our two enhanced major

During the received recognition manufacturing capabilities. of our best-in-class we digital leadership year, significant external industry and

X.X with World Annual HP, one Year and and for XXX Award announced the and manufacturing software Forum recently in of recognized Lighthouse were Engineering manufacturing Protolabs of this one Plastics digital only the five in Siemens, and honor BMW, we News like Micron, in United as Processor industry the categories the companies Foxcon. Lighthouse Economic First, Network, technologies. leadership XXXX. Design of most join States World’s of in We as share the Fortune awards, into was facilities with our awards implementing also Global recognizing recognized for network Leadership our the finalists we XX induction

what number have energized organization, not however, global validate recognition respected it I and rewarding the to and is efforts primary want company market for employees Hubs deep customer-centric to employees. organizations goal; our a innovation, transformation, very external is do, of talented and recognize this team these am widely by our As in their leadership. this for the I and tireless and one is thank Protolabs XXXX. can reason

to important which and continue and our asset, in most our is health why is team employees their Our we safety. invest

manufacturing educational multi trillion-dollar the providing environments, personal and opportunities days early all market which is inclusion the driving work professional equity growth for programs, We we are furthering with contract our online and a and and development diversity, and still safety prioritizing in space. is in bringing global The digitalization industry players manufacturing our new efforts, are of supporting offerings.

Within most we’ve are technologically the the have cash industry profitability. we strong billion digital advanced, and identified, we $XXX and the manufacturing flows largest,

manufacturer manufacturing truly the addition, is capability hybrid a In with that fulfillment global fastest the only with a in of world Protolabs combines capabilities curated the network in-house partners.

profitably. to hybrid Our and economic built grow to model is cycles withstand continue

well Our high internal rapid innovation growth, for longer while the Hub’s innovation market or times performs manufacturing supply periods of of lead model during outperforms periods dampened prices the disruptions. demand and during chain lower and with offering

two us. in a ecommerce single XXXX, in us customer offers a shop, large to enabling capture begin all we become experience and summary, will opportunity we the needs In of As unite ahead the one-stop to was XXXX foundation the Dan call the you over take transformational through to turn Dan? for to growth and year for profitable years for financial Protolabs I’ll detail. that, results a Schumacher to in our With sets come. serve

Dan Schumacher

Thanks deck. will you take outlook of financial start reference go Rob. will the quarter, our slides Good areas I quarterly remarks, I’ll quarter XXXX. I with first Throughout our highlights, will then for fourth three everyone. morning my conclude to the details. and year with of from I full

year-over-year. XX.X% $XXX.X in strong our XX% part Fourth fourth fourth quarter constant at of growth end due financial presentation. of growth quarter. the year-over-year approximately Page execution or Our currencies. our generated Changes ahead currency quarter Revenue representing above of begin in results a of of organic guidance $XXX,XXX on was quarter. and increase, revenue revenue the slightly million in the represents came revenue the delivering on range X.X% the production impact $X.X orders X expectations a and foreign had to orders quarter, of unfavorable these million Hubs in in in

impacted for constraints our quick supply and electronic quarter, fourth turn services. demand the shortages During chain Protolabs

XX% endured longer plastic they willing lead materials near customers lead occasions times resonates of for are over customers customer times when meanwhile, We parts. options our the but evidenced offered by fastest the Hub’s and and lead and climate, production times pricing growth. speed; Hubs price there today’s for in by of As broader offer in industry, wait custom really as with record to the were components, value range metal

few cycles revenue resilient $XX.X peers. minutes growth more quarter Rob of of ago, is this is our economic fourth model a XX.X% many Europe, to In amounted our hybrid As million of to than highlighted year-over-year. how

developers XX.X% growth. Strong while in year-over-year. quarter, product January in the driven Excluding year-over-year in X% Hubs’ revenue revenue fourth European in the manufacturing growth growth Europe of business in and Europe unique our the was impact Hubs, XXXX supply product reflecting commensurate declined primarily of currencies, chain environment, legacy heighted was foreign in with our XX,XXX acquisition product automotive. continued the quarter, our overall We served by up especially developer the revenue developers in challenges fourth

