Greetings, and welcome to Proto Labs Third Quarter 2025 Earnings Conference Call. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Ryan Johnsrud, Investor Relations Manager. Thank you. Please go ahead.

Thank you, operator. Good morning, everyone, and welcome to Proto Labs' Third Quarter 2025 Earnings Conference Call. I'm joined today by Suresh Krishna, President and Chief Executive Officer; and Dan Schumacher, Chief Financial Officer. This morning, Proto Labs issued a press release announcing its financial results for the third quarter ended September 30, 2025. The press release is available on the company's website. In addition, the prepared slide presentation is available online at the web address provided in our press release. Our discussion today will include statements relating to future performance and expectations that are or may be considered forward-looking statements and subject to many risks and uncertainties that could cause actual results to differ materially from expectations. Please refer to our earnings press release and recent SEC filings, including our annual report on Form 10-K for information on certain risks that could cause actual outcomes to differ materially and adversely from any forward-looking statements made today. The results and guidance we will discuss include non-GAAP financial measures consistent with our past practice. Please refer to our press release and the accompanying slide presentation at the Investor Relations section of our company website for a complete reconciliation of GAAP to non-GAAP results. Now I will turn the call over to Suresh Krishna. Suresh?

Thanks, Ryan. Good morning, everyone, and thank you for joining our third quarter earnings call. I'm pleased to be with you today to discuss our strong results. We delivered record quarterly revenues and exceeded earnings expectations, highlighting the strength of our model and the power of focused execution. Before discussing our results in detail, I want to take a moment to share a few reflections from my first five months with Proto Labs. Spending time in our facilities and with our customers and our partners has left me energized and confident in the opportunities ahead. We are focused on removing friction, expanding our offerings, and deepening customer relationships. While it's still early, my short time here has strengthened my confidence that our current strategy, delivering high-quality custom parts throughout the product life cycle from prototyping to production, is the right one. We are in the midst of a comprehensive strategic planning process to identify specific initiatives and projects to accelerate growth and improve our operations. We are refining the details on how to achieve full realization of our strategy, and I look forward to sharing more in 2026. Meanwhile, we are committed to delivering value with speed, clarity, and discipline, unlocking long-term growth. Together with our teams, I am focused on reaccelerating revenue growth and ultimately positioning Proto Labs for long-term shareholder value creation. Now on to our third quarter results. Revenue grew 7.8% year-over-year to a quarterly record of $135.4 million, and we had a strong quarter of earnings that exceeded expectations. Our teams continue to execute with speed and focus, driving strong financial results. I'd like to especially commend our U.S. go-to-market teams whose continued commitment to customers and execution fueled another quarter of double-digit revenue growth in the U.S. Our record revenue was led by increased demand in our U.S. CNC machining and sheet metal offerings, supported by strength across several key end markets. First, in aerospace and defense, we experienced continued strong demand for mission-critical precision parts in innovative areas like drones, satellites, and space exploration. As you know by now, Proto Labs works with the most prominent, innovative, and fastest-growing companies, Amazon being one of them. Our speed, precision, quality, and reliability allow us to be a trusted partner to Amazon in several of its critical business units, notably drones and robotics. We have also supported Blue Origin with parts for their single-launch lunar cargo lander, among other projects. Blue Origin told us they continue to use Proto Labs' services due to our impeccable customer service and levels of detail and accountability. The second area of note for us is industrial and commercial machinery. This segment also performed well with notable activity in robotics and semiconductors. In addition, overall Proto Labs CNC machining revenue was driven by very strong network fulfilled growth. I want to acknowledge our Proto Labs Network teams for their excellent execution through periods of significant tariff uncertainty and implementation challenges. Our teams managed through uncertainty and increased demand while reducing customer friction and driving higher sequential network gross margins. These results demonstrate our ability to execute well and deliver strong performance across our target industries. Now shifting to our two key performance indicators where we made significant improvements. Third quarter revenue per customer increased almost 15% year-over-year as we continue to drive increased share of wallet with our large and strategic customers. I am very encouraged by the traction we are seeing in deepening customer relationships, and I can tell you anecdotally that our large enterprise customers want to do even more with Proto Labs. Adoption of our combined offer continued to expand in this quarter with customers utilizing both factory and network fulfillment in the last 12 months, up 35% versus the prior quarter. As we continue to serve more customers and remove customer friction, this is showing up in accelerated demand. In fact, due to strong demand, we are expanding CNC machining capacity in our factories, a significant signal of momentum and confidence. We expect this investment to generate meaningful return. I know we can do more for our customers. Over the past several months, we have worked to significantly expand our factory CNC machining service. You might have seen a press release announcing the launch of advanced CNC machining capabilities a few weeks ago. If you haven't, I encourage you to check it out. We listened to our customers and heard loud and clear that they require advanced manufacturing capabilities from Proto Labs. These capabilities include tighter tolerances for added precision, diverse finishes to strengthen and cosmetically improve parts, and fast, comprehensive quality documentation. Further, these services are all now available via our protolabs.com e-commerce ordering platform. This is an example of our commitment to removing friction, and we will continue to invest in improvements like this to drive demand. Moving to a broader commentary about our business. As I noted in our last earnings call, I believe we have great talent and a great culture. I want to build on that culture by continuing to bring in and retain top talent. We are proud to be named one of America's Best-in-State Employers in 2025 by Forbes, recognizing our strong workplace culture and commitment to our employees. In addition, in early October, we announced the appointment of Marc Kermisch as our Chief Technology and AI Officer. This move helps strengthen our leadership team. Marc will lead our technology teams through Proto Labs' next chapter. He brings a strong track record in digital transformation and AI strategy, and his addition underscores our commitment to these areas. We've been using AI and machine learning at Proto Labs for a long time now as part of digital manufacturing. Marc will lead our tech teams as we further embed AI and automation across our operations, driving both efficiency and better customer outcomes, both of which are central to our strategy. We will continue to strengthen organizational capabilities to support our growth initiatives. Before passing the call over to Dan, I'd like to make some closing remarks. As I mentioned earlier, we will provide more details on strategic initiatives in 2026, but sharpening our execution and improving the customer and employee experiences are essential. Our focus is clear: accelerate profitable growth. I am very encouraged by the progress we've made over the last two quarters. We have accelerated revenue growth and exceeded expectations on earnings. We have significant momentum into year-end. I can feel it in our manufacturing facilities and in conversations with our sales teams across all of our offices. I could not be more confident in Proto Labs' ability to execute with speed, discipline, and innovation as we deliver long-term value to our customers and shareholders. With that, I'll turn it over to Dan to walk through the financials.

