Operator: Greetings, and welcome to the Proto Labs Q2 Fiscal Year 2026 Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Ryan Johnsrud, Investor Relations. Thank you. You may begin.

Ryan Johnsrud: Thank you. Good morning, everyone, and welcome to Proto Labs' Second Quarter 2026 Earnings Conference Call. I am joined today by Suresh Krishna, 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 second quarter ended June 30, 2026. The release is available on the company's website as well as an accompanying slide presentation. 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. And now, I will turn the call over to Suresh Krishna. Suresh?

Suresh Krishna: Thank you, Ryan. Good morning, everyone, and thank you for joining our earnings call. We delivered another record quarter with record revenue and strong profitability. As we did in the first quarter, we achieved double-digit revenue growth, gross margin expansion and operating cost leverage. Importantly, our results show that our strategy is beginning to translate into broader business momentum with expanding relationships among larger customers, sustained strength in CNC Machining, meaningful acceleration in Injection Molding and early progress from the changes we are making in Europe. Second quarter revenue per customer grew 17% year-over-year, reflecting continued momentum as we deepen engagement with enterprise accounts. More and more customers are innovating at the speed of software and Proto Labs is the perfect partner to help them rapidly iterate and move from design into production. Strong performance across our factory business reinforces our belief that the investments we are making are gaining traction in the areas where we have our strongest long-term competitive advantages. Injection Molding was a standout performer in the second quarter, growing 13% year-over-year, with strength in telecommunications, driven by data center demand and aerospace and defense. This meaningful acceleration is important because it reflects the impact of the work we have been doing to improve quality, strengthen customer engagement and drive larger orders. Injection Molding remains one of Proto Labs' key differentiated capabilities and its accelerated growth is an encouraging proof point in our broader expansion strategy. CNC Machining continued its strong performance with 20% year-over-year growth in our factory operation, driven by sustained strength in aerospace and defense, including drones, satellites and robotics. Our results this quarter also reinforce an important trend we are seeing across the business. Larger, more strategic customers are expanding both the breadth and the depth of their relationships with Proto Labs. Let me provide you with some examples. AeroVironment, a customer for over 10 years relies on us for both prototyping and production. Lockheed Martin has expanded its use of our 3D printing capabilities as they build out a network of strategic partners in additive production, a critical capability per space flight. And with companies such as Anduril, Meta, Medtronic, Edwards Life Sciences, Boston Dynamics and many others, we continue to build credibility as a partner that can support rapid innovation and increasingly complex production needs. The common thread is that our customers are asking Proto Labs to support more of their product life cycle. This is exactly the strategy we laid out earlier this year and it is why our teams remain focused on our 4 strategic pillars: number one, elevating the customer experience; number two, reigniting innovation; number three, expanding into production; and number four, driving operational efficiency. As it relates to elevating the customer experience, we made significant progress in the quarter with the rollout of our new European commercial structure on July 1, an important milestone in the broader transformation we have discussed over the past few quarters. Previously, customers often worked with multiple regional entities to access our services while we operated across several ERP systems. By aligning our European operations into a single existing ERP platform and legal entity, our European customers with operations across multiple countries can now access our full manufacturing footprint through a single point of engagement. This simplifies how customers do business with Proto Labs reduces friction and makes it easier to leverage the full breadth of our capabilities. At the same time, it reduces internal complexity and supports greater operational efficiency in Europe going forward. While we are making progress on our 4 strategic pillars, we also continue to drive organizational and operational changes to position Proto Labs for faster growth and improved profitability. To strengthen our commercial organization and better support our next phase of growth, we hired Bernardo Parlange as our Chief Commercial Officer in May. Bernardo brings a wealth of enterprise B2B commercial experience. He now leads sales, marketing and customer success, bringing these functions together under a unified strategy to improve commercial execution and build a more scalable model. Manufacturing excellence also remains a key focus. To that end, in May, we hired Micah Roberts as Senior Director of Global Quality to help strengthen quality outcomes, production consistency and customer satisfaction. This work is especially important as we support larger production programs where repeatability, inspection, documentation and quality systems become increasingly critical to earning more share with customers. Separately, we announced the planned retirement of Mike Kenison, former Chief Operations Officer, effective July 1st. Mike was with Proto Labs for nearly 20 years, and he played a significant role in building and scaling our world-class global operations and positioning the company for continued success. We are grateful for his exceptional leadership and dedication. We have initiated a search for a new Chief Operations Officer and expect to name a successor in the coming months. Returning to Europe and the transformation we outlined in February, we are pleased with the early progress we've made as revenue in the region grew 9% year-over-year, building on the momentum we saw in the first quarter. This reflects early results from go-to-market changes we began implementing late last year, including alignment to core industries and increased yet simplified customer engagement. I want to recognize Peter Horowitz, our VP of Sales and Customer Success in Europe and the go-to-market team for their strong leadership and execution as they drive the changes. At the same time, Europe remains a transformation story. While the commercial initiatives we implemented are beginning to gain traction and recent demand trends are encouraging, profitability is still a work in process. Overall, Europe remains a mid- to long-term effort. Our objective is to turn what has been an earnings headwind into a contributor to future growth and profitability, and the second quarter was an encouraging step in that direction. In closing, we are pleased with our execution across the business, which led to another record revenue quarter and another important proof point in our transformation. We delivered double-digit top line growth, a 340 basis point operating margin improvement and further expansion with larger strategic customers. The investments we are making are driving solid momentum. Injection Molding accelerated, CNC Machining remained strong, Europe grew nicely, and our teams are continuing to improve the way we serve the customers and operate the business. We continue to invest in AI to improve how we serve customers and operate internally. Proto Labs is at the forefront of what is called physical AI, the application of AI to the physical world, in our case, manufacturing. While much of today's AI discussion focuses on software. Physical AI in manufacturing requires a deep understanding of processes, materials, machines and quality, combined with sophisticated software and data sets. It is a materially harder problem requiring deep expertise in both software and manufacturing. We invented digital manufacturing in 1999 and with nearly 3 decades of experience building digital manufacturing systems, our richest manufacturing data sets and the ability to translate designs into physical parts via true digital thread, we believe we are uniquely positioned to lead in this emerging category. The market recognizes the value that we deliver and the type of company we are becoming. In July, Proto Labs was recognized by Time Magazine as one of America's best companies of 2026. This recognition is a testament to the dedication of our teams as we work to build a stronger, more innovative and more resilient company. At the start of this year, we began a significant transformation designed to position our business for faster growth and stronger long-term profitability. We are in the early stages of that work. But through the first half of 2026, we have demonstrated that Proto Labs can produce strong financial outcomes and transform the business for the future. This is the foundation for profitable growth and long-term value creation for customers and shareholders. With that, I'll turn the call over to Dan to walk through our financial performance and outlook in more detail.