quarter to points our sequentially our contractor, income gross were in holidays. labor recruiting Turning margin margin inefficiencies was overtime Slide within offset sequential sequentially costs and our Lower slightly guidance improved XX.X%. XX and XX the fourth up basis gross in the by range statement, XX.X%, to and from quarter detailed Hubs’ around non-GAAP XX.X%. the

point on our overall For the model. of quarter, drag the margin to due a manufacturing represented nature lower Hubs XXX outsourced basis the gross margin

operating million. which quarter, driven this by slightly of million operating and range $X.X expenses of the bringing our expenses of Fourth quarter. were the expenses non-GAAP sequentially million non-GAAP the added fourth of XXXX. increase below to increased down from million quarter on in in quarter fourth $X.X most the $XX $XX.X quarter operations the million Our $XX third Hubs, from total recent guidance slightly of was operating Most

rate in XXXX. quarter prior XX.X% the in our Moving to non-GAAP quarter fourth in XX% fourth effective to quarter and compared was taxes, tax XX.X% the of the

release representing margins them primarily fourth the sequential Our share statute per was the quarter as share share decrease net prior non-GAAP year-over-year limitations due position this $X.XX, from a decrease of of the increase result a was of The of fourth at X.X expired non-GAAP earnings revenue, The lower partially legacy business uncertain diluted of year. $X.XX per per offset per our by quarter earnings incurred $X.XX on reserves the in expenses quarter higher the consisted of tax the gross Hubs, quarter. and to share during rate and in anticipated launch of lower XXXX. operating losses Protolabs absence in the in

in Slide from third flow on $XX summarized We million in the performance quarter, quarter. from fourth operations the up $XX.X in XX. cash generated cash is Our million

million our which repurchased XX. Page shares to offset results, under full the will begin dilution. stock now move quarter year program repurchase I our $XX.X also worth in We XXXX on to

back Brexit. supply times the difficulties impacted well As annual as our in currencies Rob Brexit generated and $XXX Organic million contributed of constant XX.X% XXXX. as revenue, recognizing caused U.K.-based caused delivery the rates our increased revenue by and molding on-time and XX demand logistics CNC in XXXX mentioned, complexity to lead revenue and injection from between natively we Europe, in and was for XXXX. X% growth shipping are or end in The by $XX.X Europe chain machining growth reflecting record times the acquisition January turn added Hubs, now our facility. over XX.X% times declined levels constant up issues, lower date We Hubs These X%. in product served to million and lead the year. growth currencies parts of quick developers In excited XXXX, the about are excluding in year-over-year. unique we potential pre-Brexit XX,XXX due

on Now full-year XX. Slide statement onto our income detailed

gross Our non-GAAP in a overall was gross negative point XXXX margin. XXX to basis margin XXXX Hubs XX.X% in to representing was XX% impact XX.X%, compared our gross margin in XXXX.

in up increase. improvements $XX.X of will $XXX.X $XX.X XXXX. In margin year-over-year sequential We operating XXXX to Hubs total continue XXXX, non-GAAP from million this expenses at represented drive million million, were operating gross non-GAAP expenses Hubs.

legacy with losses throughout combined year-over-year earnings per specifically we XX.X% growth in future Protolabs in our X.X Non-GAAP XXXX. Protolabs offset of our as inflation operations’ compared opportunities, our made to non-GAAP investments we as several per hyper to XXXX XXXX anticipated in share phase share per launch the Hubs to XX.X% driven X.X a the share. per $X.XX the while represented $X.XX XXXX. reduction and launch as headwinds Moving material earnings our share rate per share incur we a cost One-time and was support in The year-over-year share in of inefficiencies $X.XX in diluted in The with Protolabs X.X change non-GAAP to scale revenue to represented growth $X.XX by $X.XX asset wage was decrease. cost $X.XX and care $X.XX decrease. the operating was business, effective decrease a taxes, continue that Americas well software per resulted compared earnings resulted by in partially tax year depreciation

customer our expand R&D represented decrease. resources in investment Continued share offerings a that $X.XX per

during Slide to in and share repurchased in unfavorable generated resulted Transitioning our balance Lastly, a under the of flow a We XXXX, the our cash under impact dilution, which effective per balance worth in we remains million remaining strong cash was program rate $X.XX XX, million sheet impact. our repurchase our On repurchase primarily stock offset on balance operations plan, from sheet $XX.X year-over-year and increase $XX.X of cash goes tax through and XXXX. to XXXX. existing million have statement currently and investments debt-free. in December and million stock $XX.X shares our XX, $XX.X

