Proto Labs Inc (PRLB) 2013 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the Proto Labs fourth-quarter 2013 conference call. (Operator Instructions) This conference is being recorded today, Tuesday, February 11, 2014.

Now I would like to turn the conference over to Bill Dietrick, Vice President of Marketing at Proto Labs. Please go ahead, Mr. Dietrick.

Thank you, operator, and good morning, everyone. This morning, before the market opened, Proto Labs issued a press release announcing its fourth-quarter financial results for the period ended December 31, 2013. The release is available on the Company's website at ProtoLabs.com.

Before we get started, during the course of this conference call, the Company will provide financial projections and make other statements about its business that are forward-looking and subject to many risks and uncertainties that would cause actual results to differ materially from expectations. A detailed discussion of the risks and uncertainties that affect the business is contained in the Company's annual report filed on Form 10-K and other SEC filings, particularly under the heading Risk Factors. Copies of these filings are available online from the SEC or on the Proto Labs website.

The Company's projections and other forward-looking statements are based on factors that are subject to change, and therefore these statements speak only as of the date they are given. The Company does not undertake to update any projection or forward-looking statement.

In addition, to supplement the GAAP numbers we have provided non-GAAP adjusted net income and basic and diluted net income per share information that excludes the after-tax cost of stock compensation. We believe that this non-GAAP number provides meaningful supplemental information and is helpful in assessing our historical and future performance. A table reconciling the GAAP information to the non-GAAP information is included in our financial release.

Now I would like to turn the call over to Brad Cleveland, former Chief Executive Officer of Proto Labs. Brad?

Good morning, everyone. Thank you for joining us today on our fourth-quarter 2013 conference call.

It is an exciting time for Proto Labs, ending 2013 with more record results and starting 2014 with a uniquely qualified CEO to take the Company to the next level. On that note, with me today is Vicki Holt, our newly appointed President and CEO, and Jack Judd, our Chief Financial Officer.

I will provide a brief overview of our fourth-quarter 2013 financial results and some commentary on our Cool Idea! marketing program. I will then turn the call over to Vicki, so she can provide her background and thoughts on joining Proto Labs.

Jack will provide a more detailed look at our financial results and offer our views on the outlook for the first quarter of 2014. We will then be glad to take your questions.

I am glad to report that for the seventh consecutive quarter Proto Labs achieved record revenue. Fourth-quarter revenue was $44 million, a 31% increase over the fourth quarter of 2012.

Our year-over-year revenue growth numbers have been impressive throughout 2013, and we look forward to another strong year in 2014 as our services become known to more product developers and we continue to dig deeper and wider in our current customer base. Our new Proto Labs services ramping during 2014 will help accelerate our growth, as we offer even more ways to make parts for our customers.

Our record consolidated results were the result of each of our geographic regions having record revenues. Proto Labs US achieved record revenue of $32.8 million, a 26% increase over the same quarter in 2012. This marks the eighth consecutive quarter of sequential revenue growth in the US. As our largest geographic location, this is a very impressive result.

Proto Labs Europe also achieved an impressive revenue record of GBP6 million, a very strong 54% increase over the same quarter in 2012. 2013 has been a wonderful year for our European operations, coming off the economic problems in the eurozone.

As a reminder, our European factory is located in Telford, United Kingdom, and ships to customers in England, Germany, France, Italy, and other countries throughout Europe. We have successfully operated in Europe since opening there in 2005. I would like to thank our European team for all of their hard work in helping us grow our business so successfully in 2013.

Proto Labs Japan achieved record revenue of JPY161 million, 42% above the revenue of the same quarter during 2012 and marking six consecutive quarters of strong sequential growth. Throughout 2013, we have made significant progress toward profitability in Japan, which gives us confidence that we will reach our goal of breakeven during 2014.

The combination of these record revenues allowed global consolidated Proto Labs organization to achieve record net income for the fourth quarter of 2013 of $9.5 million or $0.36 per diluted share. This compares to $7.4 million or $0.29 per share in the same quarter of 2012.

