Proto Labs - Earnings Call - Q4 2020

Transcript

Speaker 0

Please note that today's conference is being recorded.

I'll now turn the conference over to Daniel Schumacher, Director of Investor Relations. Mr. Schumacher, you may begin.

Speaker 1

Thank you, Rob, and good morning, everyone. With me today are Proto Labs' President and Chief Executive Officer, Vicki Holt Vice President and General Manager of The Americas and incoming President and Chief Executive Officer, Rob Bedore and Chief Financial Officer, John Way. This morning, Proto Labs issued a press release announcing its financial results for the fourth quarter and full year ended 12/31/2020. 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.

Before we begin, I would like to remind everyone that discussion 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 ks for information on certain risks that could cause actual outcomes to differ materially and adversely from any forward looking statements made today. The results and guidance we will discuss include non GAAP financial measures consistent with our past practice. Please refer to our press release and the accompanying slide presentation at the Investor Relations section of our company website for a complete reconciliation of non GAAP to GAAP results. Now I'd like to turn the call over to Vicki Holt, President and Chief Executive Officer of Proto Labs.

Vicki?

Speaker 2

Thanks, Dan, and good morning, everyone. Thank you for joining us today for our fourth quarter and full year twenty twenty earnings conference call. Before we go through our 2020 financial performance and look ahead to 2021, I wanted to take a moment and reflect on 2020, a year of change. As we all know, 2020 brought many unforeseen challenges due to the COVID-nineteen pandemic that began suddenly in the first quarter. I am very proud of how ProtoLife's responded.

Our employees took these challenges and turned them into opportunities to better serve our customers and contribute to the fight against the pandemic. Proto Labs employees displayed incredible adaptability guided by our core values of teamwork, trust and achievement. Throughout the pandemic, our top priority has been to keep our employees, communities and customers safe while continuing to delight our customers. Our digital manufacturing model allowed us to help our customers produce parts at market leading turnaround times to respond to COVID-nineteen, including components for ventilators and diagnostic equipment as well as personal protective equipment for health care providers. In total, we generated $18,000,000 of revenue from COVID-nineteen related customer projects.

We are humbled and grateful that customers trusted us to assist in the fight against COVID-nineteen. In addition to helping the world innovate to fight the pandemic, Proto Labs also took actions to transform for the future throughout 2020. Most notably, we accomplished our number one priority entering 2020, the successful launch of Proto Labs two point zero. Our employees demonstrated outstanding productivity as we diligently worked through launch dates amidst new working environments. As you know, we launched our refreshed system in Europe in November, and I am happy to report that Proto Labs two point zero went live successfully in The Americas on February 1.

Both launches went as expected, and initial customer feedback has been very positive. Today, we remain in the hypercare monitoring phase as we continue to make improvements in response to customer and internal user feedback as is customary with any system launch. Proto Labs two point zero offers a much improved customer experience and will allow us to maintain and extend our position as the leader in digital manufacturing. As the economy continues its gradual recovery, we expect higher customer satisfaction and retention moving forward. This exciting new growth platform is the result of the multiyear effort of our incredible employees who have worked tirelessly to accomplish our top priority and continue to inspire and innovate as we serve our customers.

2021 will be a transformative year for Proto Labs and marks the beginning of a new chapter. We have already made significant strategic progress early this year, including the launch of Proto Labs two point zero in The Americas and acquiring three d hubs, positioning us to serve our customers and realize growth as the market recovers in 2021 and beyond. As one chapter begins, another ends. And as you may know, this is my last earnings call as President and Chief Executive Officer of this wonderful organization. I am proud to have served alongside a great team of employees at Proto Labs for the last seven years, and I am confident that Rob Bedor will lead the company to great success.

Rob will assume the role of President and Chief Executive Officer on March 1, and you will hear from him later in this call as he provides an overview of our long term strategic objectives and 2021 priorities. Turning now to our financial results for the fourth quarter of twenty twenty, we are pleased to report fourth quarter revenue and earnings within our expectations. Revenue of $105,000,000 represents a year over year decline of 6% as global economic activity remains below levels from a year ago. Our fourth quarter revenue declined 2% compared to the third quarter of twenty twenty, in line with recent seasonality patterns. Revenue by geography for the fourth quarter is highlighted on Slide five of our earnings presentation.