to outlook outlined of quarter first our on Finally, the detail I XXXX, for like XX. as would Slide

to as began the have the January; has and low as quarter to by the growth $XXX omicron for up wave manufacturing between to to demand orders optimism the $XXX activity to reflected and million U.S. XXXX. progressed of our however, the a creating legacy accelerate, quarter, falling of of omicron start recede, first saw businesses to the the begun revenue We manufacturing, in expect slowed in our We representing generate million X%. to a quarter in rest year-over-year and variant first back quarter slow half the XX-month

We compared rates currency currency levels. $XXX,XXX have approximate an at unfavorable foreign revenue remain on to current XXXX, the of expect quarter first foreign impact assuming to

margin, points. of gross margin expect XXX Turning quarter we to minus plus non-GAAP or approximately first gross XX% basis

not year by While January see be impact the to changes of the will the the margins soft created offset quarter, start low end in in we’re beginning positive that quarter. of to the pricing the

profit In was favorable not gross are there the of that in addition, we repeat to in million the first fourth items $X quarter projecting quarter.

to the XX.X% million between first $XX XXXX. We estimate to quarter, expect rate approximately to quarter and in million our the be and effective total fourth $XX tax in non-GAAP non-GAAP expenses with quarter first XX% compared operating first consistent We recent of the in quarter. quarter XX%

back over as to he with Now closes priorities. like call strategic the turn Rob? our I’d introduction of the to Rob XXXX

Rob Bodor

for the Dan. In in well positioned you work success few Thank due XXXX, past years. the done are we that we’ve to

offset efficiency, facing the measures taking changes further We address are term near thoughtful to cost business, pricing in operating several investing improving our including to and automation. inflation, challenges internal

pricing actions have service region. in in in We place every every

effect take benefit of Some time in actions were XXXX. initiated It went the will in to early others late realize XXXX into full some changes. and these

environment, efforts they of X.X efficiency continues the Protolabs and teams employees to software the given internal Within to operating our our processes. our adapt improve as the updated

accelerate to XXXX, our part we to plan us three-phase revenue priorities. second, our and XXXX our XXXX of and growth; areas day us our At plan faster our as automation continued includes expand our need investment three to outlined XXXX: investor in May first, scale double measures through Additionally, profitability. the for productivity will All to enable these of by labor. additional to to of to workflow continue be for the robotics strategic revenues third, platform; establish in than emphasis

company and our positioning achieve XXXX the progress our Hubs during We our double-digit on We growth the growth on year, and accelerating strong great track. culminating with to strengthening by and in in the by made plan fourth developing throughout quarter. X.X Protolabs platform systems the are

For XXXX, strategic four to us have moving forward. keep we priorities

to pricing, improving on our our First of revenue is be drive focused use integrating services, Resources production Hubs’ accelerating and growth. revenue the our expand to offering, expanding capabilities will growth. continuing cases

both adjustments testing various expand at both will machining. We to at our algorithms through integrated through based pricing on Pricing our Protolabs services operations starting portfolio offer and our an Hubs of market with and factors. with Hubs, will continuous through and legacy of CNC improve

capabilities offerings, little world integration XXXX. will day growth reliability and our end as enable now improved of pricing a to the this part double-digit revenue the as as deliver ability digital and of strategy, We originally actions parts to of that volumes. production XXXX of custom models’ launches drive We final prototypes expansion in industry-leading including component pricing the our the in our product of the one as lead of prototyping best built remain and offerings. with through New and offerings new business offer these production quality. at Hubs’ result to stand poised digital quality of all at provide options, transformation our our time the assurance expanded accelerate growth am will quality and well on-demand revenue I by as confident expanded process combination the in

customers. our delight to is strategy second Our

improvements We team drive our have to experience continuous customer established during an offer customer enhanced XXXX. cross-functional to

manufacturing times parts Our customers speed, delivery the offer on-time value rates more reliability reliable the and custom industry. lead we fastest and in and

years at to the back and challenged in internal disruptions launch of these the standards. were metrics industry-leading are Although two we environment times caused to operating X.X, by past the due our Protolabs

