piper proto labs

C O M P A N Y N O T E

J a n u a r y 2 8 , 2 0 1 6

Proto Labs, Inc. (PRLB) Neutral Earnings Preview: Expect Another Strong Qtr, but LT Targets Will Be Big Focus

PRICE: US$54.37TARGET: US$65.00 25x fully taxed CY16E Op Inc + Cash

Troy D. Jensen, CFASr Research Analyst, Piper Jaffray & Co.612 303-6291, [email protected]

Austin R. BohligResearch Analyst, Piper Jaffray & Co.612 303-6987, [email protected]

Changes Previous CurrentRating — NeutralPrice Tgt — US$65.00FY15E Rev (mil) — US$262.3FY16E Rev (mil) — US$322.5FY15E EPS — US$1.94FY16E EPS — US$2.39

52-Week High / Low US$79.95 / US$52.68Shares Out (mil) 26.4Market Cap. (mil) US$1,435.4Avg Daily Vol (000) 184Book Value/Share US$11.91Net Cash Per Share US$5.68Debt to Total Capital NMDiv (ann) NAFiscal Year End Dec

Price Performance - 1 Year

Jan-15 Mar-15 May-15 Jul-15 Sep-15 Nov-15 Jan-16

85

80

75

70

65

60

55

50

USD

Source: Bloomberg

CONCLUSIONWe believe PRLB will report Q4 results that are in line to slightly above consensusestimates when it reports on February 4, before market open. Our confidence in Q4stems from our recent channel survey report that showed balanced demand from servicebureau operators, as well as Proto Labs’ history of strong execution. While confidentin the company’s ability to meet/exceed Wall Street expectations, we believe the biggerfocus on this upcoming earnings call will be modestly adjusting its long-term growthtargets. We believe a modest cut to LT targets could sit poorly with some investors.Nevertheless, we remain confident in the company’s market position and already strongbusiness model that is backed by an even stronger Management team. At current levels,we are reiterating our Neutral rating and $65 price target.

• Expecting Solid Q4 Results - We believe the company will report solid Q4 resultsthat are in-line to slightly above consensus revenue and EPS estimates of $72.0M and$0.47, respectively. The guidance provided from the company was revenue of $70-74Mwith EPS in the range of $0.45-$0.49, and consensus is relatively at the mid-point ofguidance. Our confidence in Q4 stems from our recent channel survey report thatshowed balanced demand from service bureau operators, as well as Proto Labs’ historyof strong execution. That being said, similar to this quarter our survey as traditionallyindicated in-line quarters, and the fact Proto Labs has typically out performed theseresults, we expect the company will see another quarter of strong growth.

• Long-Term Targets Likely Come Down - Since PRLB current LT targets wereprimarily based on the company’s legacy businesses (Protomold and Firstcut), webelieve their LT model needs to be slightly modified since the large addition andexpansion of their 3D offering. We do not believe LT targets will be significantlyaltered, but as we have believed for the past year, we expect the company will beginto endorse an organic of 20%, or 20-25% year/year versus 25%+. We do not believethis is a competitive issue, but more of a math-related situation (law of large numbers)and as any company becomes larger it will be harder to sustain growth rates ofthat magnitude. We believe a 20%, or 20–25% target will be more appropriate andsustainable for several years.

• Survey Suggests Bullish Growth in 2016 - We were very encouraged to see the2016 outlook improve significantly for service bureaus in our 4Q15 3D survey. Ona weighted-average basis, total growth expectations increased 6 percentage points,to 17% in the December quarter, which includes ~38% of all survey respondentsexpecting their service business to grow 21%+. We believe this outlook bodes well forProto Labs, and anticipate the company to have another strong year in 2016.

RISKS TO ACHIEVEMENT OF PRICE TARGETMacro economic slowdown, disruptive new technologies, and software duplication.

COMPANY DESCRIPTIONProto Labs is a leading provider of CNC machined and injection molded parts.

YEAR

2014A

2015E

2016E

REVENUE (US$ m)

Mar Jun Sep Dec FY FY RM

46.1 52.9 54.6 56.1 209.6 6.8x

58.5A 64.0A 67.8A 72.0 262.3 5.5x

76.0 79.8 82.6 84.2 322.5 4.5x

EARNINGS PER SHARE (US$)

Mar Jun Sep Dec FY FY P/E

0.41 0.45 0.44 0.43 1.73 31.4x

0.45A 0.50A 0.52A 0.47 1.94 28.0x

0.54 0.58 0.61 0.65 2.39 22.7x

of 17Proto Labs, Inc.

Piper Jaffray does and seeks to do business with companies covered in its research reports. As a result, investors should be awarethat the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report asonly a single factor in making their investment decisions. This report should be read in conjunction with important disclosureinformation, including an attestation under Regulation Analyst certification, found on pages 16 - 17 of this report or at thefollowing site: http://www.piperjaffray.com/researchdisclosures..

mailto:[email protected]

mailto:[email protected]

http://www.piperjaffray.com/researchdisclosures

COMPANY NOTE

J an uar y 2 8 , 20 16

Proto Labs is expected to report Q4 results before the market open on Thursday, February

4. We believe the company will report a solid December quarter that is in-line to slightly

above consensus revenue and EPS estimates of $72.0 million and $0.47, respectively. The

guidance provided from the company was revenue of $70-74 million with EPS in the range

of $0.45-$0.49, and consensus is relatively at the mid-point of guidance. Our confidence in

the December quarter results stems from our recent channel survey report that showed

balanced demand from service bureau operators, as well as Proto Labs’ history of strong

execution, which we display in the exhibit below. While confident in the company’s ability

to meet/exceed Wall Street expectations, we believe the bigger focus on this upcoming

earnings call will be discussions surrounding its long-term business model targets. We do

not believe long-term targets will be significantly altered, but as we have started to believe

about a year ago, a 25%+ run rate is going to be hard to sustain as the company becomes

larger and a 20% or 20-25% target seems be more appropriate. Furthermore, we may see

some modest changes to the margin profile given the strong growth we are seeing from the

company’s 3D printing (Fineline) segment and the dilutive acquisition of Alphaform.

We do not believe a revision to its long-term business model is related to any competitive

issue, but with the addition and expansion of their 3D offering the model has changed over

time. That being said, we continue to believe Proto Labs’ quick-turn business model is

untouched from a competitive standpoint and given the bullish outlook we saw in our

survey, 2016 is likely to be another strong year for Proto Labs. Given Proto Labs is already

a high-multiple stock, we believe a modest cut to long-term targets could sit poorly with

some investors, given the low tolerance for estimate cuts in this macro environment. The

company’s market position and already strong business model is backed by an even

stronger Management team. We believe Proto Labs is a great growth story, and our Neutral

rating on Proto Labs has been largely related to valuation and modest concerns about

revised business model targets. Since the stock has pulled back considerably in 2016, we

may revisit our rating following the earnings results. Throughout this report, we address

the company’s current business model targets, as well as revisit our service bureau findings

in our most recent 3D survey.

