John Baliotti 646-840-3218jbaliotti@janney.comKristen Owen, CFA 215-665-6213kowen@janney.com

Manufacturing Technology &Distribution

September 26, 2014

Equity ResearchIndustry Report

Is There a Limit to Imagination?The Landscape of Additive Manufacturing

INVESTMENT CONCLUSION:The adoption of additive manufacturing processes and techniques should continue at a geometric rather than linear rate,since both advances in technology and user expertise will push each other at a compound rate. There has never been onepiece of equipment that has created a wholesale replacement of existing tools and capacity, and we do not expect that willhappen with the adoption of additive technologies. We view these technologies along with software and reverse engineeringtools as complements to produce parts in new ways, and to create parts that were never before physically or economicallyfeasible.

KEY POINTS:

• We expect rapid prototyping to sustain high core growth rates, given the value recognized of the dramatic speed tomarket opportunity. We anticipate this growth will come from service bureaus and manufacturing OEMs incorporatingadditive manufacturing to accelerate product development for their customers, in almost every market vertical fromaerospace to medical to consumer goods.

• Collectively we see this trend benefiting the six companies we currently follow: ARCW, DDD, MTLS, PRLB, SSYS,XONE, which run the spectrum from in-house use and rapid prototyping services to additive systems and materials forservice bureaus and OEMs to produce prototype and production parts at an accelerated pace.

• Despite the rapid adoption rates of additive manufacturing, we do not forecast subtractive processes being replaceden masse. What should be expected, is additive technologies will increasingly be placed alongside current traditionalmanufacturing equipment to complement them, not replace them, since features such as aerospace quality threads ortight dimensional tolerances cannot be achieved through the additive process alone.

• We expect additive systems will continue to gain greater acceptance as more experience is gained by designers andmanufacturers and the technologies advance. This break from traditional design/manufacturing practices will take timeto infiltrate production lines, but the benefits are undeniable and that will foster innovation and adoption.

• We also anticipate greater mergers and acquisitions as well as joint ventures within the additive manufacturing spacedriven by the greater adoption of additive manufacturing technologies that we anticipate. OEMs will need to offercustomers a full suite of products to produce polymer and metal parts as well as design tools (CAD, Scanners) to designand reverse engineer parts. In the short-term, we see the market as large enough for more focused companies to thrive,but longer-term we expect to see more combinations of technologies and services under fewer roofs.

• Overall, based on our forecasts, we estimate that by 2019, the total addressable market for additive manufacturingequipment, services and related products could surpass $23 bil globally, and that by 2024 the market could expand tojust under $38 bil with nearly a third of that coming from industrial applications (See Figure 25).

• Industrial applications and services, such as those provided by service bureaus represent a substantial portion of themarket opportunity and this is consistent with the recent M&A trends in the industry. End markets served within thissegment include Automotive, Aerospace, Consumer Goods and general Machine Shop services.

Research Analyst Certifications and Important Disclosuresare on pages 50 - 51 of this report

INVESTMENT THESIS..................................................................................................................................................... 3

INDUSTRY BACKGROUND ............................................................................................................................................. 4

WHAT IS ADDITIVE MANUFACTURING? ..................................................................................................................... 4

ADDITIVE VS. SUBTRACTIVE MANUFACTURING......................................................................................................... 5

CASE STUDIES ............................................................................................................................................................. 11

SUMMARY OF OTHER CASE STUDIES ....................................................................................................................... 13

COMMON ADDITIVE MANUFACTURING PROCESSES ................................................................................................. 15

MATERIALS ................................................................................................................................................................. 18

PLASTICS/POLYMERS ............................................................................................................................................... 18

DIGITAL MATERIALS ............................................................................................................................................... 19

METALS ................................................................................................................................................................... 19

OTHER COMMONLY USED MATERIALS .................................................................................................................... 20

SYSTEMS MANUFACTURERS (OEMS) ........................................................................................................................ 22

RELATED SOFTWARE .................................................................................................................................................. 24

REVERSE ENGINEERING TOOLS & 3D SCANNING .................................................................................................... 27

ROLE OF SERVICE BUREAUS ...................................................................................................................................... 28

ADOPTION CYCLE ....................................................................................................................................................... 31

END USERS .................................................................................................................................................................. 33

HEALTHCARE ........................................................................................................................................................... 33

AEROSPACE ............................................................................................................................................................. 35

AUTOMOTIVE ........................................................................................................................................................... 35

CONSUMERS ............................................................................................................................................................. 35

ADDRESSABLE MARKETS ........................................................................................................................................... 36

INNOVATION ................................................................................................................................................................ 38

HIGH SPEED SINTERING (HSS) ................................................................................................................................ 38

GRAPHENE ............................................................................................................................................................... 38

AEROSWIFT PROJECT ............................................................................................................................................... 38

HYBRID MACHINES .................................................................................................................................................. 39

COVERAGE .................................................................................................................................................................. 40

3D SYSTEM .............................................................................................................................................................. 45

MATERIALISE ........................................................................................................................................................... 46

PROTO LABS ............................................................................................................................................................ 47

STRATASYS .............................................................................................................................................................. 48

EXONE ..................................................................................................................................................................... 49

- 2 -

INVESTMENT THESIS

The adoption of additive manufacturing processes and techniques should continue at a geometric rather than linear

rate since both advances in technology (systems and materials) and user expertise will push each other at a

compound rate. We view these technologies as complementary to traditional manufacturing processes including

CNC machining, castings, injection molding, etc. A walk through most manufacturing cells reveals a multitude of

equipment and systems working in tandem. There has never been one piece of equipment that has created a

wholesale replacement of existing tools and capacity and we do not expect that will happen even with continued

adoption of additive technologies. We view these technologies as complements and as tools to create parts in new

ways, and also to create parts that were never physically or economically feasible before. This will also lead to fewer

parts in some cases, which can be a cost savings in itself, since one complex part could replace several simpler

designs especially with regard to castings, thus eliminating assembly and inspection time as well as inventory.

We continue to expect rapid prototyping to sustain high core growth rates, given the value recognized in the greater

speed to market opportunity. We anticipate this growth will come from service bureaus and manufacturing OEMs

incorporating additive manufacturing to accelerate product development for their customers, in almost every market

vertical including aerospace, consumer goods, general industrial, medical and transportation. Collectively we see

this trend benefiting the six companies we currently follow: ARCW, DDD, MTLS, PRLB, SSYS, XONE, which run

the spectrum from in-house use and rapid prototyping services to additive systems and materials for service bureaus

and OEMs to produce prototype and production parts at an accelerated pace.

Figure 1

$(125)

$350

$825

$1,300

$1,775

$2,250

$2,725

$3,200

$-

$20

$40

$60

$80

$100

$120

$140

Coverage Performance Revlative to S&P 500, Russell 2000

ARCW DDD MTLS PRLB

SSYS XONE ^RUT ^SPX

Source: CapIQ

ou

Price LTM Month Range Performance Relative to DJIA Relative to S&P 500 Index Industry Comps

Ticker Current

Fair

Value

Est. Upside High Low YTD 2013 High Low YTD 2013 High Low YTD 2013 High Low

Additive Manufacturers

ARC Group Worldwide, Inc. ARCW $18.10 $26 43% $25.00 $2.47 82.0% 311.6% -27.6% 633.4% 78.6% 285.1% -26.8% 617.4% 74.4% 282.0% -26.5% 613.3%

3D Systems Corporation DDD $49.26 $84 71% $97.28 $43.35 -47.0% 161.3% -49.4% 13.6% -50.4% 134.8% -48.5% -2.3% -54.6% 131.7% -48.3% -6.5%

Materialise NV MTLS $11.66 $14 19% $15.15 $9.85 n/a n/a -23.0% 18.4% n/a n/a -22.2% 2.4% n/a n/a -21.9% -1.8%

Proto Labs, Inc. PRLB $72.92 $92 27% $94.23 $58.06 2.4% 80.6% -22.6% 25.6% -0.9% 54.1% -21.8% 9.6% -5.2% 51.0% -21.5% 5.4%

Stratasys Ltd. SSYS $122.81 $142 15% $138.10 $85.30 -8.8% 68.1% -11.1% 44.0% -12.2% 41.6% -10.2% 28.0% -16.5% 38.5% -10.0% 23.8%

The ExOne Company XONE $24.92 $50 102% $70.25 $24.34 -58.8% 101.1% -64.5% 2.4% -62.2% 82.4% -63.7% -13.6% -66.4% 79.2% -63.4% -17.8%

Additive Manufacturer Average -6.0% 144.5% -33.0% 122.9% -9.4% 119.6% -32.2% 106.9% -13.7% 116.5% -31.9% 102.7%

Source: CapIQ, JMS estimates As Of: 9/25/2014

- 3 -

INDUSTRY BACKGROUND

Like all publically traded companies, appropriate valuation will be debated. What should not be questioned is an

unprecedented path manufacturing technology has forged that will continue to advance and steadily change the way

products are designed and manufactured. While current technologies for additive manufacturing (AM) may seem

new, the roots date back over 30 years to the original stereolithography technology created by Chuck Hull, CTO and

co-founder of 3D Systems, that is still being used in a much more advanced form. FDM technology dates back 25

years, and is the cornerstone of SSYS’s systems and many consumer platforms. FDM was invented by Scott and

Lisa Crump, co-founders of Stratasys.

