C O M PA N Y N O T E

October 27, 2016

Proto Labs, Inc. (PRLB)

Neutral

Industrial Weakness Weighing on PRLB, Maintaining Neutral

CONCLUSION
Proto Labs reported outstanding Q3 results with revenues and EPS comfortably exceeding
Street expectations; however, the company acknowledged a tough macro environment
is on the horizon and guided Q4 below consensus estimates. While disappointed in the
companys outlook, we believe a slowdown in spending is primarily related to industrial
macro weakness, but do believe the company has internal issues to resolve with the
companys sales force. That said, we continue to remain upbeat on Proto Labs business
model, and as economic conditions improve, we are optimistic the company can see
healthier growth rates return. However, we believe a 20.0 25.0%+ run rate is less likely
over the next couple of years and believe a mid-teen run rate is more acceptable. While
we are taking estimates down again, we are reiterating our Neutral rating but decreasing
our price target to $45.

PRICE: US$47.67
Price as of 10/27/16 at 2:30 PM ET
TARGET: US$45.00
21x fully taxed CY17E Op Inc + Cash
Troy D. Jensen, CFA
Sr Research Analyst, Piper Jaffray & Co.
612 303-6291, troy.d.jensen@pjc.com
Austin R. Bohlig
Research Analyst, Piper Jaffray & Co.
612 303-6987, austin.r.bohlig@pjc.com
Changes
Rating
Price Tgt
FY16E Rev (mil)
FY17E Rev (mil)
FY16E EPS
FY17E EPS

What To Do With The Stock? - Following PRLB's Q3 results and discouraging guidance,
shares are trading down ~5% in mid-day trading. We would like to call out that shares
opened down 10.0%+, but we believe a combination of short covering and long term
investors that love the stock has supported shares from additional downside. Although
shares have climbed slightly above our price target, we see limited price movement in
the near term until these macro uncertainties are resolved.

Previous

US$52.00
US$303.8
US$349.5
US$1.84
US$2.17

52-Week High / Low

Shares Out (mil)
Market Cap. (mil)
Avg Daily Vol (000)
Book Value/Share
Net Cash Per Share
Debt to Total Capital
Div (ann)
Fiscal Year End

Q3 Earnings Highlights - Q3 revenues of $78.2M were $2.9M above consensus, as

well as exceeding the companys prior guidance ($73.0 78.0M). On a Y/Y basis,
revenues grew 15.2% as reported, but PRLB only grew 9.4% organically. Injection
Molding revenues of $46.4M were up 10.7% Y/Y and accounted for 59.4% of total
sales during the quarter, but year/year growth rates continued to decline for the a 3rd
consecutive quarter. CNC revenues grew 9.8% on a Y/Y basis to $21.8M and accounted
for 27.9% of total sales. The 3D Printing business continued to perform well in 3Q16
with revenue for this segment up 64.7% Y/Y to $9.9M and accounted for 12.7% of sales.
Meanwhile, Non-GAAP gross margins of 57.9% increased ~120 bps sequentially, and
PRLB yielded operating margins of 25.0%, which were ~140 bps higher than 2Q16. This
produced Non-GAAP EPS of $0.51, which was $0.07 above consensus expectations.

Current
Neutral
US$45.00
US$298.2
US$319.1
US$1.80
US$1.82

US$82.06 / US$50.50
26.6
US$1,268.0
331
US$13.94
US$6.60
NM
NA
Dec

Price Performance - 1 Year

USD

85
80
75
70
65

Company Guidance - Despite the upbeat Q3 results, Proto Labs guided Q4 revenues

60

and EPS below consensus estimates due to ongoing macro uncertainties. Proto Labs
guided Q4 revenue to $70.0 75.0M and EPS of $0.36 0.44, which compares to
Streets $79.7M and $0.49 expectations. Management highlighted that order inflow
significantly slowed during the first few weeks of Q4, and due to the companys limited
visibility, Management is uncertain if demand trends will improve throughout the end of
the year.

55
50
Oct-15 Dec-15

Feb-16 Apr-16

Jun-16 Aug-16 Oct-16

Source: Bloomberg

R I S K S TO A C H I E V E M E N T O F P T & R E C O M M E N D AT I O N
Macro economic slowdown, disruptive new technologies, and software duplication.
C O M PA N Y D E S C R I P T I O N
Proto Labs is a leading provider of CNC machined and injection molded parts.
YEAR

REVENUE (US$ m)

EARNINGS PER SHARE (US$)

2015A

Mar

Jun

Sep

Dec

FY

FY RM

Mar

Jun

Sep

Dec

FY

FY P/E

58.5

64.0

67.8

73.8

264.1

4.8x

0.45

0.50

0.52

0.50

1.97

24.2x

2016E

72.6A

75.0A

78.2A

72.5

298.2

4.3x

0.44A

0.45A

0.51A

0.40

1.80

26.5x

2017E

75.0

78.7

81.9

83.5

319.1

4.0x

0.41

0.45

0.48

0.48

1.82

26.2x

Piper Jaffray does and seeks to do business with companies covered in its research reports. As a result, investors should be aware
that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only
a single factor in making their investment decisions. This report should be read in conjunction with important disclosure information,
including an attestation under Regulation Analyst certification, found on pages 14 - 15 of this report or at the following site:
http://www.piperjaffray.com/researchdisclosures.
Proto Labs, Inc.

