Proto Labs Inc

NYSE:PRLB

Earnings Call Transcript 2023-Q1

[Operator]

Greetings. Welcome to the Proto Labs' Q1 2023 Earnings Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] Please note this conference is being recorded.

I will now turn the conference over to your host, Jason Frankman, Vice President and Corporate Controller. You may begin.

[Jason Frankman, Vice President and Corporate Controller]

Thank you, Shamolin, and welcome, everyone, to Proto Labs' first quarter 2023 earnings conference call. I'm joined today by Rob Bodor, Proto Lab's 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 first quarter ended March 31, 2023. 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 GAAP to non-GAAP results.

Now, I will turn the call over to Rob Bodor. Rob?

[Rob Bodor, President and Chief Executive Officer]

Thanks, Jason. Good morning, everyone, and thank you for joining our first quarter earnings call. I am pleased to share that this morning, we reported first quarter revenue and earnings above our guidance ranges. Amidst uncertain macroeconomic conditions, we performed above expectations. During the first quarter, we also continued to accelerate our innovation pipeline with multiple new launches to expand our customer offerings, capture additional share of wallet and gain new customers.

I am pleased with how our employees execute on our goals in the first few months of the year. On the top line, we outperformed our expectations in two main areas. A strong start of the year in our European operations and continued strength in demand through our Hubs digital manufacturing partner network. Strong first quarter performance in Europe was driven by greater-than-anticipated demand in January and February, driven in part by large orders from key customers.

Revenue through our digital manufacturing network grew very nicely in the first quarter at over 70% growth in constant currencies. As we continue to realize value from our unique offering that combines the digital factory and the digital network. We are proving out our strategy and getting significant traction with customers, and we are only scratching the surface of the demand of our combined offering.

As more and more customers become aware of our network capabilities, we are seeing strong growth in the number of customers utilizing both factory and network services. The strong network growth is also a testament to the power of our customer facing go-to-market teams now that they have the combined wider envelope of services to sell, as customers are looking to purchase high quality of custom manufactured parts from one single source factor.

Several of our recently launched expanded offerings continue to resonate in the market, including longer lead times in CNC machining and 3D printing, as well as our network offer with its increased breadth and wider range of prices and lead time options. In the current economic cycle, longer lead time, lower priced offers are more attractive to a certain subset of our customer base and growth in these areas has been even stronger than we expected.

Now for a brief update on our key priorities for 2023. First, drive revenue growth in our two primary focus areas; and second, increased shareholder value through expanding profitability in the factory and the network. On revenue growth, Proto Labs has narrowed its focus and investments to drive growth in two priority areas. Injection molding and our new integrated comprehensive CNC offer.

Injection Molding has had a good start to the year with growth year-over-year in constant currencies and excluding Japan, and double-digit sequential growth over the fourth quarter. Strength in injection molding was largely driven by follow-on parts. We will continue to roll out go-to-market strategies and under offer improvements to drive growth in molds. As it relates to the combined offer, I'm very encouraged by the early performance in injection molding orders fulfilled to the combination of our internal factories and manufacturing partners.

We are winning more orders due to the breadth of our combined injection molding offer. For example, Philips Domestic Appliances division has relied on Proto Labs for high quality injection molded parts for over a decade. Our recent project required both quick-turn molded prototype parts and more complex high requirement parts.

Our internal factory delivers molded parts faster than anyone in the market, and we now offer additional complexity to the digital network. Prior to the Proto Labs and Hubs combined offer, Philips would have gone elsewhere for these parts. Due to our combination of speed and complexity with almost limitless capacity, we can deliver for Philips and many other customers in similar situations. This is the value of the combined offer.

As for the accelerated innovation pipeline within injection molding, we recently launched an industry-leading seven day standard lead time for molds, cutting our lead times in half. We continue to improve our digital quality offering in injection molding, which will enable additional growth in our production follow-on part service. In addition, our factory teams continue to improve efficiency in our manufacturing operations through innovations like automated mold polishing.

Our next priority growth area, CNC machining, is also performing very well with strong growth in the first quarter, driven by cross-selling between the digital factory and the additional network. As I've discussed in the past, extended lead time and pricing options in CMC through both the factory and the network will allow us to drive growth through challenging macroeconomic conditions. Customer preferences shift with macro cycles and our unmatched breadth enables Proto Labs to be a single-source supplier for all custom CNC machine parts.