As we mentioned in our conference calls earlier this past fiscal year, we now report on the number of product developers we do business with, regardless of the number of companies from which they come. We feel this is a more relevant metric, as it mirrors our go-to-market strategy of finding more product developers as the top priority, and adding new customer companies as the next priority.

During the fourth quarter of 2013, we did business with approximately 7,300 product developers. This is 21% higher than the same quarter of 2012. Our press release contains additional information on both product developers and customer companies, to continue to enable a smooth transition to this new metric.

The Cool Idea! program has undergone several significant changes for 2014, all intended to increase exposure and create awareness of the program and the Proto Labs business as a whole. In January, we announced the addition of five Cool Idea! judges who will participate in selecting the award recipients over the coming year.

They are Brooks Atwood, Professor of Design at Parsons and NJIT and owner of POD Design, an industrial design firm; Ray Hu, managing editor of Core77, the go-to design site for designers; David Lang, cofounder of OpenROV, creators of low-cost underwater robots, a writer for MAKE Magazine, and a 2013 TED Fellow; Scott Miller, CEO of Dragon Innovation, a company that helps hardware innovators fund and launch their own companies, who was previously with iRobot; and Joe Rizk, a venture and business designer at IDEO, previously with several seed-stage venture capital firms.

These new judges will join Proto Labs' founder Larry Lukis as brand ambassadors for the Company and will help spread the word and increase exposure for Proto Labs in the coming year.

In late January we held our first Cool Idea! promotional event, which took place in New York City. The first Proto Labs Cool Idea! gallery event showcased nine Cool Idea! award recipients in an art gallery setting. This event drew close to 100 people from the design community and the media, and attendees were able to mingle with the new judges and several of the award winners, and view each of the innovative products that were successfully launched with the support of Proto Labs and the Cool Idea! award.

Media attendees included representatives from Mashable, 60 Minutes, and CNBC, with follow-up coverage from Forbes and Yahoo! Business. The gallery event had some great event-day exposure on Twitter, resulting in over 65 Twitter references to over 100,000 followers.

Additionally, gallery event exposure drove a significant increase in traffic to the Cool Idea! website, which has seen a 90% increase in traffic and a 384% increase in page views. We will continue to increase awareness by leveraging the gallery in 2014 via the virtual gallery website found at www.coolideaaward.com and additional events.

Now I would like to turn the call over to our newly appointed President and CEO, Vicki Holt.

Thank you, Brad. I am humbled, excited, and energized to join such a high-performing growth company as Proto Labs.

Just a little on my background. I have over 25 years of P&L experience with large manufacturing companies that have a strong technology base, including Monsanto Company, Solutia, and PPG Industries. Most recently, I was the CEO of Spartech Corporation, a $1.2 billion publicly traded company which supplies plastic sheet, compound, and packaging solutions to a wide variety of OEMs in a wide variety of end markets.

I have had many years of experience driving material specifications with the same product developers who buy services from Proto Labs. I know how valuable we are to them. We reduce time-to-market, we reduce waste, we reduce costs, and we take risk out of introducing new products.

As a leader I have learned the importance of strong technology, a compelling value proposition, and a commitment to innovation and also great people. Proto Labs has it all.

I did quite a bit of due diligence as I went through the recruitment process. And I must admit: the more I learned, the more I fell in love with this Company.

I talked with several product developers, and what truly encouraged me during these calls was the fact that everyone I spoke to who has used Proto Labs was not just delighted; they had what I called the Wow factor. We blew them away.

The other thing that encouraged me was the fact that there were many product developers who did not even know Proto Labs. And when I described the Company, all they could say was: wow, cool, I am definitely going to use them next time. So I am confident there is tremendous growth opportunities with further penetration of existing markets.

I also did quite a bit of due diligence internally within Proto Labs. And although I continue to learn more every day, my review only served to further validate my confidence in the future of this business.