According to the Wohlers Report 2014, over the past 26 years the additive manufacturing industry has grown at a

CAGR of over 27%, yet remains at less than a 10% penetration rate. Roughly 60% of all accumulated installed units

are professional systems, while the remaining 40% are personal systems. In 2013 the market size for all products

and services was $3.07 billion on a worldwide basis, reflecting a 5-year CAGR of 26%. Assuming full market

penetration implies an addressable market of over $35 billion. McKinsey Global Institute research suggests that AM

could have an economic impact of $230-$550 billion per year by 20251.

According to IBIS World, products represent about 74% and maintenance and services about 25% of the total OEM

market. Material sales represented about 40% of the OEM market (accounted for in product sales). These numbers

do not include revenue generated through the production of parts by service bureaus. 3D printing and rapid

prototyping service in the U.S. is estimated to be a nearly $500 million market alone with a trailing five year average

annual growth rate of 8.3%2. Growth in services has been outpacing products since 2005, according to data

compiled in Wohlers Report 2013, but except for the recession of 2009, both segments have shown strong double

digit growth rates. In 2012 (latest data available) final part production accounted for 28.3% of the then total $2.2

billion market.

The most commonly known additive manufacturing technology is 3D printing, because of the multitude of articles

written and the interaction consumers can have with this technology (Cube, MakerBot, etc.). In general, 3D printing

describes a process where parts are created by either dispensing material in successive thin layers from a print head

or solidifying thin layers of lose material (solid or liquid) using light, lasers or a binding agent.

WHAT IS ADDITIVE MANUFACTURING?

PROFESSIONAL PRODUCTION SYSTEMS

When discussing our investment thesis surrounding the positively disruptive nature of additive manufacturing, we

focus on the capabilities and technologies involving professional and production systems. Since DDD founder

Chuck Hull invented SLS over 30 years ago, AM machines have matured from rapid prototyping using a single

(often plastic) material to advanced systems capable of multi-materials including metals, for end use parts that often

match or exceed the quality of a part manufactured using traditional methods. Analogous to their two-dimensional

counterparts, professional production systems are similar to a centralized copy machine in that they are capable of

high quality, increased functionality, and greater quantity than the personal home printer and come with a higher

price point.

The distinguishing characteristics between a consumer grade machine and professional grade differ among the

various OEMs and there are shades of grey among the technologies and capabilities. Below (Figure 2), we have

summarized the characteristics provided by Stratasys as noted in its white paper: 3D Printers vs. 3D Production

Systems: 10 Distinguishing Factors to Help You Select a System.

1 McKinsey Global Institute, Disruptive technologies: Advances that will transform life, business and the global economy, May 201 2 IBIS World estimates - 4 -

Despite rapid adoption of

additive manufacturing,

it will complement not

replace subtractive

processes

Figure 2

CONSUMER GRADE (PERSONAL) 3D PRINTERS

It is important to point out that the term Consumer is a misnomer in this space, since we know of engineering

departments that have a number of these units for prototyping as well as for tooling for manufacturing. The

Consumer market is not defined by the end user, but rather, by price point that reflects system capabilities. In

general Consumer grade printers describe systems in the sub-$5,000 price range. Users range from home use to

engineers at Lockheed and NASA and dental labs. Hobbyists are obviously included in this segment, but do not

necessarily represent the greatest proportion of Consumer end users.

Consumer grade (Personal) 3D printers have created a lot of excitement and stock price

volatility. While we do not envision a 3D printer in every home just yet, it is critical to the

professional adoption of additive manufacturing that more current and future manufacturing

and design engineers become exposed to AM technology and this category is ideally suited to

provide it.

In many circumstances, what can be produced using additive techniques is only limited by a product/manufacturing

engineer’s imagination. Engineers need to learn to think differently, which takes exposure and experience. All

grades of 3D printing and the multitude of other additive manufacturing technologies will provide that. Please refer

to our CONSUMERS discussion for an in-depth discussion of the Consumer segment.

ADDITIVE VS. SUBTRACTIVE MANUFACTURING

Additive manufacturing encompasses more than 3D printing, which we cover later. The basic premise is that a part

is built up through fusing successive layers of material rather than machining away unwanted material until the

finished part is complete. The later is known as a subtractive manufacturing and is considered more traditional

manufacturing. Most manufacturing that investors have been exposed to, especially commodity high volume

production parts, are made from a subtractive process.

Subtractive manufacturing processes (milling, drilling, cutting, grinding, etc.) result in a high percentage of the

original part being turned to scrap. Castings, forgings, raw feed stock of various materials are machined to a net final

form. From that stage they can be welded, assembled with other parts and fastened as part of larger assemblies such

as engines, transportation equipment and machines.

3D Printers vs. Professional Systems

Characteristic 3D Printers Professional

Price: $10-000-$50,0000 $50,000+

Capacity/Build Envelope: < 10"x10"x10" > 1'x1'x1'

Materials Available: 1-2 8+

Speed: Depends (N/A) Depends (N/A)

Ease of Use: Occasional User Trained Operator

User Options: Minimal Substantial

Accuracy: Acceptable to Good Good to Excellent

Facilities: Office-like Environment Lab or Shop Environment

Centralized Operations: Distributed (per machine) Centralized

Overhead: Minimal Moderate to High

Source: Stratasys White Paper: 3D Printers vs. 3D Production Systems

- 5 -

Figure 3

There are benefits to both subtractive and additive manufacturing, but the biggest benefits of the subtractive process-

speed, repeatable accuracy, and cost- we believe will narrow over time as additive technologies continue advancing.

Despite the rapid adoption rates of additive manufacturing, we do not forecast subtractive processes being replaced

en masse. What should be expected is that additive technologies will increasingly be placed alongside current

traditional manufacturing equipment to complement them, not replace them, since features such as aerospace quality

threads or tight dimensional tolerances +/- 0.001” or less cannot be achieved through the additive process alone.

CONFORMAL COOLING CHANNELS

Another area that should be exploited is the advancement in

mold design that additive manufacturing affords. When liquid

materials such as polymers and metals are poured into pattern

molds, water or other coolants are passed through cooling

channels as the mold sits, in order to control the rate the part is

brought down to ambient temperature. Mold designers can

now incorporate conforming cooling channels in their pattern

designs. The channels are called conformal since they can be

designed to mirror (conform) the exact shape of a part along

the entire surface (See Figure 4).

Due to traditional manufacturing constraints, cooling channels

are typically created by intersecting straight drilled holes and using plugs to control the flow of coolant. However,

this is a very limited and relatively crude process, since many parts have varying geometry, such as curved surfaces,

and even with many holes drilled, optimal cooling is not achievable. Conformal cooling channels can be created

during the mold design. Through software optimizing tools, ideal cooling channels can provide precise cooling rates

across an entire part. This not only speeds cycle time and lowers cost, but can create material properties not

previously achievable. Conforming cooling can be used for both the injection molding industry for the tooling to

reduce cycle time as well as the castings industry.

Additive Subtractive

Figure 4

- 6 -

Patternless molds could

be the most revolutionary

step take in the 5,000

year history of castings

CASTING

While generating little fan fare or headlines, one of the greatest sources of opportunity for AM, in our view, is to

support the $120+ billion global castings market. The current basic casting process begins with part drawings, either

physical drawings or CAD (Computer Aided Design) in 2D or 3D. Physical patterns representing the desired part

are made, typically out of wood, and placed in a mold or core box (cores necessary if internal geometry is involved).

Casting sand mixed with a binder is packed around the patterns to form the mold package. The halves of the mold

(cope and drag) are separated and the pattern is removed. The mold is then reassembled with the core (if applicable)

ready to accept the poured metal. Once cooled, the casting is removed from the mold to complete the process.

A more advanced method is to print the mold and core (if necessary) with a 3D sand

printer, which eliminates the need for physical patterns, since the pattern is a digital 3D

CAD file. Patternless cores and molds for castings could be the most revolutionary step

taken in the over 5,000-year history of the oldest form of manufacturing known.