Dan Schumacher: Thanks, Suresh, and good morning. I'll start with a brief overview of our second quarter results, followed by our outlook for the rest of 2026. Second quarter revenue was a company record $149.3 million, up 10.2% year-over-year in constant currencies. By region, revenue in the U.S. grew 10.9%, while Europe grew 7.3% in constant currencies. Second quarter CNC Machining revenue grew 13.1% year-over-year in constant currencies. Our largest service continues to see strong growth, driven by both volume and pricing. Demand remains exceptionally strong in aerospace and defense, most notably space exploration, satellites and drones. Injection Molding grew 12.9% in constant currencies. As Suresh stated, this is a meaningful acceleration and reflects the work we have been doing to drive growth in Injection Molding. We saw notable strength across end markets as well as in larger orders. 3D printing revenue declined 2.7% year-over-year in constant currencies, mainly due to a 6.7% decline in Europe. We continue to see strength in DMLS and MJF technologies in the U.S., driven by aerospace and defense and electronics, and we are investing to add capacity in those areas. Sheet metal grew 3.5% year-over-year in constant currencies. On to profitability. Non-GAAP GAAP gross margin was 46.8% in the second quarter, 60 basis points higher than the first quarter and up 200 basis points year-over-year. These increases were driven by higher margins in both factory and network fulfillment as well as a mix shift. Second quarter non-GAAP operating expenses were $52 million, up $3.1 million compared to the prior year, primarily reflecting increased investment in demand generation, and higher contractor and professional services costs as we continue to invest in our strategic pillars. On a percent of revenue basis, adjusted operating expenses were 34.8% of revenue, approximately flat sequentially and down 140 basis points year-over-year. This lower level of operating expenses is primarily due to targeted cost reductions we made earlier in the year in Europe as a part of our strategic reset, along with reductions in the U.S. as we reallocated resources to fund our strategic projects. We continue to ramp hiring for strategic project work. In addition, as a part of our drive operational efficiency pillar, we are in the early innings of finding savings and efficiencies that will allow us to invest more in growth areas. Adjusted EBITDA was $25.1 million or 16.8% of revenue, up from $19.7 million or 14.6% of revenue in the second quarter of 2025. Second quarter non-GAAP earnings per share were $0.60, up $0.19 or 45% year-over-year, driven by revenue growth, gross margin improvements and significant leverage on our SG&A expenses. $0.60 is the highest adjusted EPS figure we've reported since the third quarter of 2020. We generated $15.4 million in cash from operations during the second quarter, and we repurchased $5 million of common stock. On June 30, we had $162.9 million of cash and investments on our balance sheet and 0 debt. Our outlook for the third quarter and full year 2026 is outlined on Slide 13. For the third quarter, we expect revenue between $145 million and $153 million. At the midpoint, this implies 10% revenue growth year-over-year. Revenue grew 10% year-over-year in the first half of 2026. Supported by our first half performance, our third quarter revenue guidance and our typical sequential revenue decline from the third to fourth quarter, we are raising our full year 2026 revenue growth outlook to 8% to 10% year-over-year. We expect foreign currency to have a $400,000 unfavorable impact on revenue compared to the third quarter of 2025. Our third quarter earnings guidance incorporates the following assumptions: non-GAAP add-backs will include stock-based compensation expense of approximately $4.2 million and amortization expense of $900,000, a non-GAAP effective tax rate between 23% and 24%. In summary, we expect third quarter 2026 non-GAAP earnings per share between $0.56 and $0.64. That concludes our prepared remarks. Please open the line for questions.