Thanks, Suresh, and good morning. I'll start with a brief overview of our third quarter results, followed by our outlook for the fourth quarter. Third quarter revenue was a company record $135.4 million, up 7.8% year-over-year or 6.8% in constant currencies. Revenue fulfilled through Proto Labs Network was $30.1 million, up 16.2% in constant currencies. Third quarter CNC machining revenue grew 18.2% year-over-year or 17% in constant currencies. As Suresh stated, we are seeing very strong demand for our CNC machining services across several key end markets, most notably drones, satellites, and space exploration. In the U.S., CNC machining revenue grew 24% year-over-year. Injection molding grew 2% year-over-year or 1.2% in constant currencies as we saw strong demand for network fulfilled injection molding services, offset by weak prototyping demand. 3D printing revenue declined 6.3% year-over-year or 7.1% in constant currencies, driven by weak demand in Europe. Sheet metal grew 13.9% year-over-year or 13.3% in constant currencies, fueled by solid growth in most end markets. Revenue in the U.S. grew 10% year-over-year, while Europe revenue declined 5% in constant currencies. Like many manufacturers, we are seeing the effects of continued contraction in European manufacturing activity. Shifting to margins. Third quarter consolidated non-GAAP gross margin was 45.9%, up 110 basis points sequentially. We delivered sequential gross margin improvements in both the factory and the network. Non-GAAP operating expenses were $48.6 million or 35.9% of revenue, down 30 basis points from 36.2% of revenue in the second quarter as we generated sequential efficiencies on our SG&A costs. On a year-over-year basis, SG&A was up $4.2 million. The majority of that year-over-year increase was in variable expenses tied to revenue growth, including incentive compensation and commissions. Third quarter adjusted EBITDA was $21.1 million or 15.6% of revenue. Non-GAAP earnings per share were $0.47, up $0.06 sequentially. The sequential improvement was primarily driven by gross margin expansion. Compared to the third quarter of 2024, EPS was flat as increased volume was offset by higher incentive compensation and commissions expenses. We generated $29.1 million of cash from operations during the third quarter. Proto Labs continues to lead the digital manufacturing industry in cash generation, reflecting the strength of our business model. We returned $12.8 million to shareholders in the form of repurchases. On September 30, 2025, we had $138.4 million of cash and investments on our balance sheet and $0 debt. Our outlook for the fourth quarter of 2025 is outlined on Slide 12. We expect revenue between $125 million and $133 million. At the midpoint, this implies 6% revenue growth year-over-year. We expect foreign currency to have a $1.5 million favorable impact on revenue compared to the fourth quarter of 2024. Moving to earnings guidance. We anticipate non-GAAP add-backs in the fourth quarter to include stock-based compensation expense of approximately $3.9 million and amortization expense of $900,000. We currently estimate a non-GAAP effective tax rate between 23% and 24% in the fourth quarter. In summary, we expect fourth quarter non-GAAP earnings per share between $0.30 and $0.38. That concludes our prepared remarks. Operator, please open the line for questions.