Competitive pressure, margin pressure and speed to market can all be addressed by

delivering faster, more complicated parts at a lower cost, simultaneously around the world. We believe this not only

reduces casting variability by foundry, but improves pricing to the customer.

Foundries that incorporate this technology can turn around more complex castings faster and cheaper since they will

reduce their own cycle time, but also improve quality. It is estimated that the pattern-making step alone accounts for

about 70% of the total production time for a casting. Foundries can pass some of the savings to customers to drive

price advantage while also improving margins. In our view, the early adopters will have significant advantage over

followers. We believe this technology can revitalize foundry demand for those who adopt, and drive those who

ignore it out of business. This could also help smaller foundries improve competitiveness as throughput can be

increased within the same foundry footprint. Aside from printing the cores and molds using AM, the remaining

processes of a foundry are relatively unchanged.

While about 80-90% of castings worldwide are cast using furan/silica sand to create the mold, there is a trend to use

other inorganic combinations to reduce volatile organic compounds (VOCs) during the pour and to handle other

metal alloys. When molten metal comes in contact with the traditional organic mold compound, it releases VOCs.

ExOne is working on a number of alternatives to furan/silica sand for customers wanting alternatives that are more

environmentally compatible. However, because of the difference in physical properties, the alternative mold

compounds need to be hand packed instead of automated with machines and in some cases the curing process is

achieved through an industrial microwave oven.

This makes a 3D printed mold even more economical, since the molds can still be printed with alternate materials.

Most recently, ExOne has added phenolic and sodium silicate to its binder portfolio. The sodium silicate binder

offers a more environmentally friendly process, reducing fumes and gases during the pour. The phenolic binder

combined with ceramic sand allows for higher strength molds and cores to withstand higher heat alloys. This blend

also reduces expansion of the molds and cores thereby improving the quality of the casting.

It is estimated that with traditional casting methods it can take 18-20 weeks to create a finished mold for a new part,

versus about 5 days using additive manufacturing systems. Manufacturers can also print several molds

simultaneously in one print job depending on the size of the mold and printer used, which is not currently possible

with the traditional pattern to mold process. In one example, which we detail below in Figure 5, ExOne was able to

produce a large complex casting with cores in just 36 hours versus what would take 3-5 months traditionally.

- 7 -

This is one example of why

traditional manufacturing

equipment will remain in

demand

Figure 5

DIMENSIONAL TOLERANCING

While additive manufacturing technologies continue to improve and have become more refined, dimensional

accuracy and repeatability in part production still need to improve. For some applications, tight tolerances (ie: +/-

0.001”) may not be necessary, but many features of aerospace parts are held to those exacting standards and in some

cases tighter. Tolerance defines how much the nominal feature dimension can vary so that fit and function are not

affected beyond design considerations. For example, if a shaft is to mate with a bearing race there needs to be

tolerances assigned to the outside diameter of the shaft and inside diameter of the race, so in the total population of

parts produced, both parts mate to design specifications. Without proper tolerancing you run the risk of improper fit

of mating surfaces such as the bearing inside diameter being smaller than the outside surface of the shaft.

In its infancy, additive manufacturing was used primarily for prototypes, where tight

dimensional accuracy is less critical. As the technologies have advanced and become more

widely adopted, additive manufacturing is being used increasingly for functional production

parts as well as prototypes.

For those parts requiring fine feature details, some additive technologies are better than others. For example,

Stratasys conducted a study of three random parts from separate, previously conducted fused deposition modeling

(FDM) repeatability studies to determine the stability, accuracy and repeatability of FDM. The parts from the

previous studies had been “haphazardly” stored for over a year when Stratasys reevaluated them. The results

revealed that the parts were virtually unchanged with no warping and dimensions that fell within the tolerances of

the original studies, concluding that FDM meets to accuracy, repeatability and stability demands of traditional

manufacturing3. With the range of additive technologies available currently, often there is a tradeoff between speed

and accuracy, a challenge that, given our conversations with management and customers, is at the forefront for

systems manufacturers’ R&D efforts.

For plastic or metal parts requiring tight dimensional tolerances, it is still best to use subtractive methods such as

with a CNC machine to achieve consistent, precise results. For example, aerospace quality threads for a bolt or hole,

or even general industrial applications requiring dimensional accuracy for strength are best achieved on a CNC or

other milling machine rather than attempted to be produced during the additive process. This is one example of why

3 Stratasys White Paper: The Accuracy Myth, Bonnie Meyer

Create Drawing by Hand or CAD Send Pattern Out for Creation Receive Pattern; Create MoldPour Metal into Mold to Produce

Part

Traditional Casting Process: ~18 Weeks

Use 3D CAD to Design Mold Print Mold

Process with an ExOne Printer (Patternless): 5 Days

Pour Metal into Mold to Produce Part

- 8 -

Often, the reduction in

production time by having

the tooling resulted in cost

savings equal or exceeding

the initial machine cost

Source: The Plastic Works

Jig Check Fixture Drill Tool

Printed Tooling, Fixtures and Jigs

traditional manufacturing equipment will continue to be in demand and work in concert with newer manufacturing

methods like AM. It will be years, if ever, before an AM system can produce features like an aerospace quality

thread with repeatable tight tolerances, especially for critical applications, in our view.

TOOLING, FIXTURES AND JIGS

Although a seemingly small part of the manufacturing process, one of

the g reatest opportunities identified for additive manufacturing is the

production of tooling such as fixtures and jigs. Similar to the way an

egg carton holds an egg in place, these are the component pieces that

hold a part, or guide machining. Jigs and fixtures provide the same

benefit. We have seen this application in the medical industry, where

AM technologies are used to print custom surgical guides which

provide surgeons with a higher degree of precision at a fraction of the

cost it would take to produce the guide using traditional methods, if

even possible.

The less obvious benefit, however, has been realized by many companies on the manufacturing floor after they

purchase the machine for other uses. In our discussions with several service bureaus, we have uncovered a number

of examples where the company bought an AM machine to enhance their rapid prototyping capabilities, but then

found ways to benefit from the technologies within their own production operations. Most often this has been by

producing jigs and fixtures used throughout the manufacturing process in an effort to improve quality and decrease

cycle time.

The common theme we have heard from service bureaus using AM to print their own jigs and

fixtures has been that before they owned the machine, the cost-benefit tradeoff for producing

the tooling was not favorable in many cases; it took too much time to make the tool and often

it was just easier to continue to operate without. Once the machine was purchased however,

the tradeoff became much more favorable as the time to create the tool declined dramatically

and the benefits were realized almost immediately.

Additionally, companies have found opportunities to benefit from AM in workplace organization. One service

bureau with over 150 injection molding machines required two tools every time they changed over each machine; a

nozzle and a knock out rod. These tools were typically laid loosely in the workspace and on average, took workers

17 minutes to locate. Using their newly acquired FDM machine, the company printed custom nozzle holders and

knock out rod holders for each injection molding machine so that the tools they needed would be in exactly the same

place for each machine every time they were needed. This saved the company 17 minutes per changeover for each

of the 150 machines and resulted in cost savings estimated at $21,150 per year on these two parts alone.

Figure 6

- 9 -

We expect AM will

continue to gain greater

acceptance as more

experience is gained by

manufacturers

Designs can be optimized

for strength and weight

and take on completely

organic shapes

PART REDUCTION

Due to the increased difficulty in controlling consistent material properties of larger, more

complex parts, larger assemblies of smaller castings are used to construct final products, either by

welding or fastening them together. This not only increases the weight of the final product, but

also the cost to produce it, since additional manufacturing and assembly time as well as

inspections are required. By combining patternless molds with conformal cooling channels,

material properties can be controlled over larger more complex castings, eliminating the need for

welds or fasteners.

More complex parts can also be created through direct printing of the part whether plastic, polymer, or metal. Either

process will simplify the Bill of Materials, reducing part numbers, inventory, the volume of spares, and associated

inspection costs for the assemblies or welds. All of these benefits are magnified when including the complexities of

global logistics.

DIRECT PART PRODUCTION

Additive manufacturing not only reduces manufacturing scrap by introducing only slightly

more material than is ultimately needed, but it can offer significant weight savings with greater

strength. Through advances in 3D CAD (Computer Aided Design) coupled with advanced

FEA (Finite Element Analysis – See our RELATED SOFTWARE section), designs can be

optimized for strength and weight and take on completely organic shapes.

Additive manufacturing also provides the ability to build in interior support structures, to increase strength with a

minimal weight penalty, which is virtually impossible, if not prohibitively expensive, using traditional methods. Ask

yourself why the interior support structure of a leaf isn’t solid or uniform or why when you drive over a bridge the

structure isn’t one block of material? Just these few examples illustrate that additive manufacturing offers options to

make parts differently, and make parts that are impossible to create any other way.

