Proto Labs, Inc. (PRLB) Q4 2022 Earnings Report, Transcript and Summary

Greetings, and welcome to the Proto Labs Fourth Quarter 2022 Earnings Call. [Operator Instructions]. As a reminder, this conference is being recorded. I would now like to turn the call over to Jason Frankman, Vice President and Corporate Controller. Thank you. You may begin.

Thank you, Daryl, and welcome, everyone, to Proto Labs Fourth Quarter and Full Year 2022 Earnings Conference Call. I'm joined today by Rob Bodor, Proto Labs' 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 fourth quarter and full year ended December 31, 2022. 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'll turn the call over to Rob Bodor. Rob?

Thanks, Jason. Good morning, everyone, and thank you for joining our fourth quarter earnings call. I will provide commentary on the overall state of our business, and then Dan will cover our financial performance in depth later in the call. As we begin 2023, the Proto Labs team is focused on accelerating our growth through the execution of our strategy. We are narrowing our focus and investments to drive growth in 2 priority areas: our 2 largest services, Injection Molding and our new integrated comprehensive CNC offer that combines the speed and automation of our digital factory with the broad capabilities of our digital network powered by Hubs. I am confident that a sharper focus on fewer priorities will allow our organization to succeed in 2023 and ultimately drive greater value for our shareholders. Reflecting on 2022, we are not satisfied with our financial results. Our performance was impacted by an uncertain macroeconomic environment and internal challenges we faced at Proto Labs. Looking ahead, I'm optimistic because our investments and priorities for 2023 are focused and designed to address these issues, and we are already seeing positive momentum. In addition to focusing on fewer priority areas, we're also accelerating our innovation pipeline, launching more new offerings at a faster pace. And lastly, for the current year, we have a financial strategy in place through which we will expand our operating margin, focus our investments on areas with the highest potential return and return capital to shareholders at an accelerated rate. A narrower focus on fewer priorities and an enhanced financial strategy will drive Proto Labs' success and increase shareholder value in 2023. The two main areas of underperformance in 2022 were Injection Molding and a decline in our margins. Although last year's performance did not meet our expectations, there are many positives in our business that we will build on in 2023. Our CNC Machining and 3D Printing services both grew double digits year-over-year. Our Hubs business grew over 50% in constant currencies. We also made great progress on the integrated Proto Labs and Hubs offer last year, and our customers began to realize the benefits of the unique integrated offer. We established a very important platform that is proving out the value of our comprehensive offer strategy. In 2022, the number of customers that ordered from both the digital factory and the digital network increased over 2021. Furthermore, revenue from these customers increased even faster, reflecting strong growth in spend per customer. I want to share a few customer examples that illustrate the value that our combined factory and network model has already created for customers. Because our digital factory can deliver value that is not available in any competing digital network, we can deliver value that customers cannot get elsewhere. In our first example, a prominent medical company was looking to accelerate the development of a new product with multiple components. They were looking to procure 12 injection molding tools from a single manufacturing supplier. Single sourcing of the 12 molds was a requirement for the customer. We manufactured 9 of the 12 molds in the digital factory. And the remaining 3 higher-requirement molds, we manufactured outside of our internal capabilities and sourced those through our digital network partners. Not only did our combined model create the comprehensive offering that enabled us to win this entire large injection molding order, more importantly, it enabled Proto Labs to reduce the supply chain complexity for this customer by being a seamless single supplier for their entire project, a true one-stop shop. Next, a global technology company needed help on a fuel cell project with high requirements and tight deadlines. This customer leveraged Proto Labs' digital factory capabilities for quick-turn 3D Printing and CNC Machining parts and ordered high-requirement production CNC machine parts with tight tolerances and plating that were fulfilled via the digital network. We were able to meet stringent deadlines and manufacture high-quality finished parts, saving the customer 8 weeks in their product development process over any competing alternatives. As these examples highlight, the unique combination of Proto Labs' speed and reliability with the expanded capabilities of Hubs' digital network is already driving tangible value for customers, value in the form of speed, supply chain simplification. Breadth of manufacturing capabilities available helps accelerate the journey from prototyping to production and more. Customers are seeing the value and adopting our combined capabilities. Our