Proto Labs, Inc. (PRLB) Earnings

Management highlights

### Overall Quarterly Performance - Delivered a second consecutive record revenue quarter with double-digit YoY top-line growth, 40 basis points of operating margin improvement, and expanded engagement with larger strategic customers; revenue per customer grew 17% YoY. - Achieved gross margin expansion and operating cost leverage, demonstrating that the company's multi-year transformation strategy is delivering tangible business momentum. ### Strategic Pillars Execution - **Elevate Customer Experience**: Completed the consolidation of European operations into a single legal entity and single ERP platform on July 1, eliminating multi-entity friction for cross-border European customers and reducing internal operational complexity. - **Reignite Innovation**: Continues to invest in physical AI (AI applications for manufacturing) leveraging the company's 25+ years of digital manufacturing expertise, 15 million CAD drawing library, and proprietary homegrown manufacturing execution system; the company holds a unique competitive position in this emerging category due to its combined software and deep manufacturing process knowledge. - **Expand into Production**: Focused on growing wallet share with larger strategic customers by supporting the full product lifecycle from prototyping through full production; the company has obtained key industry certifications including AS9100, ITAR, and ISO 13485 to support production requirements for aerospace, defense, and medical end markets. - **Drive Operational Efficiency**: Implemented targeted cost reductions to reallocate resources to high-ROI strategic growth projects, and is in early stages of identifying additional operational savings to fund further investment. ### Operational Updates & Leadership Changes - Hired Bernardo Parlange as Chief Commercial Officer in May 2025 to unify sales, marketing, and customer success under a single scalable commercial strategy. - Hired Micah Roberts as Senior Director of Global Quality in May 2025 to strengthen quality consistency and customer satisfaction for larger production programs. - Former Chief Operating Officer Mike Kenison retired effective July 1 after 20 years with the company; a search for a successor is ongoing and a new appointment is expected in the coming months. ### Regional Performance - European revenue grew 9% YoY, building on first quarter momentum and demonstrating early traction from go-to-market changes implemented in late 2025; profitability in Europe remains a work in progress, with the transformation expected to be a medium to long-term effort to convert the region from an earnings headwind to a contributor to growth.

Guidance

- Third quarter 2026 revenue is expected to range between $145 million and $153 million, with 10% YoY revenue growth implied at the midpoint; non-GAAP earnings per share is expected to range between 56 cents and 64 cents. - Full year 2026 revenue growth guidance has been raised to 8% to 10% YoY, up from the prior guidance range, supported by stronger than expected first half performance. - The company expects an unfavorable $400,000 impact on third quarter revenue from foreign currency exchange compared to the third quarter of 2025. - Third quarter non-GAAP assumptions include approximately $4.2 million in stock-based compensation expense, $900,000 in amortization expense, and an effective tax rate between 23% and 24%.

Segment performance

Total company Q2 2026 revenue was a record $149.3 million, representing 10.2% year-over-year (YoY) growth in constant currencies: - CNC Machining: Revenue grew 13.1% YoY in constant currencies; it is the company's largest service, with 20% YoY growth in factory operations driven by aerospace and defense demand. - Injection Molding: Revenue grew 12.9% YoY in constant currencies, marking a meaningful acceleration with strength across telecommunications (data center), aerospace and defense, and larger customer orders. - 3D Printing: Revenue declined 2.7% YoY in constant currencies, driven by a 6.7% decline in Europe; U.S. demand for DMLS and MJF technologies remains strong, supported by aerospace and defense and electronics. - Sheet Metal: Revenue grew 3.5% YoY in constant currencies. By region: U.S. revenue grew 10.9% YoY, while European revenue grew 7.3% YoY in constant currencies. By business line: network revenue was flat YoY, while factory revenue grew ~14% YoY; network gross margin was 33.6%, up sequentially and YoY. Aerospace and defense end markets account for 25% of total company revenue.

Risks & headwinds

- Forward-looking statements, including all guidance and transformation outcomes, are subject to inherent risks and uncertainties that could cause actual results to differ materially from expectations, as detailed in the company's SEC filings including its Form 10-K. - European profitability remains below target and the regional transformation is a multi-year effort, with no guarantee of the timing or magnitude of profitability improvements. - 3D printing revenue in Europe continues to decline year over year, acting as a drag on overall segment performance.

Analyst Q&A

• Q: The analyst asks for a breakdown of factory vs network revenue and network margins, and whether new customer growth reflects a change in strategic focus. /

  A: Management confirms network revenue was flat in Q2, while factory growth drove overall double-digit revenue growth; network gross margin came in at 33.6%, up sequentially and YoY. New customer growth is driven by improved customer experience from friction reduction initiatives, including European ERP and legal entity consolidation, which supports both new customer acquisition and wallet share growth with existing accounts. Management's long-term goal is to deliver double-digit overall growth across both business lines.

• Q: The analyst asks for specific use cases and benefits of AI adoption in Proto Labs' manufacturing operations. /

  A: Management explains that Proto Labs' unique library of 15 million CAD drawings enables AI improvements across customer-facing and internal operations, including faster pricing, instant quoting, design for manufacturability analysis, and matching customers to the right manufacturing offering. Its proprietary, patented homegrown manufacturing execution system allows AI to connect factory sensors and quality systems to deliver faster lead times, which is the core of the company's "physical AI" competitive advantage that accelerates customer innovation.

• Q: The analyst asks for details on the company's inorganic growth strategy, particularly for production expansion. /

  A: Management confirms the company has a healthy pipeline of M&A opportunities focused entirely on expanding existing service capabilities to meet growing customer demand for production, not entering new unrelated lines of business. All acquisition targets are evaluated based on expected ROI, with a focus on supporting deeper wallet share with the company's existing large strategic customers by adding production-focused capabilities that complement the company's current prototype-to-production strategy.

• Q: The analyst asks if strong sequential growth in CNC and injection molding is sustainable, and if it reflects a broader return to higher customer demand for fast lead times. /

  A: Management confirms the long-term growth trajectory for both segments is sustainable, driven by investment in production-focused capabilities (including required industry certifications) that enable the company to support the full product lifecycle from prototype to production. Management notes it is seeing increased customer willingness to pay for the company's industry-leading fast lead times, aligned with a multi-year early innovation cycle in high-growth end markets including drones, robotics, satellites, data centers, and aerospace and defense that plays directly to Proto Labs' unique value proposition.