Proto Labs, Inc. (PRLB) Q4 2020 Earnings Report, Transcript and Summary

Greetings. Welcome to Proto Labs Fourth Quarter and Year-End 2020 Earnings Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions]. Please note that today's conference is being recorded. I'll now turn the conference over to Daniel Schumacher, Director of Investor Relations. Mr. Schumacher, you may begin.

Thank you, Rob, and good morning, everyone. With me today are Proto Labs President and Chief Executive Officer, Vicki Holt; Vice President and General Manager of the Americas, and Incoming President and Chief Executive Officer, Rob Bodor; and Chief Financial Officer, John Way. This morning, Proto Labs issued a press release announcing its financial results for the fourth quarter and full-year ended December 31, 2020. 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. 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 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 non-GAAP to GAAP results. Now, I would like to turn the call over to Vicki Holt, President and Chief Executive Officer of Proto Labs. Vicki?

Thanks, Dan, and good morning, everyone. Thank you for joining us today for our fourth quarter and full-year 2020 earnings conference call. Before we go through our 2020 financial performance and look ahead to 2021, I wanted to take a moment and reflect on 2020, a year of change. As we all know, 2020 brought many unforeseen challenges due to the COVID-19 pandemic that began suddenly in the first quarter. I'm very proud of how Proto Labs responded. Our employees took these challenges and turned them into opportunities to better serve our customers and contribute to the fight against the pandemic. Proto Labs employees displayed incredible adaptability guided by our core values of teamwork, trust and achievement. Throughout the pandemic, our top priority has been to keep our employees, communities and customers safe, while continuing to delight our customers. Our digital manufacturing model allowed us to help our customers produce parts at market-leading turnaround times to respond to COVID-19, including components for ventilators and diagnostic equipment, as well as personal protective equipment for healthcare providers. In total, we generated $18 million of revenue from COVID-19-related customer projects. We're humbled and grateful that customers trusted us to assist in the fight against COVID-19. In addition to helping the world innovate to fight the pandemic, Proto Labs also took actions to transform for the future throughout 2020. Most notably, we accomplished our number one priority entering 2020, the successful launch of Protolabs 2.0. Our employees demonstrated outstanding productivity as we diligently worked through launch dates amidst new working environments. As you know, we've launched our refreshed system in Europe in November. And I'm happy to report that Protolabs 2.0 went live successfully in the Americas on February 1. Both launches went as expected, and initial customer feedback had been very positive. Today, we remain in the hypercare monitoring phase as we continue to make improvements in response to customer and internal user feedback as is customary with any system launch. Protolabs 2.0 offers a much improved customer experience and will allow us to maintain and extend our position as the leader in digital manufacturing. As the economy continues its gradual recovery, we expect higher customer satisfaction and retention moving forward. This exciting new growth platform is the result of the multi-year effort of our incredible employees who have worked tirelessly to accomplish our top priority and continue to inspire and innovate as we serve our customers. 2021 will be a transformative year for Proto Labs and marks the beginning of a new chapter. We have already made significant strategic progress early this year, including the launch of Protolabs 2.0 in the Americas and acquiring 3D Hubs, positioning us to serve our customers and realize growth as the market recovers in 2021 and beyond. As one chapter begins, another ends. And as you may know, this is my last earnings call as President and Chief Executive Officer of this wonderful organization. I'm proud to serve alongside a great team of employees at Proto Labs for the last seven years. And I'm confident that Rob Bodor will lead the company to great success. Rob will assume the role of President and Chief Executive Officer on March 1, and you will hear from him later in this call, as he provides an overview of our long-term strategic objectives and 2021 priorities. Turning now to our financial results for the fourth quarter of 2020. We're pleased to report fourth quarter revenue and earnings within our expectations. Revenue of $105 million represents a year-over-year decline of 6%, as global economic activity remains to low levels from a year-ago. Our fourth quarter revenues declined 2% compared to the third quarter of 2020 in line with recent seasonality patterns. Revenues by geography for the fourth quarter is highlighted on Slide 5 of our earnings presentation. Americas revenue declined 6% year-over-year and 3% sequentially consistent with overall customer demand trends. Similarly, Europe's fourth quarter revenue declined 8% year-over-year, 12% in constant currency consistent with third quarter results. In Japan, revenue declined only 1% compared to the same period a year ago, 5% in constant currencies and improved 21% sequentially. Turning to earnings. We reported fourth quarter non-GAAP diluted earnings per share of $0.50 per share in line with our expectations for the quarter. Our earnings in the fourth quarter were down sequentially as anticipated, primarily due to the impact of launch of Protolabs 2.0 in November and lower seasonal volumes. Our fourth quarter performance resulted in a full-year 2020 revenue of $434 million, representing a decline of 5% compared to 2019, or 6% in constant currencies. Please see Slides 7 through 10 for additional information on our 2020 revenue performance. Given the emergence of a global pandemic and a sudden substantial drop in global economic activity, as well as other unforeseen challenges in 2020, we responded very well as we focused on the health of our employees, servicing our customers, and our long-term business opportunities. Our 2020 non-GAAP diluted earnings per share were $2.36 compared to $2.79 in 2019, as we manage costs where appropriate and continue to invest in our future in the form of our Protolabs 2.0 project throughout the year. John will now provide a more detailed view into our financial results. John?

