Top-line revenue was up for digital manufacturing company Proto Labs Inc. in the third quarter.

The rest of the financial results for Protolabs, a provider of digital manufacturing services it sells through ecommerce, weren’t nearly as positive. Nonetheless, the company is taking several steps to address challenges that arose during the pandemic and may run well into next year, CEO Rob Bodor says.

Specifically, net income fell precipitously as Protolabs wrestles with a range of higher costs ranging from increased employee expenses to supply chain disruption, he says.  For the third quarter ended Sept. 30, revenue increased 16.6% to $125.3 million from $107.5 million in the third quarter of 2020. Net income was $4.8 million compared with $14.7 million.

“Well-documented labor and material shortages are driving inflationary pressures in our business, resulting in lower-than-expected gross margin performance,” Bodor told stock analysts last week in a third-quarter earnings call. “We are disappointed with our third-quarter earnings performance.”

Major operating expenses were up for all major categories. Spending on sales and marketing increased 28.1% year over year to $21.4 million from $16.7 million in Q3 2020. In comparison, spending on research and development (R&D) rose 34.2% to $10.6 million from $7.9 million in the prior year, while general and administrative expenses increased 32.3% to $16.4 million in the third quarter from $12.4 million in Q3 2020.

But Protolabs is addressing what Bodor described as “near-term” challenges.

“The labor shortages and supply chain issues impacting our financial performance are likely to persist through the remainder of the year and into 2022,” Bodor said. “To address our near-term challenges, we are taking several measures, including thoughtful pricing changes to offset labor cost inflation, investing R&D resources to increase internal operating efficiency in the Protolabs 2.0 environment, and investing in robotics automation to reduce the need for additional labor to support growth.”

Europe-based Hubs contributes revenue

In the quarter, revenue from Hubs, a European online platform and global network of 240 manufacturers Protolabs acquired in January, contributed $8.8 million in revenue, the company says.

But Protolabs also is seeing tougher market conditions take hold in Europe. “Our revenue in Europe was lighter than we anticipated, driven by supply chain interruptions and impacting the economic environment,” chief financial officer John Way told analysts.

Protolabs sees supply chain issues lasting well into next year, but the company is turning to more automation as a means to gain more operating efficiency and rein in expenses. “That’s going to come from the work of our software teams and from additional robotics and other kinds of automation that we are exploring and have started to put in place on the factory floor,” Bodor told analysts. “And these are things that help us to scale our operations without needing to add incremental labor at the same rate that demand is scaling.”

For the first nine months of the year, revenue increased year over year by 10.7% to $364.5 million from $329.2 million, while net income was $21.5 million compared with $41.2 million.

Bodor will keynote “Navigating the B2B Purchasing Journey,” a Nov. 4 online event presented by Digital Commerce 360.

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