Americas revenue declined 6% year over year and 3% sequentially consistent with overall customer demand trends. Similarly, Europe's fourth quarter revenue declined 8% year over year, 12% in constant currency consistent with third quarter results. In Japan, revenue declined only 1% compared to the same period a year ago, five percent in constant currencies and improved 21% sequentially. Turning to earnings, we reported fourth quarter non GAAP diluted earnings per share of $0.50 per share, in line with our expectations for the quarter. Our earnings in the fourth quarter were down sequentially as anticipated, primarily due to the impact of launch of PortoLabs two point zero in November and lower seasonal volumes.

Our fourth quarter performance resulted in a full year 2020 revenue of $434,000,000 representing a decline of 5% compared to 2019 or 6% in constant currencies. Please see Slides seven through 10 for additional information on our 2020 revenue performance. Given the emergence of a global pandemic and a sudden substantial drop in global economic activity, as well as other unforeseen challenges in 2020, we responded very well as we focused on the health of our employees, servicing our customers and our long term business opportunities. Our 2020 non GAAP diluted earnings per share were $2.36 compared to $2.79 in 2019 as we managed costs where appropriate and continued to invest in our future in the form of our Proto Labs two point zero project throughout the year. John will now provide a more detailed view into our financial results.

John?

Speaker 3

Thank you, Vicki. Our detailed fourth quarter financial results begin on Page 11 of our presentation. As Vicki mentioned, fourth quarter revenue of $105,200,000 represents a 2% sequential decline consistent with the seasonality patterns of our business. We served 18,157 unique product developers in the fourth quarter, down 3% sequentially. Turning to Slide 13 and our detailed income statement.

Our non GAAP gross margin in the quarter was 51% compared to 51.7% in the third quarter. The sequential gross margin decline was primarily due to increased compensation driven by the holidays in the fourth quarter. Turning to operating expenses. Our total non GAAP operating expenses totaled $37,400,000 in the quarter compared to $33,300,000 in the third quarter. The majority of the sequential increase in operating expense was directly tied to Proto Labs two point zero as described in our guidance during the third quarter call.

As a reminder, we were capitalizing the cost of resources working on the project prior to going live. As the system was placed in service, these costs were expensed, representing a sequential increase in R and D expense of approximately $3,000,000 With the asset placed in service mid quarter, we incurred $750,000 of depreciation during the fourth quarter. Quarterly depreciation will increase to approximately $1,500,000 in Q1 and will remain at that level each quarter going forward. Additionally, our GAAP operating expenses included $427,000 of transaction costs in the quarter that did not relate to the ongoing operations of the business and have been adjusted out for non GAAP purposes. On a GAAP reporting basis, net income totaled $9,600,000 resulting in diluted earnings per share of $0.36 Adjusting for the after tax costs of stock compensation, amortization of intangibles, nonrecurring transaction expenses related to the acquisition of three d Hubs and unrealized foreign currency gains, our non GAAP diluted earnings per share in the quarter were $0.50 representing a $0.13 per share decrease from the prior year a sequential decrease of $0.17 per share.

Breaking down the sequential change in earnings per share further, increased operating expenses related to Proto Labs two point zero launch represented a negative sequential impact of January per share. The impact of lower volume was $03 per share. The remaining $03 was driven by lower gross margin and various changes in operating expenses and other income. Transitioning now to our full year 2020 financial results, which begin on Slide 15. Revenue of $434,400,000 declined 5% compared to 2019.

We served over 40,000 product developers during 2020, a decline of 15.7% compared to the prior year. The number of product developers served was not correlated to revenue due to the mix of business with injection molding average order size greater than that of CNC machining. 2020 non GAAP gross margin was 51% compared to 52% in 2019. The year over year decline in gross margin was primarily due to mix changes and the challenges to absorb fixed costs while responding to the lower volume driven by the COVID-nineteen pandemic. Total non GAAP operating expenses totaled $143,700,000 in 2020 compared to $144,500,000 in 2019.