Thank you, Vicki. Our detailed fourth quarter financial results begin on Page 11 of our presentation. As Vicki mentioned, fourth quarter revenue of $105.2 million represents a 2% sequential decline consistent with the seasonality patterns of our business. We served 18,157 unique product developers in the fourth quarter, down 3% sequentially. Turning to Slide 13, and our detailed income statement, our non-GAAP gross margin in the quarter was 51%, compared to 51.7% in the third quarter. The sequential gross margin decline was primarily due to increased compensation driven by the holidays in the fourth quarter. Turning to operating expenses. Our total non-GAAP operating expenses totaled $37.4 million in the quarter compared to $33.3 million in the third quarter. The majority of the sequential increase in operating expense was directly tied to Protolabs 2.0, as described in our guidance during the third quarter call. As a reminder, we were capitalizing the cost of resources working on the project prior to going live. As the system was placed in service, these costs were expensed representing a sequential increase in R&D expense of approximately $3 million. With the assets placed in service mid-quarter, we incurred $750,000 from depreciation during the fourth quarter. Quarterly depreciation will increase to approximately $1.5 million in Q1 and will remain at that level each quarter going forward. Additionally, our GAAP operating expenses included $427,000 of transaction costs in the quarter that did not relate to the ongoing operations of the business and had been adjusted out for non-GAAP purposes. On a GAAP reporting basis, net income totaled $9.6 million resulting in diluted earnings per share of $0.36. Adjusting for the after-tax cost of stock compensation, amortization of intangibles, non-recurring transaction expenses related to the acquisition of 3D Hubs, and unrealized foreign currency gains, our non-GAAP diluted earnings per share in the quarter were $0.50 representing a $0.13 per share decrease from the prior-year, and a sequential decrease was $0.17 per share. Breaking down a sequential change in earnings per share further, increased operating expenses related to Protolabs 2.0 launch represented a negative sequential impact of $0.11 per share. The impact of lower volume was $0.03 per share. The remaining $0.03 was driven by lower gross margin, and various changes in operating expenses and other income. Transitioning now to our full-year 2020 financial results, which begin on Slide 15, revenues of $434.4 million declined 5% compared to 2019. We served over 40,000 product developers during 2020, a decline of 15.7% compared to the prior-year. The number of product developers served was not correlated to revenue due to the mix of business with injection molding average order size greater than that of CNC machining. 2020 non-GAAP gross margin was 51% compared to 52% in 2019. The year-over-year decline in gross margin was primarily due to mix changes and the challenges to absorb fixed costs, while responding to the lower volume driven by the COVID-19 pandemic. Total non-GAAP operating expenses totaled $143.7 million in 2020, compared to $144.5 million in 2019. During 2020, we were able to manage our expense below prior-year levels and continue to invest in the future through Protolabs 2.0. Our R&D expense increased $3.7 million during the year, principally related to the expense recorded in the fourth quarter related to the launch of our system as previously discussed. This increase during the year was offset by reduced sales and marketing spend due to lower travel and converting to virtual Trade Shows and other innovative marketing tactics to engage customers, as well as other cost management activities including executive and board compensation reductions. 2020 GAAP net income was $50.9 million, resulting in diluted earnings per share of $1.89. Adjusting for the after-tax cost of stock compensation, amortization of intangibles, non-recurring transaction expenses and unrealized foreign currency gains, our non-GAAP diluted earnings per share in 2020 was $2.36, representing a $0.42 per share decrease from 2019. Breaking down the year-over-year impact on EPS, the expenses associated with the investment in Protolabs 2.0 represented a $0.11 year-over-year reduction in per share. Lower volumes driven by the global pandemic equated to a $0.12 per share impact. The impact of lower gross margin was $0.14 per share. The remainder of the year-over-year change in non-GAAP earnings per share was due to costs associated with adapting to the evolving work environment and maintaining our organizational structure to support the long-term opportunities for the business. Now turning to cash flow on Slide 18. We generated $107 million in cash from operations during 2020 compared to $116.1 million in 2019. Even during a challenging year, our business produced very strong free cash flow due to the digital nature of our manufacturing operations. These strong cash flows allow us to invest in the future growth of the business, including Protolabs 2.0, and our recent acquisition of 3D Hubs. Capital spend in 2020 was $47 million, including the completion of Protolabs 2.0, progress on the new facility in Germany to consolidate our 3D printing operations, and the facility expansion in our injection molding and CNC operations in the United Kingdom. On December 31, 2020, our cash and marketable securities balance was $221 million. In January, we funded $130 million cash portion of the closing consideration to acquire 3D Hubs with cash on hand. 2020 was the most difficult backdrop our businesses face. Yet we adapted, continued our strong cash flow generation, proceeded with investments to support the long-term growth of our business, and continue to have a very strong debt free balance sheet. I'll now turn the call over to Rob for an overview of our longer-term strategy and 2021 priorities.