The next priority for 2023 is to increase shareholder value through expanding profitability in the factory and the network. We surpassed our expectations for revenue and earnings in the first quarter. However, our mix of business is different than anticipated. Macro conditions caused our longer lead time, lower priced offerings to grow faster than expected early in the year and demand for our quick-turn business was lower than expected, impacting profitability.

Improving our profitability is dependent on increased volume and a higher mix of higher priced quick-turn business, which has proven difficult in the current environment. As a result, we expect continued pressure on operating margin improvement throughout 2023, and we will remain vigilant on operating efficiencies. We are taking direct actions to reduce costs in areas with lower demand, while continuing to invest in high growth areas. Due to the continued demand softness in our sheet metal service, we furloughed 25% of our sheet metal workforce in the second quarter. We have made thoughtful reductions in other areas of the business as well to align with sales volumes. We continue to evaluate the business and reprioritize investments in our focus areas to support growth.

During the first quarter, we increased our share repurchase program, deploying $21 million through our share repurchase program. Going forward, we will continue to be opportunistic and our repurchase rate will be dependent on market price and other market conditions. Our ability to perform well and achieve financial expectations in this challenging climate is due to the efforts and commitment of our talented employees who have enabled us to accelerate our innovation and adapt our business to meet customers' needs.

Attracting and retaining talented employees has allowed us to maintain our competitive advantage and grow profitably. In early 2023, we continued to invest in leadership development initiatives and redesigned our incentive compensation programs. All programs have both revenue and earnings targets and employees are now more directly incented based on the performance of their specific business units. We will continue to invest in our employees throughout 2023, and I want to thank every member of the Proto Labs and Hubs teams for their efforts.

As we look ahead to the second quarter and the rest of 2023, macroeconomic uncertainty remains. In March, the ISM, U.S. Manufacturing Purchasing Managers' Index declined to its lowest level since May 2020 and has registered six straight months below 50, indicating contraction. Consistent with macro data and what several industrial companies have reported, after a very strong start to 2023, order rates have tapered slightly, and we ended the quarter on a slightly softer note.

However, as I stated earlier, the global nature of our business and breadth of our offer enables us to capture additional share of wallet and new customers even through macroeconomic volatility. In the near-term, as macroeconomic weakness weighs on manufacturing, we expect our lower price longer lead time offers to continue growing faster than our expedited quick-turn business. This mixed shift will continue to influence margins throughout the second quarter and beyond. We will monitor order rates closely and continue to adjust variable expenses accordingly. We have reflected this mix shift impact in our earnings guidance for the second quarter.

I am pleased with our results in the first quarter and I’m confident that we will deliver great value for our customers and our shareholders over the long-term. Our longer lead time, lower priced offerings are growing very rapidly as that part of the market performs well during this macro cycle, and we are still the industry leader in expedited quick-turn digital manufacturing. We are well positioned to weather economic volatility due to our business models best-in-class profitability and strong cash flow generation. This also enables us to continue to invest in innovation and expand our customer offer and capture additional customer share of wallet. Through any economic conditions, we are a great long-term strategic partner for our customers.

With that, Dan will now cover our first quarter financials in depth and provide our outlook for the second quarter of 2023. Dan?

[Dan Schumacher, Chief Financial Officer]

Thanks, Rob, and good morning, everyone. Our financial results begin on Page 7 of the slide presentation. First quarter revenue of $125.9 million was above our guidance range and represents a 6.9% increase year-over-year in constant currencies and excluding Japan. Sequentially, revenue grew 8.9%. Hubs had a record quarter generating $17.2 million of revenue, representing year-over-year growth of 67.3% or 70.7% constant currencies. The Hubs network offer continues to resonate with customers in the current macroeconomic backdrop. Changes in foreign currencies continue to negatively impact global revenue growth and represent a $2.5 million unfavorable impact to revenue in the first quarter.

First quarter revenue by region is summarized on Slide 10. In the Americas, our largest region first quarter revenue increased 2.4% year-over-year. In Europe, first quarter revenue grew 24.4% year-over-year in constant currencies driven by a very strong start to 2023 and several larger orders from key customers.

