Proto Labs (PRLB) 8-K/A Financial Statements and Exhibits

Exhibit 99.3

UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION

On November 30, 2017, Proto Labs, Inc. (the “Company”) acquired Rapid Manufacturing Group, LLC (“RAPID”) for $121.8 million consisting of $110.5 million in cash and $11.3 million in the Company’s stock.

The following unaudited pro forma condensed combined financial statements are based on the Company's historical consolidated financial statements and RAPID’s historical consolidated financial statements as adjusted to give effect to the Company’s acquisition of RAPID and the related financing transactions. The unaudited pro forma condensed combined statements of operations for the nine months ended September 30, 2017 and the twelve months ended December 31, 2016 give effect to these transactions as if they had occurred on January 1, 2016. The unaudited pro forma condensed combined balance sheet as of September 30, 2017 gives effect to these transactions as if they had occurred on September 30, 2017.

The assumptions and estimates underlying the unaudited adjustments to the pro forma condensed combined financial statements are described in the accompanying notes, which should be read together with the pro forma condensed combined financial statements.

The unaudited pro forma condensed combined financial statements should be read together with the Company’s historical financial statements, which are included in the Company’s latest annual report on Form 10-K and quarterly report on Form 10-Q, and RAPID’s historical information included herein.

Proto Labs, Inc.

Pro Forma Condensed Combined Balance Sheet

As of September 30, 2017

(In thousands)

(Unaudited)

	Proto Labs, Inc.		Rapid Manufacturing Group, LLC		Pro Forma Adjustments			Notes	Pro Forma Combined
Assets
Current assets
Cash and cash equivalents	$	119,283	$	4,189	$	(117,163	)	(k)	$	6,309
Short-term marketable securities		53,201		-		-				53,201
Accounts receivable, net		46,276		5,339		-				51,615
Inventory		9,789		553		-				10,342
Prepaid expenses and other current assets		6,280		513		658		(d)		7,451
Total current assets		234,829		10,594		(116,505	)			128,918
Property and equipment, net		153,512		4,498		4,699		(e)		162,709
Goodwill		28,916		-		100,836		(g)		129,752
Other intangible assets, net		2,261		-		7,230		(f)		9,491
Long-term marketable securities		55,351		-		-				55,351
Other long-term assets		2,701		103		-				2,804
Total assets	$	477,570	$	15,195	$	(3,740	)		$	489,025
Liabilities and shareholders' equity
Current liabilities
Accounts payable	$	13,130	$	804		-			$	13,934
Accrued compensation		11,366		843		-				12,209
Accrued liabilities and other		7,463		83		-				7,546
Income taxes payable		3,804		145		(1,495	)	(l)		2,454
Current portion of long-term debt obligations		-		1,549		(1,549	)	(a)		-
Total current liabilities		35,763		3,424		(3,044	)			36,143
Long-term deferred tax liabilities		7,721		85		1,529		(l)		9,335
Long-term debt obligations		-		3,629		(3,629	)	(a)		-
Other long-term liabilities		4,247		-		-				4,247
Total liabilities		47,731		7,138		(5,144	)			49,725
Total shareholders' equity		429,839		8,057		1,404		(h)		439,300
Total liabilities and shareholders' equity	$	477,570	$	15,195	$	(3,740	)		$	489,025

The accompanying notes are an integral part of these unaudited pro forma condensed combined financial statements.

Proto Labs, Inc.

Pro Forma Condensed Combined Statements of Operations

Nine Months Ended September 30, 2017

(In thousands, except share and per share amounts)

(Unaudited)

	Proto Labs, Inc.		Rapid Manufacturing Group, LLC			Pro Forma Adjustments			Notes	Pro Forma Combined
Statements of Operations:
Revenue	$	250,312	$	34,247			-			$	284,559
Cost of revenue		109,358		16,463			(343	)	(e)		125,478
Gross profit		140,954		17,784			343				159,081
Operating expenses
Marketing and sales		41,463		3,779			-				45,242
Research and development		17,784		1,236			-				19,020
General and administrative		28,256		8,367			980		(b) (c) (e) (f)		37,603
Total operating expenses		87,503		13,382			980				101,865
Income from operations		53,451		4,402			(637	)			57,216
Other income (expense), net		1,779		(131	)		-				1,648
Income before income taxes		55,230		4,271			(637	)			58,864
Provision for income taxes		17,724		111			1,056		(j)		18,891
Net income	$	37,506	$	4,160		$	(1,693	)		$	39,973
Net income per share:
Basic	$	1.41								$	1.50
Diluted	$	1.40								$	1.49
Shares used to compute net income per share:
Basic		26,600,174					118,140		(i)		26,718,314
Diluted		26,716,553					118,140		(i)		26,834,693

The accompanying notes are an integral part of these unaudited pro forma condensed combined financial statements.