Thanks, John, and thank you all for being with us today. I'm very excited to step into the role of President and Chief Executive Officer on March 1. On behalf of all Proto Labs employees, I want to thank Vicki for her passionate leadership over the past seven years, we will miss you and we wish you all the best. At Proto Labs, we have a tremendous opportunity ahead of us and I look forward to partnering with all of our employees to drive our long-term success. To capture that opportunity, we have three primary long-term strategic objectives and our priorities in 2021 fit into these three objectives. First, to create a world-class customer experience for digital manufacturing; second, to expand our portfolio of customer offerings to meet the broadest set of customer needs; and third, to further invest in our employees. Serving our customers has always been our focus, and we're better positioned to serve our customers today than we have ever been on our history. Years-ago, we began with the objective of assisting companies in accelerating their product innovation by delivering high quality custom parts at unprecedented speeds. We built our business by adding new services and expanding our envelope of capabilities to manufacture a broader set of parts in order to serve these additional needs for our customers. Our customers value this and continually ask us to provide even more services and capabilities. We recently announced two important milestones that create the foundation for our expanded capabilities into the future, the successful launch of Protolabs 2.0 and the acquisition of 3D Hubs. As Vicki stated earlier, both of these initiatives are cornerstones in the foundation of the platform that we're building to expand how we serve and delight our customers and support the long-term growth of the business. Our first objective is to create a world-class customer experience for digital manufacturing. Our successful launch of Protolabs 2.0 represents the first priority on the roadmap to this objective. The refreshed front-end user experience platform, combined with the back-end systems achieved through the multiyear Protolabs 2.0 project provide a strong base with modern architecture that we can build upon more efficient. The system went live in the Americas a couple of weeks ago and the feedback from customers has been positive. While we're live in both the Americas and Europe now, we're not done investing in the customer experience. We have a backlog of additional features and capabilities to further improve the customer experience that we'll continue to develop and release throughout 2021. We'll also begin the process of bringing our sheet-metal service into the Protolabs 2.0 system. Furthermore, we look to unify the customer experience to incorporate our recent 3D Hubs acquisition and have all of our capabilities available to our customers in one seamless platform. We'll continue to learn from our customers and make improvements and with the modern architecture making those improvements will be faster and easier than it was in the prior environment. Our second strategic objective is to continue to expand our capabilities to provide customers with the most comprehensive digital manufacturing offer in the world. From our inception, much of our growth has been driven by the improvement and expansion of our offerings. These envelope expansions have been the focus of our R&D efforts as we reinvent manufacturing with an obsessive dedication for speed. The acquisition of 3D Hubs represents an important step in the expansion of our capabilities, as it is a strategic shift. 3D Hubs is highly complementary to our existing in-house digital manufacturing offerings, and brings the Proto Labs a premium network of manufacturing partners to provide access to virtually any custom parts that our customers may need. The addition of 3D Hubs will allow us to expand how we serve customers in two major ways. First, by expanding the breadth of capabilities we offer through the complementary network of premium manufacturing partners; and second, by offering a broader range of pricing and lead time options to meet very customer needs and use cases. This will increase our ability to serve our customers. If we can't make it, we will find the right manufacturing partner to make it for you with a variety of delivery times and pricing options. I just described our ultimate vision and it is a truly exciting market-leading vision for digital manufacturing. We have work to do to realize that vision. We will be thoughtful as we continue to build-out the complete offer in each of our manufacturing services and bring the two organizations together to provide a single unified customer experience. In the near-term, Proto Labs and 3D Hubs will continue to operate independently while working together to develop a robust integration plan that will allow us to best serve our customers. The first element of our long-term strategy, the customer experience is critical as we develop this plan. We're fortunate that 3D Hubs brings strong expertise in the customer experience area. We'll be working with our colleagues at 3D Hubs to ensure the eventual combined offer is seamless, and provides the best customer experience possible, allowing us to capitalize on the massive market opportunity over the long-term. We'll continue to invest in R&D to drive organic envelope expansions and build-out a 3D Hubs platform as we continue to reinvent manufacturing by broadening our capabilities and expanding the digital thread across our services. Our third strategic objectives and priority for 2021 is to continue to support our employees and drive professional and personal growth. Our employees are instrumental in ensuring we achieve our long-term strategic objectives. 2020 showcase the adaptability of our workforce, and in 2021, we'll continue to evolve and embrace new and more efficient ways to work towards our long-term goals. In addition, diversity, equity and inclusivity are very important to all of us at Proto Labs and we'll continue to educate, celebrate and advocate to make us a stronger team in 2021. As I mentioned, there's a tremendous opportunity ahead of us and the Proto Labs team must work together to capture it and drive our shared success. The executive leadership team and I will provide further detail regarding our evolution as a company and our long-term strategic objectives during the virtual investor and analyst conference later this year. Now, I will turn the call over to John for our outlook for the first quarter of 2021.