Transitioning to revenue by service. First quarter injection molding revenue grew approximately 3% year-over-year in constant currencies and excluding Japan. As we have discussed at length, one of our top priorities in 2023 is to grow injection molding revenue. CNC machining revenue grew 11% year-over-year in constant currencies and excluding Japan. This growth was driven through cross sell initiatives driving demand to the network and our longer lead time options in the factory as customers shift to longer lead time, lower cost options.

First quarter 3D printing revenue also grew 11% year-over-year in constant currencies. Within our 3D printing service, we saw growth in all geographies and through the network with the strongest growth in Europe on the strength of some larger orders. Sheet metal revenue grew – declined – sheet metal revenue declined 9% year-over-year in constant currencies in the quarter. Our sheet metal service is more exposed to the computer and electronics industry vertical and has been natively impacted by slowing demand in the current environment. We served 23,287 unique product developers in the first quarter, excluding Japan unique product developers served increased 3.3%.

Turning to Slide 14 in our detailed income statement. Overall, first quarter non-GAAP gross margin increased 60 basis points sequentially to 43.4%. Our manufacturing network gross margin in the first quarter was 22.2% compared to 25.4% in the fourth quarter of 2022. The lower network gross margin was driven by shifting fulfillment to other regions and manufacturing partners due to Chinese New Year factory closures. We expect second quarter network gross margin to be in our targeted range of 25% to 30%.

Factory gross margins expanded 140 basis points sequentially. The overall sequential gross margin increase was driven by higher volume, especially in injection molding partially offset by lower sheet metal demand. Total non-GAAP operating expenses were $45.5 million in the quarter, or 36.2% of revenue compared to $42.3 million or 36.6% of revenue in the fourth quarter of 2022. Sequential operating expense growth was slightly lower than revenue growth as marketing commissions and set of compensations increased with higher revenue amounts.

Moving to taxes. Our non-GAAP effective tax rate in the first quarter was more normalized at 23.2% compared to 1.6% in the fourth quarter of 2022. As a reminder, the lower fourth quarter tax rate was driven by the release of an accrual of an uncertain tax position that was resolved. The increase to a more normalized rate drove a $0.08 decline in our non-GAAP earnings per share sequentially.

First quarter non-GAAP diluted net income per share was $0.30 compared to $0.26 in the fourth quarter of 2022. The sequential earnings per share improvement was driven primarily by higher volume and other income. These benefits were partially offset by mixed shift as lower margin network revenue continues to outgrow internal factory revenue as well as the higher effective tax rate.

Turning to cash flow and balance sheet highlights on Slide 15. We generated $22.6 million in cash from operations in the first quarter, up from $10.5 million in the fourth quarter of 2022. Even in a tough macro environment, our business exhibits very strong cash flow generations, enabling us to weather periods of uncertainty while continuing to invest and offer improvements to drive future growth.

We repurchase $21.1 million worth of common shares during the first quarter, a significant increase over the fourth quarter of 2022. As Rob mentioned, we will continue to purchase opportunistically going forward. We still have a very strong balance sheet. On March 31, 2023, we had $104.7 million of cash and investments in our balance sheet and zero debt.

Now we’ll provide our outlook for the second quarter of 2023 as outlined on Slide 17. We expect to generate revenue between $119 million and $127 million in the second quarter at the midpoint this implies flat revenue year-over-year and constant currencies excluding Japan. This revenue range incorporates April performance and typical seasonality patterns, which have been somewhat more difficult to forecast given the dynamic macro environment. The closure of our Japan operations is expected to have a $2.9 million negative year-over-year impact on revenue growth. We expect foreign currency to have approximately a $0.5 million unfavorable impact on revenue compared to the second quarter of 2022.

Moving to earnings guidance. We anticipate non-GAAP add backs in the second quarter to include stock-based compensation expense of approximately $4.7 million, and amortization expense of $1.5 million. We currently estimate our second quarter non-GAAP effective tax rate will be 23% in the second quarter, plus or minus 50 basis points. Based on early second quarter order trends and continued macro weakness, we anticipate a continued mix shift towards longer lead time, lower price to offers, which will continue to put pressure on margins and earnings.