Operator: The first question is from Greg Palm from Craig-Hallum.

Greg Palm: Congrats on the results. Maybe just start with a sort of a differentiation between factory and network. I did not hear what factory network revenue actually was. It sounded based on your commentary, that factory was well led, but can you give us that? And then do you have the network margin as well?

Suresh Krishna: Greg, thanks for the question. We are really excited with the 10% growth that we are driving, and we've driven this now 3 quarters in a row. The choice between factory and network is really a customer's choice. We fulfill the demand the way they want it to be fulfilled. We saw flat network revenues in Q2 A.s we continue to execute our strategic pillars and drive growth, we would be looking to drive growth in both the factory and the network. Overall goal is to continue to drive double-digit growth in the long term in any macro cycle. And we've done that for the past 3 quarters, and we're really thrilled with how we are performing right now on our strategic pillars.

Dan Schumacher: Greg, the gross margin in the quarter for the network was 33.6%. That's both up sequentially and year-over-year.

Greg Palm: Okay. I appreciate that. And then I think there was a couple of things that stood out across the revenue line. CNC remains strong. Injection Molding was really good to stand out, as you talked about. But even your new contacts, your new customers jumped up pretty nicely sequentially, and that's been kind of in a sequential decline for, I don't know, how many years. So I guess the question is, are you doing anything differently? Where are these customers coming from? What services are they using? And I know we're focusing a lot on revenue per customer and wallet share. But underneath the surface, is there also an increasing focus on going after new customers as well?