Thanks, Rob. Consistent with past practice, we will provide quarterly guidance including formal revenue range and qualitative summary of our cost expectations in the first quarter of 2021, as outlined on Slide 25. As we look to the first quarter, we have experienced improvement in our business, however activity has not yet returned to pre-pandemic levels. As a result, we expect first quarter revenues to be in the range of $108 million to $118 million compared to $105.2 million in the fourth quarter. With the closing of the 3D Hubs acquisition during the quarter, we'll record a partial quarter of revenue of approximately $5 million. We expect foreign currency to have $1 million to $1.5 million favorable impact on revenue, assuming foreign currency rates remain at current levels. Our revenue guidance reflects continued uncertainty in the macro environment. Our Europe business in particular will likely be impacted in the first quarter by Brexit and new lockdown measures creating demand challenges as the recovery slows. January revenue was relatively flat with December and early February trends have remained fairly consistent with January. As a reminder, our typical seasonality pattern starts with a relatively soft January, with activity increasing to a comparatively strong March, making visibility for the quarter challenging. This year, we have an added challenge with the addition of 3D Hubs as we've learned patterns of that business. Now turning to expenses, as we did throughout 2020, we'll continue to manage our cost structure in response to the revenue levels in each of our services and across our overall business. As Rob mentioned in his comments, we have a backlog of projects that we'll be investing in, including the ultimate integration of 3D Hubs to capitalize on the long-term opportunities in front of us. We expect our non-GAAP first quarter gross margin to be approximately 48% plus or minus 50 basis points. Our gross margin forecast is slightly lower than the fourth quarter of 2020 due to the addition of 3D Hubs, which currently operates at a lower gross margin than the Legacy Proto Labs business and will result in a headwind of approximately 200 basis points. We also have factored in slightly higher compensation costs for potential inefficiencies as we begin working in our new systems, combined with merit increase, benefit costs and increased incentive compensation. Turning to operating expense, we expected total non-GAAP selling, general and administrative expenses to be between $41 million and $43 million, up from $37.4 million. These projected first quarter expenses include the following components that are incremental to the fourth quarter. We'll incur a full-quarter of depreciation expense of $1.5 million related to our Protolabs 2.0 system representing an increase of $750,000 over the fourth quarter. We'll also be expensing a full-quarter of resources related to Protolabs 2.0 that were capitalized for a portion of the fourth quarter, resulting in additional expense of approximately $500,000 to $1 million. The addition of 3D Hubs for approximately 75% of the first quarter will result in increased operating expense of $2 million to $2.5 million. And the final key driver is an increase in compensation costs of approximately $1.5 million related to increased payroll taxes in the first quarter, the timing of our annual merit increase, anticipated increases in employee benefit costs and incentive compensation. Additionally, our GAAP results will be impacted by transaction costs and increase in tangible amortization associated with the acquisition of 3D Hubs, and a one-time equity compensation expense associated with our CEO transition. We currently estimate our non-GAAP tax rate to be between 21% and 22% in the first quarter. I also want to provide an update on our anticipated R&D expense beyond the first quarter of 2021. As Rob described in this comments, we have a tremendous opportunity ahead of us, and we have a roadmap of R&D projects to help us capitalize on that opportunity. As we progress through the year, quarterly R&D expenses will decrease slightly in comparison with the first quarter levels, as some of the external contractors that have been dedicated to the project roll-off, while the remaining employees and contractors shift from Protolabs 2.0 to other projects. I'll now turn the call over to Rob for final comments.

