Proto Labs Inc (PRLB) 2018 Q1 法說會逐字稿

Greetings, and welcome to Proto Labs first quarter earnings conference call. (Operator Instructions)

It is now my pleasure to introduce your host, Mr. Dan Schumacher, Director of Investor Relations. Thank you. You may begin.

Thank you, operator, and good morning, everyone. With me today is Vicki Holt, our President and Chief Executive Officer and John Way, our Chief Financial Officer. This morning, before the market opened, Proto Labs issued a press release announcing its financial results for the first quarter ended March 31, 2018. The release is available on the company's website at protolabs.com. 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 subject to many risks and uncertainties that could cause actual results to differ materially from expectation. 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. Additionally, the results and guidance we will discuss include non-GAAP financial measures consistent with our past practice. Please refer to our press release within 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 Vicky Holt, President and Chief Executive Officer of Proto Labs. Vicky?

Thank you, Dan. Good morning, everyone. Thank you for joining us on our first quarter conference call. Proto Labs began 2018 with a strong start as reflected in the press release that we issued today. We reported record quarterly revenue and record net income in the first quarter both our revenue and our earnings per share were just above our guidance range. This quarter is the first full quarter that includes the results of the Rapid Manufacturing acquisition that we completed at the end of 2017. The result of this acquisition combined with our strong business performance and the benefits of the tax law changes are reflected in our financial results. We reported revenue of $108 million in the first quarter. This represented an increase of 34% over the prior year. In addition to our revenue growth, we continue to serve a record number of product developers. Our unique product developers served increased 22% to 18,057 compared to the prior year. The number of unique product developers does not yet include the individuals served on the Rapid Manufacturing system.

Looking at a breakdown by geography. The U.S., our largest market, produced record revenue and strong growth of 40% over the prior year including the benefit from the Rapid acquisition. Europe increased 17% with growth rates benefiting from foreign currency translation. On a constant currency basis revenue growth was 2%, this growth rate was impacted by 3 large orders in Q1 of 2017 totaling $1.5 million providing a difficult year-over-year comparison. Without those orders, the constant currency growth rate would be approximately 12%. Our Japan region grew 21% on a reported basis and 15.5% in constant currency. Moving to revenue by service, injection molding grew 7% from the prior year, CNC machining grew 67% and 3D printing increased 22% from the prior year. Injection molding had a record quarter in revenue at $51 million representing a growth of 7%. The year-over-year growth was impacted by the large orders in Europe and the final shipments of our discontinued magnesium injection molding process in Q1 of 2017. We believe our strategy to offer our customers injection molded on demand production parts and services is a successful one and will provide a meaningful growth over the longer term as the offering matures.

Our CNC machining service also had a record quarter resulting in [67%] year-over-year growth. This growth rate does benefit from the Rapid acquisition. However, we are experiencing exceptional demand in the machining business. We have the ability to handle low volume orders quickly and when market demand increases we have the scale and the capacity to service our customers. To support future growth in our CNC service, we purchased a new manufacturing facility in Brooklyn Park, Minnesota in the quarter. Our ongoing capital deployment strategy is to continue to add facilities and equipment in advance of projected volume to ensure that we can maintain our best-in-class reliable lead time. This new plant is scheduled to become fully operational by the end of 2018.

3D printing revenue was also a record and increased 22% from the prior year. This growth was led by the U.S., however, Europe also grew double digits. We are viewed as a thought leader in 3D printing space. This leadership was highlighted in a project with an MIT this quarter. We were asked to contribute content and additive manufacturing expertise to their upcoming course entitled Additive Manufacturing for Innovative Design and Production. This course is designed for professionals who seek to understand both the technical and business aspects behind additive manufacturing. The MIT staff leaned on Proto Labs' additive manufacturing expertise to build a 3D printed assembly that will be referenced throughout the course to highlight 3D printing capabilities and design considerations. We are honored and very excited to be in a position to give back to the industry by sharing our expertise in designing and utilizing additive manufacturing effectively throughout the product life cycle. And finally, we reported $6 million of sheet metal revenue. Sheet metal is our newest service added to our portfolio through the Rapid Manufacturing acquisition in the fourth quarter. Our leadership and expertise led to our strong start in 2018 and we're very pleased with this level of revenue growth across all our services.