Today's first question is coming from Greg Palm of Craig-Hallum.

Suresh, a lot of your prepared remarks revolved around this idea of accelerated growth. But I don't think a lot of investors think of Proto Labs as a growth company, just given the history over the last 7 to 8 years. So just help us understand what's the opportunity? What's the potential growth rate for the company longer term?

Thank you for the question. We are very focused on driving growth, and our performance over the last two quarters reflects that with consistent growth above 7%. We are currently developing a new strategic plan, which we will share in 2026. In the meantime, we are dedicated to listening to our customers, addressing their pain points, and providing them with what they need. We are also focused on delivering products throughout their entire life cycle, which has been well received by our customers. As we execute these initiatives, we will continue to refine our strategy alongside the strategic plan we will announce in 2026. Our confidence in future growth stems from the positive response we are experiencing from our customers regarding our current efforts.

Is it reasonable to assume that you're currently experiencing any of that? Or are you primarily benefiting from the growth in some of your end markets like A&D? I'm trying to understand what company-specific initiatives could lead to an increase in the growth rate.

Yes. We shared an example of our advanced machining capabilities that originated from listening to our customers. We have a few more projects underway, and we will provide additional details when we connect again in 2026. It's important to note that we are experiencing growth across various industries, not just aerospace and defense. We serve 50,000 customers annually and are the supplier of choice for anything related to innovation. There is significant innovation occurring across a variety of sectors today. While we are seeing strong growth in aerospace and defense, other industries are also thriving. Innovators, whether working from home garages or within large Fortune 500 companies, choose us because they seek speed and innovation, and we are the ideal partner for that. Our customer base is very diverse.

Okay. I understand. And then just last one on the CNC expansion. What is the CapEx requirement associated with that? Is that just more machines? Is that a facility? And sort of where are we in terms of that build-out right now?

Yes, Greg, thanks for the question. This is Dan. We're fine from a facility perspective. This is just continuing to add mills. I mean with our digital manufacturing model, we can expand very quickly just by adding mills to the facility. I know you've been out to our Brooklyn Park facility. We can simply add mills and be able to continue industry-leading fast lead times by doing that. So it's an equipment purchase.

The next question is coming from Troy Jensen of Cantor Fitzgerald.

Congrats on the excellent results. Suresh, you mentioned record revenue per unique developer, but the number of unique developers has decreased compared to last year, reaching a three-year low. Could you discuss the situation regarding new developers? It appears that in this same market, there should be growth in unique developers rather than a decline. I'd appreciate your thoughts on this.

We are absolutely focused on growing our customer base. We are definitely seeing the efforts that we are putting right now is growing share of wallet, and that's what we are focused on, but we are definitely looking to increase our customer base overall. And when you serve 50,000 customers and our focus is right now on growing share of wallet, that's where we are seeing results, but we're absolutely focused on increasing our customer base as well.

All right. Understood. And then can you just talk about just cross-selling? I think Rob used to provide us data points on percentage of customers that are using both factory and network.

We mentioned in the script that there's been a 35% increase year-over-year. Among those customers who have ordered from both the network and the factory in the past 12 months, the key focus is on the nature of our conversations with them. Customers upload their CAD files, which allows us to engage in a comprehensive discussion about their needs. We explore whether they require fine details for their parts, if they need their orders urgently, if they can afford to wait longer, and what price range they are considering. This metric reflects our ability to engage in these broader conversations and secure more business with Proto Labs.

The next question is coming from Brian Drab of William Blair.

I can hear the cold in my voice as I'm starting to talk this morning. With the advanced CNC machining capability, how automated is that going to be? Or how automated is it? I see that you're talking about the ability to evaluate 2D drawings. Is that type of evaluation automated? And just what were some of the challenges in bringing that additional level of service online?

Yes. As I mentioned earlier, we are now providing tighter tolerances and different finishes that our customers are requesting, along with enhancements in quality documentation. We have automated the entire process by making everything accessible on our website, allowing customers to place orders through protolabs.com as an e-commerce transaction. We have essentially created a digital thread, simplifying the process for our customers, which previously relied more on manual efforts.