Page 1 of 15

COMPANY NOTE
October 27, 2016

3Q16 Earnings
Recap

Proto Labs reported outstanding Q3 results with revenues and EPS comfortably exceeding Street
expectations; however, the company acknowledged a challenging macro environment lays ahead
and guided Q4 below consensus estimates. September quarter revenues of $78.2M were $2.9M
above consensus, as well as exceeding the companys prior guidance ($73.0 78.0M). On a
year/year basis, revenues grew 15.2% as reported, but excluding Alphaforms $4.0M contribution,
Proto Labs grew 9.4% organically and 9.7% on a constant currency basis. The upside was driven
by better than expected growth in the United States and Europe for a variety of the companys
service offerings. Non-GAAP gross margins of 57.9% increased ~120 basis points sequentially,
which was driven by improved margins in the Alphaform business and scale efficiencies within
companys legacy segments. Operating expenses of $25.7M were up 3.6% quarter/quarter,
yielding operating margins of 25.0%, which were ~140 basis points higher than 2Q16. This
produced Non-GAAP EPS of $0.51, which was $0.07 above consensus expectations and the
companys prior guidance ($0.42 0.46). Note EPS was positively impacted by a modestly lower
tax rate. The exhibit below compares Proto Labs 3Q16 actual results to consensus estimates, as
well as results from the prior quarter and year.
Exhibit 1

3Q16 Actual vs Street Estimates, Historical Results

Source: Company Reports, FactSet

Injection Molding
Revenues Slow

Proto Labs, Inc.

Injection Molding revenues of $46.4M were up 10.7% on a year/year basis and accounted for
59.4% of total sales during the quarter, but year/year growth rates continued to decline for the third
consecutive quarter as the company battles through macro headwinds in key verticals such as
industrial machining and oil & gas. Following Managements comments regarding challenging
demand continuing, we believe the companys injection molding results will continue to struggle
until these macro uncertainties are resolved. That said, we are optimistic once economic
conditions improve Proto Labs will see Injection Molding growth rates accelerate. While we have
traditionally believed the companys injection molding LT business model included high-teen
revenue growth, we are starting to believe that a low-mid teen run rate is a more realistic
assumption. On a positive note, we were encouraged to hear the company has accelerated the
launch of their over-molding services and this offering is now commercially available to their

Page 2 of 15

COMPANY NOTE
October 27, 2016

customers in the US and Europe. The following exhibit highlights Injection Molding quarterly
revenues and year/year growth rates.
Exhibit 2

Injection Molding Revenue Trends

Source: Company Reports

CNC Machining
Decelerates

In the September quarter, CNC revenues grew 9.8% on a year/year basis to $21.8M and
accounted for 27.9% of total sales. We were encouraged to see CNC revenues accelerate for the
first time in over 4 quarters. Although the companys CNC segment is still well below historical
norms, we believe Proto Labs remains one of the best positioned to take advantage of this billion
dollar market opportunity. Once macro conditions improve we anticipate CNC sales to accelerate
and can return to mid-high teen growth levels. The exhibit below highlights CNCs quarterly
revenues and year/year growth rates.
Exhibit 3

CNC Machining Revenue Trends

Source: Company Reports

Proto Labs, Inc.

Page 3 of 15

COMPANY NOTE
October 27, 2016

3D Printing
Continues
Momentum

The 3D Printing business continued to perform well in 3Q16 with revenue for this segment up
64.7% year/year to $9.9M and accounted for 12.7% of sales. Excluding Alphaforms $2.0M 3D
printing contribution, 3D printing revenues were up ~30.0% organically. 3D growth in the
September quarter was primarily driven in North America, but the company is beginning to be
positively impacted by great traction in their German facility. In addition to cross selling synergies,
we believe the companys strong growth in 3D Printing is being driven by strong demand for 3D
metal printing services, which we believe is inflecting within the Aerospace and HealthCare
verticals. Approximately 25.0% of Proto Labs 3D Printing revenues are related to metals. While
demand is expected to be softer for industrial production over the next few quarters, we believe
demand for 3D printed parts remain robust and expect 3D Services to see growth across the
companys entire portfolio of technologies.

UPD Developers

During the September quarter, Proto Labs reported Unique Product Developers (UPDs) of 14,271,
which was up 13.8% on a year/year basis. Revenue per UPD decreased 1.3% year/year, but note
this number does not include the revenues or unique product developers from the Alphaform
acquisition. Average revenue per product developer was down compared year/year as a result of
higher 3D printing sales.

Geographic
Breakdown

From a geographic perspective, U.S. sales of $59.6M increased 9.5% on a year/year basis, and
accounted for 76.2% of total sales. Internationally, Europe saw revenues grow 38.2% on a
year/year basis to $15.6M. The Asia region contributed $3.0M and was up 39.9% year/year and
accounted for the remaining 3.8% of sales. Proto Labs finalized the move into their new Japan
facility in Q3, which will offer the company 3x the amount of floor space. Additionally, the company
has started to offer LSR and 3D printing capabilities to their Japanese customers. The exhibit
below highlights the companys geographic breakdown for the last four quarters.
Exhibit 4

Geographic Breakdown

100%

$2.6

$2.5

$2.4

$3.0

$17.3

$15.6

$17.3

$15.6

$53.9

$54.5

$55.3

$59.6

Q4 15

Q1 16

Q2 16

Q3 16

80%

60%

40%

20%

0%

United States

Europe

Asia

Source: Company Reports

Proto Labs, Inc.

Page 4 of 15

COMPANY NOTE
October 27, 2016

Company guidance
& Model Revisions

Despite the upbeat Q3 results, Proto Labs guided Q4 revenues and EPS below consensus
estimates due to ongoing macro uncertainties. Proto Labs guided Q4 revenue to $70.0 75.0M
and EPS of $0.36 0.44, which compares to Streets $79.7M and $0.49 expectations.
Management highlighted that order inflow significantly slowed during the first few weeks of Q4,
and due to the companys limited visibility Management is uncertain if demand trends will improve
throughout the end of the year. Following the companys guidance we have made the following
adjustments to the model. We have lowered our Q4 revenue and EPS estimate by $8.3M and
$0.11, respectively, in order to be more in-line with the update guidance. Due to our belief softer
demand continues for the next couple quarters, we lowered our 2017 revenue and EPS estimate
by $30.4M and $0.04, respectively. Our new revenue assumption of $319.1M implies 7.0%
year/year growth. The exhibit below highlights our revisions through 2017.
Exhibit 5

Model Revisions

Source: Piper Jaffray & Co. Investment Research, Company Reports

5 Year Business
Model Target

Despite the companys cautious near term demand comments, we continue to remain upbeat on
Proto Labs business model, and as economic conditions improve, we are optimistic the company
can see healthier growth rates return. However, we believe the companies LT business model run
rate of 20.0 25.0%+ is becoming more unrealistic over the next couple of years and believe a
mid-teen run rate is more acceptable. Although our newly revised 2017 year/year growth implies
only single digit revenue growth, our growth rates beyond 2017 have remained unchanged.
Assuming Proto Labs can sustain a 14.0 - 15.0% run rate between 2018 and 2020 and see
modest operating leverage in the business model, we believe the company can produce nearly
$2.96 in EPS in 2020. Following the note we have attached our 5 year business model target for
Proto Labs.