During 2020, we were able to manage our expense below prior year levels and continue to invest in the future through Proto Labs two point zero. Our R and D expense increased $3,700,000 during the year, principally related to the expense recorded in the fourth quarter related to the launch of our system as previously discussed. This increase during the year was offset by reduced sales and marketing spend due to lower travel and converting to virtual trade shows and other innovative marketing tactics to engage customers as well as other cost management activities, including executive and board compensation reductions. 2020 GAAP net income was $50,900,000 resulting in diluted earnings per share of a dollar 89. Adjusting for the after tax cost of stock compensation, amortization of intangibles, nonrecurring transaction expenses, and unrealized foreign currency gains, our non GAAP diluted earnings per share in 2020 were $2.36 representing a $0.42 per share decrease from 2019.

Breaking down the year over year impact on EPS, these expenses associated with the investment in Proto Labs two point zero represented a zero one one dollars year over year reduction in EPS. Lower volumes driven by the global pandemic equated to a $0.12 per share impact. The impact of lower gross margin was $0.14 per share. The remainder of the year over year change in non GAAP earnings per share was due to costs associated with adapting to the evolving work environment and maintaining our organizational structure to support the long term opportunities for the business. Now turning to cash flow on Slide 18.

We generated $107,000,000 in cash from operations during 2020 compared to $116,100,000 in 2019. Even during a challenging year, our business produces very strong free cash flow due to the digital nature of our manufacturing operations. These strong cash flows allow us to invest in the future growth of the business, including Proto Labs two point o and our recent acquisition of three d Hubs. Capital spend in 2020 was $47,000,000 including the completion of Proto Labs two point o, progress on a new facility in Germany to consolidate our three d printing operations, and the facility expansion in our injection molding and CNC operations in The United Kingdom. On 12/31/2020, our cash and marketable securities balance was $221,000,000.

In January, we funded the $130,000,000 cash portion of the closing consideration to acquire three d Hubs with cash on hand. 2020 was the most difficult backdrop our business has faced, yet we adapted, continued our strong cash flow generation, proceeded with investments to support the long term growth of our business and continue to have a very strong debt free balance sheet. I'll now turn the call over to Rob for an overview of our longer term strategy and 2021 priorities.

Speaker 4

Thanks, John, and thank you all for being with us today. I am very excited to step into the role of president and chief executive officer on March 1. On behalf of all ProLabs employees, I wanna thank Vicky for her passionate leadership over the past seven years. We will miss you, and we

Speaker 0

wish you all the best.

Speaker 4

At ProLabs, we have a tremendous opportunity ahead of us, and I look forward to partnering with all of our employees to drive our long term success. To capture that opportunity, we have three primary long term strategic objectives, and our priorities in 2021 fit into these three objectives: first, to create a world class customer experience for digital manufacturing second, to expand our portfolio of customer offerings to meet the broadest set of customer needs and third, to further invest in our employees. Serving our customers has always been our focus, and we are better positioned to serve our customers today than we have ever been in our history. Years ago, we began with the objective assisting companies in accelerating their product innovation by delivering high quality custom parts at unprecedented speeds. We've built our business by adding new services and expanding our envelope of capabilities to manufacture a broader set of parts in order to serve these additional needs for our customers.

Our customers have valued this and continually ask us to provide even more services and capabilities. We recently announced two important milestones that create the foundation for our expanded capabilities into the future: the successful launch of Proto Labs two point zero and the acquisition of three d Hubs. As Vicki stated earlier, both of these initiatives are cornerstones in the foundation of the platform that we're building to expand how we serve and delight our customers and support the long term growth of the business. Our first objective is to create a world class customer experience for digital manufacturing. Our successful launch of Proto Labs two point o represents the first priority on the road map to this objective.

The refreshed front end user experience platform combined with the back end systems achieved through the multi year Portal Apps two point o project provide a strong base with modern architecture that we can build upon more efficiently. The system went live in The Americas a couple of weeks ago, and the feedback from customers has been positive. While we are live in both The Americas and Europe now, we're not done investing in the customer experience. We have a backlog of additional features and capabilities to further improve the customer experience that we will continue to develop and release throughout 2021. We will also begin the process of bringing our sheet metal service into the ProLabs two point zero system.

