PRLB (2025 - Q2)

Release Date: Jul 31, 2025

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Stock Data provided by Financial Modeling Prep

Current Financial Performance

Proto Labs Q2 2025 Financial Highlights

$135.1 million
Revenue
+6.5%
$0.41
Non-GAAP EPS
+3%
14.6%
Adjusted EBITDA Margin
$123.2 million
Cash & Investments

Key Financial Metrics

Revenue by Service - CNC Machining

Record growth, 20% YoY

30% growth in U.S.

Injection Molding Revenue

Down 4% YoY

Mostly factory-based

3D Printing Revenue

Down 1% YoY

Sheet Metal Revenue

Up 9% YoY

Revenue by Geography - U.S.

Up 12% YoY

Revenue by Geography - Europe

Down 15% YoY

Period Comparison Analysis

Revenue

$135.1 million
Current
Previous:$126.2 million
7.1% QoQ

Revenue

$135.1 million
Current
Previous:$125.6 million
7.6% YoY

Non-GAAP EPS

$0.41
Current
Previous:$0.33
24.2% QoQ

Non-GAAP EPS

$0.41
Current
Previous:$0.38
7.9% YoY

Non-GAAP Gross Margin

44.8%
Current
Previous:45.7%
2% YoY

Cash & Investments

$123.2 million
Current
Previous:$116.3 million
5.9% QoQ

Cash & Investments

$123.2 million
Current
Previous:$112.9 million
9.1% YoY

Earnings Performance & Analysis

Q2 2025 Revenue vs Guidance

Actual:$135.1 million
Estimate:$130 million - $138 million
MISS

Q2 2025 Non-GAAP EPS vs Guidance

Actual:$0.41
Estimate:$0.35 - $0.43
BEAT

Financial Health & Ratios

Key Financial Ratios

44.8%
Non-GAAP Gross Margin
14.6%
Adjusted EBITDA Margin
6%
Non-GAAP Operating Expenses Increase
$10.6 million
Cash from Operations
$123.2 million
Cash & Investments
$0
Debt

Financial Guidance & Outlook

Q3 2025 Revenue Guidance

$130M - $138M

~6% YoY growth at midpoint

Q3 2025 Non-GAAP EPS Guidance

$0.35 - $0.43

Q3 2025 Tax Rate Estimate

24% - 25%

Surprises

Record Revenue

$135.1 million

Second quarter revenue was a company record, $135.1 million. This is above our guidance range, up 6.5% year-over-year in constant currencies and up 7% sequentially.

CNC Machining Revenue Growth

+20%

20%

Second quarter CNC machining revenue was also a company record, growing 20% over the prior year. In the U.S. alone, CNC machining revenue grew 30%.

Injection Molding Revenue Decline

-4%

-4%

Injection Molding declined 4% year-over-year. 3D Printing revenue was down 1% year-over-year amidst continued weakness in prototyping.

Europe Revenue Decline

-15%

-15%

Europe revenue declined 15% in constant currencies. Manufacturing activity in Europe continues to contract.

Non-GAAP EPS Beat

$0.41

Non-GAAP earnings per share were $0.41 in the quarter, above our guidance range and up $0.03 on a year-over-year basis.

Tariff Impact on Margins

Lower network margins in U.S.

On a year-over-year basis, gross margin was down 90 basis points, driven by higher growth in network revenue and a lower U.S. network margin due to changing tariffs.

Impact Quotes

I see this as a significant opportunity, and I'm energized by the work ahead to help reaccelerate the business towards sustainable strong growth.

Our priorities remain as follows: drive growth in our key performance indicators, expand our production capabilities, and reinforce our core prototyping business.

Second quarter revenue was a company record, $135.1 million, above our guidance range, up 6.5% year-over-year in constant currencies and up 7% sequentially.

We generated $10.6 million in cash from operations during the second quarter, and we returned $3.1 million to shareholders in the form of repurchases.

We continue to generate very healthy cash flows, which gives us the financial strength to invest in growth and innovation while maintaining resilience through market uncertainty.