Investment
Conclusion

Proto Labs reported outstanding Q3 results with revenues and EPS comfortably exceeding Street
expectations; however, the company acknowledged a tough macro environment is on the horizon
and guided Q4 below consensus estimates. While disappointed in the companys outlook, we
believe a slowdown in spending is primarily related to macro weakness, but do believe the
company has internal issues to resolve with the companys sales force. That said, we continue to
remain upbeat on Proto Labs business model, and as economic conditions improve, we are
optimistic the company can see healthier growth rates return. However, we believe a 20.0
25.0%+ run rate is less likely over the next couple of years and believe a mid-teen run rate is more
acceptable. While we are taking estimates down again, we are reiterating our Neutral rating but
decreasing our price target from $52 to $45. Our $52 target equates to 21x (unchanged) our fullytaxed 2017 operating income assumption plus cash. Our price target has been reduced as a result
of the lower 2017 earnings forecast. The following exhibit highlights our price target calculation.

Proto Labs, Inc.

Page 5 of 15

COMPANY NOTE
October 27, 2016

Exhibit 6

Price Target Calculations

Source: Piper Jaffray & Co. Investment Research

Proto Labs, Inc.

Page 6 of 15

Proto Labs

Troy Jensen, CFA (612-303-6291)

Troy.D.Jensen@pjc.com
Piper Jaffray

Income Statement
(data in millions, except per share)
10/27/2016
Fiscal 2016 by Quarter
Jun
Sep
Q2 16
Q3 16
$75.0
$78.2
32.4
32.9
$42.5
$45.3

Dec
Q4 16E
$72.5
30.8
$41.7

Mar
Q1 17E
$75.0
31.7
$43.3

Fiscal 2017 by Quarter

Jun
Sep
Q2 17E
Q3 17E
$78.7
$81.9
33.1
34.3
$45.6
$47.6

Dec
Q4 17E
$83.5
34.8
$48.7

Mar
Q1 18E
$86.0
35.7
$50.3

Fiscal 2018 by Quarter

Jun
Sep
Q2 18E
Q3 18E
$88.6
$92.1
36.5
37.7
$52.1
$54.4

Fiscal Year Ending

Revenues
Cost of Goods Sold
Gross Profits

Mar
Q1 16
$72.6
32.8
$39.8

Dec
Q4 18E
$96.9
39.3
$57.6

2015
$264.1
109.2
$154.9

2016E
$298.2
128.9
$169.3

2017E
$319.1
134.0
$185.1

2018E
$363.6
149.2
$214.4

Sales and Marketing

Research and Development
General and Administrative
Operating Income

$10.7
5.0
7.0
$17.1

$11.2
5.3
8.2
$17.7

$11.5
5.7
8.5
$19.6

$11.6
5.8
8.5
$15.8

$11.9
5.9
8.7
$16.7

$12.3
6.1
8.9
$18.2

$12.8
6.2
9.1
$19.4

$13.3
6.3
9.3
$19.9

$13.6
6.4
9.5
$20.8

$13.9
6.6
9.7
$21.8

$14.3
6.8
10.0
$23.3

$14.8
7.0
10.4
$25.3

$37.9
17.1
25.0
$75.0

$45.0
21.8
32.3
$70.1

$50.2
24.5
36.1
$74.2

$56.6
26.9
39.8
$91.2

Other Income (Expense)

Pretax Income
Taxes
Net Income

$0.3
17.4
5.6
$11.7

$0.3
18.0
6.0
$12.0

$0.3
19.9
6.3
$13.5

$0.0
15.9
5.2
$10.6

$0.0
16.7
5.5
$11.2

$0.0
18.2
6.0
$12.2

$0.0
19.4
6.4
$13.0

$0.0
19.9
6.6
$13.3

$0.0
20.8
6.9
$13.9

$0.0
21.8
7.2
$14.6

$0.0
23.3
7.7
$15.6

$0.0
25.3
8.3
$16.9

$0.6
75.6
23.6
$52.0

$0.9
71.1
23.2
$47.8

$0.0
74.2
24.5
$49.7

$0.0
91.2
30.1
$61.1

Pro-Forma EPS
Shares Outstanding

$0.44
26.4

$0.45
26.6

$0.51
26.6

$0.40
26.8

$0.41
27.0

$0.45
27.2

$0.48
27.4

$0.48
27.6

$0.50
27.8

$0.52
28.0

$0.55
28.2

$0.60
28.4

$1.97
26.3

$1.80
26.6

$1.82
27.3

$2.17
28.1

Margin Analysis
Gross Margins
Sales and Marketing
Research and Development
General and Administrative
Operating Income
Tax Rate
Net Income