On the topic of leadership we continue to be successful in this dynamic environment and this requires us to continue to recruit talented people to lead our business. I'm happy to announce 2 new additions to the Proto Labs' leadership team. During our last call, we announced that Thomas Pang had decided to leave the company. After a thorough search of candidates I'm pleased to announce [that Ayuno Amia] as the new country manager for Japan. [Ayuno] has the background and experience to lead and transform our go-to-market strategy in Japan and to capitalize on the market potential in this region. Also in the quarter Brian Peters joined the Proto Labs team as our Chief Marketing Officer. Brian joins us from Cambria world leader in natural stone surfaces where he's been the Chief Marketing Officer. Prior to joining Cambria, Brian had a distinguished 19-year career of progressive marketing roles at General Mills where he had global responsibility for major brands including Cheerios and Pillsbury. His breadth of experiences in marketing, product management and changed leadership will bring tremendous value to Proto Labs in the years to come.

Now I would like to update you on our 2018 priorities. As we mentioned in our last call, we have 3 key priorities this year. First, to grow revenue by expanding our customer base and penetrating existing customers, second, enhance our capabilities by expanding our services and third increase the scale of our operations, including the integration of rapid manufacturing. Our first priority is to continue to evolve our sales approach and engagement with our customers to drive revenue growth. The results in the quarter demonstrate progress we are making in this area. We are deploying tools to help our sales team identify and focus on the highest priority opportunity making sure our sales -- and also making sure our sales team has the appropriate training to engage with these customers and the value we can provide to their business (inaudible) accelerating innovation or providing on demand manufacturing services. This approach allows us to improve our sales efficiency and is starting to bear out in the results.

Our second quarter priority is to continue to expand the envelope above the parts we produce and the services we offer with the objective to provide a more total solution to our customers. The rapid acquisition included sheet metal as a service expansion and extended our capabilities in CNC machining. We're working with our teams in New Hampshire to map out the process flows and automate certain processes with software to improve the efficiency of the operations. The acquisition provided us with a great base upon which to build and we will continue to enhance these operations over the next several quarters. In addition, we are expanding our 3D printing service in Europe and will -- with the launch of Multi Jet Fusion in the first quarter. And we will launch PolyJet in the second quarter.

Focusing on differentiated services and materials will allow us to solve unmet customer needs and improve our business performance in our European 3D printing business. Our last priority is to increase the scale of our operations. I previously discussed the purchase of the new manufacturing facility in Brooklyn Park, which will allow us to continue to scale the CNC operations to meet the expected future demand. We've also been working diligently on the integration of the Rapid acquisition. As we have stated in the past, the initial focus is on adding capacity to the operation and integrating some of the administrative functions such as human resources, IT and finance. We are progressing on the integration as planned and will continue to execute on this integration plan over the course of 2018. The integration and capacity expansion are not the only activities driving scale in our operations. As we've discussed in the past, we have deployed our Proto Excellence lean process improvement programs in each of our facilities. One of these continuous improvement initiatives was recently recognized by Frost & Sullivan as the Manufacturing Leadership award winner for its outstanding achievement in operational excellence. The project focused on a single manufacturing stall in our injection molding business and achieved significant improvement in productivity of direct labor, reduction in material scrap and reduced cycle time of nonvalue added activities. I congratulate our employees on this achievement.

We are off to a great start in our fiscal year with 34% growth and will be focused on executing on our priorities in the years as the year progresses.

With that I'd like to turn the call over to John Way. John?

Thank you, Vicky. Revenue in the first quarter was $107.7 million, an increase of $27.6 million or 34% over the same quarter in 2017. And Vicky stated, our revenue growth this quarter benefited from the inclusion of the first full quarter of activity from our acquisition of Rapid Manufacturing. The acquisition added sheet metal as an additional service and expanded our CNC service. To help with sizing, the Rapid business had approximately $11 million of revenue in the first quarter of 2017.

In addition, foreign currency represented a $2.7 million tailwind in the quarter with the remaining increase representing organic growth. Gross profit for the quarter was $57.9 million, an increase of $12.6 million over the comparable quarter of the prior year. Gross margin was 53.7%. This compares with 56.5% in the first quarter last year and 56.2% in the fourth quarter of 2017. The Rapid acquisition represented a 200 basis point headwind to our consolidated gross margins this quarter.