long-term strategy is gaining traction as the integrated offer drives additional demand and increased share of wallet with both existing and new customers. And we are just getting started. Looking ahead to 2023, as I mentioned, we have narrowed our focus and investments into 2 primary growth areas. Injection Molding, our largest service, was negatively impacted by macroeconomic factors in 2022. We are still very confident in the competitive advantage of our Injection Molding service, and we continue to invest to make it even more competitive. There are several initiatives in place to drive growth in 2023. In prototyping, we're making our standard lead times even faster. Already this year, we launched an industry-leading 7-day standard lead time for molds, in effect cutting in half our lead times for many of the parts that we produce in Injection Molding. We're also offering expanded capabilities through our digital network. In production, we're expanding our offerings through multiple investments: first, a broader array of digital quality offers; and second, lower part pricing for high-volume orders fulfilled through the Hubs network. And across both prototyping and production, we're optimizing part and mold pricing through investments in enhanced pricing capabilities. And we're making it easier to use our Injection Molding service by improving the automated design for manufacturability feedback on our quotes and expanding our consultative design services. We expect these actions to drive Injection Molding growth in 2023. Our second priority growth area for 2023 is CNC. This is our second largest service and has been growing well. This year, we're committed to unlocking even greater growth potential via the most complete and comprehensive offer in the industry through our digital factories and our digital network. Yesterday, we announced that customers now have access to expanded capabilities offered through the digital network on CNC quotes received from protolabs.com. Customers can now benefit from the combined capabilities of the digital factory and network to leverage advanced machining capabilities designed to lower part costs at longer lead times, improve tolerances, broad -- provide broader finishing options and make possible larger and more complex part designs. In the fourth quarter, our longer lead time CNC offer fulfilled by both the digital factory and the digital network grew over 48% year-over-year, again, providing evidence that our comprehensive offer strategy is gaining traction. We've also accelerated our rate of innovation, as evidenced by the number of new offering launches in recent months. And we've strengthened our leadership team with a focus on growth and innovation. Oleg Ryaboy, our Chief Technology Officer, has been driving positive change and accelerated velocity since he started in September. In January, we welcomed Luca Mazzei as Strategic Growth Officer. Luca has more than 20 years of experience driving business growth recently as Chief Growth Officer for several industrial companies. The additions of Oleg and Luca highlight our intense focus on strategic growth and accelerated innovation moving forward. And as I look ahead, we have several more capabilities in the development pipeline that I'm excited to share with you in the future. I am confident that our narrow focus on our priority areas for growth will drive shareholder value, and we must also improve our earnings. We're committed to driving operating margin expansion in 2023 by reducing and redirecting investments in lower priority areas and aggressively managing spending. Early this year, we took several actions to better align resources to our 2 priority areas for growth and ensure those areas receive adequate investment. Through our annual planning process, we identified opportunities to shift investments away from lower priority areas of our business. Proto Labs' profitable business model generates more operating cash than any public company in our industry, and we have a very nimble capital structure. On February 7, 2023, our Board approved an additional $50 million to our stock repurchase authorization. This year, we will return capital to shareholders at an accelerated rate through repurchases, reflecting confidence in the long-term outlook realized through the execution of our strategy and focus on creating value for our shareholders. Lastly, as part of managing our business, we will continue to evaluate segments or services that are underperforming or noncore to our long-term strategy. This sort of evaluation ultimately led to the closure of our Japan business last year. Going forward, we will focus on areas with the highest potential return on investment. I remain very optimistic about the future of Proto Labs and confident that we will deliver great value for our customers and our shareholders over the long term. The past 3 years were filled with disruption and transition in the broader economy that impacted Proto Labs, but we cannot rest on the past, and we will not be guided by factors outside of our control. Our 2023 plan is very focused. We're committed on accelerating growth in our 2 priority areas, accelerating our innovation pipeline, driving earnings expansion and returning capital to shareholders at an accelerated rate. With that, Dan will now cover the financial results and our outlook for the first quarter of 2023.