Thanks, John. Proto Labs faced many challenges in 2020 and I'm very proud of how our team responded. We achieved strong financial performance in the midst of a global pandemic, and sudden declines in customer demand, while most importantly, continuing to invest in our long-term future success. As we enter 2021, we'll continue our strong execution and prudently manage business performance in the short-term, while continuing to invest to maintain our position as the digital manufacturing leader. We'll continue working toward a best-in-class digital manufacturing customer experience and the broadest digital manufacturing offer for custom parts. These two strategic objectives will allow us to become the go-to supplier in custom manufacturing. That concludes our formal remarks. Now Vicki, John and I will gladly take your questions. Rob, can you please open the line for Q&A?

Sure. Thank you. At this time, we'll now be conducting a question-and-answer session. [Operator Instructions]. Thank you. Our first question today comes from the line of Brian Drab with William Blair. Please proceed with your question.

Hi, good morning, everyone, and thanks for taking my questions.

Good morning, Brian.

Good morning, Brian.

And Vicki, it's been great working with you. Good luck in the next chapter. And we'll miss you here at William Blair.

Thanks, Brian.

And, John, I just wanted to start by saying I think you missed the line in the guidance, no EPS guidance. And I'm just curious, what's the thinking is there given there's so many moving parts, I guess, that would have been helpful to have the EPS guidance in this particular quarter. I'm just wondering what your thought process is?