On Proto Labs previous earnings call and at a recent Tech Conference, Management has

continued to endorse it will be addressing its business model targets on the upcoming Q4

earnings call. Since the current targets were primarily based on the company’s legacy

businesses (Protomold and Firstcut), we believe the long-term model needs to be slightly

modified with the large addition and expansion of its 3D offering. We do not believe long-

term targets will be significantly altered, but as we have been saying for the past year, we

believe the company will begin to endorse an organic growth rate of 20%, or 20-25%

year/year vs. 25%+. As previously stated, we do not believe this is a competitive issue, but

4Q15 Earnings Preview

Exhibit 1

E A R N I N G S H I S T O R Y

Source: Piper Jaffray & Co. Investment Research, Factset

Believe Management Will Address LT Targets


COMPANY NOTE

J an uar y 2 8 , 20 16

more of a math-related situation (Law of Large Numbers) and as any company becomes

larger it will be harder to sustain growth rates of that magnitude. We believe a 20%, or 20

– 25% target, will be more appropriate and sustainable for several years. Note before the

acquisition of Fineline anniversaried and was not yet apart of organic revenues, Proto Labs

organic year/year growth rate decelerated to 21.9%, 18.5%, 17.2%, and 15.3% in 3Q14,

4Q14, 1Q15, and 2Q15, respectively. However, when Fineline was included in 3Q15 as

organic revenues, year/year organic growth accelerated to 24.3%. Given the ramp Proto

Labs is seeing for 3D printing services, the recent expansion into Europe and the launch of

new products, we do not believe 25%+ growth rates are unattainable metrics, but looking

3-5 years down the road 20%, or 20 – 25% is more likely.

We also believe management will modestly adjust margin targets, given the company’s 3D

service acquisitions. Today the company is targeting 61- 63% gross margins and 27- 29%

operating margins, but recall these are GAAP targets, so we estimate non-GAAP numbers

would be 2- 3% higher for the operating margin. We believe these targets have historically

been great for the company’s legacy businesses, but with the acquisition of Fineline and

Alphaform, these numbers may be a bit high. While we are unaware of the company’s

operating margin profile for its 3D services, we do believe 3D service gross margins are

modestly below the company average (60%) and within 50-53% range. Over time we

believe the company can get these margins closer to the company average due to quick turns

and eliminating some post processing tasks, but as we highlight later, our most recent

survey indicated there was a modest increase in pricing pressure among service bureaus in

Q4. Owing to increased competition within the 3D service market, we could see increased

pricing pressure prevail which could affect 3D service margins. Today, Fineline accounts

for ~9% of total revenues, but we expect this segment to see robust growth over the next

several years and as this segment becomes a bigger piece of the story it may weigh on the

corporate margin profile. We believe management could start to endorse 58- 60% long-term

gross margin targets. That being said, below we highlight Wall Street estimates, and today

analysts are expecting an average of 24% year/year growth and ~59% gross margins and

~27% operating margins through 2017, which means a business model target cut could be

somewhat factored into shares.

Exhibit 2

A N A L Y S T L O N G - T E R M E X P E C T A T I O N S

Source: Piper Jaffray & Co Investment Research, FactSet


COMPANY NOTE

J an uar y 2 8 , 20 16

Despite these modest concerns about long-term target revisions, we remain confident in the

December-quarter results, which stems from our recent channel survey report that showed

balanced demand from service bureau operators. We conducted our end-of-the-quarter 3D

printing industry survey and received feedback from 73 different industry contacts within

the broader 3D printing and Additive Manufacturing (AM) markets. Of the 73 respondents,

88% were located in North America and 12% in Europe. Roughly 32% of respondents

classified themselves as both a system reseller and service bureau operator (very common within the industry) with 36% indicating their primary business was exclusively operating a

service bureau and the remaining 32% are solely system resellers. Historically, our 3D

survey has never been a direct read into Proto Labs’ traditional injection molding and CNC

businesses; however, the company’s 3D printing component (Fineline) is beginning to

become a bigger piece of the story. We think as Fineline continues to grow, our results from

our 3D survey can become more effective for the overall company. That being said, similar

to this quarter our survey as traditionally indicated in-line quarters, and the fact Proto Labs

has typically out performed these results, we expect the company will see another quarter of

strong growth. Furthermore, we believe the positive service bureau outlook our 3D survey

indicated are great data points for Proto Labs North American and recently opened

European 3D service facilities.

The service bureau market seemed to be in-line with prior-quarter results with the number

of below-plan responses slightly out numbering above-plan responses, but once again the

majority of results pointed to an in-line quarter. In our 4Q15 survey, 13% (7) of service

bureaus reported an above-plan quarter versus 19% (10) indicating they were below plan.

The remaining 67% (35) of service bureaus indicated Q4 was in-line with expectations.

These results equate to a net negative of 3%, which is equal to (23% above plan - 26% below plan = -3% in 3Q15) our 3Q15 survey results. That being said, we continue to

believe service bureaus in general are a great way to get exposure to 3D technology without

encountering the high upfront capital investment. In fact, we believe as companies continue

to delay their system orders, they will outsource their 3D printing service, which bodes well

for many in the service bureau industry. The exhibit below highlights the results from our

4Q15 3D printing industry survey.

4Q15 3D Printing Survey Results Give Us Confidence in PRLB Dec Quarter

Exhibit 3

4 Q 1 5 S E R V I C E S A L E S V S E X P E C T A T I O N S

Source: Piper Jaffray 4Q15 3D Printing Survey Q7; 4Q15 n=52, 3Q15 n=53, 2Q15 n=57, 1Q15 n49

16% 18% 23% 13%

63% 58% 51% 67%

20% 25% 26% 19%

0%

20%

40%

60%

80%

100%

1Q15 2Q15 3Q15 4Q15

Above Plan In-line Below Plan


COMPANY NOTE

J an uar y 2 8 , 20 16

We have historically believed service bureaus that primarily printed prototypes could grow

10-15% annually, but as companies begin to print more end-use parts we believe some

service bureaus could grow in excess of 15%+. Given our bullish view on growth for

metals, we believe companies with high metal exposure can grow 20%+. In our 4Q15

survey, we asked service bureaus how much they grew in 2015, and on average service

bureaus grew ~10%. While this is at the low-end of our expectations, our data suggests

international macro and FX headwinds could have affected demand. Proto Labs’ 3D

printing service business has been growing at rates much faster than the average service

bureau over the past couple quarters, and due to the cross selling synergies between the

company’s 3 businesses we would not be surprised to see Proto Labs continue to grow

faster than the overall market. Looking longer term, we believe the company can sustain

20%+ growth rates, largely due to the company’s expansion into Europe, as well as the

company’s growing metal offering.