leader Our improvement. the scale digital XXXX through is third for be to continuous strategy at

continue manufacturing and automation, will including and As it improved internal flow in Protolabs operating This relates office strategy factories to to improvements will our drive introducing processes. and facilities, work we back in margins automation robotics prioritize XXXX. process

is fourth times. the in a year these Our for strategy great work continue to place to changing to be

will five-year to continue well top and forward empower to continue our retain employees to talent attract develop We as and plan. drive on as

that training resources such areas flexible and inclusion. further role-specific culture. as efforts diversity, of a maintain will in our support a and employees, great and our to work expand will equity We matter to investing By in we to workforce these our areas place all our and winning

a a corporate being part is that of believe great great also being steward. We company

them. that has impactful on Protolabs initiatives to a focused As many are corporation, we’re ESG stakeholders and

and has organization areas Our our aligned on address board top past and for plan to impact ESG. expansion. environment the on within programs teams are the few and which identifying opportunities priorities operate. we reviewed communities the of those our in our ultimately improve our leadership initiatives, and We directors policies, months, In

enter set success made we up have XXXX priorities XXXX I’m for strategic place. beyond. we we in XXXX, us The confident in As moves right that the in transformative and

Our manufacturing the employees experience speed, our are us adaptable. brand market and and and XXXX. We talented, pioneered Protolabs grow optimally digital resilient profitably. scale, position in is to driven manufacturing

digital We Hubs, manufacturing getting just world are creating the with world’s where the we’re we’re in manufacturer offer. the together broadest started and fastest

XXXX. prepared we revenue take enter for and you we excited challenging am of our the can I doubling after will concludes positioned gladly This a our your Rob, questions. As I well now towards by transformation, very and year to continue open XXXX journey are remarks. Q&A? Dan our line

Operator

Our line the is instructions] Please [Operator Blair. proceed first from question with your questions. William Brian of with Drab

Brian Drab

Good morning, thanks for taking my questions.

just First, progress to ’XX? quarter. Is give might wanted us first through you move the the the for as for there margin. quarters in gross how Thanks any sense gross we ask about margin guidance can for

Dan Schumacher

expect volume sequentially to improved Brian, it would we gross quarter. through increasing the as would is quarter percent margin that and improve have year-over-year by year we

Brian Drab

Is a of the by should idea rate there revenue of mentioned or I exit, growth for double-digit by the we end the reach end any any know but maybe, where the aspirational something hoping just revenue, range to year, year? Rob ’XX?

Dan Schumacher

what Yes, we’re margin say above percent to a what is, be--our to would be above not expect percent we I gross margin really but it non-GAAP XXXX. gross in giving was just be guide, it to that

Brian Drab

double single-digit the put Does that wanted to your that mouth, then? of get growth to back revenue until I that get to want digits to we Then the don’t end double-digit imply but I by make does words of Is in the that XXXX. comment growth the obviously, company about goal, to by sure Okay. XXXX? end understood imply--I revenue

Rob Bodor

happened trajectory year. orders given in January, of omicron, to later we we’re business well so and XX%. what organic week end confident the we’re a The Hubs with and but then at able ended good that and so to been on slowdown the feeling we’ll December first is have a orders growing double-digit QX was or saying be in We X% of saw since what so growth trajectory. get with a Yes, was strong that

Brian Drab

still--you The we’re Okay, seems thanks. and seamless the could get directed experience really--I and legacy and still when more separate. we wondering on Hubs few the--you now you could to are still it on could where Then I you you there’s areas, user like feel on topic Protolabs and just just seamless, of digital another I’m know, was then use of ordering a touch explain all kind very MyRapid, I where if comment to platform. headed, the and wanted different that. is be website then and today are timing was could you of the if wondering those mentioned

Rob Bodor

now customer how integration that’s separate, is - separate learned agree you’re what absolutely right seamless for. critical with exactly we’re building. we the is, Hubs working what and and really is right. we right a rapid Hubs Yes, from now, that’s we’re experience

Brian Drab

they state is sort wondering, really the then of easily. of since on then part improving of of from you go earn-outs, kind Are are they the things that? How stage don’t they’re Hubs--in for today, today very I’m an to basis just find Protolabs, or does are Protolabs and them? thinking benefit being benefit How and running just going Hubs do website in kind a of you about still? and standalone their Hubs not--you