Thanks, Rob, and good morning, everyone. Our detailed financial results begin on Page 13 of the presentation. I'll begin with detailed fourth quarter results and then move to full year 2022 highlights and wrap up with our outlook for the first quarter of 2023. As a reminder, we shipped our final order in our Japan operations in September 2022. Many growth rates I provide today will exclude Japan to provide a better understanding of the organic change. Please refer to the accompanying slide presentation and the financial tables in our earnings press release for additional detail. Fourth quarter revenue of $115.6 million was just above our guidance range and represents a 1% decrease year-over-year in constant currencies and excluding Japan. Hubs had a very strong fourth quarter, generating $14.8 million of revenue in the fourth quarter, representing year-over-year growth of 49.6% or 56.5% in constant currencies. Fourth quarter revenue by region is summarized on Slide 16. In the Americas, fourth quarter revenue decreased 5.8% year-over-year, primarily due to weakness in Injection Molding parts orders. In Europe, fourth quarter revenue grew 19.9% year-over-year in constant currencies, driven by strong growth in our European CNC Machining and 3D Printing services. Transitioning to revenue by service. Fourth quarter Injection Molding revenue declined approximately 12% year-over-year at constant currencies and excluding Japan. Fourth quarter CNC Machining revenue grew double digits year-over-year at constant currencies and excluding Japan, driven by outperformance in our longer lead time offerings fulfilled via both the internal digital factory and the digital network. Fourth quarter 3D Printing grew 8.2% year-over-year at constant currencies. Sheet Metal revenue declined 20.5% year-over-year. We served 22,205 unique product developers in the fourth quarter. Excluding Japan, unique product developers served decreased 1.1%, commensurate with revenue. Turning to Slide 20 and our detailed income statement. Overall, fourth quarter non-GAAP gross margin decreased 200 basis points sequentially to 42.8%. The sequential gross margin change was primarily driven by lower volume as well as continued growth in our longer lead time network and factory offerings. Hubs gross margin in the fourth quarter was 25.4%. Total non-GAAP operating expenses were $42.3 million in the quarter or 36.6% of revenue compared to $40.9 million or 33.6% of revenue in the third quarter of 2022. The sequential increase in operating expenses was driven by a third quarter $1.2 million onetime gain on the sale of a building and continued investment at Hubs. Regarding the closure of our Japan business. We continue to incur expenses associated with the shutdown. The Japan business closure resulted in $534,000 in GAAP operating expenses during the fourth quarter. Consistent with the prior quarter, these expenses have been excluded from our non-GAAP financial results to enable clean comparisons to prior and future periods. Moving to taxes. Our non-GAAP effective tax rate in the fourth quarter was 1.6% compared to 22.4% in the third quarter. The lower fourth quarter non-GAAP effective tax rate was driven by the release of an accrual for an uncertain tax position that was resolved in November. Fourth quarter non-GAAP diluted net income per share was $0.26 compared to $0.40 in the prior quarter due to lower volume, lower internal manufacturing gross margins, increased investment in Hubs and the onetime gain on the sale of a facility in the third quarter. Transitioning to cash flow and balance sheet highlights on Slide 21. We generated $10.5 million in cash from operations in the fourth quarter. We repurchased 16.6 million in shares during the quarter as we continue to purchase opportunistically. In addition, our fourth quarter GAAP financial results included a noncash goodwill impairment charge of $118 million as a result of our annual impairment analysis, primarily driven by rising interest rates, challenging macroeconomic conditions and cost pressures in our global operations from inflation. The impairment is solely an accounting charge and has no impact on Proto Labs' cash position or liquidity. Therefore, it has been excluded from our non-GAAP financials. Shifting to the full year 2022 financial highlights beginning on Slide 22. Our full year revenue grew 3% over 2021 in constant currencies and excluding Japan. Excluding the impact of foreign currencies and Japan, CNC Machining grew approximately 18%. 3D Printing grew approximately 12%. Our Hubs business had a fantastic year, generating $48.5 million in revenue, representing over 50% growth in constant currencies. Full year 2022 non-GAAP diluted net income per share was $1.50 compared to $1.55 in 2021. Lower gross margin in 2022 was partially offset by lower operating expenses. On December 31, 2022, we had $106.5 million of cash and investments on our balance sheet and 0 debt. Now I'll provide our outlook for the first quarter of 2023 as outlined on Slide 31. We expect to generate revenue between $114 million and $122 million in the first quarter. This guidance incorporates January performance and typical seasonality patterns. The closure of our Japan operations is expected to have a $4.1 million negative year-over-year impact on our revenue growth. We expect foreign currency to have approximately a $2.2 million unfavorable impact on revenue compared to the first quarter of 2022. Moving to earnings guidance. We anticipate non-GAAP add-backs in the first quarter to include stock-based compensation expense of approximately $4.1 million and amortization expense of $1.5 million. We currently estimate our first quarter non-GAAP effective tax rate will be between 21% and 22% in the first quarter, up from 1.6% in the fourth quarter. This sequential tax rate increase represents a $0.05 per share negative impact to non-GAAP earnings per share. In summary, we expect first quarter non-GAAP EPS between $0.18 and $0.26. Now back to Rob for closing comments.

