Proto Labs' Q3 2025: Contradictions in Cnc Growth, Injection Molding, Cross-Selling, and Strategy

Date of Call: October 30, 2025

Financials Results

• Revenue: $135.4M, up 7.8% YOY (6.8% in constant currencies)
• EPS: $0.47 non-GAAP, flat YOY; up $0.06 sequentially
• Gross Margin: 45.9% non-GAAP, up 110 bps sequentially
• Operating Margin: Non-GAAP operating expenses 35.9% of revenue, down 30 bps sequentially

Guidance:

• Revenue for Q4 2025 expected to be $125M to $133M (midpoint implies ~6% YOY)
• Foreign currency expected to be ~+$1.5M versus Q4 2024
• Non-GAAP EPS expected $0.30 to $0.38
• Estimated non-GAAP tax rate 23%–24%; stock-based compensation ~$3.9M; amortization ~$0.9M

Business Commentary:

• Record Revenue and Earnings:
• Proto Labs reported record revenue of $135.4 million for Q3, up 7.8% year-over-year.

• The growth was driven by strong demand in U.S. CNC machining and sheet metal offerings, supported by strength in aerospace and defense, industrial and commercial machinery, and other key end markets.

• Improved Revenue per Customer:

• Revenue per customer increased almost 15% year-over-year, with customers utilizing both factory and network fulfillment up 35% versus the prior quarter.

• This improvement is attributed to increased share of wallet with large and strategic customers, as well as a reorganization of the go-to-market strategy to better understand and fulfill customer needs.

• CNC Machining Expansion:

• CNC machining revenue grew 18.2% year-over-year, with U.S. CNC machining revenue growing 24% year-over-year.

• The expansion is driven by strong demand across several key end markets, notably aerospace and defense, and the company's decision to invest in additional CNC machining capacity.

• Sheet Metal and U.S. Revenue Growth:

• Sheet metal revenue grew 13.9% year-over-year, with U.S. revenue growing 10% year-over-year.

• Growth in this segment is fueled by solid growth in most end markets, particularly in the U.S., where the company has focused its go-to-market efforts.

• Gross Margin Improvement:

• Consolidated non-GAAP gross margin was 45.9%, up 110 basis points sequentially.
• The improvement was driven by strong demand, efficient operations, and successful implementation of changes to pricing and sourcing algorithms within the network.

Sentiment Analysis:

Overall Tone: Positive

• Management highlighted "record quarterly revenues and exceeded earnings expectations" and emphasized re-acceleration of growth and strategic planning for 2026. CFO noted $135.4M revenue (up 7.8% YOY), network revenue growth, CNC strength, and sequential gross margin improvement of 110 bps, supporting an overall positive tone.

Q&A:

• Question from Greg Palm (Craig Hallum): A lot of your remarks revolved around accelerated growth, but many investors don’t view Proto Labs as a growth company. What’s the opportunity and potential longer-term growth rate for the company?
  Response: Management said recent >7% growth in two consecutive quarters reflects early re-acceleration driven by customer-focused initiatives; they are finalizing a strategic plan to outline specific growth initiatives and targets in 2026.

• Question from Greg Palm (Craig Hallum): On the CNC expansion — what is the CapEx requirement? Is it just more machines or facility work, and where are you in the build-out?
  Response: CFO said expansion is equipment purchases (adding CNC mills) with no facility build required; capacity can scale quickly by adding machines.

• Question from Troy Jensen (Cantor Fitzgerald): You called out record revenue per unique developer but unique developer counts were down YOY. Can you discuss new developer trends and cross-selling (factory vs network adoption)?
  Response: Management emphasized focus on growing share of wallet while also increasing the customer base; adoption of both factory and network fulfillment rose ~35% (trailing 12-month customers), reflecting stronger cross-selling.

• Question from Brian Drab (William Blair): For advanced CNC capabilities, how automated is the evaluation (e.g., processing 2D drawings with many tolerances)? What were challenges bringing this level of service online, and how are you pricing it versus network alternatives?
  Response: Management said the offering is highly automated via an e-commerce digital thread (website drop-downs), reducing manual intervention while application engineers remain available; pricing is competitive in the 5–10 day lead-time segment.

• Question from Brian Drab (William Blair): Injection molding has been relatively flat — thoughts on medium-term prospects to restart growth there?
  Response: Management noted reduced prototyping demand has pressured injection molding; they view it as a strong legacy business and will outline specific initiatives to drive growth in 2026.