Figure 7

Create Drawing by Hand or CAD Machine Away Metal to Produce Part Post Process Part – 5.78 lbs.

Traditional Part Production on CNC Machine (Subtractive)

Use 3D CAD to Design Mold Print Part

Process with Printer

Post Process Part - 4.57 lbs

- 10 -

Additive technologies are

only going to get more

sophisticated at higher

speeds and lower costs

For now, the primary

limitation is creativity,

which always evolves

COMPLEX GEOMETRIES

Just taking forms created by nature, including skeletal structures and trees, illustrates the efficient combination of

weight vs. strength. Tree limbs are thinner at their tips than where they connect to the trunk through natural strength

to weight optimization. Human and animal limbs are similarly thicker and stronger at their connecting joint than at

the end of the limb. Both are examples where nature accounted for the change in strength required due to the change

in loading from end to end. Under the surface of a leaf is a complex lattice structure that is formed to give the leaf

the proper strength and flexibility with optimized weight required.

Applying these principles through traditional manufacturing is impossible in some cases, and

otherwise prohibitively expensive. A phrase that is often used to describe the advantages of

additive manufacturing is “complexity is free”. Meaning, additive technologies are not

constrained by increasing part complexity and the cost is the same (all else being equal).

Additive processes are virtually agnostic to part/shape complexity and can create varying geometry (tree

limbs/leaves/skeletal structures) across a whole part at the same cost/speed/consistency as a uniformed geometry

(straight bar of steel). The systems do not know that what they are making is any more complex than a simple solid

cube. As a result, we expect additive systems will continue to gain greater acceptance as more experience is gained

by designers and manufacturers and the technologies advance.

This break from traditional design/manufacturing practices will take time to infiltrate production lines, but the

benefits are undeniable and that will foster innovation and adoption. Not only can geometry vary across a section,

but material properties can as well. It will take time for enough experience to be gained in order to apply this

attribute, but it offers very exciting opportunities and illustrates that, for now, the primary limitation is creativity,

which always evolves.

One thing is clear about additive technologies: They are not going away and they are only going to get more

sophisticated at higher speeds and lower costs. Along with further advancements in materials, we expect all current

headwinds to broader and deeper adoption are surmountable. When thinking about additive manufacturing, it is

worth thinking back to the early experiences with personal and business computers. What

seemed cutting edge 25 years ago for a desktop computer costing over $10,000 is now on

someone’s wrist for less than $100. There is now more computing and communications

power in a single device that fits in palm of your hand than existed less than 10 years ago

with multiple devices.

CASE STUDIES

While over longer periods of time aspects of AM will replace traditional manufacturing, in the more medium term

we would look to see further penetration of technology alongside traditional manufacturing. There are a variety of

reasons for this, including speed, accuracy, repeatability, cost, and materials. Long-term we still expect traditional

manufacturing to work alongside additive technologies, but we expect all of those headwinds to abate and

penetration of additive technology to accelerate. A simple walk through a manufacturing plant will illustrate the

multitude of technologies that work in concert and complement one another. There is no one machine or one

technology that can manufacture a complete assembly of parts and we believe that will continue to be the case.

Currently, the greatest acceptance for production parts through additive manufacturing are in the medical, dental,

aerospace, and defense end-markets. These are not only relatively high priced markets for products, but ones from

which most product technology advancements are developed. Production levels are relatively low, quality control is

extremely high, weight, reliability, safety, and durability are all highly valued, so customers generally pay more for

products in these end-markets, which provides incubating markets for additive manufacturing to grow.

- 11 -

Both factors are positive

for AM OEMs for their

equipment and materials

Ford’s use for operable

prototype engines will

force competition to

reduce design cycles and

leverage AM technologies

GENERAL ELECTRIC

A strong affirmation of the long-term prospects for additive manufacturing is General Electric’s (GE- NR) purchase

of Morris Technologies in November 2012. GE sees tremendous prospects for its aerospace unit to significantly

reduce the weight of its engines through additive manufacturing. While currently a theoretical number, according to

the August 2012 edition of Additive Manufacturing, GE engineers estimate that it is possible to reduce the weight of

a 6,000 pound engine by 1,000 pounds (roughly 17%).

One of the issues GE faced was, given its production demands, the additive capacity it

estimated needing would require most of the direct metal laser sintering (DMLS) capacity in

North America, hence the acquisition of Morris Technologies, a leading additive

manufacturing service bureau in Cincinnati, OH. Another reason for the acquisition was for

both vertical (aerospace) and equipment (EOS) expertise. Inexperienced operators will not

achieve the same benefits as users versed in both the end-market applications and how the machine performs and

operates under certain parameters. In the case of aerospace, medical, and defense end-markets, facilities require

certification, which Morris also brought to GE in one efficient transaction.

Based on discussions we have had with various industry participants and announcements since its acquisition of

Morris of further investments by GE, it is clear the company plans to leverage AM across as many of its industrial

end-markets as possible. GE announced this July that it is investing $50 million for 10 additional AM systems at its

current 300,000 square foot Auburn, AL facility to mass produce its LEAP fuel nozzles. These investments put

pressure on its competition to level the playing field as well as for suppliers to include AM capabilities if they are to

continue to support GE’s manufacturing efforts. Both factors are positive for AM OEMs for their equipment and

materials.

FORD MOTOR COMPANY

In a recent article in Additive Manufacturing magazine, Ford Motor Company (F - not rated) discussed its

expanding use of rapid prototyping technologies. (See our Rapid Prototyping Will Remain A Secular Growth Driver

note) Ford is casting operable prototype engine parts in days versus months with no tooling. The first 100 EcoBoost

engines were prototyped using patternless sand mold printing (XONE) and were lab tested for

up to 1,000 hours simulating 100,000 road miles, so the term prototyping has a broad

definition. Ford credited the flexibility of this technology to allow a variety of designs to be

tested, producing better vehicles than through traditional prototyping methods. Similar to

GE’s adoption of AM, Ford’s incorporation of AM for operable prototype engines will force

its competition to similarly reduce their design cycle and leverage AM technologies, which is

positive for AM OEMs.

SPX CORPORATION

We have also seen the impact on traditional manufacturers within our own coverage (Traditional Manufacturer

Leverages Additive Manufacturing). Recently, the February 2014 edition of Additive Manufacturing featured SPX

Corp (SPW – BUY), who contracted a foundry to create a new pattern for a 500 lbs. pump impeller used in one of

its pumps. The original casting relied on a traditional wood pattern. In order to improve the design with shorter lead

time, the company created a 3D CAD model of the part. From the CAD file, a new pattern was printed using

Stereolithography (SLA). The result was an accurate pattern that required significantly less machining and finishing

at equal cost and in half the time as it would have taken traditional manufacturing techniques. In addition, the pattern

could now be store digitally, reducing the cost of storing, maintaining and retrieving the wood pattern (See example

in Figure 8).

- 12 -

Figure 8

SUMMARY OF OTHER CASE STUDIES

Case 1: Customer Need: Graduate students at the University of Pittsburgh needed to produce a casting

mold used for a tissue engineering application that incorporates complex conformal cooling

channels for a reasonable cost.

Solution: Using an ExOne metal printer, the customer met the design criteria by printing the

molds in 6 workdays for $105. The alternative would require both milling the molds and drilling

the cooling channels (not conformal) which would take 5-10 workdays and cost $300.

Case 2: Customer Need: Invisible Hand, LLC (ToughWare Prosthetics) needed to produce complex

prosthetic hand components using alternatives to investment castings and finish machining at a

cost effective price.

Solution: Using an ExOne metal printer, the customer was able to produce finished parts, using a

stainless steel/bronze matrix in 2-3 weeks at a cost of $25-$150 each. The alternative method

required both investment casting and finish machining that takes 2-8 weeks at a cost of $250-

$1,000 each.

Case 3: Customer Need: Boeing was looking at ways to reduce cycle times, build tools more quickly and

in some cases, eliminate the need for tooling and other post-processing steps altogether. The

process would be used for parts on prototype aircrafts and vehicles, as well as limited-production

parts.

Solution: Boeing invested in a 3D Systems SLS machine for its flexibility, material variety,

potential use in research and increasing potential with metal materials, using the machine to build

more than 400 parts in the span of five months. The cost savings associated with eliminating man-

Source: The ExOne Company

- 13 -

hours, tooling costs, unnecessary rework and post-processing resulted in the machine paying for

itself in less than a year.

Case 4: Customer Need: A motorcycle accident left a patient with severe facial injuries resulting in a

sunken left cheek and eye socket, and impaired vision in his left eye.

Solution: Surgeons and researchers at CARTIS (Centre for Applied Reconstructive Technologies

in Surgery) used surgical guides and bespoke implants printed from Renishaw and LayerWise.