Yes, Brian, I think over the past few quarters, we've given the revenue range and then the qualitative information on the expense lines. And actually, when I do my modeling that actually works out better, because the revenue range really can swing that EPS range quite a bit, whereas our expense levels, particularly in the operating expense, from right now through the first quarter, are in a pretty tight range, and don't move that materially with revenue. So I actually find that providing that qualitative information when I'm doing the modeling actually works out better to get you a better EPS range.

Okay. Yes, thanks. We'll work with that. And then, one thing I was looking at here, and I just want to get your take on this. When you look at the unique product developer count, I'm looking at the fourth quarter move sequentially. And in a normal year, seasonality has the developer count down about 3% sequentially in the fourth quarter, when we saw that same seasonality this year. But I'm wondering why it's not a more or why that metric wasn't a little bit better in the fourth quarter, just seems a little light in the fourth quarter in terms of developers? And one thing I'm looking at is typically the third quarter is up about 10% from the first quarter, right? And this year, the third quarter was down 10% from the first quarter. So it still seem like there was room to make up for some of that and have some gains relative to that lower level. I’m just wondering, are you concerned about that? And why do you think you're not seeing more of kind of a rebound sequentially as we emerge from the depths of the pandemic?

Yes, Brian, I think as we look at it, we got to look at the individual services and the performance related to it. And when you look at it from that perspective, they are correlated. So our CNC business has been hit the hardest as we look at it and revenue is down the most in that service. And the average order size of a CNC order is lower than that of injection molding. And when we look at the full-year, I mean we did have the $18 million of COVID-related orders, those tended to be larger orders than we've experienced historically. So larger orders from relatively few product developers. So the combination of the mix change with a little bit of COVID, as we look at kind of the full-year and even as we progress through the quarters is relatively expected or makes sense to us as we're looking at it. Yes, the CNC business, that was impacted by the pandemic and what we're seeing in the market, and that's where we'll be looking to recover as we go into 2021.

Okay, great. And then I'll ask one more and get back in line. But the rollout sounds like it went as you planned for Protolabs 2.0 in Europe. Are you seeing any bright spots there in terms of like leading indicators that this will have a material impact on the level of customer interaction, customer retention. Is it too late? I’m just wondering if there's anything that you can glean from that as we try and project the impact as you roll-it out in the Americas?

Sure. This is Rob. So we went live in Europe in November and we went live in the U.S. February 1, so just a few weeks ago. The best initial indicators that we have is new customers and customer counts coming to the website and uploads and customer orders, all of which have been very good, very strong. And we've gotten a number of great positive feedback from customers. And the fact that we went first in Europe, we were able to discover any little hiccups or challenges there that really helped us to mitigate a lot of things as we went live in the U.S. So it's still early. We're only a few weeks into the launch here in the U.S., but initial indications are good.

Okay. Thanks very much.

Our next question is from the line of Jim Ricchiuti with Needham & Company. Please proceed with your question.

Hi, good morning. I had to jump off just briefly, but I heard you comment about flatness in January, February. And I'm just wondering, it sounds like that's consistent with some of the normal seasonal patterns. But I'm just wondering is there any color that you can provide with respect to some potential recovery in some of your end-markets? Or is it just too tough to really tell at this moment?

Yes, I'll take that. So when you look at January, it was pretty flat with December, that's pretty normal. January normally starts very slow as product developers emerge from the holidays, and begin to get back to work. And it picks up throughout the month, as it's best, it did normally this year. But in total, that was pretty flat with December. And so it is -- this is a very difficult quarter for us to forecast historically, because the big ramp occurs, starts slow, and then we have a stronger March, we fully expect that to happen this year as well. But with the huge kind of uncertainty with the global economic recovery, that adds another degree of complexity in really determining exactly what's going to be happening in February and March, where the bulk of the growth in the quarter occurs. So it's basically -- what we basically say it's kind of as we expected it to be and as it has normally performed and we'll be watching for signs that recovery as we move through the quarter.

Got it. And John, a question for you. Again, I apologize if you may have covered this. But as we think about 2021 and the potential that you might have to do, you might be layering back some of the temporary cost actions or benefits that you saw in 2020 just as it relates to COVID whether it's travel-related or trade show or anything like that, is there any color you could provide on that as to whether that is going to be at all meaningful as we think about operating expense over the balance of the year?

