Exclusive Interview With Proto Labs Inc. CTO Rob Bodor

In the following video, 3-D printing specialist Steve Heller interviews Rob Bodor, the chief technology officer of Proto Labs (PRLB -1.66%).

Topics covered include:

• An overview of Proto Labs' vision and strategy
• Elaborating on Proto Labs CEO Vicki Holt's comments
• How Proto Labs isn't just an early stage manufacturer
• How Proto Labs differentiates itself from the competition beyond speed
• Proto Labs' R&D strategy
• Proto Labs' near-term operational strategy
• Proto Labs' market opportunity

A full transcript follows the video.

Steve Heller: Hey Fools, Steve Heller here. I'm joined today with Dr. Rob Bodor. He is the chief technology officer at Proto Labs. Thank you for being here, Rob. We really appreciate your time. I just want to get right into the questions here.

I really want you to break down a process. What does Proto Labs do, at a high level, and what are they so good at? I know that their slogan is "Real parts, real fast." How fast is it? How fast can you go from a conceptual model to a midsized volume manufacturing run?

Rob Bodor: We can go from a 3-D CAD file to first parts in as little as one day, and that's true across the majority of our manufacturing processes, in both metal and in plastic.

You asked about extending that to small- to mid-volume production. Normally customers, after we make the prototype, want to evaluate and functionally test those prototypes. Once they've done that, we can also do production in as little as one day, following.

Heller: Wow, so you can go from a 3-D printed prototype into production the next day, as long as all the approvals are made.

Bodor: Yes, from a 3-D CAD file to production in as little as one day, yes.

Heller: How many iterations does the typical 3-D printing customer -- I know you guys just recently acquired Fineline.

Bodor: Yes.

Heller: What does a typical iteration cycle look like, before you actually get to that production run?

Bodor: The Fineline acquisition is really exciting for us, because it lets us go really from concept, now all the way through to mid-volume production with our customers, end-to-end, and provide that level of service.

It also lets us be more consultative with them, because now we can offer them solutions in not just many different advanced manufacturing processes, but also in additive manufacturing, across many materials.

In terms of iterations we see a broad gamut, but customers use us a lot for iterating because we can turn things so fast, and take a lot of risk out of the process for them.

I'll give you an example. It's not uncommon for medical device companies to 3-D print concept prototypes with us and then, when they get to the point of wanting to make a mold, doing six to 10 different molds, simultaneously. What they're trying to do is -- they're betting on one finished product -- but this way they can take a lot of risk out, because they can try a bunch of designs simultaneously, pick the winner, and take that forward.

Heller: Right, and improve the lead time, so the time to market is much faster by playing that more diversified [unclear].

Bodor: Exactly, because they can do that in parallel.

Heller: Very interesting. I wanted to move on now. I recently had an email conversation with Vicki Holt, Proto Labs CEO, and I wanted you to elaborate for me here. She said something along the lines of what makes Proto Labs so unique is "its manufacturing design analysis and customer service is what really separates Proto Labs from its peers." What do you mean by that?

Bodor: We have a pretty unique process because we're able to engage customers, really end-to-end, online. If they need to escalate something and talk to an engineer, we have customer service engineers who can do that, but for the most part they can really take care of everything through the website.

So, I think what she was talking about is this end-to-end process. A customer starts by uploading a 3-D CAD file, we get them a quote back in a few hours. We do this consistently, all day long. We service hundreds and hundreds of quotes a day, across all our different services, and we can reliably return that quote in just a few hours.

The quote, which I can demonstrate for you, includes not just the pricing information, but it's highly configurable, and it creates a 3-D rendering of the finished part, which provides the customer with design for manufacturability feedback, so they can see if they need to adjust anything in their design so that it'll be more amenable to molding, and those kinds of things.

Then if the customer orders, then we'll go make the parts and ship them in as little as one day.

Heller: Wow, that's amazing. A customer that, say, doesn't have very much design experience -- can you help them as well, or is it for more experienced users?

Bodor: We will help them as well, but if they really have never designed a part before, we'll usually refer them to a design firm to help them with that. Once they have some basic design, then we can really engage with them about how to make this manufacturable, and transition it from concept models, all the way through to production.

Heller: Could you go ahead and show me a demonstration really quick, and just walk me through the process?

Bodor: Sure.

Heller: Since we can't see the screen, we'll just talk about it.

Bodor: Are you able to see this OK?

Heller: Yes, we're all set.

Bodor: Great.

This is an example of a sample quote from our website. Basically, when a customer sends us a 3-D CAD file, in a few hours we'll send them back an email with a link to a page like this. This is our quote. You can see, in this case, for the mold and the initial parts we'd be charging $2,200.

The customer can come in and change things like the plastic resin that they want to use, and the price will update in real time. They can also change other things about the configuration, like the polish or the finish that they want to put on the mold halves, the number of sample parts they want, and so forth.

Heller: This is just for a sample. If I wanted to order 10,000, could I do it off your website, or I have to call in?

Bodor: You absolutely can do it off the website. Once you have the mold and the samples, then there's an account page for you where you would go and you could order off of any mold that you've made with us in the past.

Heller: I also wanted to touch on the multiple SKUs here, when you were talking about a product. I was asking earlier, are you ever going to get to the point where you're going to be able to manufacture a million of the same exact part?

Your answer was very interesting to me, about how we're living in this world that's very customized so a lot of SKUs, a lot of products, only have 10,000 parts. If you could touch on that a little bit, it would be great.

Bodor: Sure. Our business, we're really trying to focus on getting parts to market very quickly to help designers. But what we're finding more and more is that we're actually able to be the production vendor for many of our customers, for a lot of their products, because there are a vast number of products where 5,000-10,000 SKUs is really all that they make in a year.