Non-GAAP gross margin was flat sequentially at 44.8%, but down 90 basis points year-over-year, driven by higher growth in network revenue and a lower U.S. network margin due to changing tariffs.

The ISO 13485 certification will help accelerate our growth in medical, specifically metal 3D printed nonactive implants and other devices.

Network margin was just below 30%, at 29% in the quarter, and aerospace and defense represent north of 20% of our business mix.

Notable Topics Discussed

  • Suresh Krishna, new President and CEO, emphasizes a focus on reaccelerating growth through customer and employee experience improvements.
  • He highlights his background as an engineer and former customer, reinforcing his commitment to innovation and operational excellence.
  • Initial efforts include listening to stakeholders and identifying high-impact opportunities, with no immediate radical strategic shifts planned.
  • Proto Labs received the 2025 Future of Manufacturing Project Award from the National Association of Manufacturers, validating its leadership in digital manufacturing.
  • The company’s metal 3D printing service in Raleigh, North Carolina, achieved ISO 13485 certification, a key standard for medical device manufacturing, signaling a strategic push into medical applications.
  • Customer utilization of combined services increased 44% over 12 months.
  • Revenue per customer grew 11% year-over-year, indicating successful expansion of share of wallet with strategic clients.
  • Growth driven by targeted marketing, sales enablement tools, and fulfillment channel optimization, especially in aerospace and defense sectors.
  • Aerospace and Defense customers, including NASA, Blue Origin, Airbus, Boeing, Raytheon, Lockheed Martin, and Northrop Grumman, are key growth drivers.
  • Proto Labs’ speed, complexity, and domestic capabilities make it a preferred partner for space exploration, satellites, defense, and drone development.
  • The company’s focus on high-requirement parts aligns with industry funding and innovation trends.
  • Proto Labs’ global manufacturing footprint allows quick adaptation to trade policy changes and supply chain shifts.
  • AI-driven pricing and fulfillment systems enable real-time adjustments to tariff impacts, reducing friction and maintaining customer loyalty.
  • Tariffs on aluminum and steel caused temporary margin pressures, but the company responded by adjusting pricing and sourcing strategies, with margins returning to normal by June.
  • The company is investing in expanding production capabilities, especially in medical and high-requirement sectors.
  • European market faced contraction, prompting reorganization of go-to-market teams to identify new demand opportunities.
  • Continued innovation in injection molding and additive manufacturing to capture more production business.
  • Proto Labs generated $10.6 million in cash from operations in Q2, with no debt and $123.2 million in cash and investments.
  • Strong cash flow supports ongoing growth investments, share repurchases, and resilience amid market uncertainties.
  • Revenue from factory fulfillment grew 4%, while network revenue increased 16%.
  • The company’s strategy to fulfill more orders through both factory and network resulted in a 44% increase in combined customer engagement.
  • Revenue per contact increased 11%, indicating successful cross-selling and holistic customer service approach.
  • Gross margin was flat at 44.8%, with temporary pressures from tariffs and European market softness.
  • Network margins were just below 30%, with a 90 basis point decline YoY due to tariffs and mix shifts.
  • Tariffs on aluminum and steel caused backlog and margin lag, but adjustments in pricing and sourcing mitigated long-term impact.
  • Q3 revenue guidance is between $130M and $138M, with a 6% YoY growth at midpoint, expecting typical seasonality in Q4.
  • Ongoing initiatives in production expansion and customer experience are expected to offset seasonal declines.
  • Management remains confident in long-term growth strategy centered on innovation, operational excellence, and customer relationships.