Suresh Krishna: Yes. Greg, great question. As you think about our 4 strategic pillars, the first one is elevating customer experience, which is resulting in us removing friction for our customers that allows us to cater to our customers in a better way than we've done before. So that is really the focus that allows us to grow customers while retaining the customers and growing our wallet share with our customers.

Dan Schumacher: And one example, Greg, of that in the quarter, we talked about it is we simplified the experience for the customers within Europe by moving to one legal entity as well as consolidating to our one ERP system, which means in Europe, customers have just one entity that they're interacting with, which simplifies a lot of things for them. We did that with our normal run rate of R&D expenses, and we will continue to make investments to make the experience for customers easier.

Operator: The next question is from Troy Jensen from Cantor Fitzgerald.

Troy Jensen: I also want to say congrats on the great results here. Suresh, if you could just maybe go through your counts about AI and how you're adopting it in the manufacturing organization. Can you just kind of help us -- I guess I assume you guys were using more AI to kind of reduce costs at the organization. But can you just help us with some of the applications that AI is benefiting on the manufacturing side?

Suresh Krishna: Yes. Great question. We have been in the forefront of digital manufacturing. We invented it back in 1999 and have been improving it ever since. So what we have is a unique library of over 15 million CAD growing that allows us to actually use AI to make our offerings better. And our offerings are better in instant coating, our design for manufacturability, our sourcing and all of the aspects of how we run the business. So from a front-end side for the customer, we are making improvements in pricing. We are making improvements in instant coating, design for manufacturability and how we are sourcing and matching them with the right offering within our platforms. And to take it further, when we talked about physical AI, that requires deep knowledge of all manufacturing processes. As you know, our manufacturing execution software, MES, is not off-the-shelf software like what other companies have. It's homegrown. We have patents on it. It's part of our trade secret. And that is what is allowing us to continue to innovate and build on and drive the connectivity between quality systems and sensors that we have in our factories all the way to how we can drive speed for our customers and speed is how we are winning in this marketplace. And AI applied to the physical world is allowing us to win with our customers with speed and accelerating their innovation.

Troy Jensen: We'll congrats to [ Mark and Mitch ] for all the work there. Have a quick question for Dan. Just G&A at the expense in the quarter gapped up a lot, can you -- is that a onetime event? Is that going to go back down here in Q3? Or is that going to be more sustained at this level?

Dan Schumacher: Yes, I would say it's more sustained at this level. I think we talked about in the first quarter, we made a number of reductions, both in Europe and in the Americas to fund our strategic investment. And so what I would look at -- what I think you should model is our SG&A expense will be down slightly Q2 to Q3 to get into that earnings guidance range. Also, gross margin will be down slightly Q2 to Q3, and that kind of gets you in that earnings range. But Troy, we're focused on making the right investment with strong ROI moving forward. And so over the long term, I wouldn't necessarily peg where we are Q1 and Q2 as a percent of revenue from a dollar perspective is where we're going to be over the long term. We're making investments there.

Troy Jensen: Great. Well clearly, the investments are paying off. So keep it up. Maybe just one last question. I think I asked this a lot, but is there any way you guys can kind of help us with production as a percentage of sales? And I guess we'd love to see if it's growing for you guys. I'm sure it is, but is there any way you guys can kind of help parse that out for us?

Dan Schumacher: Yes. We don't -- I'm not going to help you. We don't specifically measure as it relates to that. We're focused very specifically on winning a larger wallet share of our customers. As that happens, what comes with that is more frequent and larger orders over the longer term. And that really needs to get into sustainable results. Now that being said, I think there is a big opportunity for us, both organically and inorganically, to expand our capabilities in terms of what we do for production. And so over the longer term, we're going to continue to move into that area.