In our survey, service bureaus with high metal exposure saw exceptional demand

throughout 2015 and some even experienced year/year growth in excess of 30%. Given the

strong demand for metal printing services, we asked service bureaus if they offer metal

printing abilities or anticipate to in 2016. Our results indicated that the majority (57%) do

not offer metal services. Approximately 33% of service bureaus have metal printing

abilities, and the remaining 10% anticipate adding metal printing to their portfolio in 2016.

Although we are bullish about metals, we are not completely surprised only 33% currently

offer this service since metal printers are extremely expensive and the process is more

difficult than printing with other 3D technologies. However, we believe these barriers to

entry benefit companies partaking in the metal service space, such as Proto Labs, who is

significantly expanding their metal offering in 2016. Furthermore, company’s may also be

able to charge a premium for metal printed parts, which is likely not going to be the case

for other 3D printed materials. Regarding specific metal materials, we asked service

bureaus what is the most common type of metal material customers are requesting. As

displayed below, stainless steel, aluminum and titanium are the 3 top metal materials.

Solid Growth in 2015, But Modestly Affected By Foreign Macro Headwinds

Exhibit 4

W H A T W A S Y O U R S E R V I C E B U R E A U G R O W T H I N 2 0 1 5 ?

Source: Piper Jaffray 4Q15 3D Printing Survey Q13, n=53

33% of Service Bureaus Offer Metals

4%

26%

26%

13%

15%

15%

0% 5% 10% 15% 20% 25% 30%

(10%+)

(1-10%)

Flat

1-10%

11-20%

21-30%

30%+


COMPANY NOTE

J an uar y 2 8 , 20 16

While the barriers to entry are higher for companies looking to pursue the metal market,

the barriers to compete in traditional 3D printing services such as SLA, FDM or SLS is

considerably lower. There have been a number of new entrants into the 3D printing service

space. While companies are able to find some ways to differentiate, such as speed with

Proto Labs, it is hard to find additional ways to improve the final 3D printing product. For

that reason, we believe we are starting to see modest discounting in the service space. We

asked service bureaus how the pricing environment for 3D printing services changed in

recent quarters. As displayed in the exhibit below, 47% of service bureaus saw modest

discounting in the December quarter, which is up from 27% in the prior quarter.

Meanwhile, the percentage of service bureaus seeing significant discounting remained at

6%. There was a 7 percentage point increase from 2% to 9% of service bureaus seeing

premium pricing, but we would expect this is for metal or other highly custom applications.

Although we do not believe the increase in discounting is a huge concern today, we do

believe as more companies enter this space we could see further pricing pressure in the

future. This could ultimately cause some margin erosion.

Exhibit 5

M E T A L S E R V I C E S A N D M A T E R I A L S

Source: Piper Jaffray 4Q15 3D Printing Survey Q50 & Q51; Metal Services n=49, Materials n=17

Modest Discounting Seen In Q4

Exhibit 6

H O W H A S P R I C I N G E N V I O R N M E N T C H A N G E D F O R 3 D S E R V I C E S ?

Source: Piper Jaffray 4Q15 3D Printing Survey Q42; 4Q15 n=49, 3Q15 n=49

Yes, 33%

No, 57%

No, but plan to in

2016, 10%

0%

1%

5%

11%

11%

19%

24%

29%

0% 5% 10% 15% 20% 25% 30% 35%

Nickel

Other

Steel

Inconel

Cobalt Chrome

Titanium

Aluminium

Stainless Steel

6%

27%

65%

2%

6%

47%

39%

8%

0% 10% 20% 30% 40% 50% 60% 70%

Significant Discounting

Modest Discounting

Stable Pricing

Premium Pricing4Q15

3Q15


COMPANY NOTE

J an uar y 2 8 , 20 16

All that said, we were very encouraged to see the 2016 outlook improve significantly for

service bureaus. On a weighted-average basis, total growth expectations increased 6

percentage points, to 17% in the December quarter, which includes ~38% of all survey

respondents expecting their service business to grow 21%+, up from 21% of respondents in

the prior quarter. In addition, only 6% of service bureaus expect to not grow or be flat for

the year, which is down from 19% in 3Q15. From a geographic perspective, North

American service bureaus are expected to grow 17%, while Europe is indicating an

acceleration of 14%. Our belief is the service market can grow 15%+ for the next several

years, which we expect will be led by growing DDM application in the Aerospace and

Medical verticals. We believe this outlook bodes well for Proto Labs, and anticipate them to

have another strong year in 2016.

We believe Proto Labs will report a solid December quarter that is in-line to slightly above

consensus revenue and EPS estimates when they report on February 4, before market open.

Our confidence in Q4 results stems from our recent channel survey report that showed

balanced demand from service bureau operators, as well as Proto Labs’ history of strong

execution. While confident in the company’s ability to meet Wall Street expectations, we

believe the bigger focus on this upcoming earnings call will be discussing its long-term

growth targets. That being said, we continue to believe Proto Labs’ quick-turn business

model is untouched from a competitive standpoint and given the bullish outlook we saw in

our survey, 2016 is likely to be another strong year for Proto Labs. Given Proto Labs is

already a high multiple stock, we believe a modest cut to long-term targets could sit poorly

with some investors. Nevertheless, we remain confident in the company’s market position

and already strong business model that is backed by an even stronger management

team. At current levels, we are reiterating our Neutral rating and $65 price target. Our $65

target equates to 25x our fully-taxed 2016 operating income assumption plus cash. The

following exhibit highlights our price target calculation.