• Question from James Ricchiuti (Needham & Company): What drove the gross margin improvement this quarter? Did network gross margins improve and what about tariffs?
  Response: CFO reported network gross margins ~33%; pricing and sourcing adjustments offset tariff headwinds, and higher Europe factory revenue improved factory efficiency—together delivering +110 bps sequential gross margin improvement.

Contradiction Point 1

Advanced CNC Machining Growth

It highlights differing perspectives on the growth drivers and contributions of advanced CNC machining, which can impact strategic decisions and investor expectations.

Are there any company-specific initiatives that can accelerate growth? - Greg Palm(Craig Hallum)

2025Q3: We are seeing company-specific initiatives resonate strongly with customers. For instance, advanced machining capabilities were introduced based on customer needs. This, along with our diversified customer base, is driving growth. - Suresh Krishna(CEO)

Can you explain the strength in CNC machining and whether it's in production or prototyping? - Brian Drab(William Blair & Company)

2025Q2: We're seeing similar growth in both factory and network from a year-over-year growth perspective. The strong performance in CNC machining is due to increased revenue from larger accounts, driven by our go-to-market reorganization. - Daniel Schumacher(CFO)

Contradiction Point 2

Injection Molding Business Performance

It involves differing assessments of the Injection Molding business performance, which can influence strategic focus and investor perceptions.

What are the medium-term prospects for the injection molding business? - Brian Drab(William Blair)

2025Q3: We have softness due to reduced prototyping activity. We are focused on growth across all service lines, including sheet metal and injection molding. We'll provide more details in 2026. - Suresh Krishna(CEO)

Can you provide more details about the Injection Molding business? - Brian Drab(William Blair & Company L.L.C.)

2025Q2: The network is a small part of Injection Molding; most is through the factory. This year's results were impacted by a headwind from larger automotive orders in the prior year and a weak medical sector. We're continuing to innovate in Injection Molding and plan to use new capabilities to win more production business. - Daniel Schumacher(CFO)

Contradiction Point 3

Cross-Selling and Customer Engagement

It raises questions about the effectiveness of cross-selling strategies and customer engagement, which are crucial for growth and revenue generation.

Can you discuss cross-selling efforts? - Troy Jensen(Cantor Fitzgerald)

2025Q3: 35% of customers in the trailing 12 months ordered from both the network and the factory. This indicates more holistic discussions with customers, leading to broader business opportunities. - Dan Schumacher(CFO)

Can you provide an update on your production initiative and any success metrics? - Troy Donavon Jensen(Cantor Fitzgerald & Co.)

2025Q2: We've seen an 11% increase in revenue per customer contact and a 44% increase in customers utilizing both factory and network. - Daniel Schumacher(CFO)

Contradiction Point 4

Injection Molding Business Outlook

It involves differing perspectives on the outlook and performance of the Injection Molding business, which could impact investment decisions and strategic planning.

What are the medium-term prospects for the injection molding business? - Brian Drab(William Blair)

2025Q3: We have softness due to reduced prototyping activity. We are focused on growth across all service lines, including sheet metal and injection molding. We'll provide more details in 2026. - Suresh Krishna(CEO)

What is the outlook for the Injection Molding business? Is the sequential revenue decline linked to the German plant closure? - Brian Drab(William Blair)

2024Q4: It's not a function of the change in operational configuration and exiting of that German plant. That was a small plant. The decline in Injection Molding revenue is due to manufacturing contraction and more price sensitivity in slower economies. - Robert Bodor(CEO)

Contradiction Point 5

Growth Strategy and Initiatives

It involves inconsistency in the company's growth strategy and initiatives, which are crucial for investors to understand the company's direction and potential performance.

What is the long-term growth potential for the company? - Greg Palm (Craig Hallum)

2025Q3: We are very focused on driving growth. Our last two quarters indicate that with growth above 7%. We are working on a new strategic plan to be shared in 2026. We focus on evolving our strategy by removing friction points for customers and delivering products across the entire product lifecycle. - Suresh Krishna(CEO)

If the production push succeeds, will the focus be on the factory or network side? - Troy Jensen (Cantor Fitzgerald)

2025Q1: Our growth drivers this year are strong, including our expansion into production parts, the continued growth of our hubs network and on-demand manufacturing, the global expansion of our injection molding capabilities and our entry into the additive manufacturing market. - Rob Bodor(CEO)