Back from lunch, and we're going to start our next presentation at the 27th Annual Needham Growth Conference, which will be from Proto Labs, a leader in the digital manufacturing space, a company we've known for a while. My name is Jim Ricchiuti, Senior Analyst in the Equity Research side at Needham, covering companies in the advanced industrial technology sector. We're pleased to have with us today Proto Labs CFO, Dan Schumacher. Dan is going to make probably a 15-20-minute presentation, after which we'll pivot to some informal Q&A. Sounds great. Good afternoon, everybody. I'm excited here to talk to you about Proto Labs and how we're reinventing manufacturing. So let's begin with who Proto Labs is. We're an e-com custom part manufacturer. We serve our customers two ways through two channels. One is digitally enabled factories that can deliver parts in as fast as a day, as well as a network of manufacturing partners that offer advanced capabilities. We serve our customers all the way from prototype to production. So what does that mean? So if you're a designer and you're developing a product, early on, you're going to try out different types of parts and test them. And you're going to need to have a supplier that can provide those to you quickly, give you all kinds of design feedback, and help with different iterations. We do that. Over the last five years, we've expanded our capabilities to also take that product manager not only through prototyping, but through production, and do some early iteration of production parts, and then on to end production. We serve many innovative industries, and we're $500 million in revenue, and we're very profitable. What's that investment thesis? We pioneered this space over 25 years ago about being an e-commerce custom parts supplier. We have one of the largest customer bases in the world. We're known for prototyping. People have used us for prototyping in all kinds of innovations. We're in this very attractive $100 billion market of digital manufacturing. Gartner estimates that about 86% of supply chains will be digitized. We are at the very forefront of doing that. We offer a unique one-stop shop. What do I mean by that? That means if a company is coming to us for their product solutions, we can help them out throughout the product lifecycle because we offer both speed and competitive pricing for higher quantity parts. There's very attractive growth opportunities for us in that we're just entering this production space and have all type of opportunity to grow further. Because we're digitized and automated and offer a differentiated solution, we have a very attractive financial profile. We generate industry-leading cash flows. We have $118 million of cash and investments and no debt. So let's talk about this market, this $100 billion market. What makes it attractive is if you take a look at product development, product lifecycles are getting shorter and shorter. There's a proliferation of SKUs in which people want more and more customized products. They need a supplier who's nimble that can deliver them these parts quickly and help them innovate. Manufacturing 4.0, AI, the Internet of Things are top of mind. We have AI-enabled software that allows us to do quoting. We are digitized from a manufacturing perspective. Being that one place for a customer to go to only have one supplier they need to go to end to end is very differentiated in the industry. Nobody has both the speed and the breadth that we have. We are going to continue to transform the industry. If you take a look at this, we estimate that the contract manufacturing market's about $2 trillion. We started out in prototyping, which is about a $20 billion market. Over the last five years, we're expanding into production, which we feel is an $80 billion market. A lot of growth opportunity. Here's some of our top five customers. 85% of the Fortune 500 companies in this industry use Proto Labs, and there's 53,000 customer contacts that we served in 2023 alone. We're helping these companies innovate in a lot of exciting things, whether that's electronic vehicles, whether that's rockets, space tourism, whether it's VR and consumer electronics. We're helping companies innovate. Let me talk a little bit about we call this the hybrid model of factory and network. Let me go back. Our factory, we reinvented manufacturing for our factory. We looked at both the injection molding and CNC processes and took out a lot of the manual parts of the process to make it efficient, quick, and so we can deliver parts in as fast as a day through our digital factory. It's mainly focused on low volume, but a customer can come to us and do multiple iterations through our factory. In 2021, we acquired 3D Hubs, which gave us a marketplace of manufacturing partners, which greatly expanded our capabilities so that we can serve all kinds of complex parts and at higher quantities and competitive prices. So they're highly complementary to one another. One is offering speed, and the other is offering a broad capability. And we serve that to our customers in that customers will come to us. They'll upload their designs. They'll upload their CAD files to our website. They'll pick out the quantities, the materials they want, other specifics about their parts. They'll order it from us. And then we will source that through either our digital factories or through a manufacturing partner through our digital network. And then we ship those parts to the customers in a Proto Labs box on time with high quality and high customer satisfaction. Let's talk a little bit more about the digital factories. I talk about reinventing manufacturing. Over 25 years ago, we went and looked at the injection molding process. And it was a pretty manual process. And so we wrote software to automate the quoting of an injection molded part. We created a digital twin of that part so that we could then send that G-code to a mill and then automatically manufacture that part. And what that equals then is speed. It equals efficiency, and it equals higher margins for that type of business model. Here's an example of one of our facilities. This is our injection molding facility in Plymouth. The World Economic Forum named this a digital lighthouse because of how we're using digital manufacturing and delivering a high quantity