Yes. I think trying to provide the color for where our first quarter operating expense levels will be. And I think as you project forward looking at those levels, it is probably the right place to start. We'll be looking at where volume is coming in and what costs we can manage and adjust as we adjust to the volumes. But, as I said, we also will be continuing to invest in R&D and you’ll see that that line item maybe come down a little bit from Q1. But we'll continue kind of at those levels. So I think I would use for your modeling purposes right now. I would use those first quarter levels adjusted to include the full quarter of 3D Hubs, and then we'll provide guidance as we go along. It'll be a little bit volume dependent.

Gotcha. Okay, thank you. And Vicki, best of luck.

Thanks, Jim.

Thank you. [Operator Instructions]. The next question is from the line of Kenny Vallace with Berenberg. Please proceed with your question.

So my first question is related to 3D Hubs, could you just talk about, your expectations for kind of growth in that business? And how that could impact your revenue over the course of the year in terms of just whether that business is more geared towards prototyping and just kind of demand trends that you saw in that business. And obviously, there's some COVID-related revenue in 2020 related to 3D Hubs. So just thinking about kind of how the cadence of revenue will look in that business throughout the year?

Yes, Kenny I think it is a new business for us as well. We've done our diligence, we see the opportunity. As we were looking at it, we were acquiring the platform to build off of, and really serve our customers in a broader manner. As we looked at it, I think we talked about 2020 revenue was about $25 million for that business and we expect growth off of that number into 2021. Now, the pace of that growth, I think is going to depend on a few factors. One, just being the global economy and how things perform there, but also when -- how we can capitalize opportunities related to our Legacy business as well as we come together as an organization. So I think, as we progress through the year, we'll provide that quarterly guidance and updates related to it. I think big picture, we expect growth from the levels they were operating at in 2020.

Yes, I would just add that to John's point around the platform that is great for us. This is a really exciting platform for us to serve our customers much more comprehensively and holistically. And we're excited about the long-term growth as a result of that. In terms of a little bit to characterize the nature of the business, you asked about prototyping and production, they play in both of those. And they do it across all four of the services, right. So there's a lot of commonality and synergy there, with CNC being the largest right now. But as we work together with our integration planning between the two teams, that that's what we'll be doing over the course of this year to maximize and capitalize on those opportunities for synergies.

Great. And then as a follow-up, in terms of the end markets, you expect kind of roughly somewhere similar to Proto Labs today, is there anything you'd point out there in terms of the type of customer base that they're exposed to, will have any, any type of material impact on Proto Labs going forward?

Well, so as I said, the services, the types of products that they produce are very highly aligned in terms of the four services we offer. They bring the benefit of again, as we talked about, broader envelope of opportunities, and a broader range of price points. So the customer overlap is actually relatively small in terms of the individual customers that we serve. So that's an opportunity for synergy.

The end-markets are similar. I would say that they also will have a larger percentage of their revenue in Europe. So it actually does complement the core Proto Labs business that has a much larger percentage in North America, so it gives us a stronger European presence.

Awesome. Thank you. I'll hop back in the queue now.

Thanks.

Thank you. At this time, I'll turn the floor back to Rob Bodor for closing remarks.

Well, thank you for your time this morning. I'm pleased with our execution in 2020, providing we can perform well and proven that we can perform well in any economic conditions. I want to thank all Proto Labs employees for their extraordinary efforts in a very challenging year and for their continued efforts as we drive our 2021 priorities forward. I also want to thank our shareholders for their continued support of Proto Labs throughout a challenging year. Over the long-term, we're committed to improving our customer experience and our manufacturing services offerings, creating significant shareholder value along the way. And once again, I want to thank Vicki for her tremendous leadership over the past seven years. We look forward to providing you additional information on our long-term strategy and 2021 priorities at our virtual investor and analyst conference later this year. Thanks.

Thank you. This concludes today's conference. You may disconnect your lines at this time and thank you for your participation.