Operator: The next question is from Brian Drab from William Blair.

Brian Drab: Sure feels different at Proto Labs the last few quarters. So congratulations on the very strong organic revenue growth that you guys are sustaining. I was wondering, Dan, you just mentioned inorganic. Can you elaborate on that? What you guys have in your minds in terms of what you would do inorganically to augment what you're doing for production?

Dan Schumacher: Yes. It's all centers around the customer. So we want to make sure that we're meeting more and more of our customer needs, especially our larger customers, especially in areas in which we're seeing higher growth. And I think there's an opportunity -- we feel there's an opportunity to expand our capability of what we do. Troy just mentioned production. So there is a capability there that I think other companies may have that are attractive to us and attractive to some of our larger customers. So yes, we have a healthy pipeline of M&A opportunities, and the focus needs to be the return that we would get from those. And the highest return is going to come from serving our customers' needs, and that's our focus.

Brian Drab: Okay. What I'm hearing is that you don't really want to tell me, which I get. But is it more -- you know what I mean, like do you not want to -- like is it another service? Or is it an automation of current services? Or just curious if it's like a completely different manufacturing process that you're thinking of adding?

Dan Schumacher: No, it's not going to be outside any of the services that we do. But it's going to be -- I mean the opportunities we're looking at is to be able to do more production type applications for our customers in our key industries.

Brian Drab: So do certifications and quality steps and metrology and...

Dan Schumacher: All of those things, Brian.

Brian Drab: Yes. Okay.

Suresh Krishna: Just to be clear, Brian, we have certifications as well. We have AS9100. We got ITAR. We are working on [ CMMC ]. We've got ISO 13485 for medical. We have those certifications as well. As we think about expanding through acquisitions, it is going to be helping us to reinforce our strategic pillars. Moving into production is important for us and having companies that are actually doing that versus just doing prototyping and production will help us get focused and drive deeper share of wallet with the customers that we already serve.

Brian Drab: Okay. Great. And then just specifically on Injection Molding and CNC, both saw this really strong step up sequentially from -- I mean, they've been doing great for the last 6 quarters generally. CNC 6 quarters ago was at $52 million, now you're doing $70 million. So on CNC, then you have the $7 million step-up sequentially. Is this kind of sequential growth, do you think, sustainable in either CNC or Injection Molding? Was there anything specific big orders from a big customer that resulted in such a strong sequential step up in the second quarter?

Dan Schumacher: Yes. What I would tell you is the long-term growth is sustainable, and I think we're going to have larger pickups in certain quarters than we have in other quarters, right? But I think the long-term growth -- the long-term growth in these areas is sustainable. Maybe Suresh, if you want to talk about.

Suresh Krishna: Yes. Let me give you Injection Molding as an example. It's a significant differentiator of what we have versus anybody else in the marketplace. And we've been methodically working on getting certifications. You mentioned that, Brian. So ISO 13485, traceability, process validation, first article inspection, PPAPs, all those capabilities we've built, so it allows us to serve our customer into the entire life cycle from prototyping all the way to production. We've got a handful of customers who are really pulling for us to be able to offer them more services, it's resonating. Our strategy, which is to say we want to be from prototype all the way to production is resonating in med devices. It's resonating in drones. It's resonating in satellites. There are a lot of customers who want us to go down this path. And we see that the growth we saw in this quarter is very sustainable in the future. We are early cycle in these industries to get into production and provide a full life cycle of parts.

Brian Drab: Okay. And then the last thing I just want to ask is that stands out to me is that the network revenue was flat, as you said. But the factory revenue was up 14%, if my model is correct here. So that tells me -- and you said people want speed. Are we getting back to an environment given the ISM Index is showing and other signs are showing that the manufacturing environment is more healthy. The people are not choosing the standard lead time but are more paying up for speed like the good old days at Proto Labs. That's what those data points are telling me.