of molds with speed. This is our CNC machining facility in Minneapolis, Minnesota. We did not remove all the workers to make this picture. This is literally what it looks like. This facility makes 40,000 parts a month, and there isn't a machinist on site. Basically, you have material handlers that load up those mills, and those parts are digitally manufactured. Now going to our digital network, we have over 200 manufacturing partners globally with wide ranges of capabilities in which we're able to source a broad range of parts at broad ranges of quantities at a very competitive price, and combining these two together, you can see we have a global footprint of both our digital manufacturing sites as well as our manufacturing partners. And what that gives to us is a massive opportunity. We started in prototyping about a $20 billion market size. It's about 60% of our current business. And we have the opportunity to grow into an $80 billion production market. So if you think about it today, we're about 60/40 from prototyping to manufacturing while the market is 20/80. And so that represents a big opportunity for us. And let me just kind of walk through how the customer sees that. This is an example of an electric vehicle manufacturer. They had a project in which they needed complex parts with differing materials to support a project to build out their electrical systems. They wanted to go with one supplier, have one point of contact for that project. And we were able to fulfill that for them. These parts both came from our digital factories and from our network and really resulted in a success for that customer in terms of the project being completed on time. Here's another example. This was an agriculture OEM, and they had an issue in which their existing CNC supplier was experiencing delays. We have capacity for CNC. That's how we're built, and so we were able to step in, deliver these CNC parts from both our factory and our network, and their project was allowed to stay on time. Through that experience, we've been able to then win additional projects with this OEM manufacturer, and really happy about the relationship that it created. Speaking of relationship, being that one-stop shop for a company is important. It adds a lot of value to what they're doing. We're able to do that uniquely because of our capabilities. We can produce anything from one to millions of parts at a competitive price. And we can be there in partnering with them with their innovation moving forward. And that results in over 90% of our revenue are from returning customers. Talk a little bit about the financials. So we've had a track record of growth since our IPO. We've had a compounded annual growth rate of 13%. Our highest revenue year was in 2023 of $504 million. As a contract manufacturer, we have 45% non-GAAP gross margins. We're able to get those margins through the value we're adding to our customers. We have a 17% adjusted EBITDA margins. We have industry-leading cash flow generation. In 2023, we had $73 million of operating cash flow. And we returned 97% of free cash flow to shareholders in the form of repurchases of $44 million. Like I said earlier, in 2023, we had $118 million of cash and investments on the balance sheet and zero debts. Proto Labs pioneered this space. We're expanding what we do from prototyping into production. We have one of the largest customer bases. We're the most profitable, and I'm super excited about our future moving forward. Great. Dan, thank you. Let's move to some of the Q&A. Talk to us about an announcement that you made last week just regarding this end-to-end full-service production program. And when I saw that, my first reaction was, hasn't the company been already offering these services à la carte? And so what is this doing, essentially tying it all together? Maybe just tell us about it. Yeah. Well, maybe I should talk to you first about some of the changes that we've made, right? The first thing is we've adjusted our e-commerce site to better get customers sourced to some of our production solutions. We've worked with our sales teams and our customer service teams to help train them and educate them on different ways in which you need to talk to somebody who's looking for a production solution and how we win more at those. Second, we reorganized so we created two teams that are just go-to-market teams. These are led by sales leaders, experienced sales leaders, and they're focused on getting the customer to the solution that they want and to be training those sales teams on how better to sell into production as well. We also created a global operations organization. All of our plants, all of the fulfillment through the manufacturing partners rolls up into one organization. They're very focused on making sure we have the capabilities to source production parts to customers. In addition, it's focused on how do we do that more efficiently. An example, we had an announcement in which we decided to close two of our German operations. Part of that was on the metal 3D side is we're going to source that through a manufacturing partner and through our U.S. plant rather than doing it through our German plant because we were losing money there and really weren't differentiated on how we were doing it. That organization is going to constantly refine our offering to continue to drive production growth. On top of it, we've expanded our capabilities both in the network and in the factory in terms of what we do around production. If I would show you our injection molded parts facility two years ago as opposed to today, one thing that you're going to notice is there's a lot more robots, and so that allows you to do high-quantity injection molding production efficiently and be able to scale depending on what level of jobs that you have. We're very excited about this production space and the opportunity that it has for us, and one of our challenges is our name is Proto Labs, and so when you hear Proto Labs, you don't immediately think about production, and so we're also doing some rebranding and continual communication with our customers about, hey, we can do prototyping for you. We're the world's best at that, but we can also take you through production. Okay. You touched on this in the slides, but it's an enormous market opportunity, whether