Proto Labs, Inc.

Pro Forma Condensed Combined Statements of Operations

Year Ended December 31, 2016

(In thousands, except share and per share amounts)

(Unaudited)

	Proto Labs, Inc.		Rapid Manufacturing Group, LLC			Pro Forma Adjustments			Notes	Pro Forma Combined
Statements of Operations:
Revenue	$	298,055	$	38,579						$	336,634
Cost of revenue		131,118		19,289			(387	)	(e)		150,020
Gross profit		166,937		19,290			387				186,614
Operating expenses
Marketing and sales		46,131		3,574							49,705
Research and development		22,388		1,755							24,143
General and administrative		36,651		11,095			1,768		(c) (e) (f)		49,514
Total operating expenses		105,170		16,424			1,768				123,362
Income from operations		61,767		2,866			(1,381	)			63,252
Other income (expense), net		2,454		(241	)		-				2,213
Income before income taxes		64,221		2,625			(1,381	)			65,465
Provision for income taxes		21,514		95			320		(j)		21,929
Net income	$	42,707	$	2,530		$	(1,701	)		$	43,536
Net income per share:
Basic	$	1.62								$	1.64
Diluted	$	1.61								$	1.63
Shares used to compute net income per share:
Basic		26,365,173					118,140		(i)		26,483,313
Diluted		26,564,639					118,140		(i)		26,682,779

The accompanying notes are an integral part of these unaudited pro forma condensed combined financial statements.

Note 1 – Basis of Presentation

The historical consolidated financial statements have been adjusted in the pro forma condensed combined financial statements to give effect to pro forma events that are (1) directly attributable to the business combination, (2) factually supportable and (3) with respect to the pro forma condensed combined statements of operations, expected to have a continuing impact on the combined results following the business combination.

The business combination was accounted for under the acquisition method of accounting in accordance with ASC Topic 805, Business Combinations. As the acquirer for accounting purposes, the Company has estimated the fair value of RAPID’s assets acquired and liabilities assumed and conformed the accounting policies of RAPID to its own accounting policies.

The pro forma combined financial statements do not necessarily reflect what the combined company’s financial condition or results of operations would have been had the acquisition occurred on the dates indicated. They also may not be useful in predicting the future financial condition and results of operations of the combined company. The actual financial position and results of operations may differ significantly from the pro forma amounts reflected herein due to a variety of factors.

The combined pro forma financial information does not reflect the realization of any expected cost savings or other synergies from the acquisition of RAPID as a result of restructuring activities and other planned cost savings initiatives following the completion of the business combination.

Note 2 – Financing Transactions

The Company acquired RAPID for approximately $110.5 million in cash (net of cash acquired) and $11.3 million in the Company’s stock. The equity portion of the purchase price was calculated using the Company’s share price of $95.95 as of November 29, 2017.

Note 3 – Preliminary Purchase Price Allocation

The Company has performed a preliminary valuation analysis of the fair market value of RAPID’s assets and liabilities. The following table summarizes the allocation of the preliminary purchase price as of the acquisition date (in thousands):

Assets acquired:
Current assets	$	6,720
Goodwill		100,836
Other intangible assets		7,230
Other long-term assets		9,235
Total assets acquired		124,021
Liabilities assumed:
Current liabilities		2,067
Other long-term liabilities		85
Total liabilities assumed		2,152
Net assets acquired	$	121,869
Cash paid	$	115,288
Cash acquired		(4,755	)
Net cash consideration		110,533
Equity portion of purchase price		11,336
Total purchase consideration	$	121,869

This preliminary purchase price allocation has been used to prepare pro forma adjustments in the pro forma balance sheet and income statement. The final purchase price allocation will be determined when the Company has completed the detailed valuations and necessary calculations. The final allocation could differ materially from the preliminary allocation used in the pro forma adjustments. The final allocation may include (1) changes in fair values of property, plant and equipment, (2) changes in allocations to intangible assets such as trade names, customer relationships and non-competition agreements as well as goodwill and (3) other changes to assets and liabilities.