Thanks, Dan. On our fourth quarter call, we normally reflect on our accomplishments in the prior year. However, I believe, more importantly, this is a great time to look forward and focus on the opportunities ahead of us. We have sharpened our focus on 2 clear priority areas for growth for 2023. We've accelerated our innovation pipeline, and we're committed to earnings expansion. Our business model is profitable, and our balance sheet is strong. Proto Labs is poised for strong and sustained financial performance, which will drive long-term value creation for our shareholders. That concludes our prepared remarks, and we'll be happy to take your questions.

[Operator Instructions]. Our first questions come from the line of Brian Drab with William Blair.

First, maybe just on the guidance. It seems like the revenue guidance is quite solid. And I'm wondering if you could comment on what you've seen here in the first 40 days or so of the year.

Yes. Our seasonal pattern, Brian, is how fast do our customers come back from the holidays. And obviously, the guidance reflects, it was fairly solid in January in terms of it was not a slower pattern than some years. So customers came back solidly in January, and that's what's reflected in the guide.

Okay. And then the Injection Molding business has been declining, especially sequentially in the last 2 quarters. Can you talk about, number one, in that turnaround and what does it take to do that? And what do you need to correct, what's been going wrong there? And then number two, what have you seen in the Injection Molding business specifically to start 2023?

Sure. So yes, our Injection Molding business, you can think about it in 2 ways, right? We've got the molds that we make and then the subsequent parts of the production business that comes off of those molds. As we've talked about in the past, our molded parts business is the most cyclical of the businesses that we have, and we've seen some headwinds in demand in that portion of the business in this economy. And as we talked about on last quarter's call, we were hearing customers who had excess inventories from large orders that they placed earlier due to the supply chain disruption. So that's what we're working to overcome right now. And the best way that we can drive the parts business is by driving molds and new molds with customers. And so I'm pleased to say that we're starting to see positive momentum there and some growth in molds. And we're leaning into that with all the new capabilities that I talked about on the call, right? We're expanding the speed of our offerings. We've got 7-day standard lead times now for molds, which is twice as fast as our standard lead times were before. So we're able to serve our customers who have prototyping and quick-turn needs much more effectively than ever before. And we were already the fastest in the market. We're leaning into that. We're even faster. But in addition, we're leaning in on production through enhanced quality reporting and capabilities and also through cross-selling and making our offerings available through Hubs. And so as a result, just like we're building the most comprehensive CNC service, right, through the combination of the digital factory and the network through Hubs, we're really taking that same strategy to Injection Molding and greatly expanding our capabilities to drive our mold sales, which will then drive Injection Molding overall. And we expect growth this year in Injection Molding.

Our next questions come from the line of Jim Ricchiuti with Needham.

I wanted to go back to some of the commentary that you made about shifting from some of the lower priority areas. I'm wondering if you could give us a sense as to how much of a drag on profitability some of these lower priority areas have been over the past year.

Yes. So just to clarify, last year, we grew -- if you exclude Injection Molding, we grew double digit all our -- across our other services. And so the focus is in our 2 biggest areas, Injection Molding being our biggest service, right? We're really focused on driving growth there. As we drive growth there, the whole business benefits. Our second biggest service is CNC. And while that's growing well, we believe we have a tremendous opportunity with our comprehensive offering to make that grow even better. So our focus is on those 2 largest services. Now that doesn't mean that we're not making investments in our other services. We are, but we're reallocating differentially to drive our 2 biggest services, which are also -- are among our higher-margin businesses and through the combination of those 2, able to drive both revenue growth and margin expansion in the business. So that's the strategy.

One other thing I would say, Jim, is the point of focusing investment is if we're not putting more resources to our higher margin, higher growth, larger opportunity areas, we're losing an opportunity there. And so as Rob laid out in the call, returning Injection Molding to growth, focusing on the combined offer within CNC, we see as some of our highest potential areas and where we're focusing investment.

Got it. I wonder if you can provide some color on where the production parts business may be in terms of what you've talked about the last couple of quarters, customers rebalancing their inventories. Where are we in that process, do you think?