it's prototyping and certainly with respect to production. Yeah, the question we get, even though the company's $500 million of revenue, sizable, the question is, why hasn't the company made bigger inroads? And not just Proto Labs, but the industry, the digital manufacturing industry in general, considering the size of the market opportunity. Yeah. So I would start with, to begin with, we started as a prototyping company, right, and had a bias for speed, and over the last five years, we've continued to add capabilities that make us a much more attractive production supplier, and so that has included the reorg that we announced, right, at the start of the fourth quarter. It's also about adding robotics to our facilities and so forth, and so we feel we're more ready than ever to expand into that production space now. The other thing I would tell you is we think the manufacturing space is very attractive, but if you take a look at how manufacturing has done over the last two years, U.S. manufacturing has contracted, right, over the last two years, and for sure, that's been a headwind for much of the industry. But for us, I think we're pretty pleased with how we've been able to manage through this based on the diversity of our offer, the fact that we're a one-stop shop, and feel that we can be successful really in any environment moving forward. I would say the opportunity for production is in front of us, and we're really excited about it. If you look at the overall competitive landscape, what would you say most differentiates the company from some of the other players? If you guys are interested in cash flow, that's a big differentiation. We had a number of competitors come forward as SPACs in 2021. Jim, I think most of them are private or bankrupt now. That added a lot of investment into the market, but into really nonprofitable businesses, right, and so we are the only ones that are truly profitable, which gives us the flexibility to expand what we do over the long term. We're already starting with a business model that makes sense, and it's a great business model to have. The second is, and I talked about this, nobody else is both making parts and sourcing parts through a network in the digital way that we're doing it. And I would tell you that gives us a leg up, especially on expanding into manufacturing, because we think of things as a manufacturer because that's what we are, right? If you're just a marketplace, you may not understand some of the things that a customer wants or needs as it relates to getting a high-quality part moving forward. So I would say the profitability and the fact that we've got a one-stop shop of digital factory in that way. I mean, look, your point's well taken. On the other hand, you could almost turn that around and say, wouldn't the industry get more recognition if there were other players, credible players, given that it just speaks to the opportunity. Yeah. You know what I mean? Yes. Okay. Yep. How does your business, that third-party manufacturing business, compare to Xometry? Yeah. So you know what I would say is Xometry operates more as a traditional marketplace, no different than what, let's say, Uber did to the taxi industry or what Autotrader does to car buying in that they're trying to maximize the number of manufacturing partners they're working with to try to maximize the revenue over time. And their manufacturing partner base is greatly concentrated in the U.S. as well. Our business, we're looking, as I described through the strategy, is to augment what we do in the factory to more holistically serve the customers. We do not want to have a super large manufacturing partner base. As a manufacturing partner, I know when we were initially looking at moving into this space, we were very concerned about what if, like a super attractive customer, we send them a bad part? What does that do to your entire relationship, right? And so we're very focused on having a wide range of capabilities through partners, having those partners having a meaningful percentage of their business come through us and partner with us to really deliver a quality end solution for the customer. So are these dedicated producers to you or do the manufacturers, like exactly you're moving the German line, what type of company is taking that over? Yeah, it's a manufacturing partner within Europe. They're not exclusive just to us. They would also have their own business, right, that they're driving as well. And they may be partnering with a different marketplace as well. But what makes us attractive to them is that consistency. And we have all kinds of digital tools that makes it easy for them to do business with us as well. Maybe just as a piggyback on the question about Xometry, I mean, when you acquired 3D Hubs, margin profile was quite a bit lower. Yeah. You've subsequently rebranded it, Proto Labs Network. But what has stood out is the improvement in gross margin that we've seen in this business. It's been operating well above the range that you talked about, which was 20. Yep. Maybe you could just talk to that, what kind of gross margins you're seeing in that business, what the range that you've laid out for folks, and at what point do you revisit the target? Yeah. So we have around 35% gross margins today through the network. We're very happy with that, of course. We've made changes over time to our AI-enabled pricing algorithm that looks at both what MP do I need to source that part from, what's that MP going to charge me, what can I charge the customer over time, and making that model efficient, and that model improves with the data that it consumes over time and gets more and more efficient. To be honest, we've been operating in the last two years in a state of manufacturing contraction. I think you can see that there's excess capacity across all manufacturers today, and so before I would change the range of that, this isn't going to last forever. Eventually, there's going to be capacity. There isn't going to be capacity constraints from suppliers. And we're going to modify our AI-enabled algorithm to move with those conditions. But until we operate in that space, I'm not going to move the model. Okay. You touched on Germany and the changes you made there, and there have been other changes as it relates to the business you