Dan Schumacher: And we're seeing that, Brian. So we are seeing that people are paying more for speed, whether that be in expedites or in our standard lead times, which, as you know, are faster than anything that's in the industry. So we are seeing strength in those areas.

Suresh Krishna: Just think of us -- I mean, we are absolutely in the front end of innovation, and there is more innovation activity, and we're in the early cycle of a lot of industries which are early in innovation. You think about drones, robotics, data centers, satellites, rockets, all of those are early cycle and with a long tail ahead of us. So what we offer is a unique proposition. And we are, again, early in this cycle of the next several years of a lot of innovation that is waiting to happen in these sectors.

Brian Drab: Yes. It feels like you're right at that intersection of all those end markets that are moving fast. And a manufacturing environment that is getting healthier and will generally probably move faster as they have more money and more competition picks up and the activity picks up. That all sounds very good.

Operator: The next question is from Jim Ricchiuti from Needham & Company.

James Ricchiuti: I was hoping to get a little bit more color, if we can, on the strength you're seeing in some of the key verticals. I mean it sounds like you had a strong quarter in A&D. But I wonder if you could talk a little bit about the various growth vectors as it relates to the increase in the full year growth rate.

Suresh Krishna: Jim, thanks for your question. We absolutely see a lot of strength in aerospace and defense. That sector grew almost 20% for us in Q2 and that is pretty broad for us. We don't break it out, but it includes satellites. It includes drones. It includes rockets, space exploration, satellites and a few other high-growth industries in there. As we indicated in the last question, we are in the early innings of a multiyear innovation cycle in all of these areas. And the focus there is from this present administration on increasing speed in defense innovation, in particular, absolutely plays to our advantage. So a lot of the defense majors and also the newer primes, they are very, very interested in what we are able to offer and partner with us to take not just into prototyping, but all the way into production. Particularly, if you think about drones, many of them as if they work in sending their products into theater, they get feedback from the market right away. And the next iteration, in fact, next batch of production is an innovation or something changes, and it really suits us because we innovate at the speed of software as do these companies. We are able to partner with them to get it all the way from prototype to production.

Dan Schumacher: And then Jim, some of the numbers. Aerospace and defense is about 25% of our total revenue right now. And I would also say that the other innovative areas outside of aerospace and defense, we're seeing growth in supporting data centers and the build-out of data centers as well as the innovation that's happening in robotics. So it's not necessarily just one player. There are multiple companies that we're working with in each of those industries and helping them innovate.

James Ricchiuti: Got it. Nice acceleration in Europe and wondering if you feel like you have perhaps turned the corner there. It sounds like this is more operational or maybe the market -- the overall market demand has picked up. So I was hoping you could elaborate on that and maybe shed more light, Suresh, on what you highlighted, the drag on profitability in Europe and how much of that -- what that represents and how we should be thinking about improvements in this area over the medium term?

Suresh Krishna: Yes. I think Dan and I will tag team on this. We made some changes in our go-to-market approaches in Europe end of last year, and we are seeing the fruits of that. So we have focused our sales and marketing efforts into industries that are meaningful for us, both A&D and medical, like in the U.S. are strong for Europe. And our sales teams are able to focus on a handful of customers and drive deeper relationships, and that is allowing us to start to accelerate our revenues. As we've said in the past, it's a multifold transformation. We need revenue growth, but we also need to be able to optimize costs, both our operating costs and our factory costs. So it is a medium-term effort for us to be able to get Europe back to profitability.

Dan Schumacher: And we continue to make progress in terms of improving the customer experience in Europe. I talked about it earlier, but we're going to make improvements in that customer experience. In Europe, we -- customers now can order through one legal entity. It makes it simpler for them to do transactions across our entire suite of businesses, and that will help us grow with greater operational efficiency into the future.

Operator: This concludes the question-and-answer session as well as today's teleconference. You may disconnect your lines at this time. Thank you for your participation.