プロトラブズ (PRLB) 2026年第3四半期決算説明会：過去最高の売上高を記録、通期見通しを上方修正

プロトラブズ（NYSE: PRLB）は、CNC加工、3Dプリンティング、射出成形における強い需要が2桁成長を後押しし、2026年第3四半期の売上高が過去最高を記録したと発表しました。工場の売上総利益率に対する短期的圧迫にもかかわらず、収益性は改善しました。

主要なポイント

• 2026年第3四半期の売上高は前年同期比14.2%増（固定為替レートベース）の1億5,430万ドルとなり、同社過去最高を更新するとともに、4四半期連続で2桁成長を達成しました。
• Non-GAAP EPSは33.4%増の0.63ドルとなり、2020年第3四半期以来最高の調整後EPSを記録しました。調整後EBITDAは2,620万ドル（売上高の17.0%）に増加しました。
• 顧客1社あたりの売上高は前年同期比で17%増加し、プロトラブズのサービス利用顧客数は2万人近くに達しました。経営陣はこの増加について、戦略顧客との関係深化および製品ライフサイクル全般への拡張によるものとしています。
• 自社工場のCNC加工売上高は22%増加し、グローバルでの3Dプリンティング売上高は12%増加しました。経営陣は、航空宇宙、防衛、宇宙探査、ドローン、ロボティクス、データセンターからの堅調な需要を理由として挙げました。
• プロトラブズは2026年通期の売上高成長率見通しを、従来の8%〜10%から10%〜11%へ引き上げました。経営陣は、2018年以来初となるオーガニックな売上高の2桁成長を見込んでいます。
• 第4四半期の売上高は1億4,300万ドル〜1億5,100万ドル、Non-GAAP EPSは0.46ドル〜0.54ドルとなる見込みです。この見通しには、通常の休日による季節要因と自社工場の稼働率低下が織り込まれています。

主要財務データ

2026年首からの9か月間（第1〜第3四半期累計）において、売上高は12%増加、調整後営業利益率は300ベーシスポイント拡大、調整後EPSは46%上昇しました。調整後EBITDAは前年同期比27.2%増加しました。

事業および運用業績

CNC加工の売上高は固定為替レートベースで前年同期比16.7%増加しました。自社工場でのCNC加工は宇宙探査、人工衛星、ドローン、ロボティクスからの需要に支えられ22%成長しました。経営陣によると、米国の自社工場CNC売上高は6四半期連続で20%超の成長を記録しています。

射出成形の売上高は、エレクトロニクス、航空宇宙・防衛、電気通信に牽引され、固定為替レートベースで12.6%増加しました。3Dプリンティングの売上高は、直接金属レーザー焼結法（DMLS）およびHP Multi Jet Fusion（MJF）に対する米国の強力な需要が牽引し、11.5%増加しました。米国工場における年初来のMJF売上高は40%以上増加しており、追加の能力投資を実施しています。

板金加工の売上高は固定為替レートベースで4.6%減少しました。最終市場全般の広範な不振が影響したものの、航空宇宙・防衛分野の需要が一部を相殺しました。

自社工場の売上高が17.5%増加したのに対し、プロトラブズ・ネットワークの成長率は3%にとどまりました。ネットワークの勢いは欧州で強かったものの、より迅速な自社工場サービスを選択する顧客が増加した米国では軟調でした。

当四半期のサービス利用顧客数は2万人近くに達し、3四半期連続で前四半期比プラスとなりました。大型の戦略顧客による同社製造サービスの利用拡大に伴い、顧客1社あたりの売上高は17%増加しました。

2025年後半に着手した市場参入（Go-to-Market）戦略の改革を受け、欧州地域は2桁の売上増を達成しました。経営陣は、同地域の構造改革は長期的な取り組みであり、欧州を成長と収益性の双方に貢献させることを目的としていると述べました。

同社はまた、金属3Dプリンティングの新しい熱処理、FDM機能、および追加のCNC表面仕上げによりProDeskを拡充しました。プロトラブズはAIを活用した注文チェックを開発中であるほか、まずはGo-to-Marketワークフローおよび注文・見積処理を対象として、全社的にAmazon Quickの導入を進めています。導入作業は2027年まで続く見込みです。