Our European 3D printing business also continues to impact our overall gross margins. As we stated in our fourth quarter earnings call, we have been looking for opportunities to reduce our cost structure and improve performance related to this business. As a step to accomplish this, we have reached an agreement to divest our Finland operations to the local management team that was finalized early in the second quarter. In addition to the reduction in cost structure the divestiture allows us to focus on our operations in Germany to serve the 3D printing needs of our customers in Europe.

Operating expenses totaled $36.2 million or 33.6% of total revenue for the first quarter of 2018. As a percent of revenue, operating expenses were down from 36.2% last quarter and 34.4% in the first quarter last year. On a non-GAAP basis, operating expenses were 31% of revenue compared to 31.3% last quarter and 32.3% in the first quarter of 2017.

Sales and marketing expense was 15.4% of revenue, down from 16.3% last quarter. This sequential decrease was primarily due to seasonal variation in marketing spend and lower sales compensation due to year-end accelerators from the fourth quarter. In terms of dollars, sales and marketing increased from $15.3 million in the fourth quarter to $16.6 million this quarter.

Our operating income increased to $21.7 million or 20.2% of revenue in the first quarter compared to $17.7 million or 22.1% of revenue in the same quarter last year. Adjusting for stock-based compensation and amortization, our non-GAAP operating income was $24.8 million or 23% of revenue compared to $19.6 million or 24.4% of revenue in the prior year, representing 27% growth in adjusted operating earnings. Our GAAP effective tax rate was 17.6% in the first quarter. The current quarter tax rate includes a tax benefit associated with stock option and other equity activity.

On an adjusted non-GAAP basis, the tax rate was 23.5% compared to 32% in the prior year. This reduction is due to the change in the U.S. corporate tax rate. On a GAAP reporting basis, net income totaled $18 million resulting in diluted earnings per share of $0.66. Adding back the after-tax costs on stock compensation, amortization of intangibles and unrealized foreign currency gains, our non-GAAP diluted earnings per share in the quarter was $0.71 representing a 39% increase over the prior year. [So moving to the] revenue, non-GAAP EPS was slightly above our guidance range for the quarter.

Now turning to our cash flow. We generated $26.1 million in cash from operations during the quarter. Capital spending was $25.6 million. This capital spend is higher than normal due to the purchase of the Brooklyn Park facility and the addition of CNC milling equipment to support the growth in the CNC machining service. In the quarter, we repaid the outstanding balance (inaudible) credit and we again have no outstanding debt. We ended the quarter with a cash and marketable securities balance of $130.2 million on March 31, 2018.

Now I'd like to turn to our expectations for the second quarter of 2018. We currently expect Q2 revenue to be in the range of $107 million to $112 million or growth in the range of 30% to 37%. This revenue guidance reflects the following factors. We estimate foreign currency will have an approximate $2.5 million to $3 million positive impact on our Q2 revenues compared to the prior year. The divestiture of Finland will result in a $600,000 sequential headwind and 2Q -- and Q2 comparisons with 2017 will benefit from the acquisition of Rapid Manufacturing.

Moving to earnings guidance. Consistent with prior years, there are several trade shows in the second quarter in all of our geographies that will result in an increase in sales and marketing expense. Our non-GAAP add-backs for the quarter will include stock compensation costs of approximately $2.7 million and amortization of $800,000. We currently estimate our tax rate to be approximately 23% in Q2. Taking into consideration all the above, we expect our quarterly non-GAAP EPS to be between $0.69 and $0.75 per share in the second quarter. On our call on February 8, we provided annual guidance for 2018, principally to provide visibility to the impact of Rapid Manufacturing on our full-year projections. Given our first quarter performance and our guidance for the second quarter, we now would expect to be at the high-end of those ranges provided. Given the quick turn nature of our business with very limited backlog, we still feel that it is most appropriate to provide quarterly guidance for our business. That concludes our formal remarks.

Now Vicky and I'd be happy to take your questions. Operator, can you please open up the line?

(Operator Instructions) First question comes from the line of Brian Drab with William Blair & Company.

John, can you just give a little more detail around the contribution from Rapid in the quarter and just clarify -- I think if I had heard you correctly, I think you may have said first quarter '17, the first quarter of '18 was $11 million?

No, that '17 is correct. So let me give you a little more color on that. So sheet metal you can see standing alone, right. So that's very visible. [Now if you] look at our CNC service, things are already starting to get blurred between the 2 operations, principally in the sales force. So as we're taking orders for CNC we're routing them to the appropriate manufacturing facility. So we're already starting to blend what is Rapid related growth versus Proto Labs related growth. So I think the most appropriate measure is really to look at last year and then we've grown on top of that. And then also I'll remind you there is the wire and cable business that's flowing through other revenue, that's a little over $0.5 million.