54.8%
14.7%
6.9%
9.7%
23.5%
32.5%
16.1%

56.7%
15.0%
7.1%
11.0%
23.6%
33.5%
16.0%

57.9%
14.8%
7.2%
10.9%
25.0%
31.9%
17.3%

57.5%
16.0%
8.0%
11.7%
21.8%
33.0%
14.7%

57.7%
15.9%
7.9%
11.7%
22.3%
33.0%
14.9%

57.9%
15.6%
7.8%
11.4%
23.2%
33.0%
15.5%

58.1%
15.6%
7.6%
11.2%
23.8%
33.0%
15.9%

58.3%
15.9%
7.5%
11.1%
23.8%
33.0%
15.9%

58.5%
15.8%
7.4%
11.1%
24.2%
33.0%
16.2%

58.8%
15.7%
7.5%
11.0%
24.6%
33.0%
16.5%

59.1%
15.5%
7.4%
10.9%
25.3%
33.0%
17.0%

59.4%
15.3%
7.3%
10.8%
26.1%
33.0%
17.5%

58.7%
14.4%
6.5%
9.5%
28.4%
31.2%
19.7%

56.8%
15.1%
7.3%
10.8%
23.5%
32.7%
16.0%

58.0%
15.7%
7.7%
11.3%
23.3%
33.0%
15.6%

59.0%
15.6%
7.4%
10.9%
25.1%
33.0%
16.8%

Quarter/Quarter % Change
Total Revenues
Operating Income
Net Income

-1.6%
-8.5%
-12.3%

3.3%
3.8%
2.1%

4.3%
10.5%
13.0%

-7.3%
-19.2%
-21.4%

3.5%
5.6%
5.3%

5.0%
9.2%
9.2%

4.0%
6.7%
6.7%

2.0%
2.2%
2.2%

3.0%
4.7%
4.7%

3.0%
4.7%
4.7%

4.0%
7.0%
7.0%

5.2%
8.5%
8.5%

Year/Year % Change
Total Revenues
Operating Income
Net Income

24.0%
-1.8%
-1.2%

17.2%
-7.3%
-8.2%

15.2%
-1.5%
-1.3%

-1.7%
-15.3%
-20.5%

3.3%
-2.2%
-4.6%

5.0%
2.9%
2.0%

4.7%
-0.6%
-3.7%

15.2%
25.7%
25.3%

14.7%
24.7%
24.7%

12.5%
19.6%
19.6%

12.5%
19.9%
19.9%

16.1%
27.3%
27.3%

26.0%
13.9%
14.9%

12.9%
-6.5%
-8.0%

7.0%
5.8%
4.0%

14.0%
22.9%
22.9%

Other Metrics
Net Cash and Equivalents
Cash per Share
Days Sales Outstanding

$157.2
$5.94
45

$164.3
$6.18
41

$175.6
$6.60
43

Proto Labs, Inc.

$145.6
$5.50
44

Page 7 of 15
Current disclosure information for this company can be found at http://www.piperjaffray.com/researchdisclosures.

Proto Labs

Troy Jensen, CFA (612-303-6291)

Troy.D.Jensen@pjc.com
Piper Jaffray

Balance Sheet
($ in millions, except per share)
10/27/2016
ASSETS
Cash and Equivalents
Receivables
Inventory
Prepaid Expenses
Other Current Assets
Total Current Assets

Dec
Q4 10
$6.9
8.4
1.6
1.8
0.2
$18.9

Dec
Q4 11
$8.4
11.5
3.8
3.4
0.9
$28.1

Dec
Q4 12
$61.9
15.8
4.6
7.9
0.0
$90.2

Dec
Q4 13
$79.4
18.3
5.2
6.9
0.0
$109.8

Mar
Q1 14
$78.6
21.9
5.3
4.9
0.0
$110.7

Jun
Q2 14
$48.1
25.2
5.8
7.6
0.0
$86.7

Sep
Q3 14
$58.5
25.5
5.7
8.0
0.0
$97.6

Dec
Q4 14
$74.0
24.2
6.2
3.9
0.0
$108.3

Mar
Q1 15
$81.6
28.4
6.4
4.8
0.0
$121.2

Jun
Q2 15
$87.5
29.5
6.8
2.9
4.4
$131.2

Sep
Q3 15
$92.2
32.9
7.2
6.2
4.0
$142.5

Dec
Q4 15
$80.9
36.1
9.8
0.0
11.3
$138.0

Mar
Q1 16
$89.4
36.2
9.9
0.0
8.6
$144.1

Jun
Q2 16
$96.5
34.5
9.9
0.0
7.5
$148.4

Sep
Q3 16
$107.2
37.3
9.9
0.0
5.4
$159.8

Fixed Assets
Goodwill and Intangible
Long-Term Investments
Total Assets

$19.5
0.0
0.0
$38.4

$34.2
0.0
0.0
$62.3

$45.3
0.0
38.5
$173.9

$56.1
0.0
64.3
$230.2

$64.0
0.0
71.6
$246.2

$87.3
33.6
57.3
$265.0

$88.0
33.2
60.7
$279.4

$91.6
33.2
54.3
$287.5

$94.0
33.0
55.6
$303.9

$100.9
32.8
54.5
$319.4

$108.6
33.0
57.8
$341.9

$125.5
32.8
64.8
$361.0

$130.3
32.6
67.7
$374.8

$138.7
33.2
67.7
$388.0

$142.7
33.1
68.4
$404.0

LIABILITIES
Accounts Payable
Accrued Compensation
Accrued Liabilities
Income Taxes Payable
Current Debt Obligation
Total Current Liabilities