Furthermore, we look to unify the customer experience to incorporate our recent acquisition and have all of our capabilities available to our customers in one seamless platform. We will continue to learn from our customers and make improvements. And with the modern architecture, making those improvements will be faster and easier than it was in the prior environment. Our second strategic objective is to continue to expand our capabilities to provide customers with the most comprehensive digital manufacturing offer in the world. From our inception, much of our growth has been driven by the improvement and expansion of our offerings.

These envelope expansions have been the focus of our R and D efforts as we reinvent manufacturing with an obsessive dedication for speed. The acquisition of three d Hubs represents an important step in the expansion of our capabilities as it is a strategic shift. Three d Hubs is highly complementary to our existing in house digital manufacturing offerings and brings to ProLabs a premium network of manufacturing partners to provide access to virtually any custom part that our customers may need. The addition of three d hubs will allow us to expand how we serve customers in two major ways. First, by expanding the breadth of capabilities we offer through the complementary network of premium manufacturing partners.

And second, by offering a broader range of pricing and lead time options to meet varied customer needs and use cases. This will increase our ability to serve our customers. If we can't make it, we will find the right manufacturing partner to make it for you with a variety of delivery times and pricing options. I just described our ultimate vision, and it is a truly exciting market leading vision for digital manufacturing. We have work to do to realize that vision.

We'll be thoughtful as we continue to build out the complete offer in each of our manufacturing services and bring the two organizations together to provide a single unified customer experience. In the near term, Proto Labs and three d Hubs will continue to operate independently while working together to develop a robust integration plan that will allow us to best serve our customers. The first element of our long term strategy, the customer experience, is critical as we develop this plan. We are fortunate that three d Hubs brings strong expertise in the customer experience area. We'll be working with our colleagues at three d Hubs to ensure the event the eventual combined offer is seamless and provides the best customer experience possible, allowing us to capitalize on the massive market opportunity over the long term.

We will continue to invest in R and D to drive organic envelope expansions and build out the three d Hubs platform as we continue to reinvent manufacturing by broadening our capabilities and expanding the digital thread across our services. Our third strategic objective and priority for 2021 is to continue to support our employees and drive professional and personal growth. Our employees are instrumental in ensuring we achieve our long term strategic objectives. 2020 showcased the adaptability of our workforce. And in 2021, we will continue to evolve and embrace new and more efficient ways to work towards our long term goals.

In addition, diversity, equity, and inclusivity are very important to all of us at Proto Labs, and we will continue to educate, celebrate, and advocate to make us a stronger team in 2021. As I mentioned, there's a tremendous opportunity ahead of us, and the Proto Labs team must work together to capture it and drive our shared success. The executive leadership team and I will provide further detail regarding our evolution as a company and our long term strategic objectives during the Virtual Investor and Analyst Conference later this year. Now I will turn the call over to John for our outlook for the first quarter of twenty twenty one.

Speaker 3

Thanks, Rob. Consistent with past practice, we will provide quarterly guidance, including formal revenue range and qualitative summary of our cost expectations in the first quarter of twenty twenty one, as outlined on Slide 25. As we look to the first quarter, we have experienced improvement in our business. However, activity has not yet returned to pre pandemic levels. As a result, we expect first quarter revenue to be in the range of $108,000,000 to $118,000,000 compared to $105,200,000 in the fourth quarter.

With the closing of the three d Hubs acquisition during the quarter, we will record a partial quarter of revenue of approximately $5,000,000 We expect foreign currency to have a $1,000,000 to $1,500,000 favorable impact on revenue, assuming foreign currency rates remain at current levels. Our revenue guidance reflects continued uncertainty in the macro environment. Our Europe business, in particular, will likely be impacted in the first quarter by Brexit and new lockdown measures creating demand challenges as the recovery slows. January revenue was relatively flat with December and early February trends have remained fairly consistent with January. As a reminder, our typical seasonality pattern starts with a relatively soft January with activity increasing to a comparatively strong March, making visibility for the quarter challenging.

This year, we have an added challenge with the addition of three d Hubs as we learn patterns of that business. Now turning to expenses. As we did throughout 2020, we will continue to manage our cost structure levels in each of our services and across our overall business. As Rob mentioned in his comments, we have a backlog of projects that we will be investing in, including the ultimate integration of three d Hubs to capitalize on the long term opportunities in front of us. We expect our non GAAP first quarter gross margin to be approximately 48% plus or minus 50 basis points.