Okay. And what else is in other right now?

There is a few other like third-party services that we're doing for customers and a few of those things.

Okay. So is it fair to kind of guess if this is -- I mean can you just not even guess or could I say around $6.2 million from sheet metal $4 million or $5 million CNC from Rapid and then the $0.5 million in wire harness is that in the ballpark?

Yes. I think that puts you close to the right range.

It really is getting very difficult to separate the CNC business just because it's very blended and the orders come in and then we route them to the best placed manufactures. So it's going to be -- it's very difficult to separate that business. Yes. It did contribute to the strong growth, I mean 67% year-over-year growth in CNC did benefit from the acquisition of that business, but also there is strong underlying growth in the CNC machining business for us.

Got it. Does that blurring of the lines have impact on the developer count because you are clear to say that it's not including developers associated with Rapid?

Yes, so where we -- the orders that are processed through our legacy systems, we can capture those very cleanly. The orders that are captured through the Rapid Manufacturing systems that's where we still have some work to do to pick that up. So on where is the order produced and the manufacturing plant, so gross margin I can assess the impact very cleanly. It really is when you're talking organic or inorganic revenue growth that gets blurred really quickly. Hope that makes sense?

Yes, it does. Yes. Okay and then can you size the headwind to gross margin from that Europe 3D printing operation in the quarter?

So the headwind there -- the gross margins are roughly just above 10% in the first quarter in Europe for 3D printing. So continues to be a challenge for us.

I think we're doing the right things there. Yes. Go ahead.

I was just going to say is that -- was that about $4 million, $5 million revenue in the first quarter in that operation?

Yes, about $4 million. Yes.

I think we're doing the right things there. I think the -- divesting the Finland business to management there allows us to really focus our 3D printing revenues through that Germany plant, which will help improved utilization. So basically taking some fixed cost out of that business is helpful. And then I think the additions that we're making with materials and different higher and industrial services will continue to allow us to differentiate ourselves there. So the initial launch of the Multi Jet Fusion has gone quite well. We're very pleased, we're a little bit ahead of as what we had expected to be here at the end of first quarter. So that's strong. And then adding the elastomeric materials with the PolyJet and is also another nice addition that we're bringing to play. We've also added some additional filled nylon materials, which further differentiates our services there in Europe from more commodity suppliers. So we're pleased with -- we're not happy with the progress but we are pleased with the responses we're starting to get from customers. We're happy that we're back up to double-digit growth rates there and that'll be an important element. So we're working this one hard.

Okay. And then we have like 20 more questions, but I'll just ask 2 more quick ones. The divestiture takes place on what day and gross margin expectation as you maybe -- if you could give us any sense for what the target would be exiting 2018 for gross margin and then I'll get back in line?

Yes. So it was completed already, so early April, so effectively it will be the whole quarter. Finland will be out of the operations in Q2. Gross margin, we're still looking at that 54% to 54.5% range on gross margin as we're looking at the full year.

(inaudible) to the Nordic region. We actually opened a sales office in the Nordic region this quarter and continue to augment our sales team there. So very committed to the region. It's just the manufacturing asset just didn't make sense.

Yes, just reducing the fixed cost structure and consolidating those operations.

Our next question comes from the line of Troy Jensen with Piper Jaffray.

Hey so Vicky or John I guess either one of you, just to focus on injection molding [that would be good] just an update on overmolding and insert molding then ultimately if you were to strip those out what do think the organic kind of base business is for injection molding growth?

Yes. [So let me answer that]. Overmolding and insert molding are certainly some really nice additional options for our customers and they continue to bring value there. So it's -- this is the kind of business that they continue to grow, we continue to add to the envelope of what we do in order to meet more and more of those customers' need. So insert molding and overmolding which are 2 of those growth elements. Adding our full suite of inspection services is another one. And yes, I'll say on demand manufacturing is a -- it's a long -- longer selling process when you're going to be taking over as the production supplier to a customer. But I'm really pleased with the number of programs we've got in slate and the conversations that we're having with customers about what we need to do to be able to be a production supplier for their low volume production needs and they're very excited on working with us on that. But it's a longer sale process, involves many more decision makers at the customer. But I am convinced that our strategy to have an on-demand manufacturing offering in injection molding will be successful and we're really pleased with the conversations we're having right now.