業績見通し（ガイダンス）

プロトラブズは2026年第4四半期の売上高を1億4,300万ドル〜1億5,100万ドルと予想しています。中間値は前年同期比約8%の増加を意味します。為替変動の影響は2025年第4四半期と比較して軽微にとどまる見込みです。

同社は2026年通期の売上高成長率見通しを、従来の8%〜10%から10%〜11%へ引き上げました。

第4四半期のNon-GAAP EPSは0.46ドル〜0.54ドルとなる見込みです。このガイダンスは、株式報酬費用約410万ドル、償却費90万ドル、および19%〜21%のNon-GAAP実効税率を前提としています。

経営陣は、第4四半期の売上総利益率が前四半期比で横ばいかやや低下すると予想しています。機器アップグレード費用は減少する見込みですが、売上減少、休日関連の工場の非効率性、外部請負労働力、残業手当がその効果の一部を相殺すると予想されます。売上高に対する販売管理費の比率は、低水準だった第3四半期ではなく、第1四半期や第2四半期の水準に近くなる見込みです。

2027年について経営陣は、プロトラブズが生産能力や戦略的イニシアチブへの投資を増やすため、営業費用の伸び率が売上高の伸び率に近づく見込みであると述べました。製品・サービスミックスに左右されるものの、現時点では売上総利益率の水準を維持できると見込んでいます。

リスクと注視事項

• 原材料コストの上昇、機器アップグレード、一時的な労務投資が工場運営に影響したため、Non-GAAP売上総利益率は低下しました。
• 第4四半期の季節要因により、従業員の休暇取得に伴って売上が減少し工場の非効率が生じると予想され、外部請負業者や残業対応が必要となる可能性があります。
• 自社工場の需要は引き続き堅調だったものの、米国のプロトラブズ・ネットワーク需要は軟調でした。
• 欧州は2桁成長に復帰したものの、経営陣は収益改善に向けた改革が依然として進行中であると注意を促しました。
• 板金加工分野は、引き続き最終市場全般で広範な不振に直面しました。
• アナリストからは将来の防衛予算を巡る不確実性が指摘されました。経営陣は、需要が宇宙、人工衛星、ドローン、ロボティクス、データセンターなど多岐に分散していると説明し、当面の間2桁成長を維持するという目標を堅持しました。

アナリスト質疑応答のハイライト

経営陣は顧客1社あたりの売上高が17%増加した理由として、企業向け営業カバレッジの強化、厳選された高付加価値顧客との関係深化、ならびに試作から量産に至るフェーズでの関与拡大を挙げました。同社は広範なイノベーションから、優先顧客や特定の産業に特化したソリューションの提供へとシフトしています。

前四半期比での売上総利益率の低下について、経営陣は機器のアップグレードが約100ベーシスポイント、外部請負費用が約90ベーシスポイント寄与し、残りは原材料コストに関連していると試算しました。過去1年間に40台以上の新機器を導入しており、第3四半期には一部のアップグレード費用が直接発生しました。

機器アップグレード費用および請負費用は変動費であり、時間の経過とともに減少する可能性があると経営陣は述べました。しかしながら、第4四半期に予想される取扱量の減少と休日関連の労働力需要により、短期的には利益率の回復が限定的となる可能性が高いです。

決算説明会文字起こし全文

決算説明会の完全なトランスクリプト

経営陣による説明

Operator

Greetings. Welcome to the Proto Labs Q3 Fiscal Year 2026 Earnings Conference Call. [Operator Instructions] Please note this conference is being recorded. I will now turn the conference over to Ryan Johnsrud, Investor Relations. Thank you, Ryan. You may begin.

Ryan Johnsrud

Thank you. Good morning, everyone, and welcome to Proto Labs' Third Quarter 2026 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 third quarter ended September 30, 2026. 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 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. I am very pleased with our third quarter performance, which provides further evidence that the execution of our strategy is translating into strong and consistent financial results. Third quarter revenue grew 14%, resulting in another record revenue quarter. This is the fourth consecutive quarter of double-digit growth. We also delivered double-digit non-GAAP EPS growth for the fourth consecutive quarter with EPS growth outpacing revenue growth in each of these quarters.

In the first 9 months of 2026, year-over-year revenue grew 12%, adjusted operating margin expanded 300 basis points and adjusted EPS grew 46%, underscoring the consistency of our execution and the strength of our momentum. These results are driven by the tremendous work of our Proto Labs team and their continued commitment to serving our customers. I want to thank them all for everything they do every day. The trends that drove strong performance in the first half of the year continued in the third quarter.