As Rob described, we are proactively reducing costs in the area of business that are seeing softer demand without sacrificing our best-in-class speed, reliability and quality in our factories. Our profitable business model and strong cash flow generation will enable us to take a measured approach to expense reductions, while continuing to invest in the future through research and development to build out the most comprehensive digital manufacturing custom parts offer in the market. Considering this, we expect second quarter non-GAAP EPS between $0.26 and $0.34.

Now back to Rob for closing comments.

[Rob Bodor, President and Chief Executive Officer]

Thanks, Dan. We are pleased with our strong start to 2023. We surpassed expectations in revenue and earnings in the first quarter and successfully grew in our two focused areas of injection molding and our comprehensive CNC offering. Proto Labs is the most profitable visual manufacturing company and we generate the most cash in our industry, enabling us to withstand challenging macroeconomic environments, while investing for the future. Our best-in-class unique combined offer is gaining significant traction in the market. We will continue to make progress on our focused 2023 priorities, which will enable long-term profitable growth and shareholder value creation.

That concludes our prepared remarks. We’re happy to take your questions.

[Operator]

[Operator Instructions] Our first question comes from the line of Troy Jensen with Lake Street Capital Markets. Please proceed with your question.

[Troy Jensen, Lake Street Capital Markets]

Hey, gentlemen, first off, congrats on the nice results here.

[Rob Bodor, President and Chief Executive Officer]

Thanks, Troy.

[Dan Schumacher, Chief Financial Officer]

Thanks, Troy. Good morning.

[Troy Jensen, Lake Street Capital Markets]

Good morning. Maybe for Daniel here or either one of you guys I guess could answer. But I guess your comments about less quick-turn business and more extended lead times implies a downtick in gross margins. I’m curious if you could kind of give us some color on that? And then coupled with that to get to the midpoint of your guidance, does it imply OpEx cuts on a sequential basis?

[Dan Schumacher, Chief Financial Officer]

Yes. So from a gross margin perspective, we do expect the gross margin percent to improve quarter-over-quarter 50 basis points to 100 basis points. The basis behind that is one, we do expect better network margins quarter-over-quarter. Like I said, we have a seasonal challenge with Chinese New Year that impacts our gross margins in the first quarter. Second, as Rob mentioned, we are making reductions and cost cuts in certain areas in the factory to improve the gross margin there as well.

[Troy Jensen, Lake Street Capital Markets]

All right, perfect. Dan, could you share with us what the margins are on the network business?

[Dan Schumacher, Chief Financial Officer]

Yes, I said it in the script. So they’re 22.2% in the quarter, and then I would expect that we’re going to get back into the range of 25% to 30%, which is our long-term range in the second quarter.

[Troy Jensen, Lake Street Capital Markets]

Okay, perfect. And last one for Rob. Just what verticals in Europe do you think were strong? This might have been automotive, but any other thoughts?

[Rob Bodor, President and Chief Executive Officer]

Yes. We saw strength in automotive and particularly in EV within that and also in industrial.

[Troy Jensen, Lake Street Capital Markets]

Awesome. All right, guys, keep up the good work.

[Rob Bodor, President and Chief Executive Officer]

Yes. Thank you.

[Dan Schumacher, Chief Financial Officer]

Thanks, Troy.

[Operator]

Our next question comes from the line of Jim Ricchiuti with Needham. Please proceed with your question.

[Jim Ricchiuti, Needham]

Hi. Thanks. Good morning. Yes, so I’m just looking at the growth rates in the two major regions, and you’re clearly showing stronger growth in Europe versus the Americas and it may very well be a function of the size of the business in these regions. But I wonder if you could just shed a little bit more color as to why you’re showing the kind of growth in Europe and the slower growth in the Americas? Is it a function of a greater mix of quick-turn business in the Americas being impacted or end markets? So I’ll turn that over to you.

[Rob Bodor, President and Chief Executive Officer]

Yes. So on the Europe side, our factory business had a tremendous first quarter really due to some very large orders. We talked a little bit – I talked a little bit about that in my commentary. So that helped. On the U.S. side of the business that business in the quarter because of the quick-turn business and the sheet metal developmental business didn’t grow in the quarter.

