Proto Labs, Inc.

Greetings and welcome to Protolabs Q1 2022 earnings conference call. At this time, all participants are in a lesson 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. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Mr. Jason Frankman, VP and Corporate Controller. Please go ahead, sir.

Thank you, Peter, and welcome everyone to Protolab's first quarter 2022 earnings conference call. I'm joined today by Rob Bedore, Protolab's President and Chief Executive Officer, and Dan Schumacher, Interim Chief Financial Officer. This morning, Protolab issued a press release announcing its financial results for the first quarter ended March 31st, 2022. 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. 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 non-GAAP to GAAP results. Now I'd like to turn the call over to Rob Bedore. Rob?

Thank you, Jason. Good morning, everyone, and thank you for joining us today to discuss our company's first quarter financial results and our outlook for the second quarter. I'm happy to report that we finished the first quarter strong after a slow start in January, and our results were slightly ahead of our expectations. As I communicated on our fourth quarter call in February, demand was impacted in January as the Omicron variant delayed our seasonal demand growth by several weeks. Our demand strengthened starting in February, and we finished the quarter strong. Our comprehensive digital manufacturing offer continues to delight our customers, the largest customer base in the industry. Before I provide an update on our 2022 priorities, I would like to take a moment to address the ongoing conflict in Ukraine. I want to send our thoughts and condolences to those impacted by the war in Ukraine. Our business has not been directly impacted by the events in Ukraine, as we do not have direct customers or direct suppliers in Ukraine, Belarus, or Russia. However, the events have impacted some Protolabs employees, their families, and peers. Our primary focus is to support our employees and also to minimize the impact on our business going forward. Although a lot has changed in the world since our last update in February, we continue to deliver on our mission to empower companies to bring new ideas to market by offering the fastest and most comprehensive digital manufacturing service in the world. During our fourth quarter call, I laid out our strategic priorities for 2022, which are aligned with our winning long-term strategy. We are focused to execute our strategy and we made progress on each priority during the first quarter. Our first priority is accelerating our revenue growth. We're focused on accelerating organic growth through pricing optimization and expanded offerings. We made progress in the quarter on developing a flexible lead time offering in 3D printing, which will be launched in the coming months. We also made progress on the integration of The ProLabs and Hubs offers into one e-commerce platform with a focus to provide a best-in-class customer experience. As we have previously communicated, the Hubs integration was initially delayed in 2021 by the implementation stabilization period of ProLabs 2.0. We have a cross-functional global team focused to execute the integration, and we recognize the need to increase our speed and agility. We're taking a very thoughtful, customer-centric approach to ensure the unified customer experience is seamless. We intend to have the initial integrated CMC machining offer released this year. Combining the strengths of the Protolabs and Hubs offers will further delight our customers and drive profitable growth. Hubs has had another strong quarter of growth, further validating its high-growth model, and current cross-selling activities reinforce the values that our model brings to the marketplace. As we execute on our integration plans, we're also working to drive accelerated growth at ProLabs and Hubs. We continue to adjust pricing based on various market factors and input costs in both businesses. So far in 2022, our pricing realization is in line with our expectations. In addition, our longer lead time CNC machining offer is gaining traction in the marketplace, and we've seen an increase in volume in CNC machining and 3D printing from key customers. Our new enhanced quality offering in our injection holding service, in which customers receive an automated dimensional and tolerance quality report, is key for production use cases. We will continue to automate and evolve our offerings to win in production. Our second priority in 2022 is to delight our customers. Our customer net promoter scores have continued to trend higher since the launch of our new e-commerce platform, largely driven by Protolab's best-in-class on-time delivery and quality rates. Additionally, we continue to find ways to improve our customer experience, including implementing new CRM strategies to accelerate responsiveness and offering enhanced e-commerce experience in our sheet metal service. Our next priority is to be the digital leader at scale. ProLab's operating margins are a measure of success for this priority. and we're pleased to report margins above our expectations in the first quarter. We expect margins to improve through the year as volume improves and as we continue to realize the impact of pricing adjustments and continued cost structure optimization. Our fourth and final priority for 2022 is to continue to be a great place to work. Our employees are our greatest asset and we will continue to invest in them and in areas that matter to them. We are investing in learning and development for all employees, as well as a dynamic and flexible way of working. In addition, during the first quarter, we focused attention on the advancement of our ESG initiatives, establishing a core cross-functional team tasked to identify opportunities and set goals for improved performance of our top environmental, social, and governance priorities. These priorities are outlined in our proxy statement recently filed with the SEC. Protolabs also received significant external recognition of our industry leadership and best-in-class digital manufacturing capabilities in early 2022. Our injection molding business continues to receive accolades. In March, Protolabs was awarded the Plastics News Excellence Award for technological innovation, recognizing our best-in-class and unique technology capabilities in our IM service. This reinforces the recognition we received in late 2021 when the World Economic Forum added our U.S. injection molding facility to its global lighthouse network, recognizing our leadership in implementing Fourth Industrial Revolution technologies. We were recognized because of our transformation from a prototyping provider to a full production provider through technologies connecting our e-commerce experience to the manufacturing shop floor. And at the time, our facility was only the 10th lighthouse in the United States. Protolabs also received the Leadership Award in the Collaborative Ecosystems category from the National Association of Manufacturers, or NAM. 2022 is the eighth straight year in which Protolabs has been recognized with the Leadership Award from NAM. The Collaborative Ecosystems Award recognizes companies that use manufacturing 4.0 technologies to enhance internal and external cross-functional collaboration. which helps boost productivity, satisfy customer requirements, accelerate innovation, and achieve greater speed and agility. Protolabs continues to be recognized externally as the digital leader in many facets. Our revenue and non-GAAP operating margins improve sequentially, and we look forward to carrying this momentum into the rest of 2022. Protolabs has the speed, scale, brand, customer base, and manufacturing experience to keep growing profitable. The combination of ProLab's best-in-class rapid manufacturing services and HUB's outsourced manufacturing partner network is a truly unique model in this market, a market that is growing rapidly with the continued digitalization of manufacturing. We remain confident in our long-term strategy and are focused on execution. We've established and strengthened the foundation and are focused to execute on the integration of HUBs. As we do this profitably, we will reinforce our sustainable long-term competitive advantage. Before I hand the call over to Dan, I would like to take a moment to thank Rich Baker for his service to Protolabs. In his five years as Chief Technology Officer, Rich was instrumental in designing the upgrade of our digital infrastructure and launching our Protolabs 2.0 systems. I am serving as interim chief technology officer while we, with the help of an executive search firm, conduct a search to find a new leader to elevate how technology fuels our strategy and enables Protolabs to maintain its position as the market leader. As we look on the horizon, we are on the precipice of revolutionizing manufacturing for a second time with a broader offering and unified digital experience, combining our digital thread with our digital network. As an ever-increasing group of companies adopt manufacturing 4.0, Probolabs will continue to lead the way. I will now turn the call over to Dan Schumacher to take you through our first quarter financial results and our outlook for the second quarter.