Key Insights:

  • Foreign currency is expected to have a favorable impact of approximately $400,000 on Q3 revenue compared to Q3 2024.
  • For Q3 2025, Proto Labs expects revenue between $130 million and $138 million, implying approximately 6% year-over-year growth in constant currencies at the midpoint.
  • Management expects typical Q4 seasonality with a slight sequential decline from Q3 due to holiday periods.
  • Non-GAAP add-backs for Q3 are estimated at $3.9 million for stock-based compensation and $900,000 for amortization expense.
  • Q3 non-GAAP EPS guidance is between $0.35 and $0.43.
  • The company anticipates continued strength in CNC machining and production-related revenue growth into Q3.
  • The non-GAAP effective tax rate for Q3 is expected to be between 24% and 25%.
  • Efforts to optimize fulfillment channels are ongoing to better align manufacturing footprint and capabilities with customer demand.
  • Global operations are refining manufacturing processes to improve quality, timing, and cost, enhancing customer experience.
  • In June, the metal 3D printing service in Raleigh, NC received ISO 13485 certification, supporting growth in medical device manufacturing.
  • Proto Labs continues to invest in marketing, driving increased engagement and brand awareness, especially in aerospace and defense sectors.
  • Sales enablement tools and processes have been enhanced to better understand and meet strategic production needs of customers.
  • Tariffs and trade policy changes have created short-term margin pressures, but Proto Labs' AI-driven pricing and fulfillment systems help mitigate customer impact.
  • The company is focused on removing friction for customers and employees to accelerate growth and improve execution.
  • The company received the 2025 Future of Manufacturing Project Award from the National Association of Manufacturers.
  • Dan Schumacher explained tariff impacts on margins due to aluminum and steel tariffs affecting network backlog pricing, with adjustments restoring margins by June.
  • He confirmed no near-term radical strategy shifts, focusing instead on listening and identifying high-impact opportunities.
  • He highlighted the company's strong culture, innovation, and commitment to customer service as key strengths.
  • Krishna praised the teams for their agility and dedication, especially noting 30% CNC revenue growth in key U.S. facilities.
  • Krishna sees significant opportunity to reaccelerate growth by sharpening execution and focusing on customer and employee experience.
  • Management is committed to delivering high-quality custom parts across the product lifecycle from prototyping to production.
  • Management reiterated confidence in the business model's profitability, cash flow generation, and ability to invest in growth.
  • Suresh Krishna, new President and CEO, emphasized his engineering background and prior experience as a Proto Labs customer.
  • Approximately 15% of business through the network has longer visibility (up to 30 days), while 85% has limited visibility.
  • CNC machining growth is strong across both factory and network, with 30% growth in the U.S. driving overall 20% company growth.
  • Customers using both factory and network services do about twice the business overall, indicating success in production push initiatives.
  • Growth in CNC includes both production and prototyping orders, contributing to an 11% increase in revenue per customer contact.
  • Injection molding weakness is mainly due to softness in medical and fewer large automotive production orders compared to last year.
  • Network margin was approximately 29% in the quarter; aerospace and defense represent over 20% of the business mix.
  • Q4 is expected to show typical seasonality with a slight sequential decline from Q3 due to holidays.
  • Tariff impacts on margins were due to aluminum and steel tariffs affecting network backlog priced before tariff changes; pricing adjustments restored margins by June.
  • Proto Labs continues to focus on both prototyping and production capabilities through digital factories and partner networks.
  • Proto Labs' global manufacturing footprint provides flexibility to adapt quickly to changing supply chain and trade environments.
  • Proto Labs serves leading aerospace and defense customers including NASA, Blue Origin, Airbus, Boeing, Raytheon, Lockheed Martin, and others.
  • The company honors quoted prices despite tariff cost increases, absorbing short-term margin impacts to maintain customer loyalty.
  • The company is a trusted partner in emerging drone development and electric flying taxis industries.
  • The company returned $3.1 million to shareholders via share repurchases in Q2, demonstrating capital return commitment.
  • The ISO 13485 certification for metal 3D printing supports growth in medical device manufacturing, especially nonactive implants.
  • Leadership changes bring fresh perspectives with a focus on listening and engaging with employees, customers, and partners.
  • Management is focused on removing friction and increasing speed of execution for both customers and employees.