So I think that we're making progress there. But it's paced, right? We're seeing some improvements in the macro economy. And as I said, we're seeing some growth starting in molds. So I feel like these things are improving. But these are -- I mean, molding and especially production parts coming off of molds are some of our longest lead time kind of offerings. And so that's why it's taken, I think, a few quarters.

And then last question, you've seen determined and I think with the growth that you're trying to push into the Injection Molding business, getting that back on a growth path. Obviously, then the macro plays into that. And is there any sense that you can give us in terms of what you're seeing in some of the larger markets thus far this year? It sounds like you've gotten off to a reasonably good start in January. But just more broadly, as you're thinking about some of the end markets, and what gives you the confidence that business grows for the year?

Yes. So Jim, I'll take this one. One thing that we saw, and I probably should have mentioned this in Brian's question, we ended up on the high end of our guidance, right, in the fourth quarter. And one of the reasons that, that occurred was our market within Europe. So we have seen a soft October within Europe, and then we saw strengthening in November and December. And Europe has started off the year nicely, right? And in Q1, like I told Brian, we've seen a good start to the year from a January perspective. And that would be, I would say, both in Europe, both in the U.S., we've seen a good start to the year. In terms of parts and end markets, right, for sure, as we've shown over the last couple of years, we are impacted by the macro. However, we're taking some of this into our own hands. And you can see that with the offers that we're launching within Injection Molding, a 7-day standard lead time offer, and we have different pricing that we're launching out within Injection Molding as well. So part of this is, yes, there is a macro story here, but part of it is taking this thing under our own control as well and putting things out there that will help grow the business.

Our next questions come from the line of Greg Palm with Craig-Hallum.

Maybe I wanted to start with margins and kind of the outlook on gross margins going forward. What's your expectation as more of the business continues to mix shift towards lower margin Hubs? Is the expectation that -- I don't know, maybe just give us some sense of the gross margin outlook for Q1 specifically and thoughts on the full year, if you can as well.

Yes. I would say -- so thoughts on Q1, margin should be flat to slightly up going into Q1, and that's going to be based on volume. Really, our margin drop within last year was 2 things. One was the lower margin within Injection Molding, and it was also Hubs and some of our network and longer lead time offers growing at a faster rate than what our internal manufacturing is. I would expect throughout the year, our margin story will greatly depend on that growth within the volume, right? And it will also depend on the mix that we have moving forward of what comes through the network and what comes through our internal manufacturing. We internally have plans, and you can see in some of our releases, to grow in both, right? So that both -- we're growing both Injection Molding and growing the network. But we're going to see how the year plays out in terms of what our customer responses to those things and what is driven from a volume and a mix perspective.

And with Hubs specific, is there room to expand the margin from these current levels? I mean, you've seen a nice revenue increase the last couple of quarters, but margins have actually come down there.

Yes. So I think there was a slight decrease in margin from Q3 to Q4 within the Hubs business. But we didn't see anything that was alarming. I mean, we saw -- in terms of what was going on with our MPs and so forth, we saw nothing that was kind of out of the ordinary. We see room for margin expansion within Hubs, and part of that is pricing more efficiently as you get more and more volume and more and more uploads into your system. And the math, the algorithms end up pricing more and more efficiently for parts such that you're seeing some margin improvement. So I would still hold to our targeted margin range for the Hubs business being 25% to 30%.

Okay. Perfect. And then I guess just last one on the growth outlook. Relative to the current level of Injection Molding, growth in '23 implies a pretty significant tick up versus the run rate here in Q4. So I just wanted to maybe have you focus a little bit on what gives you confidence that in light of everything outside your control, that amount is going to really -- I mean, it implies a pretty significant acceleration as we go through the year. And then just to be clear, you've talked a lot about Injection Molding growth. But is the assumption that CNC is going to grow as well for the year?

It is. It is. So yes -- so remember, we had strong growth last year in every service but IM. As we start this year, we're seeing growth in a lot of areas. We had really strong growth in Europe, and we're making focused investments to drive growth in Injection Molding and to even further accelerate growth in CNC by bringing these comprehensive offers to the market. And so we're driving everything that we have control over to really ensure that we're able to drive that level of growth. Dan?

Yes. The other thing I would say, Greg, we have plans in place, and we're executing on those plans to grow the Injection Molding business. You can see over the last few years, we're impacted, especially in that business, by different changes from a macro perspective. So yes, there's macro uncertainty into 2023, for sure. I think what we're saying is as you can see with some of the offer launches that we're doing, we're targeting for that business to grow.