$2.8
1.7
0.3
0.0
3.7
$8.5

$4.4
4.8
0.3
0.0
0.4
$9.9

$4.8
6.0
0.5
0.0
0.3
$11.5

$6.5
6.2
0.8
0.0
0.2
$13.7

$10.4
4.8
1.3
0.1
0.2
$16.8

$11.8
5.8
3.5
0.0
0.2
$21.3

$8.0
8.2
3.8
0.0
0.2
$20.1

$7.9
6.1
2.7
2.0
0.1
$18.8

$8.6
7.9
2.0
4.0
0.1
$22.5

$11.3
8.3
1.8
0.0
0.1
$21.4

$11.6
10.5
2.4
0.0
0.0
$24.5

$13.6
10.0
2.6
0.0
0.0
$26.3

$13.5
8.7
1.6
0.0
0.0
$23.9

$11.4
9.8
2.5
0.0
0.0
$23.7

$10.7
10.3
3.6
0.5
0.0
$25.2

Deferred Tax Liability

Long-Term Debt Obligation
Other
Total Liabilities

$1.3
1.3
0.7
$11.7

$4.3
0.6
0.9
$15.7

$4.6
0.4
0.8
$17.2

$3.7
0.2
1.0
$18.5

$3.8
0.1
1.0
$21.7

$3.7
0.1
0.8
$25.9

$4.1
0.0
0.9
$25.1

$1.8
0.0
1.4
$22.0

$2.2
0.0
1.5
$26.2

$2.4
0.0
1.5
$25.4

$1.5
0.0
1.7
$27.7

$4.2
0.0
2.9
$33.4

$4.3
0.0
2.9
$31.1

$4.6
0.0
2.9
$31.2

$4.2
0.0
3.8
$33.2

EQUITY
Total Shareholders Equity
Total Liab & Shrhldrs Equity

$26.6
$38.4

$46.7
$62.3

$156.7
$173.9

$211.6
$230.2

$224.5
$246.2

$239.1
$265.0

$254.3
$279.4

$265.5
$287.5

$277.6
$303.9

$294.0
$319.4

$314.2
$341.9

$327.6
$361.0

$343.7
$374.8

$356.8
$388.0

$370.8
$404.0

BALANCE SHEET METRICS

Current Ratio
Quick Ratio
Debt to Capital
Debt to Assets
Return on Equity
Days Sales Outstanding
Sales to Current Assets
Sales to Working Capital
Sales to Equity
Sales to Total Assets
Book Value Per Share
Net Cash Per Share

2.2x
1.8x
15.9%
13.1%
45.3%
41
3.4x
6.2x
2.4x
1.7x
$1.40
$0.10

2.8x
2.0x
2.1%
1.6%
40.1%
40
3.5x
5.5x
2.1x
1.6x
$2.34
$0.37

7.8x
6.7x
0.4%
0.4%
16.7%
42
1.4x
1.6x
0.8x
0.7x
$6.18
$3.93

8.0x
7.2x
0.2%
0.2%
17.9%
37
1.5x
1.7x
0.8x
0.7x
$8.10
$5.49

6.6x
6.0x
0.1%
0.1%
17.7%
43
1.6x
1.8x
0.8x
0.7x
$8.60
$5.74

4.1x
3.4x
0.1%
0.1%
17.7%
43
2.1x
2.8x
0.8x
0.7x
$9.14
$4.02

4.9x
4.2x
0.1%
0.1%
17.4%
42
2.0x
2.5x
0.8x
0.7x
$9.71
$4.54

5.8x
5.2x
0.1%
0.1%
17.0%
39
1.9x
2.3x
0.8x
0.7x
$10.15
$4.90

5.4x
4.9x
0.0%
0.0%
16.7%
44
1.8x
2.3x
0.8x
0.7x
$10.59
$5.23

6.1x
5.5x
0.0%
0.0%
16.1%
41
1.8x
2.1x
0.8x
0.7x
$11.19
$5.40

5.8x
5.1x
0.0%
0.0%
15.8%
44
1.7x
2.1x
0.8x
0.7x
$11.91
$5.68

5.3x
4.5x
0.0%
0.0%
15.9%
44
1.9x
2.4x
0.8x
0.7x
$12.38
$5.50

6.0x
5.2x
0.0%
0.0%
15.1%
45
1.9x
2.3x
0.8x
0.7x
$13.00
$5.94

6.3x
5.5x
0.0%
0.0%
14.2%
41
1.9x
2.3x
0.8x
0.7x
$13.43
$6.18

6.3x
5.7x
0.0%
0.0%
13.6%
43
1.9x
2.2x
0.8x
0.7x
$13.94
$6.60

Proto Labs, Inc.

Current disclosure information for this company can be found at http://www.piperjaffray.com/researchdisclosures.

Page 8 of 15

Proto Labs

Troy Jensen, CFA (612-303-6291)

Troy.D.Jensen@pjc.com
Piper Jaffray

Statement of Cash Flows

(data in millions, except per share)
10/27/2016
Dec
Q4 10
(Full Year)
$11.0
3.5
0.3
0.6
0.8

Dec
Q4 11
(Full Year)
$18.0
4.3
1.1
2.2
(0.67)

Dec
Q4 12
(Full Year)
$24.0
6.1
3.0
(0.6)
(6.1)

Dec
Q4 13
(Full Year)
$35.3
7.6
3.5
0.5
(8.3)

($3.0)
(0.5)
(0.8)
(0.1)
1.1
1.2
$14.0

($3.5)
(2.2)
(0.6)
0.0
1.5
3.3
$23.5

($4.4)
(0.8)
(1.9)
4.3
0.3
1.3
$25.3

($2.5)
(0.6)
1.6
8.8
1.7
0.9
$48.4

($5.3)
(0.9)
0.1
9.4
1.4
(0.3)
$57.2

($4.4)
(0.2)
(1.0)
2.7
0.8
2.2
$15.4

($5.2)
(0.7)
(0.5)
(3.7)
3.4
2.2
$27.8

($8.8)
(1.1)
(2.6)
(0.5)
3.7
5.8
$41.3

($11.4)
(2.1)
(2.0)
(2.3)
5.8
5.7
$58.6

$0.0
(0.1)
(1.6)
5.3
(0.1)
(1.9)
$16.9

$1.2
(0.2)
(1.1)
6.0
(1.4)
0.6
$36.6

$56.2

Cash flows from investing activities:

Capital expenditures
Other assets
Net cash used in investing activities

($7.0)
1.0
($6.0)

($19.0)
0.5
($18.5)

($17.4)
(61.9)
($79.2)

($18.8)
(39.7)
($58.5)

($43.5)
(20.0)
($63.5)

($6.2)
0.1
($6.2)

($15.7)
(1.3)
($17.0)