CARTIS streamlined the entire process by using 3D Systems Geomagic Freeform 3D design and

sculpting software. The new process not only improved the outcome of the surgery but it also

made it more comfortable for the patient.

Case 5: Customer Need: Jaguar Land Rover wanted to make a functioning prototype using flexible and

rigid materials.

Solution: The product development team invested in an Objet Conex500 PolyJet printer capable

of producing rigid and flexible materials with different mechanical and physical properties; the

new process helped reduce the development cycle. What started as printing a complete fascia air

vent, became over 2,500 printed parts using the resin-based rapid prototyping technology.

Case 6: Customer Need: Physicians at Cincinnati Children's Hospital had been working with a teenage

patient who was born with a heart tumor, frequently causing an irregular heartbeat. Throughout his

childhood, he underwent a number of procedures to regulate his heartbeat, including four open

heart surgeries and implanting a pacemaker.

Solution: Collaborating with The Heart Institute and Materialise’s HeartPrint service, the

physicians used the patient’s CT data to create an accurate physical model of patient’s heart,

which allowed them the ability to assess the surgical options, simulate the procedure pre-

operatively and determine that invasive surgery was unnecessary.

Case 7: Customer Need: Surgeons needed planning and guide design services for treatment of poorly-

healed double radius fracture, which left the patient unable to rotate his forearm.

Solution: Using Materialise’s surgical planning services and guide design, physicians were able to

print a custom guide to properly position the bone for full arm functionality. Using the pre-

planning services and surgical guide decreased the surgery time from 3 hours to just 45 minutes.

Case 8: Customer Need: Mechanical engineers at BlueRobotics had ambitions of exploring the ocean

using an autonomous solar “boat”, but were in need of an affordable underwater thruster that could

withstand the corrosion from the seawater, and last longer than the standard 50 hours of operation

for a traditional unit.

Solution: BlueRobotics designed and stress-tested its prototype, which had been made using

stereolithography–built parts. The engineers then turned to Proto Labs for CNC machining of

components and low-volume production tooling, then finally injection molding of end use

components

Case 9: Customer Need: Guitar and amplifier manufacturer, Fender had been outsourcing their new

product development rapid prototyping needs to a service bureau for years, but found that while

- 14 -

rapid prototyping was significantly faster than traditional prototyping, outsourcing often meant it

took 2-3 weeks to receive a part, slowing down projects

Solution: Soliciting the advice of their service bureau, Fender chose to bring their prototyping

needs in-house by purchasing their own dedicated Stratasys Objet Eden350V polyjet printer which

allowed them to accelerate their time to market for new products and product enhancements

Case 10: Customer Need: A baby was born with a rare, life-threatening disorder that threatened his ability

to breathe, even with the help of a ventilator.

Solution: Physicians at the University of Michigan printed a biodegradable splint that was

implanted into each of the baby’s two bronchi, with the hope that natural tissue will form around

the mold such that over time, as the splint dissolves, the child will have a fully functioning airway.

These are just some of the many examples we have found of established manufacturers recognizing the benefits of

AM coupled with traditional manufacturing capabilities. If viewed from a high elevation, the aggregate picture

illustrates the positively disruptive yet complementary nature of these technologies, particularly within the large-

scale manufacturing space.

COMMON ADDITIVE MANUFACTURING PROCESSES

FUSED DEPOSITION MODELING (FDM)

FDM is a build process that is similar to a hot glue gun. The print head deposits heated thermoplastic material layer

by layer according to the 3D CAD design. The output typically has visible layer lines and as a result, this process

lends itself to concept modeling, pre-prototyping, prototyping, fixtures and end-use parts. This is the method of

additive manufacturing with which most consumers are familiar.

Figure 9: FDM Process

STEREOLITHOGRAPHY (SLA)

The SLA build process is similar to that of DMLS (below) except that instead of a laser being applied to sinter

together metal powder particles, a laser is used to solidify liquid resin layer by layer into a final component. The UV

laser is focused on a platform immersed in a tank filled with liquid resin. The resin is sensitive to UV light, so when

the laser traces the cross section of the design on the platform, the resin hardens. Once the build is complete, the part

is cleared of any excess resin and cured in a UV oven to harden. Once cured, support structures required in the build

process are removed. This form of additive manufacturing produces a superior degree of accuracy, surface finish

and precision and is often used to create casting patterns for injection moldings or to produce functional prototype

parts early in the design process.

Source: http://www.3dmaterialtechnologies.com/3d-printing.html

- 15 -

Figure 10: SLA Process

SLA was invented by 3D Systems founder Chuck Hull in 1986. Unlike SLS (below), SLA does require support

structures in the build process for certain features.

SELECTIVE LASER SINTERING (SLS)

SLS is similar in nature to SLA and DMLS (below) in which a laser is used to fuse powdered material into the

desired shape. Materials used in SLS typically include plastics, polymers, ceramics, and glass. As each layer of

powdered material is solidified, the print bed is lowered, allowing for the continued buildup of the part. Because the

product is built within the powder bed, the SLS build process does not require support structures that are often

needed in other AM processes, such as FDM. This also serves to minimize waste, since the uncured power can be

blended with new material and reused. This process is typically used in place of traditional injection molding for

prototypes and small-run production parts.

DIRECT METAL LASER SINTERING (DMLS)

Direct Metal Laser Sintering is a metal fabrication process that is similar to selective laser sintering (SLS) in that

data from a 3D CAD (computer-aided design) model is “sliced” into thin layers and built up one layer at a time by

directly applying a focused laser to a thin layer of metal powder, distributed on the print bed by a roller or scraper,

melting the material and fusing it together in the shape of the part. The advantage is a fully functional component

capable of features that are not manufacturable using traditional machining techniques, such as internal features and

complex geometries. For complex parts, this process can takes significantly less time than traditional machining

techniques with nominal material waste. Also, depending on the part geometry and system used, support structures

can be avoided with this process and the loose surrounding metal powder can be reused for subsequent part

production.

Figure 11 : DMLS Process

Source: http://www.3dmaterialtechnologies.com/3d-printing.html

Source: http://www.3dmaterialtechnologies.com/3d-printing.html

- 16 -

BINDER JET

Binder jetting is a process in which a liquid (binder) is deposited from a print head onto a bed of powdered material

(plastic, sand or metal). The binder works as an adhesive, joining together the particles of powder layer by layer

similar to SLS or DMLS. As we previously described, binder jetting can be used with a variety of materials, but we

view the metal and sand powder binder jetting as being the most disruptive to traditional manufacturing techniques.

MULTIJET PRINTING (MJP)

MJP is a rapid prototyping process similar to FDM in that the print head deposits material one layer at a time. The

difference, however, is that rather than using heat to soften the material, MJP uses piezo print head technology,

which uses piezo crystals and small electrical charges to release tiny droplets of material, almost like spray paint.

This results in an end product that has high resolution and rivals the precision of SLA components. This technology

is useful for photocurable plastic resins or casting wax materials, making its uses in consumer, medical, dental,

jewelry and aerospace applications endless.

LASER CLADDING

Laser cladding involves the fusing together of dissimilar metal materials. Similar to DMLS, the build process

involves powdered metals being fused together by a direct energy source, typically in the form of a laser. This

process is typically used in place of traditional welding methods such as TIG (tungsten inert gas) for repairs because

of the localized heat input which reduces the potential for distortion. Laser cladding is extremely useful when

working with materials that are difficult to weld, such as high temperature nickel-based alloys and carbon steels.

Due to the small “melt pool”, the process enables complex geometries, restorative buildups and a part that is

produced near-net shape. This process is commonly used for repairs, as well as applying corrosion-resistent

protective coatings4. For an exmple of laser cladding, see our HYBRID MACHINES section.

SHEET LAMINATION

Sheet lamination is a process in which sheets of materials are bonded together to form an object. The sheets can be

coated with an adhesive, which would result in a plywood-like finished part, or may be thin sheets of metal or foil

that melt together to form metal parts.

HYBRID TECHNOLOGIES

A new and compelling advancement in manufacturing is the recent introduction of hybrid machines. This basically

describes any combination of additive and subtractive processes in one cell. Some machines use laser cladding

(other additive technologies will be introduced) in various additive stages with subtractive machining to produce

surfaces, internal or complex features, and dimensional precision not achievable by either additive or subtractive

alone. This would be most useful when additive steps are required in between needed machining, since swapping the

part from an additive to subtractive machine for this would be grossly inefficient. We discuss this technology further

in our HYBRID MACHINES section.

4 http://www.sulzer.com/en/Products-and-Services/Coating-Equipment/Laser-Cladding

- 17 -

MATERIALS

As we discussed above, each additive manufacturing technology is conducive to specific materials. With the

continued development of manufacturing processes, machine manufacturers and users are rapidly developing new

materials to meet the wide range of applications for additive manufacturing.