Our next questions come from the line of Troy Jensen with Lake Street Capital Markets.

Gentlemen, congrats on the nice results. First, Daniel, I just want to press you a little bit, just love your confidence on just gross margins. I know you said flat to slightly up. But if revenues are kind of just up slightly and most of the growth is coming from Hubs, should we get kind of more gross margin dilution on that front? So just can you give us -- any more detail on that would be great.

Yes. So a couple of things. One, we -- from Q4 to Q1, we do have some pricing that we've put in place from Q4 to Q1. We will -- depending on how the rest of the quarter comes in, there is potential of risk of higher mix into the lower margin areas, which is why I'm saying flat to only slightly up.

Okay. All right. That's fine. How about for you, Rob? Just thinking back as long as I've known you guys, I've always said to you that it's kind of an expedited service. Is that -- if you think about now versus kind of maybe a few years back, can you talk about how quickly you guys turn in molds over? Has it been more of a trend towards longer lead times in the molds and less of a short time, higher margin business in the quick-turn side?

Yes. So I think in general, the expedited business, that portion of the business moves with the macro and strong economies. When there's a lot of innovation and pace is faster for our customers, we definitely see more expedites, right, which come with higher margin. In slower economies, that lessens. So that's a correct interpretation, Troy.

What's the quickest mold time for you guys?

Well, our quickest standard is 7 days, but we will expedite to next day, to 1 day.

Indeed, up to 1 day, depending on parts complexity and stuff.

That's right. Yes, exactly.

How about -- and then last question, you talked about extra services, too. So just curious, are you talking like more kind of off access cutting? Are you talking about plating, coating? Is that stuff you guys want to do internally at Proto Labs? Or is that stuff that's going to be offered through the channel and the Hubs partners?

So yes. So right now, those are capabilities that we've made available through the manufacturing partner network. Over time, as we continue with our innovation pipeline, we evaluate continually which of those we might bring into the factory and thus make them available at the faster lead times. But we would still have them available through the network at the longer lead times.

That's it. All right, guys. Well, congrats again and good luck on the quarter.

Our next questions come from the line of Ben Rose with Battle Road Research.

A couple of questions. Rob, you had mentioned last time that the company was focused on getting the word out to your existing customer base about your ability to compete for some of these longer lead time orders on the Injection Molding side. Where do you think you are in terms of customer understanding that you can actually compete for these longer lead time orders?

Yes. So our sales teams have been very focused on that and aggressively going after it. But that said, we serve tens of thousands of customers, and we've got many, many more, right, that we've served over time. And so any kind of significant change to capabilities and effectively our brand, right, which was so long known for only the very fastest lead times in the world, will take time to fully penetrate the market. So we're starting to see traction now, and I expect that to increase as we go forward this year.

Okay. And on the CNC opportunity, I gather from what you're saying, the larger opportunity as you move forward is more on CNC production parts as opposed to just quick turnaround time on prototypes. Do I have that right that, that is the larger opportunity now in CNC?

So I think the way to think about it is that historically, all we offered was the very fastest lead times. So -- and so we had basically 0 revenue from -- a couple of years ago, we had 0 revenue from anything longer than 3- or 5-day machine parts. Now we've got offers that go out to something like 23-day standard lead times for machine parts. And so all of that is starting from very low numbers. And so we're seeing very strong growth there. We also believe that in this macro economy, that is the area of stronger demand right now. So our strategy is to be able to have the whole comprehensive offer from same day all the way through to 23 days and so forth, such that whatever the customers' use cases are, whatever their needs are, we can serve that and grow in whatever part of the economy is strongest at that time.

Okay. That's helpful. And finally, with regard to -- one of the things you also mentioned last quarter was this notion that many industries were showing a lack of urgency in terms of new product development projects and so forth. It does sound like you've gotten off to a strong start this year. Are there any verticals that you can mention that stand out that seem to be moving forward more rapidly in terms of their own new product development?

Yes. I think aerospace is one that was strong for us in the fourth quarter. That stuck out particularly. I think that'd probably be the one I would highlight for you.

There are no further questions at this time. And with that, this does conclude today's teleconference. We do appreciate your participation. You may disconnect your lines at this time, and enjoy your weekend.