Larger strategic customers continue to broaden their relationships with Proto Labs and turn to us for more of their manufacturing needs across the entire product life cycle. This is reflected in a 17% year-over-year increase in revenue per customer. In addition, we served almost 21,000 customers in the quarter, up sequentially for the third straight quarter. We continue to see strong demand in high-growth industries, including aerospace, defense, drones, robotics and data centers. We work with most innovative companies in these markets, including Blue Origin, Relativity Space, Raytheon, AeroVironment, Shield AI, Agility Robotics and many others. These customers need to rapidly move from ideas to prototypes and into production, making Proto Labs' speed, quality and reliability increasingly critical. We saw broad-based strength across our business in the third quarter with each of our 3 largest service lines growing double digits year-over-year.

Factory CNC Machining was particularly strong, growing 22% as our world-class speed continues to resonate with customers. Global 3D printing revenues grew 12%, led by strong demand from metals and HP's Multi Jet Fusion technology, or MJF. Year-to-date, MJF revenue in our U.S. factory operation is up more than 40%, and we are investing in additional capacity to support that growth. Proto Labs is at the center of a major shift taking place in manufacturing driven by 4 powerful macro trends.

First, reindustrialization. Companies are bringing manufacturing closer to their customers and building more resilient regional and sovereign supply chains. Second, a wave of hardware innovation moving at the speed of software. Investment is accelerating across critical and emerging industries like space, drones, robotics, data centers and other highly engineered hardware that ultimately needs to be designed, tested and manufactured from prototype to production at faster speeds than ever before.

Third, physical AI. AI is moving beyond software and into the physical world, driving a new generation of robotics, autonomous systems, intelligent machines and other advanced products that require manufacturing to leverage physical AI. And fourth, supply chain agility and scalability. As innovation accelerates, companies need manufacturing partners that can invest and scale with them without the manpower and capital constraints of traditional supply chains.

This is exactly the environment Proto Labs is built for. We help customers move quickly from idea to prototype to production while delivering the quality, reliability and scalable capacity they need. And we have an important structural advantage, our true digital thread. Proto Labs' software-native digital manufacturing model enables speed and automation today while creating a foundation to leverage AI and scale efficiently over time. And with millions of CAD files and decades of manufacturing data in our library, we have a powerful foundation to apply AI, advance our manufacturing capabilities and create more valuable solutions for our customers.

We are already seeing the benefits of these trends in our business, and we believe they create a significant opportunity for Proto Labs over the next several years. We continue to invest in capabilities to capture the opportunity ahead. We are advancing our 4 strategic pillars: elevating the customer experience, accelerating innovation, expanding into production and driving operational efficiency. I'd like to share several important business and product updates with you now.

On ProDesk, we launched new metal 3D printing heat treatments, FDM printing capabilities and additional CNC Machining surface finishes, giving customers more control over part performance, surface quality and finishing requirements. Next, we continue to enhance the Proto Labs Network with improvements designed to accelerate order acceptance, improve partner communication and strengthen quality. We are also developing AI-assisted order checks to identify specification discrepancies earlier and further automate the customer and partner experience.

With respect to improving efficiency across the organization, last week, we announced an enterprise implementation of Amazon Quick as part of our broader AI road map. Our initial focus is on go-to-market workflows where we believe AI can improve productivity, reduce response times and streamline order-to-quote processing. To accelerate implementation, we created forward deployed AI engineer roles to identify high-impact use cases and design AI-enabled workflows across the organization. Enterprise-wide implementation will continue into 2027, led by Marc Kermisch, our Chief Technology and AI Officer.

Technology is an important enabler of our strategy, and operational execution is the other. In August, Sam Ramahi was named Chief Operations Officer. Sam brings over 25 years of executive operational leadership across global companies like nVent, Eaton, Honeywell and more. Sam will help advance our strategic pillars while focusing on driving operational excellence across safety, quality, delivery and cost. We are also expanding the talent and capabilities needed to execute our strategy.

We have officially inaugurated our new global capability center in India. Engineers are on site and are working directly on our manufacturing and AI road map. The talent and capabilities we are building in India will help accelerate progress across all 4 strategic pillars. The strength (sic) [ capability ] center strengthens our investments in technologies that will meaningfully improve productivity, including AI, automation and advanced manufacturing capabilities that support our broader digital manufacturing strategy.