Bullish Service Bureau Outlook

Exhibit 7

1 - Y E A R S E R V I C E G R O W T H P R O J E C T I O N S - A G G R E G A T E

Source: Piper Jaffray 4Q15 3D Printing Survey Q49; 4Q15 n=52, 3Q15 n=52, 2Q15 n=57, 1Q15 n=49

Investment Conclusion

(1-10%) Flat 1-10% 11-20% 21-30% 30%+ Cumulative

1Q15 0% 10% 39% 29% 12% 10% 12%

2Q15 3% 15% 31% 24% 15% 12% 12%

3Q15 4% 15% 35% 25% 8% 13% 11%

4Q15 0% 6% 25% 31% 17% 21% 17%

0%

10%

20%

30%

40%

50%


COMPANY NOTE

J an uar y 2 8 , 20 16

Exhibit 8

P R I C E T A R G E T C A L C U L A T I O N

Source: Piper Jaffray & Co. Investment Research


Proto Labs Troy Jensen, CFA (612-303-6291)

Income Statement [email protected](data in millions, except per share) Piper Jaffray1/28/2016

Mar Jun Sep Dec Mar Jun Sep Dec Mar Jun Sep Dec

Q1 15 Q2 15 Q3 15 Q4 15E Q1 16E Q2 16E Q3 16E Q4 16E Q1 17E Q2 17E Q3 17E Q4 17E 2014 2015E 2016E 2017E

Revenues $58.5 $64.0 $67.8 $72.0 $76.0 $79.8 $82.6 $84.2 $89.9 $95.3 $99.6 $108.6 $209.6 $262.3 $322.5 $393.5

Cost of Goods Sold 23.2 26.3 27.4 31.0 32.3 33.5 34.3 34.1 36.2 38.2 39.8 43.1 80.8 107.8 134.2 157.3

Gross Profits $35.4 $37.7 $40.5 $41.0 $43.7 $46.3 $48.3 $50.1 $53.7 $57.1 $59.9 $65.5 $128.8 $154.5 $188.4 $236.2

Sales and Marketing $8.6 $9.2 $9.5 $10.9 $10.4 $10.7 $10.9 $11.0 $12.1 $12.9 $13.5 $14.9 $28.0 $38.3 $43.0 $53.4

Research and Development 4.0 4.1 4.4 4.7 4.8 4.9 5.1 5.1 5.5 5.7 6.0 6.4 15.6 17.2 19.9 23.6

General and Administrative 5.4 5.3 6.7 7.1 7.3 7.5 7.7 7.8 8.3 8.7 9.2 9.9 19.4 24.4 30.4 36.0

Operating Income $17.4 $19.1 $19.8 $18.3 $21.2 $23.2 $24.6 $26.1 $27.9 $29.8 $31.2 $34.3 $65.8 $74.6 $95.0 $123.2

Other Income (Expense) ($0.0) $0.1 $0.2 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.3 $0.0 $0.0

Pretax Income 17.4 19.2 20.0 18.3 21.2 23.2 24.6 26.2 27.9 29.8 31.2 34.4 65.8 74.9 95.1 123.3

Taxes 5.5 6.2 6.3 5.9 6.8 7.4 7.9 8.4 8.9 9.5 10.0 11.0 20.6 23.9 30.4 39.4

Net Income $11.9 $13.0 $13.7 $12.4 $14.4 $15.8 $16.7 $17.8 $19.0 $20.3 $21.2 $23.4 $45.2 $51.0 $64.7 $83.8

Pro-Forma EPS $0.45 $0.50 $0.52 $0.47 $0.54 $0.58 $0.61 $0.65 $0.69 $0.73 $0.76 $0.83 $1.73 $1.94 $2.39 $3.01

Shares Outstanding 26.2 26.3 26.4 26.6 26.8 27.0 27.2 27.4 27.6 27.8 28.0 28.2 26.1 26.4 27.1 27.9

Margin Analysis

Gross Margins 60.4% 58.9% 59.6% 57.0% 57.5% 58.0% 58.5% 59.5% 59.7% 59.9% 60.1% 60.3% 61.4% 58.9% 58.4% 60.0%

Sales and Marketing 14.7% 14.4% 14.1% 15.2% 13.7% 13.4% 13.2% 13.1% 13.4% 13.5% 13.6% 13.7% 13.4% 14.6% 13.3% 13.6%

Research and Development 6.9% 6.3% 6.5% 6.5% 6.3% 6.1% 6.2% 6.1% 6.1% 6.0% 6.0% 5.9% 7.4% 6.5% 6.2% 6.0%

General and Administrative 9.2% 8.3% 9.8% 9.9% 9.7% 9.5% 9.4% 9.3% 9.2% 9.1% 9.2% 9.1% 9.2% 9.3% 9.4% 9.1%

Operating Income 29.7% 29.9% 29.3% 25.4% 27.9% 29.1% 29.8% 31.1% 31.0% 31.3% 31.3% 31.6% 31.4% 28.4% 29.5% 31.3%

Tax Rate 31.7% 32.2% 31.6% 32.0% 32.0% 32.0% 32.0% 32.0% 32.0% 32.0% 32.0% 32.0% 31.3% 31.9% 32.0% 32.0%

Net Income 20.3% 20.4% 20.2% 17.3% 18.9% 19.8% 20.2% 21.2% 21.1% 21.3% 21.3% 21.5% 21.6% 19.5% 20.0% 21.3%

Quarter/Quarter % Change

Total Revenues 4.4% 9.3% 6.1% 6.1% 5.6% 5.0% 3.5% 2.0% 6.8% 6.0% 4.5% 9.0%

Operating Income 7.9% 10.0% 3.9% -7.9% 15.7% 9.5% 6.0% 6.5% 6.6% 7.0% 4.5% 10.0%

Net Income 6.3% 9.8% 5.2% -9.3% 15.7% 9.5% 6.0% 6.7% 6.4% 7.0% 4.5% 10.2%

Year/Year % Change

Total Revenues 27.0% 21.0% 24.3% 28.4% 29.8% 24.7% 21.7% 17.0% 18.4% 19.5% 20.7% 28.9% 28.5% 25.2% 23.0% 22.0%

Operating Income 12.4% 10.1% 17.1% 13.6% 21.8% 21.3% 23.8% 43.0% 31.8% 28.8% 27.0% 31.2% 20.2% 13.3% 27.4% 29.6%

Net Income 10.0% 9.6% 20.2% 11.3% 21.3% 20.9% 21.9% 43.3% 31.8% 28.8% 27.0% 31.2% 19.4% 12.8% 26.7% 29.6%

Other Metrics

Net Cash and Equivalents $137.1 $141.9 $150.0 $128.2

Cash per Share $5.23 $5.40 $5.68 $4.90

Days Sales Outstanding 44 41 44 39

Fiscal 2015 by Quarter Fiscal Year EndingFiscal 2016 by Quarter Fiscal 2017 by Quarter

Current disclosure information for this company can be found at http://www.piperjaffray.com/researchdisclosures. of 17Proto Labs, Inc.