Figure 12

In order to appreciate the range and capabilities of the variety of materials available within additive manufacturing,

we believe that it is most helpful to consider some examples.

PLASTICS/POLYMERS

PLASTIC (ABS)

When NASA contracted Lockheed Martin’s Advanced Technology Center (ATC) to build the James Webb Space

Telescope, ATC enlisted the help of their MakerBot Replicator 2 printer. Using the Replicator 2, which builds using

thermoplastic ABS or PLA filament, engineers printed fully-functional plastic prototypes that could be used for part

development and testing while the metal parts were being cryogenically tested for their ultimate launch into space.

The applications for plastics in 3D printing are virtually limitless and the permutations of plastics, polymers and

composites are endless as more and more end users find ways to integrate additive manufacturing into their product

design and development.

NYLON

When Nike debuted its Vapor Laser Talon football cleat at the 2013

Super Bowl, it featured an ultra-light plate printed on an SLS machine. In

order to meet the performance specifications, including optimal traction,

flexibility and light weight, the company used a proprietary nylon

material. Printed nylon parts can be made to be either flexible, like the

plate used on the cleat, or rigid and strong, such as when it is used to

make snap-fit panels and protective components. Nylon is also frequently

used in aerospace, automotive and other consumer goods.

Material Families and Additive Manufacturing Processes

Material

extrusion Material jetting Binder jetting

Vat Photo-

polymerization

Sheet

lamination

Powder bed

fusion

Directed

energy

deposition

Polymers, polymer blends X X X X X X

Composites X X X X

Metals X X X X X

Graded/hybrid metals X X

Ceramics X X X

Investment casting patterns X X X X

Sand molds and cures X X X

Paper X

Source: Wohlers Report 2012

Figure 13

- 18 -

Source: 3dprint.com

Figure 15: Metal AM Machines

Hybrid material and matrix

structures will lead to new

design options for

production only achievable

through AM technology

COMPOSITES

The U.S. Army is using its own composite material to create human skull replicas in

order to study how explosive blasts affect the inside and outside of the skull. In the

past, this study was performed using skulls from cadavers. The issue with these donor

skulls was that they often did not share the same skull properties of a 20-30 year old

soldier. Researchers have resolved this issue by taking CT scans of real humans and

3D printing replica skulls using a composite material (See Figure 14), which will

better simulate what exactly happens in an explosion. The research and information

gathered from these replicas will hopefully result in safer military helmets, shells, and

other protective gear5.

DIGITAL MATERIALS

One of the unique advancements we have seen in the space is the development of digital materials. SSYS has been

introducing digital materials, which create custom polymers and matrix structures to achieve specific characteristics

(See out 9/9/14 note). We expect other companies to take advantage of the additive process to create not only

custom polymers, which can be adjusted at each layer creating endless part material

properties of strength and flexibility versus weight. We also expect plastics and polymers

will be blended with metals, ceramics and other materials to meet unique operating

parameters not achievable through subtractive methods alone. While now aimed at

prototyping, we feel these hybrid material and matrix structures will lead to new material

options for production only achievable through AM technology.

METALS

Additive manufacturing using metal materials is one of the greatest opportunities for adoption, in our opinion.

According to Wohlers Report 2014, 348 3D metal printers were sold in 2013; a +75.8% increase over 2012, in

which 198 machines were sold (See Figure 15). We recently met with an industry contact, who estimated that within

the aerospace industry alone, there is demand for several hundred systems to produce metal parts (RAPID

Conference Illustrates Growing Demand). The following list of metal produced parts is not exhaustive and more

metals and applications are continuing to be developed for additive processes. Many of the OEM’s systems are

capable of producing parts in a variety of metals. Given the rapidly changing portfolios it is best to refer to each

company’s website for an updated list.

TITANIUM

Recently, UK-based Renishaw collaborated with Empire Cycles,

a leading British bicycle design and manufacturing company to

create a printed titanium bicycle frame. The frame, printed in

titanium alloy sections and then bonded together was 33%

lighter than the frame built using traditional methods out of

aluminum alloy. The resulting frame was extremely strong,

featured hollow structures, and was corrosion resistant.

5 3dprint.com: U.S. Army to 3D Print Synthetic Human Skulls in Order to Create Better Protective Gear For Soldiers, Whitney Hipolite

Figure 14

- 19 -

COBALT-CHROME

One of the most widely publicized projects involving AM is GE’s use of printed fuel nozzles on its LEAP engine.

The fuel nozzles are printed using a cobalt-chromium alloy due to its lightweight, strength, durability and corrosion

resistance. The new nozzle, made from a single part, is 25% lighter and as much as 5x more durable that the current

nozzle which contains 20 different parts. Each engine contains 19 such nozzles, dramatically reducing the engine’s

weight. The LEAP engine is expected to enter service in 2016 and has already become GE Aviation’s bestselling

engine, with more than 6,000 confirmed orders valued at approximately $78 bil6.

STAINLESS STEEL

English Racing worked with Metal Technology Inc. (MTI - Private) to 3D print a stainless steel pulley for a

Mitsubishi Evo, one of English Racing’s high performance sports cars. The Evo was exceeding tolerable oil pressure

limits at high RPMs and causing significant damage to the car’s engine. English Racing asked MTI to create a

pulley with a larger diameter that would turn slower thus lowering oil pressure. MTI was able to print out the part in

5 hours, and have the Evo on the track and testing within three days. The Evo entered the Pikes Peak ½ mile top-

speed event and placed first in the Sedan Class, also setting a new course record for the fastest 4-door vehicle7.

TUNGSTEN

In collaboration with Ghent University, LayerWise (3D Systems) produced a tungsten collimator specimen that was

created to fit into MRI scanners. Tungsten collimators are used to narrow or focus the light source in an MRI for

optimal imaging, similar to a gun sight or binoculars. The complexity of these objects makes the production process

very labor intensive and expensive. However, LayerWise was able to easily additively manufacture these complex

parts in just 26 hours using pure tungsten8.

BONDED TUNGSTEN

A joint program between ExOne and rp+m led to the creation of bonded tungsten with radiation shielding properties

suited for medical and aerospace applications. ExOne’s binder jetting technology for additively producing metal

parts is ideally suited for alloy development such as this, since the process provides the ability infiltrate the base

metal with a second metal in complex shaped parts and the print speed is fast.

OTHER COMMONLY USED MATERIALS

SAND

An early adopter of additive manufacturing, Ford Motor Company has been experimenting with SLA, SLS and

FDM since the late 1980’s. As we previously mentioned (Rapid Prototyping Will Remain a Secular Growth Driver),

the most well-known example is Ford’s use of binder jetting to print the sand cores and molds for its four-cylinder

EcoBoost engine for the Ford Fusion. Ford has also used printed sand molds in its Mustang, Fusion Hybrid,

Explorer and F-150 models. When using sand, binder jetting technology fuses the sand particles together with a

binder, and unlike traditional sand molds, does not require physical patterns (typically wood) to create the mold

package. Once printed, cured and assembled, metal is poured into the mold using traditional methods, reducing

cycle time and enabling complex shapes and cooling solutions that are not possible using traditional methods for

creating cores and molds. A variety of sands and binders (organic and inorganic) can be used in any end market

where castings are used.

6 GE Reports: http://www.gereports.com/post/74545196348/joined-at-the-hip-where-the-3-d-printed-jet-engine 73D Systems: Metal Technology, Inc. and English Racing Push the Envelope with Direct Metal Printing from 3D Systems webinar 8 LayerWise: LayerWise AM produces tungsten multi-pinhole collimators for MRI scanners

- 20 -

Source: Nanowerk.com

The longer-term prospect

is for actual functional

biological materials such

as printing a kidney or

liver

CERAMIC

Sabin Design Lab, in collaboration with Cornell University and Jenny

Sabin Studio has 3D printed a series of ceramic interlocking bricks that

are not only lightweight but also require no mortar (Figure 16). Each

brick is lighter and uses fewer raw materials than a conventional solid

brick The bricks feature dovetail joints, similar to those used in

woodworking, and can be designed to mimic organic shapes and curves

and previously difficult to erect geometries9.

GLASS

LUXeXceL used its patented Printoptical Technology to create the world’s first fully 3D printed prescription glasses

for the King of The Netherlands. This is the first time 3D printing was used to produce both the frame of the glasses

as well as the lenses. This patented technology is also being used by optics designers to create prototypes for LED

lights10

.