Turning to Europe. Revenue grew double digits in the third quarter, in part due to the go-to-market changes we initiated late last year. We are very pleased with this performance, and I want to thank our team in Europe, led by Pjotr Horowitz, for their continued execution and commitment. We continue to advance the initiatives needed to return Europe to profitability, addressing the drivers of underperformance while putting the right organizational structure, operating model, talent and capabilities in place to execute more effectively.

These efforts are designed to complement the go-to-market changes already underway and support further operational improvements. As I shared last quarter, the transformation in Europe remains a work in progress, and it's a longer-term effort. While we are encouraged by double-digit revenue growth, our objective remains unchanged, transform Europe into a contributor to both future growth and profitability.

Before I turn the call over to Dan, I want to highlight 2 recent recognitions of our commitment to manufacturing innovation. In August, we announced a partnership with MIT and a grant supporting U.S. manufacturing innovation research at MIT Industrial Performance Center. And in September, Proto Labs was one of the only 500 U.S. companies named to Business Insider's America's Most Innovative Businesses 2027 list. We are proud of both recognitions and believe they reinforce Proto Labs' position at the center of manufacturing innovation.

In closing, I am very pleased with our results through the first 9 months of the year and the progress we are making on our transformation. At the same time, I believe we are still in the early innings of what this business can achieve. We are executing our strategy at a time when some of the world's most innovative industries are moving faster, manufacturing supply chains are being reconfigured, and speed and digital manufacturing capabilities have never been more important. We believe Proto Labs is uniquely positioned for this environment and the opportunity ahead. We remain focused on building on recent momentum and delivering sustained profitable growth and long-term value for our customers and shareholders.

With that, I'll turn the call over to Dan to walk through the financials and outlook.

Dan Schumacher

Thanks, Suresh, and good morning. I'll start with an overview of our third quarter results, followed by our outlook for the fourth quarter. Third quarter revenue was a company record $154.3 million, up 14.2% year-over-year in constant currencies. U.S. revenue grew 14.7%, while Europe grew 12.2% in constant currencies. Third quarter CNC Machining revenue grew 16.7% year-over-year in constant currencies. Our largest service continues to see very strong demand in aerospace and defense, most notably space exploration, satellites and drones, as well as in robotics.

Injection Molding grew 12.6% in constant currencies, driven by strength in electronics, aerospace and defense and telecommunications. 3D printing revenue increased 11.5% year-over-year in constant currencies. As we saw in the first half of 2026, demand in DMLS and MJF remained very strong in the U.S. We continue to invest capital to expand capacity in those areas. Sheet Metal revenue declined 4.6% year-over-year in constant currencies with broad weakness across end markets, partially offset by strength in aerospace and defense.

On to profitability. Non-GAAP gross margin was 44.5% in the third quarter, down 230 basis points sequentially and 140 basis points year-over-year. The lower gross margin was driven by our factory operations, primarily reflecting higher raw material costs, machine upgrades and targeted near-term investments in labor and contractor support. These were made to accommodate the significant increase in volume over the course of the year while maintaining our standards for speed, quality and reliability. Third quarter non-GAAP operating expenses were $50.3 million, up $1.7 million compared to the prior year, primarily reflecting increased investment in demand generation, along with higher contractor, professional services and software license costs as we continue to fund our strategic priorities.

Importantly, we continue to generate significant operating leverage. Adjusted operating expenses were 32.6% of revenue, down from 34.8% of revenue in the second quarter and 35.9% in the third quarter of 2025. This operating leverage reflects both strong revenue growth and the targeted actions we have taken to improve our cost structure and reallocate resources towards our highest priority growth initiatives. We continue to invest and add resources behind our strategic initiatives while identifying additional efficiencies that can help fund future growth.

Adjusted EBITDA was $26.2 million, or 17% of revenue, up from $21.1 million or 15.6% of revenue in the third quarter of 2025. Year-to-date, adjusted EBITDA is up 27.2% year-over-year. Third quarter non-GAAP earnings per share were $0.63, up 33.4% year-over-year, driven by revenue growth, mix shift and significant leverage on our SG&A expenses. $0.63 is the highest adjusted EPS figure we've reported since the third quarter of 2020. Adjusted EPS is up 45.5% year-over-year year-to-date. We generated $22.8 million in cash from operations during the third quarter, and we repurchased $5 million of common stock. On September 30, we had $175 million of cash and investments on our balance sheet and 0 debt.