Proto Labs Troy Jensen, CFA (612-303-6291)Balance Sheet [email protected]($ in millions, except per share) Piper Jaffray1/28/2016

Dec Dec Mar Jun Sep Dec Mar Jun Sep Dec Mar Jun Sep Dec Mar Jun Sep

ASSETS Q4 10 Q4 11 Q1 12 Q2 12 Q3 12 Q4 12 Q1 13 Q2 13 Q3 13 Q4 13 Q1 14 Q2 14 Q3 14 Q4 14 Q1 15 Q2 15 Q3 15

Cash and Equivalents $6.9 $8.4 $79.7 $78.7 $58.0 $61.9 $63.6 $65.8 $73.0 $79.4 $78.6 $48.1 $58.5 $74.0 $81.6 $87.5 $92.2

Receivables 8.4 11.5 14.8 13.7 15.3 15.8 17.5 17.5 18.0 18.3 21.9 25.2 25.5 24.2 28.4 29.5 32.9

Inventory 1.6 3.8 3.9 4.0 4.3 4.6 4.7 4.9 5.0 5.2 5.3 5.8 5.7 6.2 6.4 6.8 7.2

Prepaid Expenses 1.8 3.4 4.3 4.5 5.2 7.9 8.4 8.5 8.3 6.9 4.9 7.6 8.0 3.9 4.8 2.9 6.2

Other Current Assets 0.2 0.9 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 4.4 4.0

Total Current Assets $18.9 $28.1 $102.7 $100.9 $82.8 $90.2 $94.2 $96.6 $104.3 $109.8 $110.7 $86.7 $97.6 $108.3 $121.2 $131.2 $142.5

Fixed Assets $19.5 $34.2 $41.1 $44.1 $44.5 $45.3 $45.6 $47.1 $52.4 $56.1 $64.0 $87.3 $88.0 $91.6 $94.0 $100.9 $108.6

Goodwill and Intangible 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 33.6 33.2 33.2 33.0 32.8 33.0

Long-Term Investments 0.0 0.0 0.0 0.0 29.7 38.5 49.1 54.4 59.7 64.3 71.6 57.3 60.7 54.3 55.6 54.5 57.8

Total Assets $38.4 $62.3 $143.8 $145.0 $156.9 $173.9 $189.0 $198.2 $216.4 $230.2 $246.2 $265.0 $279.4 $287.5 $303.9 $319.4 $341.9

LIABILITIES $8.5

Accounts Payable $2.8 $4.4 $5.8 $4.1 $4.2 $4.8 $5.8 $5.7 $6.3 $6.5 $10.4 $11.8 $8.0 $7.9 $8.6 $11.3 $11.6

Accrued Compensation 1.7 4.8 3.5 3.7 5.5 6.0 7.5 4.4 6.8 6.2 4.8 5.8 8.2 6.1 7.9 8.3 10.5

Accrued Liabilities 0.3 0.3 4.1 1.4 0.7 0.5 0.6 0.6 1.1 0.8 1.3 3.5 3.8 2.7 2.0 1.8 2.4

Income Taxes Payable 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.1 0.0 0.0 2.0 4.0 0.0 0.0

Current Debt Obligation 3.7 0.4 0.4 0.4 0.3 0.3 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.1 0.1 0.1 0.0

Total Current Liabilities $8.5 $9.9 $13.7 $9.6 $10.7 $11.5 $14.0 $10.9 $14.5 $13.7 $16.8 $21.3 $20.1 $18.8 $22.5 $21.4 $24.5

Deferred Tax Liability $1.3 $4.3 $4.3 $4.3 $4.3 $4.6 $3.3 $3.3 $3.3 $3.7 $3.8 $3.7 $4.1 $1.8 $2.2 $2.4 $1.5

Long-Term Debt Obligation 1.3 0.6 0.5 0.4 0.4 0.4 0.3 0.2 0.2 0.2 0.1 0.1 0.0 0.0 0.0 0.0 0.0

Other 0.7 0.9 0.9 0.8 0.8 0.8 0.7 0.7 0.7 1.0 1.0 0.8 0.9 1.4 1.5 1.5 1.7

Total Liabilities $11.7 $15.7 $19.3 $15.1 $16.2 $17.2 $18.4 $15.2 $18.8 $18.5 $21.7 $25.9 $25.1 $22.0 $26.2 $25.4 $27.7

EQUITY

Total Shareholders Equity $26.6 $46.7 $124.4 $129.9 $140.7 $156.7 $170.6 $183.0 $197.6 $211.6 $224.5 $239.1 $254.3 $265.5 $277.6 $294.0 $314.2

Total Liab & Shrhldrs Equity $38.4 $62.3 $143.8 $145.0 $156.9 $173.9 $189.0 $198.2 $216.4 $230.2 $246.2 $265.0 $279.4 $287.5 $303.9 $319.4 $341.9

BALANCE SHEET METRICS

Current Ratio 2.2x 2.8x 7.5x 10.5x 7.7x 7.8x 6.7x 8.9x 7.2x 8.0x 6.6x 4.1x 4.9x 5.8x 5.4x 6.1x 5.8x

Quick Ratio 1.8x 2.0x 6.9x 9.7x 6.8x 6.7x 5.8x 7.7x 6.3x 7.2x 6.0x 3.4x 4.2x 5.2x 4.9x 5.5x 5.1x

Debt to Capital 15.9% 2.1% 0.7% 0.6% 0.5% 0.4% 0.3% 0.2% 0.2% 0.2% 0.1% 0.1% 0.1% 0.1% 0.0% 0.0% 0.0%

Debt to Assets 13.1% 1.6% 0.6% 0.6% 0.5% 0.4% 0.3% 0.2% 0.2% 0.2% 0.1% 0.1% 0.1% 0.1% 0.0% 0.0% 0.0%

Return on Equity 45.3% 40.1% 15.4% 15.6% 15.5% 16.7% 17.5% 18.2% 18.0% 17.9% 17.7% 17.7% 17.4% 17.0% 16.7% 16.1% 15.8%

Days Sales Outstanding 41 40 44 41 42 42 42 40 39 37 43 43 42 39 44 41 44

Sales to Current Assets 3.4x 3.5x 1.0x 1.1x 1.4x 1.4x 1.4x 1.5x 1.5x 1.5x 1.6x 2.1x 2.0x 1.9x 1.8x 1.8x 1.7x

Sales to Working Capital 6.2x 5.5x 1.2x 1.2x 1.6x 1.6x 1.7x 1.7x 1.7x 1.7x 1.8x 2.8x 2.5x 2.3x 2.3x 2.1x 2.1x

Sales to Equity 2.4x 2.1x 0.9x 0.9x 0.8x 0.8x 0.8x 0.8x 0.8x 0.8x 0.8x 0.8x 0.8x 0.8x 0.8x 0.8x 0.8x