[Jim Ricchiuti, Needham]

And as you look at areas of the business in the Americas, as you went through the quarter where you did see changes in demand, which end markets was that more pronounced in?

[Rob Bodor, President and Chief Executive Officer]

Which end markets were strongest in…

[Jim Ricchiuti, Needham]

I’m just curious, the end markets in the Americas, where were you seeing different trends in the business?

[Rob Bodor, President and Chief Executive Officer]

So aerospace was strong for us. Automotive was strong for us. We saw some weakness in computer electronics, particularly in the sheet metal business.

[Jim Ricchiuti, Needham]

And finally, I wonder if you’d talk a little bit about the competitive landscape in the Americas, what you’re seeing there in general pricing trends.

[Rob Bodor, President and Chief Executive Officer]

Sure. So, if you think about our business in the digital factory, we still feel that we are very differentiated there on the digital factory side. And we’re not running into a lot of direct competitors with our quick lead time in that part of the space. In the longer lead time part of the space that there – that is a more competitive space. Though as you can see, the network business grew exceptionally well in the quarter at 70%. And we were – we did not take transactional pricing. And so we were able to execute on our normal pricing strategies in the quarter.

[Jim Ricchiuti, Needham]

Got it. Thanks very much.

[Rob Bodor, President and Chief Executive Officer]

Thank you.

[Operator]

Our next question comes from the line of Brian Drab with William Blair. Please proceed with your question.

[Brian Drab, William Blair]

Hi. Thanks for taking my questions. First, I’m just curious if there is an updated thought given the macro, I mean, there’s clearly increased macro uncertainty in the industrial world since the last call. But is it still the expectation that the injection molding business can grow year-over-year in 2023 versus 2022 for the whole year?

[Rob Bodor, President and Chief Executive Officer]

Yes. So we are still driving the business to grow injection molding. I am – I think we had a nice result in the quarter in injection molding. I’m pleased with that result, but I’m not satisfied. We’re continuing to drive the business to grow up the injection.

[Dan Schumacher, Chief Financial Officer]

Brian, I would say, we don’t have any better visibility, right, into our quick turn nature of the business. So could we in the second half of the year be more impacted in that business by macro trends? Sure, both positively and negatively. So we’re happy with the results that we had in Q1. But I – at this point, I’m not making a declaration or guiding anything about any individual service in terms of the full year.

[Brian Drab, William Blair]

Okay. Okay. And then I guess, I gathered that the parts business did really well in the quarter, in part because there were some large orders. Is that correct? And then what did you see in terms of that type of activity as we ended March and into April? I guess it slowed.

[Dan Schumacher, Chief Financial Officer]

Yes, so yes, you are correct, right? The strength in injection molding in the quarter really was on the parts side. And we saw that more of that momentum earlier in the quarter than later in the quarter. So yes – but that comes from – we’ve got this large install base, right, IM customers and I think coming off of what was a very strange year last year from a supply chain perspective we’re seeing them come back and order parts.

[Rob Bodor, President and Chief Executive Officer]

And I would say that this is both true in the digital factory side of the business, but also we're seeing more and more demand from customers to use the network side of the business as the example I shared on the call regarding Philips.

[Brian Drab, William Blair]

Yes. And then last question is just regarding the network side of the business and the legacy business and the integration and the user interface and Proto Labs 2.0, can you just kind of step back and remind us like where we are in terms of the integration timing? Is it going to be completed? And I still – I don't know, maybe when I go to use the website, I still go to Proto Labs, but then Hubs is like a link that I have to go to, to get to the other – to get to the Hubs' site. Are people finding Hubs and Proto Labs and – independently still largely. I'm just curious how all of that kind of comes together and what would be in the future?

[Rob Bodor, President and Chief Executive Officer]

Yes, absolutely. So we are – as we stated before, right, we started with CNC and 3D printing will be coming shortly to the website. Within CNC, you can now access the full Hubs' capabilities, right, just as you said, from protolabs.com. We do still have the Hubs' website up at this time. But we're seeing really good flow of customers to Hubs and to the network capabilities through Hubs.

Our cross-selling teams are, I think, doing a great job. Our go-to-market teams are doing a really nice job of driving revenue growth as you can see from the 70% growth in our network business. So I think the integration is progressing well. And most importantly, we're exposing the broad capabilities of our combined offer to our customers, and it's resonating with them.