Note 4 – Pro Forma Adjustments

The pro forma adjustments are based on our preliminary estimates and assumptions that are subject to change. The following adjustments have been reflected in the unaudited pro forma condensed combined financial information:

(a) Represents the effects of extinguishing RAPID’s outstanding debt upon completion of the acquisition.

(b) Represents the elimination of nonrecurring transaction costs incurred during the nine-month period ended September 30, 2017 of $0.3 million that are directly related to the acquisition of RAPID.

(c) Represents the effects of new stock options and restricted stock units granted to eight key employees in connection with the business combination, resulting in a $0.3 million increase in the annual compensation for these executives. Accordingly, adjustments of $0.2 million for the nine months ended September 30, 2017 and $0.3 million for the year ended December 31, 2016 are reflected in the pro forma statements of operations.

(d) Represents the working capital adjustments reflected in the purchase price as of the acquisition date.

(e) Represents the adjustment of $4.7 million to increase the basis in the acquired property, plant and equipment to estimated fair value of $9.2 million. The estimated useful lives range from 3 to 39 years. The fair value and useful life calculations are preliminary and subject to change after the Company finalizes its review of the specific types, nature, age, condition, and location of RAPID’s property, plant and equipment. The following table summarizes the changes in the estimated depreciation expense (in thousands):

	Nine Months Ended			Year Ended
	September 30, 2017			December 31, 2016
Estimated depreciation expense	$	1,135		$	1,513
Historical depreciation expense		1,539			1,968
Pro forma adjustments to depreciation expense	$	(404	)	$	(455	)

(f) Represents the adjustment of historical intangible assets acquired by the Company to their estimated fair values. As part of the preliminary valuation analysis, the Company identified intangible assets, including trade names, customer relationships and non-competition agreements. The fair value of identifiable intangible assets is determined primarily using the “income approach,” which requires a forecast of all of the expected future cash flows. The following table summarizes the estimated fair values of RAPID’s identifiable intangible assets and their estimated useful lives (in thousands):

					Nine Months Ended		Year Ended
	Estimated Fair		Estimated Useful		September 30, 2017		December 31, 2016
	Value		Life in Years		Amortization Expense		Amortization Expense
Trade names	$	1,040		2.0	$	390	$	520
Customer Relationships		6,120		6.0		765		1,020
Non-competition agreements		70		5.0		11		14
	$	7,230			$	1,166	$	1,554
Historical amortization expense						2		18
Pro forma adjustment to amortization expense					$	1,164	$	1,536

(g) Represents the adjustment to record goodwill associated with the acquisition of $100.8 million as shown in Note 3.

(h) Represents the elimination of the historical equity of RAPID and the issuance of common shares to finance the acquisition, as follows (in thousands):

Net equity proceeds from the issuance of 118,140 common shares	$	11,336
Less: historical RAPID shareholders' equity as of September 30, 2017		8,057
Less: transaction costs paid in connection with the acquisition		1,875
Pro forma adjustment to shareholders' equity	$	1,404

(i) Represents the increase in the weighted average shares in connection with the issuance of 118,140 Company common shares in the acquisition.

(j) Represents the adjusted income tax effect on RAPID's income before taxes, as RAPID had only a state tax provision as a limited liability corporation entity, and the net impact of the pro forma adjustments noted above. Effective tax rates of 32.1 and 33.4 percent were used for the nine months ended September 30, 2017 and year ended December 31, 2016, respectively.

(k) Represents cash paid in the amount of $115.3 million in connection with the RAPID acquisition and cash paid in the amount of $1.9 million for transaction costs.

(l) Represents the adjustment to deferred tax liabilities resulting from the RAPID acquisition.  The estimated increase in deferred tax liabilities was calculated using an effective tax rate of 32.1 percent.  This estimate of deferred income tax balances is preliminary and subject to change based on management's final determination of the fair value of assets acquired and liabilities assumed.