Sales to Total Assets 1.7x 1.6x 0.7x 0.8x 0.8x 0.7x 0.7x 0.7x 0.7x 0.7x 0.7x 0.7x 0.7x 0.7x 0.7x 0.7x 0.7x

Book Value Per Share $1.40 $2.34 $5.60 $5.14 $5.56 $6.18 $6.65 $7.08 $7.60 $8.10 $8.60 $9.14 $9.71 $10.15 $10.59 $11.19 $11.91

Net Cash Per Share $0.10 $0.37 $3.54 $3.08 $3.43 $3.93 $4.38 $4.63 $5.09 $5.49 $5.74 $4.02 $4.54 $4.90 $5.23 $5.40 $5.68



Statement of Cash Flows [email protected](data in millions, except per share) Piper Jaffray

Dec Dec Mar Jun Sep Dec Mar Jun Sep Dec Mar Jun Sep

Q4 11 Q4 12 Q1 13 Q2 13 Q3 13 Q4 13 Q1 14 Q2 14 Q3 14 Q4 14 Q1 15 Q2 15 Q3 15

Cash flows from operating activities: (Full Year) (Full Year) (3 Months) (6 Months) (9 Months) (Full Year) (3 Months) (6 Months) (9 Months) (Full Year) (3 Months) (6 Months) (9 Months)

Net income $18.0 $24.0 $8.3 $16.9 $25.8 $35.3 $10.1 $21.1 $31.4 $41.6 $10.5 $22.1 $34.5

Depreciation 4.3 6.1 1.7 3.6 5.5 7.6 2.1 4.7 7.7 11.1 3.4 6.9 10.4

Stock option compensation expense 1.1 3.0 0.9 1.7 2.6 3.5 1.0 2.2 3.6 4.8 1.3 2.9 4.5

Changes in deferred taxes 2.2 (0.6) 0.1 0.3 (0.1) 0.5 0.1 0.1 0.5 (1.9) 0.3 0.6 -0.3

Other (0.67) (6.1) (3.8) (5.2) (7.1) (8.3) (0.4) (0.8) (3.2) (3.0) (0.2) (0.4) (4.3)

Changes in assets and liabilities:

Accounts receivable ($3.5) ($4.4) ($1.9) ($2.0) ($2.2) ($2.5) ($3.6) ($5.7) ($6.3) ($5.3) ($4.36) ($5.22) ($3.59)

Inventory (2.2) (0.8) (0.2) (0.4) (0.4) (0.6) (0.2) (0.3) (0.3) (0.9) (0.2) (0.7)

Prepaid expenses and other assets (0.6) (1.9) 0.4 1.7 1.5 1.6 (0.8) (0.4) (0.7) 0.1 (1.0) (0.5)

Income taxes payable 0.0 4.3 2.7 3.1 6.1 8.8 4.0 2.4 4.0 9.4 2.7 (3.7)

Accounts payable 1.5 0.3 1.1 1.1 1.6 1.7 3.9 5.1 1.4 1.4 0.8 3.4

Accrued liabilities and others 3.3 1.3 1.8 (1.3) 1.6 0.9 (1.0) (2.5) 1.9 (0.3) 2.2 2.2

Net cash provided by operating activities $23.5 $25.3 $11.2 $19.4 $34.9 $48.4 $15.3 $26.0 $40.0 $57.2 $15.4 $27.8 $41.3

Cash flows from investing activities:

Capital expenditures ($19.0) ($17.4) ($2.5) ($6.1) ($13.0) ($18.8) ($9.9) ($31.6) ($69.8) ($43.5) ($6.2) ($15.7) ($27.3)

Other assets 0.5 (61.9) (22.8) (23.0) (32.0) (39.7) (5.8) (16.9) 14.6 (20.0) 0.1 (1.3) (1.8)

Net cash used in investing activities ($18.5) ($79.2) ($25.3) ($29.1) ($45.0) ($58.5) ($15.7) ($48.5) ($55.2) ($63.5) ($6.2) ($17.0) ($29.0)

Cash flows from financing activities:

Proceeds (payments) from debt ($4.0) ($0.4) ($0.1) ($0.2) ($0.2) ($0.3) ($0.1) ($1.0) ($1.0) ($1.1) ($0.0) ($0.1) ($0.1)

Proceeds from common stock 0.0 71.5 0.0 0.0 0.0 0.0 0.7 1.8 4.0 4.8 0.9 2.2 5.2

ExcessTax benefit from stock compensation 0.7 6.2 4.1 5.9 8.2 9.9 0.9 1.6 4.4 4.5 0.5 1.0 5.2

Other 0.5 5.4 1.6 2.9 4.6 6.5 0.0 (0.4) (0.8) (1.2) (1.0) (1.0) (1.4)

Net cash provided by financing activities ($2.8) $82.8 $5.6 $8.6 $12.6 $16.1 $1.5 $2.1 $6.5 $7.0 $0.3 $2.1 $8.9

Exchange rate effects on cash and equivalents ($0.2) ($0.2) ($0.2) ($0.3) $0.1 $0.2 $0.1 $0.2 ($0.1) ($0.5) ($0.4) $0.0 ($0.3)

Net increase in cash and equivalents 2.0 28.6 (8.82) (1.31) 2.6 6.3 1.2 (20.19) (8.77) 0.3 9.2 13.0 20.8

Cash and equivalents, beginning of period 6.1 8.1 36.8 36.8 36.8 36.8 43.0 43.0 43.0 43.0 43.3 43.3 43.3

Cash and equivalents, end of period $8.1 $36.8 $27.9 $35.4 $39.4 $43.0 $44.2 $22.9 $34.3 $43.3 $52.6 $56.3 $64.1

1/28/2016



Additional Information [email protected](data in millions) Piper Jaffray1/28/2016

Dec Mar Jun Sep Dec Mar Jun Sep Dec Mar Jun Sep FY FY FYRevenue Mix ($) Q4 12 Q1 13 Q2 13 Q3 13 Q4 13 Q1 14 Q2 14 Q3 14 Q4 14 Q1 15 Q2 15 Q3 15 2012 2013 2014Protomold $23.7 $26.9 $27.9 $29.5 $30.7 $32.7 $36.3 $35.7 $35.7 $37.6 $39.9 $42.0 $90.4 $115.1 $140.3Firstcut 9.9 10.4 11.8 12.5 13.3 13.4 14.5 15.5 16.5 16.4 18.6 19.8 35.6 48.0 59.9Fineline 0.0 0.0 0.0 0.0 0.0 0.0 2.1 3.4 3.9 4.5 5.5 6.0 0.0 0.0 9.4 Total $33.6 $37.3 $39.7 $42.0 $44.0 $46.1 $52.9 $54.6 $56.1 $58.5 $64.0 $67.8 $126.0 $163.1 $209.6