The Proto Labs people are fantastically talented, committed to results, and truly believe in the huge growth potential of this Company. The strength of the technology to deliver Real Parts, Really Fast is also very real. The Company delivers on this value proposition every day, without heroics, but with solid technology and operational excellence.

In the next couple months, I intend to meet more of our team members and our customers, to understand what more we can do to successfully execute on our three-pronged growth strategy: adding new customers; developing technologies to offer additional manufacturing processes; and developing new technologies to broaden our parts envelope with complexity and additional materials.

So I thank you for joining us today and I look forward to personally meeting many of you and to reporting on the progress of Proto Labs after our next quarter. Now I would like to turn it over to Jack to provide a deeper view of our financial results. Jack?

Thank you, Vicki. Revenue in the fourth quarter of 2013 was $44 million, an increase of $10.4 million or 31% over fourth-quarter 2012 revenue.

Protomold revenue during the just completed quarter was $30.7 million, and Firstcut revenue was $13.3 million. During the quarter, Firstcut revenue represented 30% of total revenue, consistent when compared to the fourth quarter of 2012.

Our international revenue was $13 million or 29% of total revenue during the fourth quarter of 2013, compared to $8.6 million or 26% of revenue during the same period in 2012. The negative effects of currency were approximately $300,000 this past quarter.

As reviewed earlier, we are transitioning from looking at revenue growth from customer companies to the number of product developers we do business with each quarter. When looking at this new measurement, we did business with nearly 7,300 product developers in the just completed fourth quarter, an increase of 21% compared to 6,000 the previous year. The average revenue per product developer increased 8.6% in the just completed quarter compared to the same quarter in 2012.

Our gross operating margins in the fourth quarter of 2013 were 62.7% and 31.5%, respectively. During the fourth quarter of 2012, these were 62.5% and 30.5%. We continue to experience higher than target model margins due to our effective forecasting of labor and leveraging of our operating expenses.

Companywide at the end of December we had 749 total employees versus 622 at the end of December 2012. Our inside selling force and support employees totaled 147 at the end of December, compared to 120 at the end of December 2012.

Diluted earnings per share in the fourth quarter of 2013 were $0.36. Adding back the after-tax cost of stock compensation, our non-GAAP diluted earnings per share in the quarter were $0.39. A reconciliation of net income and EPS to non-GAAP net income and EPS was included in our earnings release this morning.

At the end of 2013 our cash and investments totaled more than $143 million.

We continue to make steady progress on our new factory here in the Twin Cities. The significant rehab work is mostly complete, and we are currently setting up the infrastructure to allow our manufacturing operations to be successful.

Due to construction delays relating to our unusually cold winter in Minnesota, our current goal is now to be open and manufacturing Firstcut parts by the middle of the second quarter of 2014. We do not expect capacity constraints due to this delay in occupancy.

We still estimate that the operating costs related to this move will be approximately $400,000 but will fall in both the second and third quarters of 2014. The total capital we will deploy for this new factory will be approximately $19 million, of which approximately $10 million was spent in 2013. The remaining capital will be spent during the first two quarters of 2014.

I would now like to provide some guidance into our projected results for the first quarter of 2014. Over the past several quarters we have consistently exceeded our long-term target model, and we are very proud of our financial performance. We now feel it is appropriate to adjust our target model to reflect raised expectations for our long-term performance.

We now expect our long-term gross margin to rise to 61% to 63% from the prior target of 60% to 62%. We are also revising our general and administrative expense target and expect it to contract down to between 9% and 11% of revenue, from the prior range of 11% to 13% of revenue.

Furthermore, we anticipate that our marketing and sales and research and development will remain unchanged, in the range of 13% to 15% and 6% to 8%, respectively. Taking the expected increase in gross margin and decrease in anticipated general and administrative expenses into consideration, our target model operating margin will increase to 29% from our prior target of 27%.