Okay. Understood. And I have, Vicky, for you too, if you just kind of go back through time, you had a lot of different variety of kind of sales initiatives, sort of top down sales, national account managers. I mean what's kind of the focus now on sales and maybe just give us an update on some of these prior initiatives?

So those initiatives are, they're continuing to be evolved and enhanced as we operationalize them. So we certainly have continued to segment our customers into those customers that can bring us the greatest lifetime revenue and profitability. And there we're focusing our sales teams on the wide and deep strategies there. They're developing I think really robust strategic account plans with very concrete actions on how they are going to get -- move deeper with those customers and they are executing on it and we're getting results. So I'm really starting to -- we're really starting to get some traction with those key accounts. The other thing that we're doing is this very long tail which is kind of rest of world, which represents thousands of customers, we're getting a lot more efficient in how we can have our website and website manage those customers through the process and make them more self-serve. That's another big piece about driving the productivity of our sales team to focus on those customers that are going to have a larger total return to us over time. We like the long tail, they are great customers, we make money on them, but they tend to be thousands of smaller transactions that we really like the Internet to handle those on a self-serve basis. So those are a couple of initiatives that are really starting to get some traction. We're starting to see a little bit of that in our results in terms of [credit to be the] sales spend.

Our next question comes from the line of Jon Fisher with Dougherty Company.

I just wanted to talk on Europe. Obviously the double-digit 3D printing growth is a positive. From a strategy standpoint, the introduction of Multi Jet and PolyJet, were you doing that proactively to try and drive better performance and faster growth out of 3D printing in Europe or was that reactive to now we're starting to see some stabilization there, we're starting to see some positive performance, so let's start to add some resources and capabilities to see if we can leverage that momentum a little bit better?

Yes. I think, Jon, as we look at it, we're focusing on areas where we can have a differentiated service offering. And I think with Multi Jet we've gained some expertise and got some feedback from HP actually that we can make parts on their machines better than anybody else. So with differentiated service that's where value comes in so that's the areas that we're focused in attacking that market.

Okay. When you step back and look at the big picture, the total addressable market for what Proto Labs can do and provide for its customers, where do you see penetration -- what do you think the penetration level is of that total addressable market and kind of what do you see as that market growing or expanding?

Yes. So we've talked before about our total available market in excess of $8 billion and we still feel very confident that that's where the size of the market is. What we're learning is as we move through from prototyping also into on-demand manufacturing of low volume production, our value proposition really resonates and it gives the customers tremendous value in terms of risk reduction in their supply chain, ability to handle uncertain demand and really an economic model that allows them to go after mass customized applications with their product and live with the rapid -- very short product life cycles that they deal with. So value propositions are very strong. The selling process is longer and that's the piece we're working through right now. But we feel very comfortable that there is a long runway that actually we are at the beginning of the next level of runway, which is the on-demand manufacturing penetration with our customer base. We think we've got very low penetration there.

And then I think there is also all the other tailwinds that we talked about in our Investor Day with the product life cycles shortening and speed to market really becoming more and more important. So I think there is -- the market continues to grow for services like us.

And customers deploying what I call product 4.0 which is agile product development in dealing with the short product life cycles. Just had a review just the other day with one of our account managers on their account plans and made a very large telecommunications company that recognize they need to iterate every year on their products in order to stay up with demand. They can't afford to do that with the expensive tooling. They need to find a way to use Proto Labs for that because every year they're going to be introducing a new upgraded product. So those are the kinds of things that our model solves big problems that these companies have.

Okay. One final question for me. On the sheet metal opportunity as far as a cross-selling opportunity. Now that your sales force and team have access to that business and that opportunity what that -- when would we expect to see kind of the first signs of them benefiting from being able to cross-sell that service to your current customers or just proactively going out and finding new customers for sheet metal service?

Yes. So we have been pretty clear on the integration plan with sheet metal. You're not going to see a big pop on that until 2019. Our focus in 2018 is on building our capabilities to scale that business, so capacity additions also working on software solutions to help, allow that business to scale. The reason Proto Labs scales so well in market -- in areas with increasing demand is that we are very software-enabled that allows us to grow that and add a lot of those hard to find skilled labor. So that's a piece that we've got to have in place before we completely open the [faucet] of our sales force on cross-selling and that won't be until 2019.