Revenue Mix (%)Protomold 70.4% 72.0% 70.3% 70.3% 69.8% 71.0% 68.6% 65.3% 63.6% 64.3% 62.4% 61.9% 71.7% 70.5% 66.9%Firstcut 29.6% 28.0% 29.7% 29.7% 30.2% 29.0% 27.4% 28.5% 29.4% 28.0% 29.1% 29.2% 28.3% 29.5% 28.6%Fineline 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 4.0% 6.2% 6.9% 7.8% 8.5% 8.9% 0.0% 0.0% 4.5% Total 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%

Revenue Mix (Y/Y)Protomold 24.6% 23.3% 30.2% 25.9% 29.8% 21.6% 29.8% 20.7% 16.1% 15.1% 10.1% 17.7% 22.0% 27.3% 21.9%Firstcut 49.9% 27.6% 39.0% 38.7% 33.9% 28.2% 22.4% 24.7% 24.0% 22.3% 28.4% 27.6% 43.3% 34.9% 24.7%Fineline NE NE NE NE NE NE NE NE NE NE 155.6% 79.2% NE NE NE Total 31.1% 24.5% 32.7% 29.4% 31.0% 23.5% 33.0% 29.9% 27.3% 27.0% 21.0% 24.3% 27.3% 29.5% 28.5%

Revenue Mix (Q/Q)Protomold 0.9% 13.5% 3.9% 5.8% 4.1% 6.4% 10.9% -1.7% 0.1% 5.4% 6.2% 5.1%Firstcut 10.5% 4.9% 13.3% 5.5% 6.7% 0.5% 8.2% 7.4% 6.2% -0.8% 13.5% 6.7%Fineline NE NE NE NE NE NE NE 58.0% 15.3% 17.1% 19.9% 10.7% Total 3.6% 11.0% 6.5% 5.7% 4.8% 4.6% 14.7% 3.2% 2.7% 4.4% 9.3% 6.1%

Y/Y Organic Growth 31.1% 24.5% 32.7% 29.4% 31.0% 23.5% 27.6% 21.9% 18.5% 17.2% 15.3% 24.3% 27.3% 29.5% 22.7%




Dec Mar Jun Sep Dec Mar Jun Sep Dec Mar Jun Sep FY FY FYRevenue Mix ($) Q4 12 Q1 13 Q2 13 Q3 13 Q4 13 Q1 14 Q2 14 Q3 14 Q4 14 Q1 15 Q2 15 Q3 15 2012 2013 2014New Customers $7.2 $3.1 $4.9 $6.7 $7.9 $3.2 $6.0 $6.9 $9.5 $20.8 $22.5 $25.6Existing Customers 26.5 34.2 34.9 35.3 36.1 42.9 46.9 47.7 46.5 105.2 140.6 184.0Total $33.6 $37.3 $39.7 $42.0 $44.0 $46.1 $52.9 $54.6 $56.1 $58.5 $64.0 $67.8 $126.0 $163.1 $209.6

Revenue Mix (%)New Customers 21.3% 8.2% 12.3% 15.9% 17.9% 6.9% 11.3% 12.6% 17.0% 16.5% 13.8% 12.2%Existing Customers 78.7% 91.8% 87.7% 84.1% 82.1% 93.1% 88.7% 87.4% 83.0% 83.5% 86.2% 87.8%Total 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%

Revenue Mix (Y/Y)New Customers 12.0% 6.1% 8.3% 7.8% 10.2% 3.8% 22.5% 3.0% 20.8% 12.6% 8.5% 13.6%Existing Customers 37.5% 26.5% 37.0% 34.5% 36.7% 25.2% 34.5% 35.0% 28.7% 30.7% 33.6% 30.9% Total 31.1% 24.5% 32.7% 29.4% 31.0% 23.5% 33.0% 29.9% 27.3% 27.3% 29.5% 28.5%

Revenue Mix (Q/Q)New Customers 15.6% -57.0% 58.3% 37.1% 18.1% -59.5% 86.9% 15.3% 38.6%Existing Customers 0.7% 29.4% 1.9% 1.3% 2.3% 18.6% 9.4% 1.7% -2.4% Total 3.6% 11.0% 6.5% 5.7% 4.8% 4.6% 14.7% 3.2% 2.7%

Existing Customers (YTD) 4,763 3,528 4,644 5,315 5,734 4,325 5,366 6,154 6,719 4,763 5,734 6,719Incremental additions 369 -1,235 1,116 671 419 -1,409 1,041 788 565 1,333 971 985Y/Y Growth 38.9% 20.4% 20.6% 21.0% 20.4% 22.6% 15.5% 15.8% 17.2% 38.9% 20.4% 17.2%Q/Q Growth 8.4% -25.9% 31.6% 14.4% 7.9% -24.6% 24.1% 14.7% 9.2%

New Customers (YTD) 2,991 710 1,435 2,261 3,027 559 1,659 2,564 3,425 2,991 3,027 3,425Y/Y Growth 15.1% -5.7% -4.3% 0.4% 1.2% -21.3% 15.6% 13.4% 13.1% 15.1% 1.2% 13.1%Q/Q Growth 32.9% -76.3% 102.1% 57.6% 33.9% -81.5% 196.8% 54.6% 33.6%

Unique Product Developers 6,043 6,488 6,885 7,308 7,290 7,669 8,222 8,680 8,773 11,009 11,822 12,541Y/Y Growth 26.3% 20.8% 22.4% 23.3% 20.6% 18.2% 19.4% 18.8% 20.3% 43.6% 43.8% 44.5%Q/Q Growth 1.9% 7.4% 6.1% 6.1% -0.2% 5.2% 7.2% 5.6% 1.1% 25.5% 7.4% 6.1%




Dec Mar Jun Sep Dec Mar Jun Sep Dec Mar Jun Sep FY FY FYGeographic Mix ($) Q4 12 Q1 13 Q2 13 Q3 13 Q4 13 Q1 14 Q2 14 Q3 14 Q4 14 Q1 15 Q2 15 Q3 15 2012 2013 2014United States $26.0 $29.5 $31.6 $31.9 $32.8 $35.0 $42.4 $43.4 $44.3 $47.4 $52.3 $54.4 $98.7 $125.7 $165.1Europe 6.2 6.5 6.8 8.6 9.7 9.2 9.0 9.3 10.0 8.8 10.1 11.3 22.5 31.5 37.5Asia 1.4 1.3 1.3 1.6 1.6 1.9 1.4 1.9 1.8 2.3 1.6 2.1 4.8 5.9 7.0 Total $33.6 $37.3 $39.7 $42.0 $44.0 $46.1 $52.9 $54.6 $56.1 $58.5 $64.0 $67.8 $126.0 $163.1 $209.6