[Brian Drab, William Blair]

Okay, thanks very much for taking my question.

[Rob Bodor, President and Chief Executive Officer]

Thank you.

[Operator]

Our next question comes from the line of Greg Palm with Craig-Hallum. Please proceed with your question.

[Greg Palm, Craig-Hallum]

Yes, good morning. Thanks for taking the questions here. Following up on the injection molding commentary, I'm just curious, does the ability to grow this year, does it hinge on maybe the molding business accelerate? I understand that the part business was strong, but do you need to get some more molded business and grow those parts later this year to get to growth? Or what's sort of the assumption behind on the growth, if you can achieve that in 2023?

[Rob Bodor, President and Chief Executive Officer]

Yes, we are working to drive increased molding business, absolutely, as well as the parts businesses. As Dan said, we've got a great broad customer base who are continuing to do production with us and order molds from us. And we are continuing to drive more and more mold growth. That's our objective in the business. As I mentioned as well, we're seeing more opportunities for cross-selling and customers being interested in working with us end-to-end as we have the network capabilities to expand our offering to them on the molding side. So we'll continue to drive that.

[Greg Palm, Craig-Hallum]

Okay. And then shifting over to gross margin for Hubs. It's just a little bit unclear. So it was down, I think, a couple of 100 basis points. You ran into the same presumably headwinds last year with Chinese New Year and a lot higher revenue this year. So was there something else structure or one-time in the quarter that impacted it at least on a year-over-year basis?

[Dan Schumacher, Chief Financial Officer]

Yes. What we end up doing as we're walking from the fourth quarter into the first quarter, we know amongst our manufacturing partners, there's going to be a bit of the tightening within the supply chain with Chinese New Year. And so, we actually price a little bit higher as we go into that. Last year, we were a little more aggressive on that pricing, which meant a higher gross margin than we were this year. What we – what we learned from last year, we constantly learn each year as we're optimizing the price is, we felt like there were some opportunities we may not have won by increasing the price as much. And so this quarter, we weren't as aggressive with that pricing change for the Chinese New Year time. So our margin was not as high, but our growth rate was higher at 70%. Yes, and we expect to be back in the range for next quarter, $25 million to $30 million.

[Greg Palm, Craig-Hallum]

Yes. Okay. And then just last one. On the gross margin, for sort of the core, I think you had mentioned increased quarter-over-quarter due to some furloughs. I think you mentioned furloughs and sheet metal, but were you alluding to something else across other parts of the business or not?

[Dan Schumacher, Chief Financial Officer]

We're also managing our costs within our factories that are seeing slower demand as well, which includes reducing temps, it's reducing over time. It's making measured reductions in those areas, so that we're aligning the cost of the volume without sacrificing the ability to turn apart as quick as a day.

[Greg Palm, Craig-Hallum]

Yes, okay. Understood. All right, thanks.

[Dan Schumacher, Chief Financial Officer]

Thanks Greg.

[Operator]

Our next question comes from the line of Ben Rose with Battle Road Research. Please proceed with your question.

[Ben Rose, Battle Road Research]

Thank you for taking my question. A question for Rob, which is with regard to your larger accounts, strategic accounts that are using Proto Labs primarily from a factory standpoint in your core businesses. Curious to get your thoughts on what progress you're making to reach out within those accounts beyond product designers to the procurement officers in those accounts that might have higher volume orders and whether that's driving – whether that's a factor in driving business to the Hubs network at this point?

[Rob Bodor, President and Chief Executive Officer]

Yes. Thank you for the question. I absolutely think it is. And you can see that by some of the larger orders that we've mentioned and the success that we're starting to have with the cross-selling and driving business to the network and combined factory and network capabilities. So we're fortunate to serve tens of thousands of customers. And certainly, across those, it's both engineers and product designers as well as procurement professionals. And you can see that we've got a strong growth in our production parts business, which is in part attributed to that.

[Ben Rose, Battle Road Research]

Okay, thank you very much.

[Rob Bodor, President and Chief Executive Officer]

Thanks Ben.

[Operator]

And we have reached the end of the question-and-answer session. This concludes today's conference. And you may disconnect your lines at this time. Thank you for your participation.