As we just disclosed earlier in the call, our 2013 operating performance was even higher than these new target margins. This performance obviously allows us to make smart investments in our business, and during 2014 we expect to increase our investments in several areas, to pursue even higher revenue growth in 2015 and beyond, while maintaining our operating margin at the new level of 29%.

Specifically, we are increasing investments in our sales team; we are initiating new marketing programs and accelerating our spending in R&D to both improve our existing processes and to roll out new services.

We currently expect revenue in the first quarter of 2014 to be in the range of $45 million to $48 million. Stock compensation cost in the current quarter will be approximately $1.1 million.

We estimate our tax rate for the upcoming first quarter to be approximately 33%.

Taking all of the above factors into consideration, our quarterly non-GAAP EPS, adding back the after-tax cost of stock compensation, is expected to be between $0.36 and $0.40 per share. Our capital spending during 2014 will total approximately $32 million, including the rest of the buildout costs of our Twin Cities facility.

This concludes our prepared remarks. Operator, we will now open up the call for questions.

(Operator Instructions) Troy Jensen, Piper Jaffray.

Hey, congratulations on the nice results. (multiple speakers) Brad, just mainly want to say good luck. It has been a pleasure working with you, and I wish you all the best.

Thank you, Troy. Same here.

Vicki, shifting the torch here, I understand you have a strong plastics and industrial background. But I'd just be curious to know what experiences did you have at your last couple of jobs with respect to product development and how prototyping was used.

Great. Thanks for the question, Troy. It is interesting; I have come into a leadership role with five different companies, and each particular company has a certain challenge with it.

So as I look at the last couple of experiences, they all have growth associated with them. Because again, if you're not growing and you're not developing your markets, you are dying.

I would say one of the most impactful, though, in terms of growth was when at Solutia I was brought in to lead the Saflex business, which was an operationally excellent business in Solutia. But then really we wanted to create the growth engine for the company, which then became Performance Films. That business grew from about $600 million to a little less than $1 billion over the six years, with the combination of one acquisition, but two-thirds of the growth was truly organic; and that was developing existing adjacent markets and bringing new products to market.

So very exciting, very global business in each region of the world, having to do that. So got quite a bit of experience there.

At PPG Industries the focus was on continuing to upgrade the mix, to bringing in products and applications that had a higher degree of specification, to moving into composite materials like wind energy, high-pressure pipe, energy infrastructure; and in glass, in the solar markets and solar control glazing.

Then in Spartech the growth was also toward upgrading to more highly specified products that had a more special nature to it, such as aircraft canopies or materials that would go into highly engineered thermoplastic composites.

Perfect. Sounds very relevant. If I could just do one quick follow-up, I was wondering if you guys could touch base on some of the new materials. I guess I'm most interested in liquid silicone rubber, but maybe touch on thixo and the metal injection work, please.

Thanks for the question, Troy. As we've said, we did roll out right at the first of the year to the whole market our thixomolding and our MIM. As I have said before, they are smaller markets that will require more development, and so the process of rolling out and the revenue we have received so far would be small. And we hope to grow it over the course of the year.

LSR is on track. We expect to roll it out early in the second quarter, and we continue to remain very positive about our capabilities. What is going on today is we're ordering additional presses because, as you know, we need to have capacity onboard before we offer the services. And when the new presses come in and they are ready to roll, we expect to be out in the market.

Jack, has that Q2 launch for liquid silicone, has that changed at all? I guess I thought it was available in Q1.

We currently are making parts and selling parts. But I would say it is more based upon us finding designs and working with individual product developers. But it is not rolled out to the product development community as a whole.

I think in our last call we talked about rolling it out sometime in the second quarter or early summer. So I think we're actually a little bit earlier than what we would have thought three or four months ago.

All right, perfect. I will cede the floor here; and just good luck in 2014.

Nicole DeBlase, Morgan Stanley.

Yes, good morning and congratulations too, Brad.

Things, Nicole.

