TCB | On-demand manufacturing presents a unique opportunity for Proto Labs, especially during a prolonged period of sluggish economic growth when companies don’t want too much inventory, but doesn’t that scenario also present challenges?
Vicki Holt: Our manufacturing model is digitized, allowing us to produce prototypes and low-volume production parts very cost-effectively and very quickly. Customers only need to buy what they need based on their demand. If demand drops and they don’t need as many parts, they don’t need to buy a minimum order. In a time like this, when the economy is slowing a bit, it provides an opportunity. The challenge is that in a stressed market, R&D budgets might be tight. For instance, companies in the oil and gas space are cutting back on operating expenses and R&D. Ag equipment manufacturers are also watching their budgets—but we still closed the second quarter with 17 percent year-over-year revenue growth.
TCB | A recent report, The Skills Gap in U.S. Manufacturing 2015 and Beyond, projects that nearly 3.5 million manufacturing jobs will likely need to be filled over the next decade, but 2 million of those will go unfilled due to lack of skilled workers. As a high-tech manufacturer that is striving for rapid growth, how are you planning for and dealing with the worker shortage?
Holt: The skills gap is real, but a lot of communities are working very hard to make sure we are bringing skilled workers into the workforce. Technical schools, community colleges, and colleges and universities are offering more STEM-related programs. We also need to change the perception of manufacturing. It’s really high-tech and it’s really fun.
TCB | With just over $264 million in revenue in 2015, how do you plan to achieve $1 billion in revenues, and what is your time frame?
Holt: It’s great to have wonderful aspirations, and I really believe this company can be a $1 billion company. Historically, we have seen more than 25 percent year-over-year revenue growth. That slowed a bit in the second quarter, but I think we can grow in the 20 percent-per-year range going forward. And we will augment that with acquisitions. Everyone at Proto Labs believes we can get there. We are still a young company, and we are at a great inflection point. We got a lot of the early adopters as customers and now we need to scale beyond that. We are at a pivotal point.
TCB | How do you plan to reach these other customers?
Holt: We are a leader in digital manufacturing, but it is a brand-new way of looking at manufacturing. To grow from an early startup to a $1 billion company, we will need to convince more customers to adopt our way of doing business. We are a 100 percent e-commerce business. For them to begin to take advantage of the digital model, we need to help them understand there are real business reasons to change. We take the risk out of manufacturing. We give them design-for-manufacturing feedback for free. We are technology-agnostic. We are focused on what is best for our customers to bring their product to the market in the quickest and most cost-effective way.
TCB | On a recent earnings call, you intimated that you were going to rein in operating expenses, which rose nearly 36 percent in the second quarter compared to a year earlier, to improve your bottom line. How do you plan to do that?
Holt: We are going to grow into the infrastructure we have put in place. We have invested ahead of the revenue growth (quarterly expenses include the Alphaform acquisition). Now we need to let revenue growth catch up with the investment. We invested heavily in our sales resources. But we now have an opportunity to improve the productivity of our sales force.