(Operator Instructions) Our next question is a follow-up from Brian Drab with William Blair & Company.

[Obviously just a] couple more here with it. Any impact from the recent volatility in the price of aluminum? And I think that your COGS -- as a percentage of COGS materials is something like 20% of COGS. And can you talk about that and what position aluminum has in terms of the ranking of your raw material?

Yes. So raw materials are not our largest cost factor, as you mentioned. So -- and our pricing policies and processes generally pass through raw managerial increases. So there is no real impact.

Okay. And then is -- you mentioned the second quarter dynamic with the selling and marketing. I'm wondering in the third and fourth quarter is there anything that we should think about that would prevent the earnings not being above what you were able to report here in the first quarter?

Trying to make sure I caught your wordings there correctly. No, I think -- I think as we look at progression of earnings, it really is going to be based on the demand and the volume. And I -- as we're looking at it now I would project it consistent with kind of the seasonality patterns we've experienced historically. I wouldn't anticipate the 2016 fourth quarter, so I think we'll just continue to progress as we go throughout the year.

Okay. And I apologize if someone asked this already. I was typing up a note here as we're -- as I am listening the call. But can you give any sense for the breakdown because you had -- these orders come in for a low volume production and prototyping, they get routed one of those 2 directions now in injection molding. So you have the data. Can you tell us anything about the percentage of the injection molding jobs that are being routed toward low volume production versus prototyping?

All I can say is that we still have more tooling going through prototyping than we do on-demand manufacturing. So it's not -- I mean there's still more volumes there which means we've got a huge opportunity as this on-demand manufacturing service again continues to mature.

Is this, like with the term vast majority, be appropriate to say in terms of what's go into prototyping still versus low volume production?

Yes, because I think as we look at it even as we bifurcated, there is a tail on molds that were made 3 and 4 years ago that are still pulling through and driving a significant portion of the injection molding revenue. So yes, it will progress over time.

In terms of parts business half of those are molds?

Yes, it's correct.

Yes, correct. Correct.

Okay. And then the last question I will ask for now is can you give us a sense for the percentage of orders that are incorporating anything beyond the basic level of inspection that you would provide for free or said another way, what percentage of orders include incremental revenue associated with inspection?

Yes. I don't know that we're going to break down revenue components to the level of detail that you're looking for.

I didn't think you (inaudible). Can you make any -- sequentially they are gaining traction with this directionally?

Yes, it is. I mean the additional services which is just not a big revenue generator on its own, it's an enabler for the on-demand manufacturing service. But it does sequentially grow in terms of the number of additional services that our on-demand manufacturing customers are selecting and in order to get more of a total solution that they need for production part.

I guess -- do you think that that is as important to winning, gaining low volume production work and orders as you did initially when you introduced that offering?

Yes. I think it's important, it is important to bring that total solution, you can't get across the finish line without some of those things which is not in itself a big revenue generator.

And it's one of many things that you need to have the full production offering for customers.

Our next question comes from the line of Ethan Potasnick with Needham & Company.

Yes, this is Ethan Potasnick filling in for Jim Ricchiuti. I'm sorry, this is duplicative, but could you guys share whether or not you guys are seeing any turn in the European 3D printing business?

Yes, we did see a double-digit growth in the quarter, which is a little bit of a turn for us. So we weren't quite that high earlier. So we're pleased with that level of growth. It's a competitive market in Europe, a little bit different competitive market dynamics. But we're navigating our way through that. We're focusing on technologies and materials that are a little more differentiated and we're really positioning ourselves with customers that value those technologies, med device, computer electronics things like that.

There are no further questions at this time. I would like to turn the call back over to Ms. Holt for any closing remarks.

Thank you and thank you again for joining us today. We remain excited about the outlook for Proto Labs. As we look ahead, we are confident that the current market trends are favorable to our strengths and our business model. Our differentiated technology enabled digital manufacturing platform has demonstrated the ability to help companies and entrepreneurs get their products to market faster than their competition. We continue to innovate with our service offerings and technology interface and features to enhance our customers' experience. I want to thank the Proto Labs employees for their efforts over the past year. And I want to thank our customers for their support. We're committed to enhancing our revenue growth and driving greater shareholder value over the longer term and we look forward to reporting to you on our progress during our next call. Thank you.

Thank you. This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation and have a wonderful day.