And Vicki as well, of course.

Thank you, Nicole.

Yes, so just what you're seeing in 1Q 2014, have you guys seen any weather-related impact to customer demand so far?

Good question. We are looking at that all the time. One of the things of course about our business is that we have really no traditional backlog, and so little events like the weather can impact our revenue right away.

So it is hard for us to know, though, if the East Coast shuts down for a day whether the business never comes back or whether the business comes back stronger one and two weeks later. So we are still watching for that. But, good question.

Okay. Thanks, Jack. Then maybe one more on just Europe. I mean, the acceleration there was really, really impressive. I am just curious.

Is that more about penetrating the market more deeply? Is it about just market growth improving there? If you could just dig into that a bit more, that would be great.

I would portray our European results in the fourth quarter as doing a much better job. It doesn't mean that we didn't do a good job before, but a much better job of penetrating our current customer base and digging deeper and wider, which again is a significant strategy of our sales and marketing teams.

Okay. Thanks, guys. I will pass it on.

Jim Ricchiuti, Needham & Company.

Thanks. Good morning. A couple of questions. First, congrats on the quarter.

In terms of the product developers served, good year-over-year growth. It was flat sequentially. And maybe this ties into the previous question about weather, or maybe it is also just the seasonal nature; because if you go back it looks like you typically show modest growth from the September quarter and the December quarter in terms of developers served.

Can you just talk a little bit about how we might think about that?

I don't know if I have any big words of wisdom that are going to make you happy on this, Jim. The truth is we serve a tremendous amount of product developers. I am sure that there are seasonal aspects to how they come to us that I am not so -- we always understand.

But you know, the 7,000-plus number that we had this quarter, I think we are very, very happy with it.

Okay. Can you talk about headcount and where we might see headcount, particularly if you have got any plans you could share with us just in terms of inside sales over the next couple of quarters?

Good question. We expect to hire more employees in sales and marketing than our revenue growth. So hopefully a year from now we will be talking that we increased the headcount in those areas by maybe 35% year-over-year versus in the 25% like we've had in the past year.

So as I said, we're going to try to be smart and invest properly, and that will be in greater headcounts in sales. We are bullish about our ability to bring people on board.

I know that we have always spoken before about being conservative, that we don't want to add too many at a time. But we think that we are well situated to bring on a few more people than we had in the past.

Got it. Brad, I wanted to just wish you the best. And Vicki, congratulations. Maybe just one question for you.

If you look at the business, one of the big, unique challenges is building the awareness for Proto Labs. I wonder if you could just talk a little bit -- I know it is only a few days -- but just in general how you see that challenge and how you are going to tackle that.

Right. Yes, this is my day four. I am learning a lot, but I absolutely agree with you -- awareness. It was really interesting when I was calling a lot of people I've done business with in the development area and how many didn't know who we are.

So tremendous opportunity. The marketing team is implementing a lot of new tools to drive that awareness. I also think there's opportunities for us to look at down-sell; I mean selling from the top of some of the larger companies, to really attack and get broad-based approaches with large groups of product developers within major corporations.

So I think we are going to be hitting it from both angles going forward. And I know we are employing some new tools, some new database marketing tools that are going to help us be more effective as well.

So I am really excited about it. And there is, like I said, tremendous opportunity for growth just by driving awareness in existing markets with existing tools and existing services.

Okay. Thanks a lot. Good luck, Brad.

John Baliotti, Janney Capital Markets.

Thank you. I also want to pass my congratulations on to you, Vicki, and then to you, Brad. All the best to both of you.

Thanks.

I guess -- I don't who wants to tackle this. I was just -- in terms of R&D, obviously you're getting great traction out of the development work. The margins were certainly above where we were expecting, despite the raised R&D, and obviously the revenue growth is coming along really nice as well.

So I am just wondering. Is there a way to look at the balance of the R&D? Is it in terms of maybe near-term prospects like the LSR, or longer-term prospects? How are you guys balancing that given everything that you see in terms of opportunity?