  • Marketing investments are driving increased awareness and interest in target industries, particularly aerospace and defense.
  • Proto Labs' AI-driven pricing and fulfillment systems provide competitive advantage by adapting in real time to cost changes.
  • The company is committed to maintaining industry-leading profitability and cash flow while driving sustainable growth.
  • The company is early in its journey to improve production fulfillment capabilities and optimize manufacturing footprint.
Complete Transcript:
PRLB:2025 - Q2
Operator:
Ladies and gentlemen, good morning, and welcome to the Proto Labs Second Quarter 2025 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Jason Frankman, VP and Corporate Controller. Please go ahead, sir. Jason Fr
Jason Frankman:
Controller & Corporate Secretary:
Thank you, Ryan. Good morning, everyone, and welcome to Proto Labs Second Quarter 2025 Earnings Conference Call. I'm 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, 2025. 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 Suresh Krishna. Suresh?
Suresh Krishna:
Thanks, Jason. Good morning, everyone, and thank you for joining our second quarter earnings call. Before getting into the details of our record performance during the quarter, I'd like to quickly introduce myself. I am honored and excited to step into the role of President and CEO at Proto Labs. I'm an engineer by training, and have held many leadership positions in supply chain, operations, and general management. I have overseen profitable growth and shareholder value creation at several manufacturing companies. As a former Proto Labs customer, I have seen firsthand how the company reliably delivers high-quality custom parts and accelerates innovation for some of the world's most pioneering companies. In fact, I used Proto Labs' digital manufacturing capabilities to accelerate product development and beat the competition to market. I have long admired the company's leadership in digital manufacturing, its strong culture and its commitment to innovation and customer service. Proto Labs' next chapter is going to be an extraordinary one, and I'm thrilled to be leading this talented team. I also want to take a moment to thank Rob Bodor for his many contributions and leadership over the past several years. Rob played an important role in helping set the company's direction, and I'm grateful for the foundation he helped build. I have been in the role just over 2 months now, and I've spent much of that time listening to employees in our manufacturing facilities and offices, meeting with customers and taking a fresh look at our strategy and how we are executing it. These experiences have only reinforced my conviction in Proto Labs' potential. We have a very innovative and resilient culture and a pervasive mindset for continuous improvement. I believe in this company. I have personally seen the value Proto Labs delivers to its customers, and I'm excited about the opportunity to lead this great organization. This is a wonderful company with best-in-class profitability and cash flow generation and a history of rapid growth. But in recent years, our growth has not kept pace with expectations. That said, I see this as a significant opportunity, and I'm energized by the work ahead to help reaccelerate the business towards sustainable strong growth. I'm confident in our strategy of delivering high-quality custom parts across the full product life cycle from prototyping to production. With a strong foundation already in place, I believe we can sharpen our execution, particularly when it comes to customer and employee experience. These may sound like simple concepts, but done right, they can unlock meaningful long-term growth. They will be my top two focus areas. I'm sure many of you are eager to hear about my long-term strategic vision, and that's an appropriate question. Let me reassure you that in the near term, there will be no radical shift in our current strategy. My immediate focus is to listen, learn and engage closely with our teams, customers and partners to identify the highest impact opportunities. I look forward to sharing more in the coming quarters. Now on to our second quarter results. We delivered a very strong quarter, exceeding expectations in both revenue and EPS. This included record revenue, highlighting our ability to execute effectively in a dynamic and uncertain environment. Our best-in-class profitability also enable us to continue returning capital to shareholders through ongoing share repurchases, further demonstrating the strength and resilience of our business model. I want to thank our teams across the globe for their hard work and dedication. This performance wouldn't be possible without them. In addition to our financial results, we were also honored to receive a 2025 Future of Manufacturing Project Award from the National Association of Manufacturers. This recognition validates the progress we've made as a technology-focused customer-centric manufacturer and underscores our leadership in driving innovation and agility across the industry. I'm also excited to announce that in June, our metal 