Rob Bodor

operating seen from been continued largely Hubs has in and Hubs we’ve them. good We’ve been investments growth independently. making Today,

within Hubs. continuing also innovations in to invest We’re

the there, improvements, to the pricing make the doing, manufacturing really the work seamless. That’s improvements we’ve that end for that sure we that margin, driven improve there MPs the MPs seen have are gross working in to continually front our right, You’ve been optimizing that opportunities and experience tailored we’re sent partner and them. alongside to on which make to investments the and that platform been integration have

Brian Drab

you. everything. Good later morning, great. Okay, you with to talk this more thank luck I’ll

Rob Bodor

Brian. Thanks

Operator

line Hallum. proceed from with Craig Palm comes with your question Please the of questions. next Greg The

Greg Palm

good execution here. at was above surprised you look overall. whether it end came you? nicely in the there taking anything or quarter, that that just whether thanks when better for back market the and so strength certain curious questions morning, Revenue guess was expectations, was Yes, just I

Dan Schumacher

in probably business, be, they area. got we injection where our where really back that to molding the times so quarter were big within higher got especially which in not credit That with the business our had times times performing I’ve that production our lead us that in the execution, for quarter. within were. entered ended a the injection we getting and backlog guide. lead really wanted was having to back In them we revenue, to quite to We up place molding over those production group We give well to and good one lead put

Greg Palm

Okay, sense. makes

on more and Specifically on you’ve is the frankly, a to January? been, QX, my any QX sequential it basis. year-over-year color It’s from a for flattish basically I time guide, math in think sort what can think you specifically implies organic long any right, if revenue give I growth us seen QX seeing in you’re since decline of

Dan Schumacher

Yes, omicron omicron seen, We the turn a a delayed everything seasonality up, us know that that so out things based start in was activity, that bit about in normal, later and customers, a starting terms office, and holidays, so and that a through and week than there the that at of to came when we’re us picking quick company January, again holidays Greg, rate we’re were the on we that is happened there and how in projecting on so lot orders projecting that. as what I always do hope a or occurred up of come out our kind and then, I quarter. believe we we’re into higher taking trends variant that, of for had January we we’re of have, out but was some of when something as the do much we’ve as helps. like business more with based through two came orders of infection that the out so talked came we this, a people our that look the uploading a of were thinking

Greg Palm

slower a anyway, a the specifically. I’m assume ramp, a because get March Well, what than I quarter so guess the normal, sense most the or still just what through maybe month March ramp you for maybe does is assumes that get is guidance what a to expecting is are the pretty I it’s to trying typically trying for steady sense I’m think for important guidance

Dan Schumacher

of that I in that because where steeper in ramp we make probably for the slow the a little to the we February would we’re be, Yes, revenue so we we and is up it January. would back shortfall think later, just up It’s January. assumes seeing or get ramp start project happening assume and can’t a bit up March that

Greg Palm

Yes, last to positive about was. a catch I one, something a you think clarification, mentioned Then margin okay. Got million what it. just that impact $X QX. gross in I didn’t

Dan Schumacher

in, was fluctuations fourth that first items in had margin it quarter. Yes, and those quarter various going have we’re in the quarter and to coming not to occurred quarter, I’m just the projecting to see

Greg Palm

luck. right. Thanks much. all Good so Okay,

Operator

of from proceed Ricchiuti with with comes & the your Needham questions. Company. line question Jim next Our Please

Jim Ricchiuti

a start that that that you wondering, than in gets a the the there bit, seen us that in have I’m quarter, improved here seeing seeing--since early you in behind Hi, the you confidence pick-up thank of to cited hit seeing to QX you has you morning. U.S, Good activity look activity late you. U.S.? earlier it that in more in you’re the in has midway the as just quarter, Europe Are quicker that the and and gives appeared at perhaps we pick-up it omicron.