Our gross margin forecast is slightly lower than the 2020 due to the addition of three d Hubs, which currently operates at a lower gross margin than the legacy Proto Labs business and will result in a headwind of approximately 200 basis points. We also have factored in slightly higher compensation costs for potential inefficiencies as we begin working in our new systems combined with merit increase, benefit costs and increased incentive compensation. Turning to operating expense, we expect total non GAAP selling, general and administrative expenses to be between 41,000,000 and $43,000,000 up from $37,400,000 These projected first quarter expenses include the following components that are incremental to the fourth quarter. We will incur a full quarter of depreciation expense of $1,500,000 related to our Proto Labs two point zero system, representing an increase of 750,000 over the fourth quarter. We'll also be expensing a full quarter of resources related to Proto Labs two point zero that were capitalized for a portion of the fourth quarter, resulting in additional expense of approximately $500,000 to $1,000,000 The addition of three d hubs for approximately 75% of the first quarter will result in increased operating expense of $2,000,000 to $2,500,000 And the final key driver is an increase in compensation costs of approximately $1,500,000 related to increased payroll taxes in the first quarter, the timing of our annual merit increase, anticipated increases in employee benefit costs and incentive compensation.

Additionally, our GAAP results will be impacted by transaction costs and increased intangible amortization associated with the acquisition of three d Hubs and a one time equity compensation expense associated with our CEO transition. We currently estimate our non GAAP tax rate to be between 2122% in the first quarter. I also want to provide an update on our anticipated R and D expense beyond the first quarter of twenty twenty one. As Rob described in his comments, we have a tremendous opportunity ahead of us, and we'll have a road map of R and D projects to help us capitalize on that opportunity. As we progress through the year, quarterly R and D expenses will decrease slightly in comparison to the first quarter levels as some of the external contractors that have been dedicated to the project roll off, while the remaining employees and contractors shift from Proto Labs two point zero to other projects.

I'll now turn the call over to Rob for final comments.

Speaker 4

Thank you, John. Portobabs faced many challenges in 2020, and I am very proud of how our team responded. We achieved strong financial performance in the midst of a global pandemic and sudden declines in customer demand, while most importantly continuing to invest in our long term future success. As we enter 2021, we will continue our strong execution and prudently manage business performance in the short term, while continuing to invest to maintain our position as the digital manufacturing leader. We will continue working toward a best in class digital manufacturing customer experience and the broadest digital manufacturing offer for custom parts.

These two strategic objectives will allow us to become the go to supplier in customer in custom manufacturing. That concludes our formal remarks. Now Vicky, John, and I will gladly take your questions. Rob, can you please open the line for Q and A?

Speaker 0

Sure. Thank you. At this time, we'll now be conducting a question and answer First question today comes from the line of Brian Drab with William Blair. Please proceed with your question.

Speaker 5

Good morning, everyone, and thanks for taking my questions.

Speaker 6

Good morning, Brian. Good morning, Brian.

Speaker 5

Vicki, it's been great working with you. Good luck in the next chapter, and we'll miss you here at William Blair.

Speaker 6

Thanks, Brian.

Speaker 5

And John, I just wanted to start by saying I think you missed the line in the guidance, no EPS guidance. And I'm just curious what the thinking is there. Given there's so many moving parts, I guess that would have been helpful to have the EPS guidance in this particular quarter. I'm just wondering what your thought process is.

Speaker 3

Yeah. Brian, I think over the past few quarters, we've given the revenue range and then the qualitative information on the expense lines. And, actually, when I do my modeling, that that actually works out better because the revenue range really can can swing that EPS range quite a bit. Whereas our expense levels, particularly in the operating expense, from right now through the first quarter are are in a pretty tight range and and don't move that materially with revenue. So I actually find that providing that qualitative information when when I'm doing the modeling actually works out better to to get you a a better EPS range.

Speaker 5

Okay. Yeah. Thanks. We'll work work with that. And then, you know, one one thing I was looking at here, and I just wanna get your your take on this.