So specifically, if I provide a 2D drawing that has 400 tolerances, is the system automatically considering all 400 of those tolerances? Or is there some level of manual evaluation by an engineer?

The website will guide you through with drop-down menus for all the specifications you want to make. As a design engineer, you can engage with the website to determine your needs, including quality documentation. This process is fully digital, eliminating the need for manual intervention. Our application engineers are always available for discussions, and many customers take advantage of this. This ensures that any needed clarifications are addressed, and this service is accessible to all our customers, regardless of whether they require advanced or standard options.

How are you considering the pricing of that level of service compared to what customers could have historically accessed through the Proto Labs Network, even if it meant waiting a bit longer? It seems you likely have partners available on that Network.

So, Brian, I want to highlight a couple of points. The process is largely automated upfront, but if there are specific customer needs that arise, we have team members dedicated to addressing those requirements and ensuring we supply the necessary components. Our offering is quite competitive in the 5- to 10-day lead time category. We can efficiently produce complex CNC parts at competitive prices within that timeframe.

Okay. Got it. And then just maybe one more for now. Suresh, after you've been there for 5 months and you see how the CNC business is just booming, but the injection molding business, which has been the legacy growth driver for many years, is still relatively flat lately. What do you think about the medium-term prospects for that business to regain growth?

Yes. There is reduced prototyping activity in that space, which is contributing to some of the softness we've seen over the past few years. However, we are definitely focused on the three service lines and the sheet metal, which is only U.S.-based, across all our geographies. When we speak with you in 2026, we will provide more specific initiatives on our plans. As you mentioned, this is a legacy business for us, but it's still a strong business, and we are committed to increasing our efforts for growth in all our service lines.

The next question is coming from Jim Ricchiuti of Needham & Company.

First, congratulations on the results and the margin improvement. I am curious about the factors affecting the gross margin performance in the quarter. Volume likely contributed, but did you experience any improvement in the network gross margins? Additionally, I don't recall hearing anything about tariffs, so I assume that wasn't a concern. Could you clarify whether you have detailed information on the network gross margin?

We did not. But network gross margins were around 33% in the quarter. So Jim, you might recall from last quarter, we talked about the change in tariffs and how that negatively impacted our U.S. network margin. We give the customer a price when they order it, and we hold to that price. So we could have a 30-day worth of backlog that the cost goes up on it due to pricing and you would have a negative margin impact. We were successfully able to implement changes both to our pricing and our sourcing algorithms so that in the third quarter, even though tariff costs were still up, we were able to improve our margins quarter-over-quarter in the network. So there's about 80 basis points quarter-over-quarter that was just due to the improvement in the network margins. Outside of that, we saw improvements in our factory margin as well. One main driver of that is revenue in Europe was up quarter-over-quarter. And with that increase in our Europe factory revenue quarter-over-quarter, we were able to operate those plants more efficiently in the third quarter. So those two things combined, so both factory margins being up and network margins being up contributed to our 110 basis point improvement second quarter to third quarter in gross margins.

Got it. That's helpful. When you look at the progress in revenue per customer, I wonder if you could help us understand where the biggest benefits are coming from? Are they from the key verticals you highlighted? There's a lot of activity in the drone and robotics sectors. Are you seeing growth in these areas? Is the revenue per customer coming from the established Proto Labs customers you've been with for a long time, or is it from newer customers who are more receptive to your production capabilities? I'm trying to understand what's driving that growth because it is noteworthy.

Yes. That's a great question. We are seeing improvements from new and existing customers. And we are seeing this, what I would say, share of wallet increase across different industries. As I said even earlier, we are a very diverse customer base. And while we are seeing good strength in the sectors you mentioned within aerospace and defense, which is around drones, satellites, and space, we're also seeing in industrial areas like robotics, semiconductors, and consumer electronics. So we are seeing the benefits of focusing on customer voice and turning around and responding to that. And that's what is helping us improve our share of wallet. Dan, do you want to add anything?

Yes. I also want to mention that we have reorganized our go-to-market strategy. Earlier this year, we discussed this with you. The Americas sales team is achieving outstanding results. They are engaging in detailed discussions with customers to understand their needs and how we can meet those needs more effectively. This interaction is enabling us to assist our customers more comprehensively, which is reflected in the increasing amount that customers are purchasing from us.

Thank you. Ladies and gentlemen, this concludes today's question-and-answer session and today's conference call. We would like to thank you all for your participation. You may disconnect your lines or log off the webcast at this time, and enjoy the rest of your day.