Dan Schumacher

on Hubs that side, trend we’re strong and what our at things with is is and around seeing the we’re On chain within think electronics. seeing quick turn in business, the they’re customers different, the a Europe bottleneck legacy Europe. one of business is microchips a that’s The least fairly I surveyed within out in Europe, things dealing we and bit their supply and went

within quick do little times like are that Europe, offer longer so least alternatives some they important Europe, do But the point. longer benefiting why within the feel a little it a wait different within those little bottleneck them supply bit customer but that that and also can seeing for Hubs feel longer lead at from price model can that. this wait we trending bit us, great As bit different turn chain impacting they quick business, so but occurs, price we who and at a to parts that that have for we like can like Hubs is like is with so we can that’s alternatives, the point, they offer a we’re businesses a get needs parts, customer our the when hybrid turn at

Jim Ricchiuti

that. for thanks it, Got

I’m pricing shed of more the to implementation we actions, over wondering a thinking the to should that on actions how light impact be next hearing can alluded if those you You quarters. terms and one the which little about we’re companies. a two from bit of pricing in lot of

Rob Bodor

and to can I across chime Jim, board materials, service, our pricing the course Dan, labor. please We objective our and then by supply, is and of at both offset really in. Sure looked start, inflation from

those, course - kind quantity We cost part certain say, make because prices change have let’s manage of for then one, complexities, costs sure that to really pricing looked time, changes or our several those times. all those with we have you to were those thoughtful also certain We’ve board falls a adjustments and with We has will covering made part the the pricing the of we’ve price volume then some volume different how of of material parts, the you’ll inflationary in lead across some volume, and that with of and components. curves, at to got have base in there’s there’s and at, in right on, those dimensions part, costs. that we’ve price adjustments a base looking different of then that all because cover of we make the that made at this base we’re and shape made as way, in curves. a the lead course Then how pricing adjustments

Jim Ricchiuti

to to in the is benefit you QX? that impact seeing expect in full go as But terms the forward, of see we be--do going

Dan Schumacher

just very perspective, margin will improvement soft first margin us to a the to an throughout seeing our continued from it percent that. We’re in going improvement my improvement we remarks prepared improvement a well, unit, - relates show It’s XXXX. pricing be this as see are in from I in you sequential throughout the quarters was the otherwise QX to improvement driver gross revenue basically January in in that but said see as quarter. per revenue it would

Jim Ricchiuti

I if you and I if improvement assume on I in I you to may, the wonder Rob, if Hubs. margins gross said correctly, that. quarter, could think I forward. talk question, heard current final in you One just you going anticipate Hubs

do you quarters Hubs you the in just noted had past challenges around recent You some about Europe. think? that, branding in Are guys of

Rob Bodor

optimization, The continue time, that. that about gross that see to continuing improvement. part margin we’ve past work. to seen we’re in margin we margins invest in is Over and expect in of because Yes, pricing improve gross Hubs we’re point gross to

Dan Schumacher

we expect over just gross full the clarify, Jim, basically seasonality lower improvement first in Hubs to quarter thing, slightly they’re sure quarter see for Chinese quarter gross on to margins margins, in New One but year, to the due the margin. are yes, with Hubs slightly for--there’s an some Year, lower

Jim Ricchiuti

Got it, thank you.

Rob Bodor

Jim. you Thank

Operator

The with questions. next Jared comes your line from proceed with of Capital. Berenberg Maymon Please question the

Jared Maymon

morning guys. good Hey,

it is like you’re these the in of some First of me, growth saying a willing automotive QX, bit in kind QX. sequential maybe to the were in to to back sounds sounds of to kind QX like if business Hubs business question stagnation kind bit It in Europe in customers through sustainable of and QX the for little base saying, of from moved of Europe accept to the and temporary growth that’s could kind of longer that a sequential that Europe, this because in correct of return Hubs little Is what of strong backups, boost in a lead do you a ’XX? semi tailwind think or you’re stick times providing and that’s is to these around correct, some that’s business. what

Rob Bodor

time double up the in Hubs we’re had seeing are cycle, Yes, the by last so supply kind disruptions did we business turn of grow. there’s as that digit of need contrast as nicely, lead year throughout quick and We and this part where business, in to therefore longer happening Hubs growth less that pick the evidenced economic by XX% for year. year-over-year strong we chain our are last in seeing quarter continuing

Jared Maymon

Protolabs and X.X XX,XXX difference quarterly? other of between customers percentage the this comparison X,XXX what I’m in guys you have customers so the any top Hubs I information you or okay. point, on year just to some-odd Got at have another base for Hubs business question there are now, it, of guys do customers about of using using this is a then percentage you on top business - know XXX that owned the Then the are curious, or this have Protolabs any