Thank you for the question, John. I think overall Proto Labs has a long history of being smart with how we spend money, and I think that that trait will continue forward very strongly.

We always have things going on, on the R&D side. Some of them are closer; maybe some of them have higher probability than others. But we always need to have a mix of maybe a couple dreams and a couple things that are going to come out soon.

And that is the case today. Most of the R&D money for LSR has been spent, but we do have other things currently in our Protoworks building that might be rolled out maybe further into this year, might be rolled out next year, that at the appropriate time we will give more detail on them.

But it is important for us to always have lots of ideas that we are working on. And I can tell you right now that there's three or four good ideas that are being worked on in Proto Labs that we have not talked about, that hopefully sometime this year they will be in a state that we can talk about them.

Hey, Jack, just to follow up on that. I think we have talked about this in the past, but is a fair amount of the ideas that you work on, is that -- are you fielding from customers? Because obviously as you pointed out, you are investing wisely because you are getting nice margin traction on these investments and nice growth. So it is clearly you're not just going out on your own and there seems to be some input.

I was just curious. Is a good portion of that input coming from your existing customers?

We always know -- we talk with our customers obviously often, and they give us ideas of ways of making parts. We do know what we can't do. We keep track of that.

So I think it is a combination of all factors; but it's definitely us being aware of the processes and the ways parts are being made in the marketplace. And we hope to pick up a couple of them, just like we picked up with LSR.

Great. Thanks very much.

Brian Drab, William Blair.

Hi, good morning. I am on a plane, as you might be able to tell; the door's about to close in about 45 seconds. So I just want to say again, Brad, congratulations; and, Vicki, obviously congratulations to you. Look forward to working with you.

Just a couple quick questions, and then I will mute my line here. I think I know the answer to the first one, but I just want to make sure that this is clear.

The long-term operating margin guidance of 29% is a GAAP number; is that correct? And the non-GAAP number would be roughly 200 basis points plus above that?

Our non-GAAP number would be very dependent upon the amount of stock options that the Board gives out. And it would be hard for me to say that past history would dictate what future history would be on that.

But it has been normally around $0.03 a share. But it could go up or down, Brian, so I hate to pick a projection on it in the future.

Okay, thanks. Then two quick ones and then I will mute. Stainless steel was introduced about a year ago in CNC. I am just wondering if you could give us an update as to how material that is to the Firstcut side of the business at this point, given when you introduced aluminum it was such a strong contributor pretty quickly.

Then also, if you could give an update, if there is any, on the addressable market, the $6 billion figure; something that we are always looking for an update to. And given the liquid silicone rubber opportunity maybe that's expanded.

Thank you very much. Congrats again.

This is Brad. Stainless steel is coming along really well. It is not taking off as fast as aluminum did, but it is coming along great. We are very happy with what we are hearing from our customers and the value that we bring to that market.

With respect to the addressable market, I believe he was talking about the [LDM] process. We're so early into that yet we don't know how hard the customers are going to pull; but all of the initial feedback from customers so far has been very, very positive.

We are doing in liquid silicone rubber molding what we did at Protomold in the early days. We do in a few days what most people take weeks and weeks to do.

And that is what we're hearing over and over again. So we think the pull there is going to be very, very strong.

We have not done any update, though, of our TAM study that we completed last year. So there has been no update in that, and I guess we haven't talked about when we might update it this year, but we might.

Been too busy.

Yes.

Greg McKinley, Dougherty & Company.

Good morning. Thank you. Wondering if you just touch on two things. First of all, Jack, you had talked about some areas for maybe accelerated investment operationally this year. One of them was clearly maybe growing your internal sales staff at a greater rate than revenues, at least in the near term.

What were the other? Are there a couple other key areas that we should be aware of where you are accelerating investment?