That's true in consumer and in industrial and in commercial products, and we see that this trend is moving more and more this way because product lifetimes are shortening; increasing customization means that you're seeing SKU proliferation across many industries.

In that case, we're an excellent fit because we can not only start from concept through production, but because of our low-cost model, where molds are $1,495 -- or sometimes more, but starting at that level -- we can actually be the lowest total cost of ownership solution for their manufacturing process, across the life of that product.

Heller: Yes, no other competitors can really step up to that. What makes you also very unique is you've already built out the platform, and now you can take an acquisition, bolt it onto your platform, and offer even more services to your existing customers.

Bodor: Yes, that's right.

Heller: It's really brilliant, honestly.

Bodor: Thanks!

Heller: I wanted to move on, here. Let's talk about, if lead time is equal. Let's say the competition here is heating up, and they're starting to match your ability to make parts just as quickly and just as good. How else is Proto Labs going to work to differentiate themselves?

Bodor: First of all, our lead times are the fastest.

Heller: Today, yes.

Bodor: Right.

Heller: I'm just saying hypothetically, in the future, how would you approach that?

Bodor: Beyond just lead time, there's a number of things. I already talked about some of our design for manufacturability, this feedback that we provide customers right in the quote, in just a few hours -- so the consultative nature of what we can provide them, I think, is significantly higher, and there's a lot of technology that enables that, which is a real barrier.

Another one is lowest cost of entry and lowest total cost of ownership. Cost of entry, I talked about molds starting at $1,495. The other thing is parts. We can machine parts -- just one part -- for $100, or sometimes less. That's really hard for anybody else to compete with because just the nonrecurring engineering expense is really hard to overcome. Our automation helps us to do that.

Then beyond that, our scale and our repeatability; we invest in a lot of capital equipment, and we invest ahead of demand, so that we can ensure that we can provide customers that level of speed at all times.

I'll give you some examples of some scale that we've done. It's not unusual for us to do 10-20 mold orders for a single customer at one time, and we can deliver those in 10 days or less -- parts off of 10-20 simultaneous molds.

Heller: You have a lot of capacity, is that correct?

Bodor: Yes.

Heller: To keep that fast, bringing products to market, you're constantly adding capacity as you're growing.

Bodor: We are, yes, ahead of demand. We also have our systems and our automation that supports that, so that we can enable that level of speed.

Repeatability is another big thing. You'll get quotes back from us in a few hours, and you'll get parts from us in as little as a day, and it doesn't matter what day you happen to hit us and who happened to be at work that day, or all of these common things around scale. We've really built that out.

Heller: Since you have the processes in place, it doesn't matter if it's a Sunday afternoon and no one's ... the automation takes care of all those challenges.

Bodor: Exactly.

Heller: Very good. I wanted to move on here, now. From an R&D perspective, just talking about the future, where is Proto Labs going to be most focused?

Bodor: Our strategy is really around building out new processes so that we can bring to market, to our customers, the same kind of speed, reliability, and scale in more and more manufacturing technologies. Recently we launched liquid silicone rubber and metal injection molding, which are two examples of new ways that we can make parts for people.

I'm very excited about the splash we're making with metal injection molding -- our MIM service -- right now at AD&M this year. I think we're really revolutionizing the MIM market by being able to provide parts in 5-10 days in stainless steel, through a MIM process starting with molds ...

Heller: MIM is metal injection molding, correct?

Bodor: Yes. This is a molding process for making stainless steel parts and steel parts, and we're able to do that starting at $1,495 for the mold and with very low prices, so that all of a sudden we can become competitive with machining at very low quantities -- sometimes 20-part volume, we can already be a cheaper option. You get that molding economy in these hard metals, that you could never get anywhere else.

Heller: Are you starting to compete a little bit with the foundry business at all, like metal casting and all that, or not so much?

Bodor: Yes, in some ways we do. Now, the advantage to metal injection molding is that it's a net shape process so unlike ... in foundry, you often have to do secondary machining.

Heller: I see, so it comes out as a finished product.

Bodor: It comes out as a finished part.

Heller: Very good. Moving on here, in the next year your biggest goal as a company -- what would you say that would be?

Bodor: To continue to grow our services and our capabilities, and engage customers more deeply. Some ways that we're doing that are, as we expand our range of offerings, we can start to engage the customer at the level of their products, versus just at individual parts.

Now, the broad bill of materials of given product, we can really have technologies and materials to serve the whole bill of materials, or a critical part of that bill of materials, so we can really help them take their products to market in five to 10 days after reaching us.

Heller: Wow, very good. Moving forward, my final question; I wanted to talk a little bit about your market opportunity. If you could define it -- maybe a total dollar value if you have that ability -- how do you guys value your market opportunity? Where do you think you are in terms of that progress, and what kind of work do you need to do to grow into that market opportunity?

Bodor: I'm really excited about the opportunity, and I think it's enormous. We sponsored a study last year -- because, unlike the Wohlers Report in additive, there really hasn't been a third party that looked at our space -- so we sponsored a third-party study, and they found that we had a total addressable market of about $6 billion, very tailored to our existing capabilities in terms of the size of parts, the specific materials, and the processes around injection molding and machining.

Since that $6 billion was found, we added Fineline additive manufacturing, so that adds about $800 million or another $1 billion onto it, so now we're around $7 billion. That was also before all of our new processes; our liquid silicone rubber, our metal injection molding, or our thixomolding process.

Heller: So, as you increase your applications, you're expanding your market opportunity.

Bodor: Absolutely.

Heller: Last year, your full-year revenue was in the $160 million ...?

Bodor: $163 million.

Heller: Yes, so you have got a lot of room to grow. Very good.

Bodor: Yes, it's very exciting.

Heller: Thank you so much, Rob. I really appreciate your time.

Bodor: Thank you.