Rob Bodor

bases the see percentage that capabilities between the bring is customer the that’s today, our Protolabs and small integration relatively part we do the and we overlapping opportunity we still as base. to customer of The Hubs

Jared Maymon

missed this last if was more just but that’s Then if this there and you seems else there seasonality mentioned sorry one got I quarter, like from Okay, drop wondering slight it, sequentially it. I’m and something that a and in was is sustainable. me, G&A or it typical there if already

Dan Schumacher

from GAAP looking a you Are or perspective? non-GAAP

Jared Maymon

specifically. Looking at GAAP

Rob Bodor

in Yes, so G&A. some that over quarter impacted was quarter compensation change there stock-based

Dan Schumacher

benefit reduction also consideration That We acquisition Hubs contingent appears the that the quarter. recognized related $X.X G&A. million in a of the to a was in in

Rob Bodor

of are non-GAAP those items. Both

Jared Maymon

Thanks it. got guys. Okay,

Operator

your from Please question of proceed with questions. Rose next The is Research. Road the Ben Battle with line

Ben Rose

gentlemen. Yes, good morning

it the manufacturing product your Some questions a really, The competitive this maintain that it how the you I’m facilities around shopped is Protolabs of design on having in an environment the of and not and advantage have to the for offer. that own to on-demand is question its wondering able customers’ is security much being having privacy multiple sources. advantage service you designs? customers’

Rob Bodor

hear to able we vendor, oftentimes be customers want understand see a be the to Ben, they definitely they’re trail, want they production to because our when audit, security from looking able whole that they want to Yes to practices. for our

are, provide and number We security, we what IT production Those and of customers of end-to-end. of have definitely the building, for is a we can and for have kind very security so security become that what are our that the who the guarantee exit the see do for looking and things. whom very, we customers controls can comprehensive, entry to audits understanding as that that a benefit for

provide in that never digital that them a and them, the through full plant fact throughout all to way really the comments quote, great to that’s the floor traceability that our runs before. that all system seen Our they’ve have production auditors that we from, from shipping comfort a unique, that’s deal and thread quite we’re and able provides of that time

Ben Rose

that definitely complexity, Rob, I cases understand the design use Okay, parts, large to with design respect also, Hub not very a service, where the quantity a complexity. and perhaps, then be for with critical, by where versus can time see deal might Is respect the question definitely core that services of it a great but isn’t of your your I lead preferred of between about part right think way to that Hubs’? to can customers. services, core being with the the distinction

Rob Bodor

can for we’ve second into Hubs network, kinds core tolerances premium that broader and or or network think that two right, certain longer it the partners much can the One additional range complement, and or can we quantities is our these our But of context complement in of that specializations therefore that brings capabilities, times, through higher to might beyond capability. so and secondary needs in-house, those help might dimensions right, party because kind is currently our got be I operations who lower some complexity very tight specialty capabilities we customers. manufacturing be of so our it don’t and have so for specialization, have provide a of capabilities be the machining, extends very lead pricing, or production offering might added the customers. example,

Ben Rose

some EV that’s the needs. I within the some that the prototyping Okay, quarters? been growing initiatives recent in the great. Has sector couple Then to target manufacturers’ been been there’s contributing finally, a know performance that of company last to

Rob Bodor

the I how But in see industries would are are. they’re Ben, is at they’re is and is that we and us, to innovating, of multiple one. say, What different fast using industries just innovation automotive coming in as in which us that EV people spaces forefront, because we many and

Ben Rose

Okay, thanks. That’s very helpful.

Rob Bodor

you. Thank

Operator

now and turn At time, this Thank the I’ll call the for over Bodor have session. answer remarks. reached the to question you. Rob end we of closing

Rob Bodor

our us the conference and we XXXX enthusiasm employees on you across continued Hubs efforts for Protolabs year their Thank fourth want quarter the I for enter XXXX. X,XXX world as and and to joining thank full call.

great look next support. our Lastly, thanks continued to updating day. to forward our customers and you shareholders We on a for their Have performance quarter.

Operator

today’s conference. concludes This

this your your thank lines time disconnect participation. may You for and at you

Proto Labs (PRLB) 11 Feb 222021 Q4 Earnings call transcript