Our outlook for the fourth quarter of 2026 is outlined on Slide 14. For the fourth quarter, we expect revenue between $143 million and $151 million. At the midpoint, this implies 8% revenue growth year-over-year. As a result, we are raising our full year 2026 revenue growth outlook from a prior range of 8% to 10% to a new range of 10% to 11%. We anticipate 2026 will be our first year of double-digit organic revenue growth since 2018. We expect foreign currency to have a negligible impact on revenue compared to the fourth quarter of 2025.

Our fourth quarter earnings guidance incorporates the following assumptions: Non-GAAP add-backs will include stock-based compensation expense of approximately $4.1 million and amortization expense of $900,000, a non-GAAP effective tax rate between 19% and 21%. In summary, we expect fourth quarter 2026 non-GAAP earnings per share between $0.46 and $0.54. That concludes our prepared remarks. Nicole, please open the line for questions.

Operator

[Operator Instructions] Our first question comes from Brian Drab with William Blair.

質疑応答

Brian Drab

Congrats on a great quarter. Could you just start by talking about -- it looks like revenue per customer is up about 17%. And maybe add some granularity to that in terms of -- is it driven by volume? Or is it also the breadth of services now that you're increasingly offering that's allowing for that -- that's just a very impressive result and where are you seeing the most success?

Suresh Krishna

Brian, this is Suresh. Thanks for your question. As we've talked before, we are absolutely focused on our 4 key strategic pillars, the first of them, which is elevating customer experience. And the second of them, which is accelerating innovation on behalf of the customers. And the third, which is expanding into production, are all contributing to this particular growth that we are seeing in wallet share with our core customer base. Some of the changes we've made to be able to do this well beyond the strategy, is the way we are executing.

We have an enterprise sales team. We are focused on a handful of industries that are high value for us. And those sales teams are building deep customer relationships and listening and turning it around to provide innovation that is specific to these customers. In the past, we may have innovated for the general customer base, which for us is tens of thousands of customers, to now being very focused on the customers where we see high value. So that is where we are able to drive wallet share and increase revenue per customer.

Brian Drab

And then I mean I'm seeing the stock, I'm surprised a little bit to see that the stock is indicating slightly down before the open here. I guess it could be just the guidance for -- midpoint of guidance is $0.50 for the fourth quarter after you just put up $0.63. But is there -- what is there beyond just typical seasonality for the fourth quarter that you're looking at as you guide for that fourth quarter?

Dan Schumacher

Yes. I mean, one, it is typical -- I assume the seasonality that we've seen for the prior 7 years for last quarter. So it is built in there that we expect to see some softness around the holiday time, which, as you know, impacts that EPS number. Second, gross margin, I'm assuming to be flat to slightly down quarter-over-quarter. We don't expect to see the same -- we talked about machine upgrade costs and so forth. We don't expect to see it at that high of a level.

But as we have lower revenue and we have some inefficiency in our factories around the holiday time as we bring in contractors and overtime as employees are taking time off. And then I would expect SG&A expenses as a percent of revenue to look more like the first and second quarter of the year rather than what we saw in the third quarter. So there is a pickup in SG&A expenses as well.

Operator

[Operator Instructions] Our next question comes from Austin Bohlig with Needham.

Austin Bohlig

Congrats on the great results. I was just hoping to get a little bit more color on, kind of, the growth you're seeing in the factory versus the network. I didn't see what the revenue for the network was, if you could provide that.

Dan Schumacher

Yes. So network revenue was up 3% year-over-year. So that meant that factory growth was up 17.5%. So again, we had higher growth in the factory than we had in the network. From a network side, we are seeing really strong momentum in the network in Europe, but things are a bit softer in the U.S. Our customers, as we come to them, they have a choice in this time in terms of do they need the speed that we're offering through the factory or do they need the breadth of services and maybe longer lead time of the network. And we are just seeing more of our customers in the U.S. take advantage of that speed, and you're seeing that in the tremendous growth.