($27.3)
(1.8)
($29.0)

($44.4)
(19.2)
($63.6)

($8.3)
(8.3)
($16.6)

($22.4)
(9.5)
($32.0)

($31.0)
(10.3)
($41.3)

Cash flows from financing activities:

Proceeds (payments) from debt
Proceeds from common stock
ExcessTax benefit from stock compensation
Other
Net cash provided by financing activities

($4.3)
0.0
0.0
0.1
($4.2)

($4.0)
0.0
0.7
0.5
($2.8)

($0.4)
71.5
6.2
5.4
$82.8

($0.3)
0.0
9.9
6.5
$16.1

($1.1)
4.8
4.5
(1.2)
$7.0

($0.0)
0.9
0.5
(1.0)
$0.3

($0.1)
2.2
1.0
(1.0)
$2.1

($0.1)
5.2
5.2
(1.4)
$8.9

($0.2)
6.3
5.5
(1.4)
$10.2

$0.0
1.6
1.3
(0.4)
$2.5

$0.0
3.7
1.9
(0.4)
$5.2

$0.0
4.2
2.0
(0.4)
$5.7

Exchange rate effects on cash and equivalents

Net increase in cash and equivalents
Cash and equivalents, beginning of period
Cash and equivalents, end of period

($0.3)
3.4
2.7
$6.1

($0.2)
2.0
6.1
$8.1

($0.2)
28.6
8.1
$36.8

$0.2
6.3
36.8
$43.0

($0.5)
0.3
43.0
$43.3

($0.4)
9.2
43.3
$52.6

$0.0
13.0
43.3
$56.3

($0.3)
20.8
43.3
$64.1

($0.9)
4.3
43.3
$47.7

$0.1
3.0
47.7
$50.6

($0.2)
9.7
47.7
$57.3

($0.1)
20.6
47.7
$68.2

Cash flows from operating activities:

Net income
Depreciation
Stock option compensation expense
Changes in deferred taxes
Other
Changes in assets and liabilities:
Accounts receivable
Inventory
Prepaid expenses and other assets
Income taxes payable
Accounts payable
Accrued liabilities and others
Net cash provided by operating activities

Proto Labs, Inc.

Dec
Mar
Jun
Sep
Q4 14
Q1 15
Q2 15
Q3 15
(Full Year) (3 Months) (6 Months) (9 Months)
$41.6
$10.5
$22.1
$34.5
11.1
3.4
6.9
10.4
4.8
1.3
2.9
4.5
(1.9)
0.3
0.6
(0.3)
(3.0)
(0.2)
(0.4)
(4.3)

Dec
Mar
Jun
Sep
Q4 15
Q1 16
Q2 16
Q3 16
(Full Year) (3 Months) (6 Months) (9 Months)
$46.5
$10.7
$21.4
$33.3
14.1
3.8
8.1
12.8
6.1
1.7
3.5
5.3
2.8
0.1
0.4
0.5
(4.6)
(1.0)
(2.0)
(2.0)

Current disclosure information for this company can be found at http://www.piperjaffray.com/researchdisclosures.

$6.3

Page 9 of 15

Proto Labs

Troy Jensen, CFA (612-303-6291)

Troy.D.Jensen@pjc.com
Piper Jaffray

Additional Information
(data in millions)
10/27/2016
Dec
Q4 13
$30.7
13.3
0.0
$44.0

Mar
Q1 14
$32.7
13.4
0.0
$46.1

Jun
Q2 14
$36.3
14.5
2.1
$52.9

Sep
Q3 14
$35.7
15.5
3.4
$54.6

Dec
Q4 14
$35.7
16.5
3.9
$56.1

Mar
Q1 15
$37.6
16.4
4.5
$58.5

Jun
Q2 15
$39.9
18.6
5.5
$64.0

Sep
Q3 15
$42.0
19.8
6.0
$67.8

Dec
Q4 15
$43.9
19.6
10.3
$73.8

Mar
Q1 16
$43.2
18.9
10.5
$72.6

Jun
Q2 16
$44.8
19.9
10.3
$75.0

Sep
Q3 16
$46.4
21.8
9.9
$78.2

FY
2013
$115.1
48.0
0.0
$163.1

FY
2014
$140.3
59.9
9.4
$209.6

FY
2015
$163.4
74.4
26.4
$265.3

69.8%
30.2%
0.0%
100.0%

71.0%
29.0%
0.0%
100.0%

68.6%
27.4%
4.0%
100.0%

65.3%
28.5%
6.2%
100.0%

63.6%
29.4%
6.9%
100.0%

64.3%
28.0%
7.8%
100.0%

62.4%
29.1%
8.5%
100.0%

61.9%
29.2%
8.9%
100.0%

59.5%
26.5%
14.0%
100.0%

59.5%
26.0%
14.5%
100.0%

59.7%
26.5%
13.8%
100.0%

59.4%
27.9%
12.7%
100.0%

70.5%
29.5%
0.0%
100.0%

66.9%
28.6%
4.5%
100.0%

61.6%
28.0%
9.9%
99.5%

Revenue Mix (Y/Y)

Injection Molding
CNC Machining
3D Printing
Total

29.8%
33.9%
NE
31.0%

21.6%
28.2%
NE
23.5%

29.8%
22.4%
NE
33.0%

20.7%
24.7%
NE
29.9%

16.1%
24.0%
NE
27.3%

15.1%
22.3%
NE
27.0%

10.1%
28.4%
155.6%
21.0%

17.7%
27.6%
79.2%
24.3%

22.9%
18.6%
165.6%
31.6%

14.8%
15.3%
131.4%
24.0%

12.1%
6.8%
89.7%
17.2%

10.7%
9.8%
64.7%
15.2%

27.3%
34.9%
NE
29.5%

21.9%
24.7%
NE
28.5%

16.5%
24.1%
NE
26.6%

Revenue Mix (Q/Q)