You know, when when you look at the unique product developer count, you know, I'm looking at the fourth quarter move sequentially. In a normal year, seasonality has the developer count down about 3% sequentially in the fourth quarter, we saw that same seasonality this year. But I I'm wondering why it's not up, more or why why that metric wasn't a little bit better in the fourth quarter. It just seems a little light in the fourth quarter in terms of developers. And one one thing I'm looking at is that typically the third quarter is up about 10% from the first quarter.

Right? And this year, the third quarter was down 10% from the first quarter. So it still it still seemed like there was room to make up for some of that and have some gains relative to that lower level. I'm just wondering, are you concerned about that? And why do you think we're not seeing more of kind of a rebound sequentially as we emerge from the depths of the pandemic?

Speaker 3

Yeah. Brian, I I think as you look at it, we've gotta look at the individual services and the the performance related to it. And when you look at it from that perspective, they are correlated. So our our CNC business is has been hit the hit the hardest, as we look at it, and and revenue is is down the most in in that service. And the average order size of of a CNC order is lower than that of injection molding.

And when we look at the full year, I mean, we did have, the $18,000,000 of of COVID related orders. Those tended to be larger orders than than we've experienced historically. So larger orders from relatively few product developers. So the combination of the mix change with a little bit of COVID as we look at at kind of the full year and even as we progress through the quarters, is, relatively expected or or makes sense to us as as we're looking at it. Yeah.

The the CNC business, that that was impacted by the the pandemic and and, what we're seeing in the market, and, that's where we'll be looking to recover as we go into 2021.

Speaker 5

Okay. Great. And then I'll ask one more and get back in line. But the rollout, it sounds like it went, as you planned, with Proto Labs two point zero in Europe. Are you seeing any bright spots there in terms of, like, leading indicators that this will have a material impact on the level of customer interaction, customer retention?

Is too late? I'm just wondering if there's anything that you can glean from that as we try and project the impact as you roll it out in The Americas?

Speaker 4

Sure. This is Rob. So, yeah, we went live in Europe in November, and we went live in The US February 1, so just a few weeks ago. The best initial indicators that we have is, is, you know, new customers and and customer counts coming, to the website and, and and uploads and and customer orders, all of which have been, you know, very, very good, very strong. And we've gotten a number of, you know, great great positive feedback from customers.

You know? And the fact that we went first in Europe, we were able to discover, you know, any any little hiccups or challenges there. We that really helped us to mitigate a a lot of things, as we went live in The US. So, you know, it's still early. We're only a few weeks into, into the launch here in The US, but initial indications are good.

Speaker 5

Okay. Thanks very much.

Speaker 0

Our next question is from the line of Jim Ricchiuti with Needham and Company. Please proceed with your question.

Speaker 7

Hi, good morning. I had to jump off just briefly, but I heard you comment about flatness in January, February. And I'm just wondering, it sounds like that's consistent with some of the normal seasonal patterns, but I'm just wondering, is there any color that you can provide with respect to some potential recovery in some of your end markets? Or is just too tough to really tell at this moment?

Speaker 2

Yes, I can take that. So when you look at January, it was pretty flat with December. That's pretty normal. January normally starts very slow as product developers emerge from the holidays and begin to get back to work. It picks up throughout the month as it did normally this year.

But in total, that was pretty flat with December. And so this is a very difficult quarter for us to forecast historically because the big ramp occurs, starts slow, and then we have a stronger March. We fully expect that to happen this year as well. But with the huge kind of uncertainty with the global economic recovery that adds another degree of complexity in really determining exactly what's going to be happening in February and March where the bulk of the growth in the quarter occurs. So what we basically say is kind of as we expected it to be and as it has normally performed, and we'll be watching for signs of that recovery as we move through the quarter.

Speaker 7

Got it. John, a question for you. Again, I apologize if you may have covered this. But as we think about 'twenty one and the potential that you might be layering back some of the temporary cost actions or benefits that you saw in 'twenty just as it relates to COVID, whether it's travel related or trade show or anything like that. Is there any color you could provide on that as to whether that is going to be at all meaningful as we think about operating expense over the balance of the year?