3D printing service in Raleigh, North Carolina received ISO 13485 certification, which is an internationally recognized quality standard for medical device manufacturers. This certification is an important to both current and prospective medical customers and demonstrates our commitment to quality and excellence in medical device manufacturing. The ISO 13485 certification will help accelerate our growth in medical, specifically metal 3D printed nonactive implants and other devices. Thanks to our production and quality teams for their hard work to achieve this certification. Now shifting to our two key growth indicators in the quarter. Customers utilizing our combined offer grew 44% over the trailing 12 months. and revenue per customer in the second quarter increased 11% year-over-year. I'm very encouraged by the continued traction we are seeing, particularly in expanding share of wallet with strategic customers. We also continue to make significant progress on our growth investments that we first shared with you on our Q4 2024 call in February. First, our marketing investments continue to drive engagement and reinforce our brand in both prototyping and production. We are seeing increased awareness and interest from customers across our target industries, especially aerospace and defense, where our speed, complexity and domestic capabilities make us a preferred partner. We help accelerate innovation for a wide variety of customers in Aerospace and Defense. We serve the leaders in space exploration and satellites like NASA, Blue Origin and Relativity Space as well as commercial aircraft manufacturers like Airbus and Boeing. Defense Contractors, including Raytheon, Lockheed Martin, Northrop Grumman and ANDRO, all trust Proto Labs to deliver quality parts quickly. In addition, we manufacture lots of parts for companies on the leading edge of Drones Development, including defense, electric flying taxis, parcel delivery services and many more. In an industry with lots of funding and innovation, Proto Labs is a trusted manufacturing partner for many. As our second key growth investment, we have continued to advance our sales enablement tools and processes, allowing our sales teams to better understand the strategic production needs of our customers and make it easier for these customers to interact with Proto Labs in this context. And third, we also continue to make progress to optimize our fulfillment channels. These efforts help us better align our manufacturing footprint and capabilities with customer demand and are central to our ability to deliver a seamless customer experience across both factory and partner network. We are still early on the journey to improve our production fulfillment capabilities. Our global operations organization continues to refine how parts are manufactured with excellent quality in the right place at the right time for the right price, which vastly improves the customer experience. Turning to tariffs and the evolving trade landscape. This is another area where Proto Labs is well positioned to succeed. As always, we are focused on what we can control. Speed and agility are central to our operations, and those trends are especially critical in today's environment. Our global manufacturing footprint gives us the flexibility to adapt quickly to shifting supply chain dynamics and serve customers effectively regardless of geography. While trade policies and tariffs continue to change rapidly, we believe tariffs and further investments in American manufacturing innovation are a tailwind for our business in the long term. On the other hand, tariffs and frequently changing trade policies can create short-term margin pressures. For instance, if we quote a price for the customer and subsequent trade policies alter our cost structure, we absorb that risk in the short term. While this may impact margins temporarily, our AI-driven pricing and fulfillment systems enable us to adapt in real time, delivering a smoother customer experience than many peers who simply pass tariff-related increases directly to the customer. This is a strong example of how we reduce friction for our customers, fostering greater loyalty and expanding share of wallet. Finally, and perhaps most importantly, we continue to generate very healthy cash flows, which gives us the financial strength to invest in growth and innovation while maintaining resilience through market uncertainty. To close, I want to briefly revisit our 2025 priorities, which are still intact. We are both a prototyping and a production company, delivering through our digital factories and our partner network, and we execute with excellence across all these areas. Sharpening our strategy and execution are top priorities of mine, and it's essential for driving our growth. As I mentioned earlier, that focus extends to both customer and employee experiences. In the near term, we will work to remove friction for both customers and employees, and we will increase our speed of execution. I'm deeply committed to not just what we deliver to our customers, but how we deliver it by our employees with speed, clarity, and discipline. Our priorities remain as follows: drive growth in our key performance indicators, expand our production capabilities, and reinforce our core prototyping business. I am pleased with the progress our employees have made through the first half of the year, and I'm confident that we have the foundation, the team, and the strategy in place to drive sustainable growth while maintaining our industry- leading profitability and cash flow generation. I'm excited about the path ahead. We'll continue to drive innovation, execute for our customers and deliver long-term value to our shareholders. With that, I'll turn it over to Dan to walk through the financials. Dan?