Injection Molding
CNC Machining
3D Printing
Total

4.1%
6.7%
NE
4.8%

6.4%
0.5%
NE
4.6%

10.9%
8.2%
NE
14.7%

-1.7%
7.4%
58.0%
3.2%

0.1%
6.2%
15.3%
2.7%

5.4%
-0.8%
17.1%
4.4%

6.2%
13.5%
19.9%
9.3%

5.1%
6.7%
10.7%
6.1%

4.5%
-1.3%
70.8%
8.7%

-1.6%
-3.6%
2.0%
-1.6%

3.7%
5.2%
-1.7%
3.3%

3.8%
9.7%
-3.8%
4.3%

Y/Y Organic Growth

31.0%

23.5%

27.6%

21.9%

18.5%

17.2%

15.3%

24.3%

22.5%

16.0%

9.7%

9.4%

Revenue Mix ($)

Injection Molding
CNC Machining
3D Printing
Total
Revenue Mix (%)
Injection Molding
CNC Machining
3D Printing
Total

Proto Labs, Inc.

Current disclosure information for this company can be found at http://www.piperjaffray.com/researchdisclosures.

Page 10 of 15

Proto Labs

Troy Jensen, CFA (612-303-6291)

Troy.D.Jensen@pjc.com
Piper Jaffray

Additional Information
(data in millions)
10/27/2016
Revenue Mix ($)
New Customers
Existing Customers
Total

Dec
Q4 13
$7.9
36.1
$44.0

Mar
Q1 14
$3.2
42.9
$46.1

Jun
Q2 14
$6.0
46.9
$52.9

Sep
Q3 14
$6.9
47.7
$54.6

Dec
Q4 14
$9.5
46.5
$56.1

Revenue Mix (%)

New Customers
Existing Customers
Total

17.9%
82.1%
100.0%

6.9%
93.1%
100.0%

11.3%
88.7%
100.0%

12.6%
87.4%
100.0%

Revenue Mix (Y/Y)

New Customers
Existing Customers
Total

10.2%
36.7%
31.0%

3.8%
25.2%
23.5%

22.5%
34.5%
33.0%

Revenue Mix (Q/Q)

New Customers
Existing Customers
Total

18.1%
2.3%
4.8%

-59.5%
18.6%
4.6%

Existing Customers (YTD)

Incremental additions
Y/Y Growth
Q/Q Growth

5,734
419
20.4%
7.9%

New Customers (YTD)

Y/Y Growth
Q/Q Growth
Unique Product Developers
Y/Y Growth
Q/Q Growth

Proto Labs, Inc.

Mar
Q1 15

Jun
Q2 15

Sep
Q3 15

Dec
Q4 15

Mar
Q1 16

Jun
Q2 16

Sep
Q3 16

FY
2012
$20.8
105.2
$126.0

FY
2013
$22.5
140.6
$163.1

FY
2014
$25.6
184.0
$209.6

$58.5

$64.0

$67.8

$73.8

$72.6

$75.0

$78.2

17.0%
83.0%
100.0%

16.5%
83.5%
100.0%

13.8%
86.2%
100.0%

12.2%
87.8%
100.0%

3.0%
35.0%
29.9%

20.8%
28.7%
27.3%

12.6%
30.7%
27.3%

8.5%
33.6%
29.5%

13.6%
30.9%
28.5%

86.9%
9.4%
14.7%

15.3%
1.7%
3.2%

38.6%
-2.4%
2.7%

4,325
-1,409
22.6%
-24.6%

5,366
1,041
15.5%
24.1%

6,154
788
15.8%
14.7%

6,719
565
17.2%
9.2%

4,763
1,333
38.9%

5,734
971
20.4%

6,719
985
17.2%

3,027
1.2%
33.9%

559
-21.3%
-81.5%

1,659
15.6%
196.8%

2,564
13.4%
54.6%

3,425
13.1%
33.6%

2,991
15.1%

3,027
1.2%

3,425
13.1%

7,290
20.6%
-0.2%

7,669
18.2%
5.2%

8,222
19.4%
7.2%

8,680
18.8%
5.6%

8,773
20.3%
1.1%

21,552

27,235
26.4%

11,009
43.6%
25.5%

11,822
43.8%
7.4%

12,541
44.5%
6.1%

12,414
41.5%
-1.0%

13,249
20.3%
6.7%

13,519
14.4%
2.0%

14,271
13.8%
5.6%

Page 11 of 15

Proto Labs

Troy Jensen, CFA (612-303-6291)

Troy.D.Jensen@pjc.com
Piper Jaffray

Additional Information
(data in millions)
10/27/2016
Dec
Q4 13
$32.8
9.7
1.6
$44.0

Mar
Q1 14
$35.0
9.2
1.9
$46.1

Jun
Q2 14
$42.4
9.0
1.4
$52.9

Sep
Q3 14
$43.4
9.3
1.9
$54.6

Dec
Q4 14
$44.3
10.0
1.8
$56.1

Mar
Q1 15
$47.4
8.8
2.3
$58.5

Jun
Q2 15
$52.3
10.1
1.6
$64.0

Sep
Q3 15
$54.4
11.3
2.1
$67.8

Dec
Q4 15
$53.9
17.3
2.6
$73.8

Mar
Q1 16
$54.5
15.6
2.5
$72.6

Jun
Q2 16
$55.3
17.3
2.4
$75.0

Sep
Q3 16
$59.6
15.6
3.0
$78.2

FY
2013
$125.7
31.5
5.9
$163.1

FY
2014
$165.1
37.5
7.0
$209.6

FY
2015
$208.0
47.4
8.7
$264.1

74.4%
21.9%
3.6%
100.0%

75.9%
20.0%
4.1%
100.0%

80.3%
17.0%
2.7%
100.0%

79.5%
17.1%
3.4%
100.0%

79.1%
17.8%
3.1%
100.0%

81.0%
15.0%
4.0%
100.0%

81.7%
15.8%
2.5%
100.0%

80.2%
16.7%
3.1%
100.0%

73.1%
23.4%
3.5%
100.0%

75.1%
21.5%
3.4%
100.0%

73.8%
23.0%
3.1%
100.0%

76.2%
20.0%
3.8%
100.0%

77.1%
19.3%
3.6%
100.0%

78.8%
17.9%
3.3%
100.0%

78.8%
18.0%
3.3%
100.0%

Geographic Mix (Y/Y)