Austin Bohlig

Got it. And then just one follow-up. So with all the defense or A&D success more broadly, like, with your conversations with your customers, how are you guys feeling this with, like, some uncertainty around the fiscal '27 budget continuing resolution continuing through 2027? Do you guys think that, like, this momentum can continue even with some kind of lingering uncertainty around future budgets?

Suresh Krishna

Yes. Austin, thanks for bringing that up. We are very, very broad-based in terms of the industry we serve, and A&D for us is very broad as well. While there might be some uncertainty around defense budget, we see tremendous opportunity in space exploration, in satellites, in drones, neoprimes, along with the primes. And then beyond that, we absolutely see non-A&D sectors like robotics and data centers also growing. So we are very confident that when you look out into the future that we would continue to be able to drive our goal of double-digit growth for the foreseeable future.

Operator

Our next question is from Brian Drab with William Blair.

Brian Drab

I was just wondering if you could talk maybe for Dan, a little bit further out in terms of how you're thinking about the trajectory of gross margin and expense dollars as we think about 2027, maybe just directionally or at high level, like, different projects that -- and different expenses to think about as we're modeling?

Dan Schumacher

Yes. So we're in the middle of establishing our 2027 budget and plans as we speak. But what I would tell you is we're going to continue to accelerate our investment in several areas. One is expanding our capacity. And the second is investing in our strategic pillars. So that's elevating our customer experience, accelerating innovation, expanding into production, and driving operational efficiency. So with the last one, our objective from a spending perspective is really to focus on how do we continue to increase our efficiencies as we invest.

I would expect next year from an operating expense perspective that the growth in operating expenses would be much closer to the revenue growth next year than what we saw this year as we start to make these investments. From a gross margin perspective, it really is going to depend on the mix that we're seeing and the different types of products that we have and how that plays out as we go through the year. But I would expect that we would be able to hold our gross margin percentage as we go into 2027.

Brian Drab

Okay. I'll follow up more later on that, but that's really clear.

Operator

Our next question comes from Greg Palm with Craig-Hallum.

Greg Palm

Sorry if this got, I guess, maybe explained or specified. I've been juggling a handful of calls this morning. But in terms of the -- maybe the sequential gross margin bridge from Q3 to Q2, a couple of hundred basis points, give or take. Dan, I know you listed a bunch of reasons, but just can you break that out between them? And then just in terms of sustainability or confidence in getting that gross margin level back up from here, maybe just a little bit more color on that, please.

Dan Schumacher

Just to be clear, Greg, you're talking about Q2 to Q3 gross margin?

Greg Palm

Correct.

Dan Schumacher

All right.

Suresh Krishna

Yes. So Greg, as we noted in our prepared remarks, demand has been exceptionally strong in our U.S. factory CNC. Revenues have grown over 20% for 6 quarters in a row. So while our automated model is designed to scale efficiently with this kind of volume increase, we, in this particular quarter, had to do some machine upgrades. We found opportunistically a window where we could do that. And some of our older machines were upgraded so that they could start to perform at the same rate as some of the newer machines that we have acquired more recently.

We've acquired over 40 new machines this past year. So that -- those expenses were incurred within the quarter and not capitalized. And then there were some some contract labor we had to bring in for our support services because we were chasing this growth and make sure that we could deliver everything we needed for our customers within the time frames that we provide them. Beyond that, there was raw material increases that we saw. So those are the pressures that we got in Q3 versus our Q2 performance.

Dan Schumacher

Greg, just to provide more specifics, I would say there's about 100 basis points in those machine upgrades. There's probably about 90 basis points in that contract labor and the remaining in the material cost. I just want to reemphasize that the contract upgrades and obviously, the contract labor, those are all variable costs that we can choose to move over time. And it's really focused on making sure that we have the speed, the quality and the reliability for our customers.

Greg Palm

Okay. So just to be clear, though, so does some of that -- I mean, you incur that completely in Q3 and then it goes away completely for, sort of, Q4 or go forward or...

Dan Schumacher

Yes. Well, one thing I would say is we're always using contract labor, right, to vary depending on the volume that's coming in. But yes, there is some assumption in the guide that, that cost comes down as we're in fourth quarter. But what is, kind of, counteracting that, right, is the lower volume that is in the middle of the guide as well as seasonality. So we may have to use some of that contract labor and some of that overtime as our employees take off for the holidays.

Operator

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