Daniel Schumacher:
Thanks, Suresh, and good morning, everyone. Second quarter revenue was a company record, $135.1 million. This is above our guidance range, up 6.5% year-over-year in constant currencies and up 7% sequentially. Revenue fulfilled through our digital factories grew 4% year-over-year in constant currencies and revenue fulfilled through Proto Labs Network was up 16%. Turning to revenue by service in constant currencies. Second quarter CNC machining revenue was also a company record, growing 20% over the prior year. And in the U.S. alone, CNC machining revenue grew 30%. We continue to see very strong demand from Aerospace and Defense customers, specifically in high requirement parts. The value we deliver via our factory and network CNC machining offer is really resonating with our innovative customers. Injection Molding declined 4% year-over-year. 3D Printing revenue was down 1% year-over-year amidst continued weakness in prototyping. And lastly, Sheet Metal grew 9%, bolstered by improved offerings and additional go-to-market efforts. Revenue in the U.S. grew 12% year-over-year, while Europe revenue declined 15% in constant currencies. Manufacturing activity in Europe continues to contract. We reorganized our European go-to-market teams at the start of the second quarter and remain focused on identifying and executing opportunities to drive demand across the region. Shifting to margins. Second quarter consolidated Non-GAAP gross margin was flat sequentially at 44.8%. On a year-over-year basis, gross margin was down 90 basis points, driven by higher growth in network revenue and a lower U.S. network margin due to changing tariffs. We responded to these changes by adjusting pricing. And in June, network margins were back to pre-tariff levels. Non-GAAP operating expenses increased $2.7 million compared to the prior year, an increase of 6%, consistent with revenue. The majority of the operating expense increase was in variable expenses tied to revenue, namely incentive compensation and commissions. Second quarter adjusted EBITDA was $19.7 million or 14.6% of revenue. Non-GAAP earnings per share were $0.41 in the quarter, above our guidance range and up $0.08 sequentially on higher-than-anticipated volume. EPS was up $0.03 on a year-over-year basis. Proto Labs continues to lead the digital manufacturing industry in terms of cash generation, reflecting the strength of our business model. We generated $10.6 million in cash from operations during the second quarter, and we returned $3.1 million to shareholders in the form of repurchases. On June 30, we had $123.2 million of cash and investments on our balance sheet and 0 debt. Our outlook for the third quarter of 2025 is outlined on Slide 13. We expect revenue between $130 million and $138 million. At the midpoint, this implies 6% growth year-over-year in constant currencies. We expect foreign currency to have an approximately $400,000 favorable impact on revenue compared to the third quarter of 2024. Moving to earnings guidance. We anticipate non-GAAP add-backs in the third quarter to include stock-based compensation expense of approximately $3.9 million and amortization expense of $900,000. We currently estimate a non-GAAP effective tax rate between 24% and 25% in the third quarter. In summary, we expect third quarter Non-GAAP Earnings Per Share between $0.35 and $0.43. That concludes our prepared remarks. Operator, please open the line for questions.
Operator:
[Operator Instructions] The first question comes from the line of Brian Drab from William Blair.
Brian Paul Drab:
I just wanted to first start with the strength that you're seeing in CNC. And I'm curious, I know you mentioned Aerospace and Defense, that makes sense. I'm just wondering, are you seeing more of that strength in one area or the other in terms of the factory or the network? Or is that driving growth across both of those business lines?
Daniel Schumacher:
Yes. Thanks for the question, Brian. We are seeing similar growth both in the factory and the network from a growth -- year-over-year growth percentage perspective. As I talked about in the call, it's 30% CNC growth in the U.S. that's really driving the overall 20% for the company.
Suresh Krishna:
