Proto Labs, Inc.

Greetings. Welcome to the Proto Lab second quarter 2021 earnings call. At this time, all participants are 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 on your telephone keypad. Please note this conference is being recorded. I will now turn the call over to Dan Schumacher. You may begin.

Thank you, Stacy, and good morning, everyone. With me today are Rob Bedore, ProtoLabs President and Chief Executive Officer, and John Way, our Chief Financial Officer. This morning, ProtoLabs issued a press release announcing its financial results for the second quarter ended June 30th, 2021. 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 our discussion will include statements relating to future performance and expectations that are or may be considered forward-looking statements and subjects 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 the company website for a complete reconciliation of non-GAAP to GAAP results. Now I'd like to turn the call over to Rob Bedore for a summary of our second quarter performance. Rob?

ROB BEDORE Thanks, Dan, and good morning, everyone. Thank you for joining us today for our second quarter 2021 earnings conference call. I will begin with commentary on recent industry developments and an overview of second quarter business performance. John will then provide details on our second quarter financial results and our outlook for the third quarter. During the first half of 2021, several emerging companies that offer online access to manufacturing have entered or announced plans to enter the public markets. This is not unexpected given the trends toward manufacturing 4.0 in recent years. These recent developments further highlight the very attractive digital contract manufacturing space, an industry that Protolabs created in 1999. Protolabs remains unique as the only company to digitally manufacture parts across a range of services, both additive and traditional. We remain the only company to have transformed these manufacturing processes, enabling us to be the fastest and most reliable manufacturer of custom parts in the world. We began to revolutionize manufacturing in 1999 and have over 20 years of experience in manufacturing data to drive continuous improvement in our systems and processes. With the acquisition of Hubs earlier this year, our ability to offer market-leading speed and consistency with a premium network of manufacturing partners will allow us to serve nearly all customer use cases by combining our unique digital thread with the Hubs digital network. We believe the combination of Protolabs internal manufacturing capabilities and HUB's network of premium manufacturing partners is superior to competing offerings, provides the broadest set of capabilities and lead times in the world. We're focused on serving our customers in a sustainable manner that will in turn deliver long-term shareholder value. Protolabs has the best-in-class financial profile driven by our software-enabled manufacturing and superior customer offerings. Through the continued integration of hubs and further expansion of our internal capabilities, we will also have the broadest digital manufacturing offer in the market to serve our existing customers and to attract new customers. We invented the digital manufacturing space two decades ago. Our combination of the digital thread for manufacturing and our premium digital network is the winning model, and we will outperform other companies in the space long term. We are very excited about the future. Turning now to our second quarter performance, strong order growth resulted in record quarterly revenues of $123 million within our guidance range and represented year-over-year growth of 15.5%. As a reminder, in the second quarter of 2020, we generated $12 million of revenue from parts with COVID-19-related applications, including testing supplies, personal protective equipment, and life-saving medical devices. Excluding that revenue, year-over-year growth was 30%. Our results include a full quarter of revenue from our recent acquisition of Hubs. Hubs produced strong growth of 45% over the prior year and contributed $8.9 million in revenue in the second quarter. Consistent with many businesses that have been surging demand, We are also experiencing tight supply in markets for labor and certain materials. Labor shortages, especially in the U.S., are well documented and have led to wage inflation and difficulties in adding staff to service the healthy order volumes. Despite these challenges, we generated record quarterly revenue in large part due to our software-enabled digital manufacturing processes that are far less labor-intensive than our peers. Continuing with our second quarter revenue performance by service outlined on slides six and seven, injection molding revenue was a record 58.2 million in the second quarter, excluding the COVID-19 related injection molding revenue in the second quarter of 2020. This service grew 27%. We continue to experience very high demand in our injection molding business. During this period of tight supply, our value proposition of best in class lead times has resonated with customers. The impacts of labor and material shortages have been most pronounced in our injection molding business, creating a substantial backlog of orders that will be carried into next quarter. CNC machining revenue was a record $41.6 million in the second quarter. CNC machining revenue in the quarter was up 45% over the second quarter of 2020. Excluding hubs, our legacy CNC machining business grew 23% through the strong order volume as market demand continues to improve from the historic lows of 2020. Additionally, during the second quarter, we launched a new flexible lead time manufacturing option in our ProLab CNC service. We still offer the fastest lead times in the market through our standard and expedite options, and we've now expanded our CNC offerings with an economy offer that provides customers with a broader range of lead time and price point options and allows them to make the decision that best suits their specific use case. Furthermore, this offering expansion benefited from our new ProtoLabs 2.0 platform. ProtoLabs 2.0 enabled us to launch this new offer to the market faster than would have been possible in our prior environment. 3D printing revenue was a record high at $18.2 million in the second quarter. 3D printing revenue increased 28% year-over-year, or 12% excluding hubs, indicating continued strong demand for our 3D printing services. Lastly, sheet metal increased 1% year-over-year. During the second quarter, we consolidated our sheet metal operations in New Hampshire into one facility to help create operational efficiencies. This move impacted sheet metal revenues and lead times briefly during the second quarter, but will provide benefits for our business going forward. Moving to earnings, we reported second quarter non-GAAP diluted earnings per share of 39 cents. Labor and certain resin availability issues have constrained product shipments as we continue to emerge from the economic impacts of the global pandemic, impacting both our reported revenue and earnings this quarter. Due to higher than anticipated labor costs and medical expenses, our second quarter non-GAAP gross margin was lower than the guidance range we provided in May. As we move forward, we will continue to deploy innovative strategies to build openings in our manufacturing operations and deliver quality parts to our customers. In addition, we will continue working to actively mitigate labor and material cost impacts through pricing and other operating efficiencies. Transitioning now to Hubs, the business we acquired in January. Hubs recently rebranded and dropped the 3D from its name. Since its founding in 2013 as a peer-to-peer 3D printing service, Hubs has evolved to offer Protolabs full range of manufacturing services via a network of premium manufacturing partners. The Hubs brand better reflects the full range of manufacturing services and capabilities currently offered. The rebrand occurred in early May and had been planned since before the acquisition in January. We're very excited with how the rebranding went, and I want to thank the Hubs team for their great work on this. In addition to the rebrand, our priority is the integration of Hubs capabilities into our broader customer offering. After launching Protolabs 2.0 in the first quarter of 2021, the integration is now our top priority for the remainder of the year. While both organizations continue to operate semi-independently and execute on their respective business plans, We continue to work together to incorporate HUB's capabilities to provide one unified, seamless customer experience with the broadest digital manufacturing offer for custom parts in the world. At our May 20th Virtual Investor Day, we provided further insight into our long-term strategy and our plan for execution over the next five years. The presentation included prepared remarks with supporting slides, as well as a 45-minute live Q&A session with several members of our executive leadership team. This was our first Investor Day event since late 2017, and we included a great amount of detail on our strategy, including forward-looking financial targets. If you've not already seen it, I welcome you to watch the recording of this presentation, which you can access via the Investor Relations section of our website. Now, John will provide a detailed summary of our second quarter financial performance, as well as our outlook for the third quarter. John?