BIOMATERIALS

While it may sound like science fiction, companies like Organovo (ONVO – NR) are leading the way for printing

functional human tissue using the same additive technologies used in industrial manufacturing. Similar to using

powdered particles to build up a shape, Organovo fabricates 3D tissues that mimic the cellular composition and

spatial architecture of native human tissue. In addition, this method of tissue generation eliminates the need for

structural “scaffolding” or support structures, a commonly cited benefit of other additive manufacturing processes.

While still in experimental phases for each, Organovo has successfully printed human liver tissue, bone, blood

vessels, skeletal muscle, and cardiac tissue.

Based on conversations we have had with medical experts, we can expect continued

acceptance of biocompatible materials, such as implants, vascular grafts and scaffolds. The

next phase will be use of biologic materials such as regenerating a patient’s own cartilage.

The longer-term prospect is for actual functional biologic materials such as printing a

kidney or liver. While developments in this area will create anxiety and debate, there are

some academic benefits that should be considered. First, using the patient’s own stem cells

to grow functional biologic materials for that patient reduces the rejection of the implant. It should therefore require

fewer drugs normally taken to prevent rejection. It would also increase the number of treated patients, since the

procedure doesn’t require a donor and the associated criteria that may prevent a patient from even being a candidate

for the treatment.

9 http://www.nanowerk.com/news2/gadget/newsid=36719.php 10 http://www.luxexcel.com/news/dutch-royal-eyewear/

Figure 16

- 21 -

Figure 17: Commonly Used Material Samples

SYSTEMS MANUFACTURERS (OEMS)

Systems manufacturers garner the greatest attention in the additive manufacturing space, likely due to the fact that

this area of the industry has the largest number of publicly traded companies. However, as we will discuss in our

ADDRESSABLE MARKETS section, these OEMs represent only a small percentage of the addressable market for

additive manufacturing. The following provides a brief description of the primary OEMs including the range of

technologies provided by the manufacturer. Please see our initiation reports and follow on research for the following

OEMs that we cover for greater detail of platforms, materials, services and recent developments.

3D SYSTEMS

3D Systems (DDD - BUY) provides 3D printing-based design-to-manufacturing solutions in the US, Germany, the

Asia-Pacific, and other European countries. The company sells a range of industrial and consumer 3D printers that

print in plastic, metal, ceramic, nylon, polystyrene or glass composite materials. In addition, the company offers an

array of complementary devices (haptic, scanning), software, services, and materials that aim to serve the

automotive, aerospace, computer, electronic, defense, education, consumer, energy, original equipment

- 22 -

manufacturer (OEM), and healthcare industries. Technologies available include FDM, SLA, MultiJet, ColorJet,

SLS, DMLS and Cast Urethane. (See our initiation report, 5/9/13)

ARCAM

Arcam (ARCM - NR) is a Sweden based company that provides additive manufacturing solutions for the production

of metal components. Arcam offers additive manufacturing machines primarily used for the industrial production of

orthopedic implants as well as metal parts for the aerospace industry. Technology includes Electronic Beam Melting

(EBM), a method similar to DMLS, but offers trade-offs of part production speed versus surface finish.

ENVISIONTEC

EnvisionTec GmbH (private) develops, manufactures, and sells rapid prototyping and rapid manufacturing

equipment in North America and internationally. The company offers computer aided modeling devices, hardware,

software, and materials. Its products are used in toys and animation, industrial, design, micro medical, and bio-

technology applications. The company was founded in 2002 and is headquartered in Gladbeck, Germany. It has

sales, services, and training centers in the United Kingdom and the United States. Technologies include proprietary

digital Light Processing Projectors in a process similar to SLA; 3SP™ (Scan, Spin and Selectively Photocure), also

similar to SLA technology; and 3D-Bioplotting, which is a material extrusion method.

EOS

EOS GmbH (private) designs and manufactures e-Manufacturing solutions for industrial component designing and

manufacturing. It offers systems and equipment solutions for plastic, metal, and sand manufacturing; materials and

material management solutions. EOS serves customers primarily in the aerospace, automotive, industrial, lifestyle

products, medical, tooling, and rapid prototyping markets. Technology includes SLS, DMLS, and double laser

sintering used to manufacture sand cores and molds.

EXONE

The ExOne Company (XONE - BUY) manufactures and sells 3D printing machines and printing products in the

Americas, Europe and Asia. These machines enable designers, engineers and foundry supporting businesses to

design and produce industrial prototypes and production parts in both conventional and exotic materials. Parts can

either be created from castings made from the sand mold packages their machines produce, or direct metal parts can

be printed. It also offers associated materials for consumables and replacement parts; and other services, such as pre-

print services, training, and technical support. The company markets its products to industrial customers in the

aerospace, automotive, heavy equipment, energy/oil/gas, and other industries. ExOne was founded in 2005 and is

headquartered in North Huntingdon, Pennsylvania. Technology includes binder jetting specifically designed for

building with sand, metal and glass materials. (See our initiation report, 10/8/13)

MCOR

Mcor Technologies Ltd. (private) is a manufacturer full-color and eco-friendly 3D printers. Mcor’s technology is

based on sheet lamination with plain A4 office paper as its build material creating durable, stable, prototype models.

Mcor was established in 2004 and is based in Dunleer, Ireland with offices in the UK and the Americas.

RENISHAW

Renishaw plc (LSE:RSW - NR) designs, manufactures, and sells industrial metrology products, additive

manufacturing products, and encoder products in industrial and medical end markets. Its products are used in a range

of applications including machine tool automation, additive manufacturing, gauging, spectroscopy, machine

calibration, large-scale surveying and medical applications such as CAD/CAM dentistry, tools for neurosurgical

- 23 -

A truly optimized part

design cannot have

feature restrictions

applications and other medical procedures. Renishaw is headquartered in the UK and its additive manufacturing

technology includes SLS, DMLS, as well as vacuum and nylon casting and industrial metrology equipment.

SLM SOLUTIONS

SLM Solutions GmbH (AM3D – NR) produces additive manufacturing production systems as well as vacuum and

metal casting machines. SLM provides solutions for the aerospace, energy, healthcare and automotive industries.

The company is based in Lübeck, Germany. Technology includes SLS and DMLS.

STRATASYS

Stratasys Ltd. (SSYS - BUY) provides additive manufacturing solutions for the creation of parts used in the process

of designing and manufacturing products and for the direct manufacture of end parts. The company sells a wide

range of systems for rapid prototyping, from desktop MakerBot systems to larger professional and production

systems for direct digital manufacturing. It also develops, manufactures, and sells materials for use with its systems;

and provides production services to its customers through its RedEye business. Its solutions can be used in end-

market including architecture, automotive, aerospace and defense, electronics, medical, footwear, toys, educational

institutions, government, entertainment, apparel, heavy equipment, and manufacturing industries. Stratasys was

founded in 1989 and is headquarters in Eden Prairie, Minnesota and Rehovot, Israel. Technologies include PolyJet,

FDM and Wax Deposition Modeling (WDM) which is a process similar to FDM but using wax instead of polymers.

(See our initiation report, 5/9/13)

VOXELJET

Voxeljet AG (VJET - NR) provides 3D printers and on-demand parts services to industrial and commercial

customers. The company operates in two segments, Systems, and Services. The Systems segment focuses on the

production, development, and sale of 3D printers, materials, proprietary chemical binding agents, maintenance

contracts, and spares. The Service segment prints on-demand parts for its customers, as well as creates parts, casting

cores and molds, and models. Voxeljet serves a variety of end-markets including automotive, aerospace,

entertainment, art and architecture, engineering, and consumer products through its direct sales force and a network

of sales agents in Europe, the Middle East, Africa, the Asia Pacific, and the Americas. The company was founded in

1999 and is headquartered in Friedberg, Germany. Voxeljet’s technology employs binder jetting.

RELATED SOFTWARE

While there has been significant coverage on additive manufacturing machines in the media, less is said about the

software. The additive manufacturing process starts with a 3D model that is typically designed in CAD (Computer

Aided Design) software. The CAD model is saved as an STL (Stereolithography) file, the most commonly used file

format for additive manufacturing, and imported into slicing software that generates a set of commands for the

additive manufacturing process (commonly a 3D printer) to follow. Those commands are imported into the

machine’s host software where it can process and execute each layer.

Software is also used to fill in gaps, generate support structures, add texture, hollow out

parts, and thin out walls. These fixes/edits make the model watertight and optimizes the

amount of material used which saves money and time.

The medical field is also using software to convert 3D scans (MRI, CT and X-ray) into 3D CAD designs for patient-

specific casts, molds, surgical guides, implants, and orthotics. This also allows surgical teams to better plan

procedures, reducing operating room time, which increases efficiency as well as time under anesthesia. Materialise

(MTLS-BUY) is among the leading developers and providers of this software.