We certainly are testing out some new marketing programs. We always look for marketing programs that are effective in generating leads, and our marketing team has come up with a couple ideas. So I expect marketing spend to be higher as a percentage of revenue than it was this past year.

Then also the R&D side, with as many ideas as we have working on in the R&D, is that if we get an opportunity to spend a little bit more money that would help us enable to get those things to the market faster, we will be doing that, too.

Did you share targeted ranges for those line items?

Yes, I did. 6% to 8%; they stay the same.

Okay.

Selling and marketing and R&D stay the same as they have been before. It was just that we took down the G&A, and we took up our gross margin.

Okay.

That is how we get to 2 points of additional target model margin.

Yes, okay. Then regarding gross margins, you have moved your targeted range to maybe where the Company has already proven its run rate at. How should we think about the extra investment in the early part of the year?

Now, my understanding is labor is a major component of your cost of sales, and Firstcut tends to be a lower labor component of cost than Protomold. But how should we think about that trending as you layer in your new capacity in the first half of the year?

I don't really think that any of our numbers in terms of labor percent compared to our gross margin overall, I don't expect it to change that significantly that anybody is going to notice it. Remind everybody that when you try to run factories at 80% and you don't run things full out, and you always have to have people onboard to take orders, there is always a little bit of variability with some of those ratios.

It does not mean that it is out of control. It is just more the fact of how we run our factories.

This past year I think our manufacturing teams throughout the world did a wonderful job of managing that labor component against the order flow, and I look forward to it happening again this year.

Okay. Thank you. Then just my interpretation of your comments; should we expect the Company to no longer report customer companies? Are you migrating to just a full disclosure of unique product developers going forward? Or how should we think of that?

Well, I did make a commitment that we would continue to show that data throughout 2013; and when we get ready to do our first-quarter 2014 release we will discuss it internally. You can see that we don't make any comments about it in our script. We don't make any comments about it in our press release.

Because we're really trying to get people to concentrate on the product developer number, because that is truly how we sell and how we market.

Yes. On that topic, is there any way you can describe for us if there was any feeling amongst the large customers within your base, in terms of how far penetrated you feel you might be at this point in time versus where you might have been a year ago? I know it is a difficult question to quantify.

But is there any color you can add to that? Where you think you are in the progression there?

I really can't any at any color besides we feel last year, we feel today, that we have barely penetrated the opportunity in big customers.

Okay. Thank you, guys.

[Joseph Garfinkel], JHS Capital Advisors.

Yes, hey. Thanks very much. Great quarter, guys. Really appreciate it. This is sort of a continuation of some of the last question, was on -- how do you think about revenues per customer and moving towards a more steady-state business versus transactional, and any specific goals you might have in that regard?

We take orders. And if somebody gives us a $149 Firstcut part, it counts as a product developer and it counts as our revenue. And sometimes we might be lucky that somebody could give us an order for nine molds and the parts related, and it could be a $70,000 sale.

So we have a huge standard deviation going on in terms of those averages, and I think that is going to continue. A product developer can't give us business that they don't have. This isn't like selling stereos or cars, where you can get somebody to buy something that they don't need.

And that is going to be a part of our business going forward, and so I think it is going to be transactional. It is still a great business, it is just that we will not have that predictability that a lot of other businesses have or the ability to create a sale based upon a want versus a need.

All right. Thanks for that.

Thank you. You have no further questions, so I would now like to turn the call back to Vicki Holt for closing remarks.

Thank you, David. First, I would like to also congratulate Brad. He has done a great job building this Company; and I am, as I said, humbled and grateful to the support that he and the Board and the confidence they have given me to take the Company to the next level.

I want to thank you all for joining us today. I hope I have expressed my genuine excitement. It is the opportunity to lead this great Company. I look forward to continuing to meet with our employees and all of our geographic locations.

We clearly have great confidence in the continuing strength of our business model and the value proposition we bring to our customers. And I am excited about the growth opportunities ahead of us. Thanks for joining us.

Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Do enjoy the rest of your day.