had in Japan, so these adjustments to the business portfolio, is this process largely complete? Or I'm assuming in some of it's ongoing, of course, but just in general, how should investors think about that? So Jim, you've followed this space as long as I have. It's very dynamic, right? We're happy with what we have right now, and some of the changes that we made, we exited Japan in 2022. That business was not profitable and really not growing for us. In the German operations, we made the difficult decision to leave those, but to focus on making a more efficient way in terms of delivering those parts. We're going to continue to look at our business and make sure that we are optimizing how we're sourcing parts to customers over time. We have the benefit of having this marketplace right now in which, as new things come about, our new parts are needed. We don't necessarily need to spend the capital to build that into our factory in order to make the part. We can source that through a manufacturing network. Over time, if we find that that's a substantial part of our business and we can do something from a tech perspective to be differentiated, we're going to continue to do that. Any need, do you think, as you make a bigger push into the production side of the market, the bigger market, that you'll have to make some investments, significant investments in new capacity? Maybe talk to that. From a capacity perspective, we have capacity today on the factory side. So I feel pretty good about that. We also have capacity to expand, obviously, either through our existing suppliers within the network or adding new suppliers that might add new capabilities. Okay. Dan, you have a question? Yeah. You mentioned speed as sort of something you guys have known before. Do you have to, for these third-party manufacturers, do you have to give them minimums to save space for you to make sure you meet your customers' expectations? We don't. But I would tell you, we're very happy with our speed from our network, but our digital factories are even faster. So in our factories, we can get you a part in as fast as a day. So if you upload your part, let's say you're in California, and we can get to you that part within the next day. And it's really how we've digitized manufacturing through some of the slides that I showed you that enables us to send those parts so fast. Our manufacturing partners don't operate as fast, but they have a much wider capability so that we can do more and more parts that our customers may need. How relevant or not relevant is 3D manufacturing for you? Yeah, so 3D manufacturing is about 15% of our overall revenue. We serve that both through our factory and our network as well. In terms of an engineer that's looking to design and to innovate, they're really looking for a wide range of different solutions to do that. One of that is in 3D printing. And we have a nice portfolio of different 3D technologies that we offer to the customer. For us, as we look at any type of 3D technology that we're looking at, we want to make sure that we can deliver a differentiated, complex part in different materials to really fulfill any design requirements that somebody may have. In addition, there's technologies in 3D that are pretty effective from a production perspective. One of those is metal 3D. And so we're able to offer that as well. Is that a growing percentage of your business, or is it growing at the same rate, or? Yeah, 3D is growing. It doesn't exist right now. It should be one of our higher growth businesses, right? A couple of things that enable that growth are differentiated materials, new types of materials, new types of solutions. We're looking at those all the time and how we can, instead of offering the customer just a different type of part, how do we offer them a solution that goes with it, which is part of, as we talk through how we're getting into production, how do we serve that up better for them? Is the production piece growing a lot faster than the prototyping? Because I seem to remember that mix was way lower five years ago in production. Yeah. Well, one of the things that has allowed us to expand that five years ago is adding the network. One of the measures that we released is our revenue per contact. So our revenue per contact should be growing over time if we're winning more and more in production. And year to date, that's grown about 5% through Q3. If you look at your customer base and we think about wallet share, what% of your customer base is using the combined service right now, the network and? Yeah. And this is where we think we have a big opportunity. What we talked about in the call was less than 5%. So we feel like that is a big opportunity for us going forward. And like I said, as I described, it's highly complementary as we're serving more and more of our customers' product needs. We should be serving them up both through the network and the factory. Yeah. The question about cash flow, it's been very strong, and I wonder if you could just drill down for us in terms of what's been really driving that improvement and then as we think about how sustainable that is. Yeah. So cash flow for us is gross margin, right? And so there's a couple of ways we've been improving that. One of them we talked about is continuing to improve the sourcing algorithm, the AI-enabled pricing algorithm within the network, right? And so that has improved over time, which brings in more profitability. In addition, we continue to do things to make the factory more efficient. I mentioned robotics, right? By doing more production through robotics, obviously, you create a much more efficient factory. We have patented automated mold polishing. So when you make a mold, there's some manual polishing that has to be done afterwards. Our engineers worked on a process that automates some of that process as well. And then it's managing your labor, managing your plant through the ups and downs of whatever part of the cycle we're in right now. And we continue to do that better and better. So that gross margin is really what generates the cash flow. Any other questions? Okay. I think we'll end it there. Dan. All right. Thanks, everybody. And if you guys have any further questions, please either reach out to myself or Ryan Johnsrud, who runs our IR program. Thank you.