Brian, this is Suresh. I'd like to just add, we grew revenues with our larger accounts, and that's based on the focus for our go-to- market reorganization that we've done. So I'd like to give a huge shout out to our go-to-market team in the Americas for continuing to drive great customer service and great customer relationship. Also a huge shout out to our production teams based in Nashua, New Hampshire and Brooklyn Park, Minnesota for being able to jump 30% more revenues year-over-year. That shows the agility that we have in the organization to be able to respond to customers' needs.
Brian Paul Drab:
That's great. And are those -- I'm just wondering if you could give us any insight into those orders in CNC work, is that leaning more toward production? Or is it leaning more towards prototyping or all of the above? And what's the breakdown there?
Daniel Schumacher:
Yes, I would say all of the above. We don't give a split at that level, but it is a combination of both production and there is some prototyping that is in there as well. But yes, obviously, the performance there, as Suresh talked about, helped increase our revenue per contact year-over-year double digits.
Brian Paul Drab:
And is that -- can you comment on whether you're seeing that strength continue into the third quarter and is still pretty robust in July?
Daniel Schumacher:
Yes. The midpoint of our guide indicates that we're continuing to see the strength, and it's in the same areas, Brian.
Brian Paul Drab:
Yes. Okay. I'll just ask one more for now. Can you just add a little more color around the Injection Molding business? And I know you said prototyping is relatively soft, but just how the injection molding business is -- what's putting it under pressure and what could turn that around and how it's performing across the network versus the factory?
Daniel Schumacher:
Yes. So let me answer the last part of your question first. The network is a relatively small portion of our Injection Molding business. The majority of it is through the factory. A couple of things to comment on. Last year, we had some larger Injection Molding production orders, specifically in automotive that provided some headwind year-over-year. But in general, we're seeing weakness within medical, and that is impacting what we have around Injection Molding. That being said, we're continuing to innovate in that space. We see that as a real big driver for us in the future from a production perspective. So we're continuing to add capabilities to that to win more of that production business.
Brian Paul Drab:
Congrats on the record revenue results.
Operator:
The next question comes from the line of Greg Palm from Craig-Hallum Capital Group.
Gregory William Palm:
I'd also like to offer my congratulations on a good quarter. And Suresh, welcome aboard.
Suresh Krishna:
Thanks Greg.
Gregory William Palm:
Maybe Suresh, I'd like to just start with you in kind of a broader question on not necessarily why you joined, but maybe it's a little bit early, but you've been there a couple of months, so you've got a little bit of an opportunity to figure out maybe what excites you? What's gone wrong in the past? What's been missing? I mean just -- I know we're still waiting for kind of a longer-term strategic vision, but can you just tease us a little bit and give a little bit of a bit more color on kind of what's exciting you going forward?
Suresh Krishna:
Thanks, Greg, for that question. As I said in my prepared remarks, I believe there is a large opportunity to reaccelerate the growth of this business, and that's what excites me about joining Proto Labs at this point in time. I'm spending all my time listening and talking to our employees, customers and our partners. And right now, I'm very focused on removing friction for our customers and our employees. And through these efforts, we'll be able to identify what our future opportunities are, and we'll be able to share those with you in the coming quarters.
Gregory William Palm:
We'll be looking forward to that. In terms of the quarter and the gross margin, I want to maybe dig into that a little bit more. Presumably, maybe that's more related to some of the longer lead time offerings. But just can you give us a sense on the negative impact from the tariffs? And I don't know if you're able to kind of quantify that. And just to be clear, it sounds like that was maybe a temporary issue that's now been resolved. So what's kind of the implied outlook for gross margin here in Q3?
Daniel Schumacher:
Yes, absolutely. So great, yes, part of our pressure in the quarter on margins was tariffs. So it was our U.S. network margins that were impacted by that. And that had happened midway through the quarter, we were able to, like I said on the call, adjust our pricing and adjust our fulfillment so that in June, our margins and network margins in the U.S. were back to normal. So that provided part of the headwind quarter-over-quarter from a gross margin perspective. In addition, we had soft volume through the factory within Europe as well, which also challenged the margins quarter-over-quarter, and we had a higher mix of network revenue from Q1 to Q2, which also provided margin pressure. Now on the positive side, as we talked about, we grew 4% in the factory. So we had some strong factory margins in the United States that was able to offset those things, allowing gross margins to be flat quarter-over-quarter.