United States
Europe
Asia
Total

26.1%
55.4%
14.9%
31.0%

18.6%
42.4%
39.7%
23.5%

34.3%
31.4%
9.9%
33.0%

36.1%
9.1%
18.3%
29.9%

35.2%
3.3%
10.1%
27.3%

35.6%
-4.6%
23.4%
27.0%

23.2%
12.2%
11.7%
21.0%

25.5%
21.0%
13.8%
24.3%

21.6%
73.3%
45.9%
31.6%

14.8%
78.0%
6.1%
24.0%

5.8%
71.3%
46.1%
17.2%

9.5%
38.2%
39.9%
15.2%

27.4%
40.0%
21.7%
29.5%

31.3%
19.0%
19.1%
28.5%

26.0%
26.5%
24.1%
26.0%

Geographic Mix (Q/Q)

United States
Europe
Asia
Total

2.9%
12.8%
1.0%
4.8%

6.7%
-4.6%
17.5%
4.6%

21.3%
-2.4%
-23.2%
14.7%

2.2%
3.9%
29.8%
3.2%

2.2%
6.8%
-6.0%
2.7%

7.0%
-11.9%
31.7%
4.4%

10.2%
14.8%
-30.5%
9.3%

4.1%
12.0%
32.2%
6.1%

-0.9%
52.9%
20.6%
8.7%

1.0%
-9.5%
-4.2%
-1.6%

1.6%
10.5%
-4.4%
3.3%

7.7%
-9.6%
26.6%
4.3%

Geographic Mix ($)

United States
Europe
Asia
Total
Geographic Mix (%)
United States
Europe
Asia
Total

Proto Labs, Inc.

Current disclosure information for this company can be found at http://www.piperjaffray.com/researchdisclosures.

Page 12 of 15

Proto Labs

Troy Jensen, CFA (612-303-6291)

Troy.D.Jensen@pjc.com
Piper Jaffray

5-Year Forecast
(data in millions, except per share)
10/27/2016
Fiscal Year Ending
2015
$264.1
109.2
$154.9

2016E
$298.2
128.9
$169.3

2017E
$319.1
134.0
$185.1

2018E
$363.6
149.2
$214.4

2019E
$418.2
169.5
$248.7

2020E
$480.9
192.5
$288.4

Sales and Marketing

Research and Development
General and Administrative
Operating Income

$37.9
17.1
25.0
$75.0

$45.0
21.8
32.3
$70.1

$50.2
24.5
36.1
$74.2

$56.6
26.9
39.8
$91.2

$64.3
30.0
44.9
$109.5

$72.9
33.6
50.6
$131.2

Other Income (Expense)

Pretax Income
Taxes
Net Income

$0.6
75.6
23.6
$52.0

$0.9
71.1
23.2
$47.8

$0.0
74.2
24.5
$49.7

$0.0
91.2
30.1
$61.1

$0.0
109.5
36.1
$73.4

$0.0
131.2
43.3
$87.9

Pro-Forma EPS
Shares Outstanding

$1.97
26.3

$1.80
26.6

$1.82
27.3

$2.17
28.1

$2.54
28.9

$2.96
29.7

Margin Analysis
Gross Margin
Sales and Marketing
Research and Development
General and Administrative
Operating Margin
Tax Rate
Net Income

58.7%
14.4%
6.5%
9.5%
28.4%
31.2%
19.7%

56.8%
15.1%
7.3%
10.8%
23.5%
32.7%
16.0%

58.0%
15.7%
7.7%
11.3%
23.3%
33.0%
15.6%

59.0%
15.6%
7.4%
10.9%
25.1%
33.0%
16.8%

59.5%
15.4%
7.2%
10.7%
26.2%
33.0%
17.5%

60.0%
15.2%
7.0%
10.5%
27.3%
33.0%
18.3%

Year/Year % Change
Revenue
Operating Income
Net Income

26.0%
13.9%
14.9%

12.9%
-6.5%
-8.0%

7.0%
5.8%
4.0%

14.0%
22.9%
22.9%

15.0%
20.0%
20.0%

15.0%
19.8%
19.8%

Revenues
Cost of Goods Sold
Gross Profits

Proto Labs, Inc.

Page 13 of 15

C O M PA N Y N O T E
October 27, 2016

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 and the 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 only represent the
first Note written during the past three years.
Legend:
I: Initiating Coverage
R: Resuming Coverage
T: Transferring Coverage
D: Discontinuing Coverage
S: Suspending Coverage
OW: Overweight
N: Neutral
UW: Underweight
NA: Not Available
UR: Under Review
Distribution of Ratings/IB Services
Piper Jaffray
IB Serv./Past 12 Mos.
Rating

Count

Percent

Count

Percent

BUY [OW]

427

56.86

97

22.72

HOLD [N]

288

38.35

22

7.64

36

4.79

2.78

SELL [UW]

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

Analyst Certification Troy D. Jensen, CFA, Sr Research Analyst

The views expressed in this report accurately reflect my personal views about the subject company and the subject security. In addition, no part of my
compensation was, is, or will be directly or indirectly related to the specific recommendations or views contained in this report.
Piper Jaffray research analysts receive compensation that is based, in part, on overall firm revenues, which include investment banking revenues.
Time of dissemination: 27 October 2016 14:31EDT.

Proto Labs, Inc.

Page 14 of 15

C O M PA N Y N O T E
October 27, 2016

Research Disclosures
Piper 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 sell Proto
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 past 12
months.
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Copyright 2016 Piper Jaffray. All rights reserved.

Proto Labs, Inc.

Page 15 of 15