Speaker 3

Yeah. I think, I'm trying to provide the the color for where our first quarter operating expense levels will be. And I think, you know, as you project forward, you know, looking at those levels is is probably the the right place to start. We will be looking at, you know, where volume is coming in and what costs we can manage and and adjust as as we adjust to the volumes. But as I I said, we also will be, continuing to invest in our r and d, and and you will see that that line item, maybe come down a little bit from q one, but we'll we'll continue kind of at those levels.

So I think I would use, for your modeling purposes right now, I I would use those first quarter levels adjusted to include the the full quarter of three d hubs, and then we'll, provide guidance as we go along. That'll be a a little bit volume dependent.

Speaker 7

Got it. Okay. Thank you. And Vicky, best of luck.

Speaker 2

Thanks, Jen.

Speaker 0

The next question is from the line of Kenny Vallat with Berenberg.

Speaker 6

Good morning, everyone.

Speaker 4

Hi, Kenny. Good morning. Good morning, Kenny.

Speaker 6

So, my first question, is, I guess, related to three d Hubs. Could you just talk about your expectations for kind of growth in that business and how that could impact revenue over the course of the year you know, in terms of, just, yeah, whether that business is more geared towards prototyping and, just kind of the demand trends that you saw in that business. And, obviously, there's some, you know, COVID related revenue in 2020 related to three d hubs. So just thinking about kind of how the cadence of revenue will look in that business throughout the year.

Speaker 3

Yeah. Kenny, think it is a a new business for us as well. We've we've done our diligence. We see the opportunity. As we were looking at it, we we were acquiring the the platform to build off of and really serve our our customers in a in a broader manner.

As we looked at it, you know, I think we talked about 2020 revenue was about $25,000,000 for that business, and we expect growth off of that number in into 2021. Now the pace of that growth, I think, is gonna depend on on a few factors. One, just being the the global economy and and how things perform there, but also when how we can capitalize opportunities related to our legacy business as well as we come together as an organization. So I think as we progress through the year, we'll provide that quarterly guidance and update, related to it. I think, you know, big picture, we expect growth from from the levels they were operating at in in 2020.

Speaker 4

Yeah. I would just add that, to John's point around around the platform that this creates for us, you know, this is a really exciting, platform for us to serve our customers much more comprehensively and holistically, and we're excited about the long term growth as a result of that. In terms of, a little bit to characterize the nature of the business, asked about prototyping and production. They play in in both of those, and they do it across all four of the services. Right?

So there's a lot of common ality and synergy there, with CMC being the largest right now. But as we work together, with their integration planning between the two teams, you know, that's what we'll be doing over the course of this year to maximize and capitalize on those opportunities for synergy.

Speaker 6

Great. And then as a follow-up, in terms of the end markets 3Delg is exposed to, is it kind of roughly similar similar to, you know, Proto Labs today? Is there any anything you'd point out there in terms of, you know, the type of customer base that they're exposed to, you know, will have any any type of material impact on Proto Labs going forward?

Speaker 4

Well well, so as I said, the the services the types of parts that they produce are are very highly aligned in terms of the the four services we offer. They bring the benefit of, again, as we talked about, you know, broader envelope of opportunities and a broader range of of price points. So the customer overlap is actually relatively small in terms of the individual customers that we serve. So that's an opportunity for synergy.

Speaker 2

NAND markets are similar. I would say that they also have a larger percent of their revenue in Europe, so it actually does complement the core Protolex business that has a much larger percentage in North America, so it gives us a stronger European presence.

Speaker 6

Awesome. Thank you. I'll hop back in the queue for

Speaker 0

now. Thanks. Thank you. At this time, I will turn the floor back to Rob Bedore for closing remarks.

Speaker 4

Well, thank you for your time this morning. I'm pleased with our execution in 2020, providing we can perform well and proving that we can perform well in any economic conditions. I want to thank all Proto Labs employees for their extraordinary efforts in a very challenging year and for their continued efforts as we drive our 2021 priorities forward. I also want to thank our shareholders for their continued support of Proto Labs throughout a challenging year. Over the long term, we are committed to improving our customer experience and our manufacturing services offerings, creating significant shareholder value along the way.

And once again, I want to thank Vicki for her tremendous leadership over the past seven years. We look forward to providing you additional information on our long term strategy and 2021 priorities at our virtual investor and analyst conference later this year. Thank you.

Speaker 0

Thank you. This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.