Gregory William Palm:
What exactly though, in terms of the tariffs was the impact? Because, I mean, you're a quick-turn business. So I guess I'm a little bit confused on kind of what -- I mean, what was happening in May, for instance, if you said it was midway through the quarter. What was the surprise that impacted the margin specifically knowing that, I mean, a lot of that -- I think the tariffs that were originally enacted were actually kind of early April, right?
Daniel Schumacher:
So I mean, the specific impact was when we talked about in the quarter last time, if a tariff was put on a certain country from our network perspective, we can then source it from a different country to avoid those tariff impacts. But the tariff that took hold was the one that was on aluminum and steel. So it didn't matter what country it was coming from, you were going to get a tariff impact from that. And so as that happened in the network, which has longer lead times, you have more like 20 to 30 days of backlog that's through the network that is priced at a different price than what our assumption was on the cost on the tariff. And so it was really at the time, adjusting our pricing so that -- and looking at different ways in which our algorithm is working in terms of what we're charging MPs and so forth, working through those dynamics to offset the tariff impact. But then it takes 30 days for that backlog to come through and then you to get your margin right on the other side. So I know a bit of a funky answer, but it was the aluminum and the steel tariff impact. It was the fact that we have 30 days of backlog. And then once we've adjusted for that, then we don't have a margin impact, but you still have that backlog coming through at a lower margin.
Gregory William Palm:
No, that's more color. I would have assumed it would have been a pass-through, but the lag makes sense. What -- by the way, what was -- did you give a network...
Daniel Schumacher:
Greg, just real quickly. We don't pass that through to the -- we honor the price we give a customer. And that's part of -- we think, is going to value us over the long term, right? In terms of maintaining that relationship.
Gregory William Palm:
Yes. Okay. And then just, I guess, two quick housekeepings. Did you give a gross margin for the network business as a whole in the quarter? And then in terms of A&D, what percent of your business is A&D in terms of mix today?
Daniel Schumacher:
Yes. So network margin was just below 30%. It was 29% in the quarter. In terms of percent of A&D, it's north of 20% in the quarter.
Operator:
The next question comes from the line of Troy Jensen from Cantor Fitzgerald.
Troy Donavon Jensen:
Congrats on the nice results and Suresh, welcome. So Dan, just a follow-up on a comment you just said about 30 days of visibility. I always thought of you guys as having much less than that. I thought like lead times for like kind of 7 to 10 days. So can you explain that comment?
Daniel Schumacher:
Yes. I have longer visibility for 15% of the business that goes through the network. For 85% of the business, I have a limited visibility.
Troy Donavon Jensen:
And then I know like the last couple of quarters, you've had this new initiative to push into production. Is there any update you can give us? Any kind of stats that you can see if you're being successful?
Daniel Schumacher:
Yes. Obviously, it's the stats that we talk about on the call, right? So we're seeing an 11% increase in revenue per customer contact, right? So we're really happy with that. And in addition, we find customers that are fulfilling their orders through both the factory and the network in general are doing about twice the amount of business overall with us, right? So it's another indication of moving more into production or fulfilling that customer more holistically. And so that was up 44% year-over-year. So those are the two external metrics that we talk about. That is driving a decent amount of our growth and the growth that you saw within the quarter.
Troy Donavon Jensen:
And last question for me. Can you just talk about -- would you expect to get normal seasonality in Q4? Or are some of these initiatives going to help offset what we've typically seen as kind of a down slightly sequential quarter?
Daniel Schumacher:
Yes. I would speak to the midpoint of our guidance, right? So from where we see things, obviously, coming off the earnings call last quarters were stronger than what we anticipated and that continued, and that's indicative of where we are in the guide. So for our Q3 seasonality, like we gave a midpoint of the guidance. I think that's where we think that, that's going to fall. In terms of the fourth quarter, I would expect typical seasonality Q3 to Q4 just because of the holiday periods. So that ends up being down slightly from the third quarter.
Operator:
Ladies and gentlemen, with that, we conclude the question-and-answer session. On behalf of Proto Labs, that concludes the conference. Thank you for your participation. You may now disconnect your lines.

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