Geographic Mix (%)United States 77.4% 79.1% 79.5% 75.9% 74.4% 75.9% 80.3% 79.5% 79.1% 81.0% 81.7% 80.2% 78.3% 77.1% 78.8%Europe 18.5% 17.3% 17.2% 20.4% 21.9% 20.0% 17.0% 17.1% 17.8% 15.0% 15.8% 16.7% 17.9% 19.3% 17.9%Asia 4.2% 3.6% 3.3% 3.8% 3.6% 4.1% 2.7% 3.4% 3.1% 4.0% 2.5% 3.1% 3.8% 3.6% 3.3% Total 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%

Geographic Mix (Y/Y)United States 36.0% 27.5% 32.0% 24.6% 26.1% 18.6% 34.3% 36.1% 35.2% 35.6% 23.2% 25.5% 28.7% 27.4% 31.3%Europe 12.7% 18.0% 35.3% 48.3% 55.4% 42.4% 31.4% 9.1% 3.3% -4.6% 12.2% 21.0% 15.8% 40.0% 19.0%Asia 39.5% -0.7% 37.3% 44.2% 14.9% 39.7% 9.9% 18.3% 10.1% 23.4% 11.7% 13.8% 68.8% 21.7% 19.1% Total 31.1% 24.5% 32.7% 29.4% 31.0% 23.5% 33.0% 29.9% 27.3% 27.0% 21.0% 24.3% 27.3% 29.5% 28.5%

Geographic Mix (Q/Q)United States 1.7% 13.4% 7.1% 0.9% 2.9% 6.7% 21.3% 2.2% 2.2% 7.0% 10.2% 4.1%Europe 7.6% 4.1% 5.8% 25.1% 12.8% -4.6% -2.4% 3.9% 6.8% -11.9% 14.8% 12.0%Asia 26.8% -3.4% -2.4% 20.6% 1.0% 17.5% -23.2% 29.8% -6.0% 31.7% -30.5% 32.2% Total 3.6% 11.0% 6.5% 5.7% 4.8% 4.6% 14.7% 3.2% 2.7% 4.4% 9.3% 6.1%



5-Year Forecast [email protected](data in millions, except per share) Piper Jaffray1/28/2016

2014 2015E 2016E 2017E 2018E 2019ERevenues $209.6 $262.3 $322.5 $393.5 $482.1 $590.5Cost of Goods Sold 80.8 107.8 134.2 157.3 192.7 236.1 Gross Profits $128.8 $154.5 $188.4 $236.2 $289.3 $354.4

Sales and Marketing $28.0 $38.3 $43.0 $53.4 $64.4 $77.7Research and Development 15.6 17.2 19.9 23.6 28.4 34.2General and Administrative 19.4 24.4 30.4 36.0 43.6 52.8 Operating Income $65.8 $74.6 $95.0 $123.2 $152.9 $189.6

Other Income (Expense) $0.0 $0.3 $0.0 $0.0 $0.0 $0.0Pretax Income 65.8 74.9 95.1 123.3 152.9 189.6Taxes 20.6 23.9 30.4 39.4 48.9 60.7 Net Income $45.2 $51.0 $64.7 $83.8 $104.0 $129.0

Pro-Forma EPS $1.73 $1.94 $2.39 $3.01 $3.62 $4.37Shares Outstanding 26.1 26.4 27.1 27.9 28.7 29.5

Margin AnalysisGross Margin 61.4% 58.9% 58.4% 60.0% 60.0% 60.0%Sales and Marketing 13.4% 14.6% 13.3% 13.6% 13.4% 13.2%Research and Development 7.4% 6.5% 6.2% 6.0% 5.9% 5.8%General and Administrative 9.2% 9.3% 9.4% 9.1% 9.0% 8.9%Operating Margin 31.4% 28.4% 29.5% 31.3% 31.7% 32.1%Tax Rate 31.3% 31.9% 32.0% 32.0% 32.0% 32.0%Net Income 21.6% 19.5% 20.0% 21.3% 21.6% 21.8%

Year/Year % ChangeRevenue 25.2% 23.0% 22.0% 22.5% 22.5%Operating Income 13.3% 27.4% 29.6% 24.1% 24.0%Net Income 12.8% 26.7% 29.6% 24.0% 24.0%

Fiscal Year Ending



J a n u a r y 2 8 , 2 0 1 6

IMPORTANT RESEARCH DISCLOSURES

Notes: The boxes on the Rating and Price Target History chart above indicate the date of the fundamental Equity Research Note, the rating andthe price target. Each box represents a date on which an analyst made a change to a rating or price target, except for the first box, which may onlyrepresent the first Note written during the past three years.

Legend:I: Initiating CoverageR: Resuming CoverageT: Transferring CoverageD: Discontinuing CoverageS: Suspending CoverageOW: OverweightN: NeutralUW: UnderweightNA: Not AvailableUR: Under Review

Distribution of Ratings/IB Services

Piper Jaffray

IB Serv./Past 12 Mos.

Rating Count Percent Count Percent

BUY [OW] 413 59.68 98 23.73

HOLD [N] 265 38.29 12 4.53

SELL [UW] 14 2.02 1 7.14

Note: Distribution of Ratings/IB Services shows the number of companies currently covered by fundamental equity research in each rating categoryfrom which Piper Jaffray and its affiliates received compensation for investment banking services within the past 12 months. FINRA rules requiredisclosure of which ratings most closely correspond with "buy," "hold," and "sell" recommendations. Piper Jaffray ratings are not the equivalent ofbuy, hold or sell, but instead represent recommended relative weightings. Nevertheless, Overweight corresponds most closely with buy, Neutral withhold and Underweight with sell. See Stock Rating definitions below.

Analyst Certification — Troy D. Jensen, CFA, Sr Research AnalystThe views expressed in this report accurately reflect my personal views about the subject company and the subject security. In addition, no part ofmy compensation was, is, or will be directly or indirectly related to the specific recommendations or views contained in this report.



J a n u a r y 2 8 , 2 0 1 6

Research DisclosuresPiper Jaffray was making a market in the securities of Proto Labs, Inc. at the time this research report was published. Piper Jaffray will buy and sellProto Labs, Inc. securities on a principal basis.

Piper Jaffray has received compensation for non-investment banking services from or has had a client relationship with Proto Labs, Inc. in the past12 months.

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• Underweight (UW): Anticipated to underperform relative to the median of the group of stocks covered by the analyst.

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