- 24 -

There is no longer a

limitation on converting

digital designs to a

physical part; the only

limitation is a heavy-

handed designer

FINITE ELEMENT ANALYSIS (FEA)

Finite Element Analysis (FEA) describes software tools that simulate actual operating

conditions on parts or systems and analyze the resulting stresses on the design. FEA

software is used in conjunction with 3D CAD models. FEA is applicable to both new

product designs as well as existing product redesign. FEA is used to verify that a

proposed design will be able to perform to operating specifications prior to

manufacturing or construction.

For an existing structure, FEA can be used to determine design modifications required

in the event of a structural failure11

. While FEA is often used with traditional

manufacturing processes, its full capabilities are only realized through incorporation of

additive manufacturing applications. A truly optimized part design cannot have feature

restrictions. The only fixed requirements should be for attachment (mounting holes,

dimensions to mounting locations, etc.) and operating criteria (loads, environmental,

operating envelope, etc.). All other aspects of the design should be left to the iterations

of the FEA and the 3D CAD software. This will be an evolutionary process given the

embedded base of traditional manufacturing equipment and engineers and designers

trained to work within those limitations.

OPTIMIZING

Part optimization describes the iterative steps that occur between design analysis (ie:

FEA) and design feature creation (ie: 3D CAD), resulting in a part optimized for weight

relative to strength and operational longevity. Several optimization software tools

integrate FEA or similar software into the package providing an efficient feedback loop

in the component development cycle. While the concept of part optimization is not new,

software that takes analysis results and digitally optimizes the design dramatically

reduces the cycle time for part design.

What has also changed is the ability to fully leverage part optimization results. There is no longer a limitation on

converting the digital design to a physical part. Optimized parts that results in completely organic features such as

variable shaped internal lattice structures (inside of a leaf) can be made. We feel the evolution of manufacturing

technology (additive and subtractive combined) is allowing for the full leverage of optimizing software to the point

that the only limitation on design is a heavy handed designer. Designers need to stay focused on intent and

relinquish much of the design input that was once considered important.

PRODUCT LIFECYCLE MANAGEMENT (PLM)

Product Lifecycle Management (PLM) automates and organizes the entire manufacturing process from research and

design to validation and manufacturing. The system connects each step of the manufacturing process by centralizing

all project data in one broadly accessible location. This allows each department to not only have access to up-to-date

designs, quotes, and statuses but also allows them to easily adapt to customer change requests.

11 Virginia Tech Material Science and Engineering; http://www.sv.vt.edu/classes/MSE2094_NoteBook/97ClassProj/num/widas/history.html

Figure 18

- 25 -

Technology exists today

where an individual

could be scanned and the

entire anatomy could be

digitally stored

SOFTWARE PROVIDERS

AUTODESK

Autodesk, Inc (ADSK- NR) is a global design software and service company, offering several professional software

solutions for 3D design and engineering. The company licenses or sells its products to customers in the architecture,

engineering, construction, manufacturing, digital media, and consumer industries through both direct and a reseller

sales network. Autodesk was founded in 1982 and is headquarters in San Rafael, California.

ANSYS

ANSYS (ANSS- NR) provides FEA and simulation software, providing designers and engineers the ability to

validate and refine designs. The software is used to simulate how designs will behave in the real-world, which

reduces the design cycle time and allows for part optimization. Virtually all end-markets where analysis is done to a

part design can leverage this platform including aerospace, automotive, electronics, energy, materials and chemical

processing, consumer and medical.

DASSAULT SYSTÈMES

Dassault Systèmes SA (DASTY, DSY - NR) provides 3D software applications and services for engineering,

design, optimization, simulation and data management. Dassault serves the aerospace, defense, transportation,

marine and general manufacturing end markets. The company was founded in 1981 and is headquartered in France.

MATERIALISE

Materialise (MTLS - BUY), founded in 1990 and headquartered in Leuven, Belgium, provides additive

manufacturing software (Magics, Streamics, Mimics, 3-Matic) and 3D printing services in Europe, the Americas,

and Asia. Magics is used to repair and optimize computer-aided design formats and Streamics is used to centralize

and coordinate additive manufacturing logistics across an entire plant floor. The software is sold to additive

manufacturing OEMs, service bureaus, as well as manufacturers in automotive, aerospace, consumer goods and

medical industries.

For medical applications, Mimics is used to translate medical scan data (CT, MRI, 2D and 3D X-Ray) into a 3D file

format. 3-Matic allows the operator to manipulate and change the model for analysis and printing. The medical

segment also sells 3D printed patient-specific medical implants from models generated on its software or other

platforms.

Technology is available today where an individual could be scanned and the entire skeletal and

soft tissue structure cataloged and stored. This has tremendous opportunities for soft-tissue

medical procedures, but also for implants arising from either degenerative developments or

injury. Imagine a soldier being scanned before deployment. In the unfortunate case where the

soldier is injured, an implant could be immediately printed. A perfect ergonomic match to

return the individual to a more normal if not complete restoration of life functions. (See our

initiation report, 7/21/14)

NETFABB

Netfabb (FIT GmbH, private) is a provider of additive manufacturing software for design optimization, automatic

microstructure creation, quoting, build setup, file review/repair, and quality control. The software aims to reduce

production costs and increase efficiency through the use of additive manufacturing software for designers, service

- 26 -

What used to take days to

convert 2D drawings of a

part into a 3D CAD

model can now be done

in hours

bureaus and a variety of end-market customers, including several AM OEMs. Netfabb was founded in 2009 and is

based in Parsberg, Germany.

WITHIN LAB

Within Lab (private) is an engineering design optimization software and consulting company based out of the UK.

The software inputs part or system operating parameters such as loads and forces and environmental conditions to

create an optimized component design. Within utilizes variable density lattice microstructure structure and organic

surface designs to meet design criteria leveraging complete design freedom, since parts are designed for AM.

REVERSE ENGINEERING TOOLS & 3D SCANNING

Reverse engineering tools include technologies such as 3D scanning, CT scan, X-Rays and MRIs. 3D scanning

technology has existed for many years, but until recently was out of reach for many manufacturers due to cost and

technology limitations. 3D scanning technology and software have improved dramatically over the past few years

resulting in a wider addressable market. Scanning can be used in a number of processes including quality inspection

of parts, process verification, and geometric dimensioning and tolerancing (GD&T) verification.

A growing market for this technology is the digital capture of part features from actual

production parts. This allows for older components, designed before 3D CAD, to be scanned

so that fully parametric 3D CAD models can be quickly created. It also allows for damaged

parts to be brought into the digital format for analysis. What used to take days to convert 2D

drawings of a part into a 3D CAD model can now be done in several hours. The scanning of

an actual part can be completed in minutes. With the nominal fully parametric model

imported into a 3D CAD program, dimensions and tolerances can be added as well as design

optimization (FEA) can refine the part.

3D SCANNER PROVIDERS

CREAMFORM

Creaform (AME - BUY) develops, manufactures and sells 3D portable measurement technologies and specializes in

3D engineering services. Creaform offers 3D scanning, reverse engineering, quality control, product development

and numerical simulation such as FEA and computational fluid dynamics (CFD) technologies. Its products are used

in a variety of industries including automotive, aerospace, consumer products, medical and general manufacturing.

The company’s headquarters are in Québec and they have operations in the U.S., Canada, France, Germany, China,

Japan and India. Creaform is a unit of AMETEK’s Ultra Precision Technologies division.

FARO TECHNOLOGIES

FARO Technologies, Inc. (FARO - NR) designs and manufactures 3D dimensional measurement and imaging

systems for a wide range of global industries including aerospace, general manufacturing, non-residential

construction, and forensics. The company sells its products through direct sales and distributors. The company was

founded in 1981 and is headquartered in Lake Mary, Florida.

NIKON METROLOGY

Nikon Metrology (Nikon Corporation, TSE: 7731 - NR) is a provider of optical instrumentation and metrology

solutions for applications ranging from electronics to aircraft. Products include optical coordinate measuring

- 27 -

In addition to the

capacity service bureaus

provide, there is also

machine expertise,

vertical expertise and

often facility certification

Service bureaus with both

additive and subtractive

technologies provide the

greatest flexibility and

most unbiased solutions

to a design

machines (CMMs), 3D laser scanning, X-ray and CT inspection systems, CNC video measuring systems,

microscopes and large-scale metrology systems. Nikon Metrology is a subsidiary of Japan-based Nikon Corporation.

ROLE OF SERVICE BUREAUS

Over the past year, we have seen increased M&A activity within the additive manufacturing space related to systems

manufacturers, traditional manufacturers and prototyping companies acquiring private service bureaus. A service

bureau is similar to a machine shop, with the additional capability of producing parts and prototypes additively.

Most manufacturers do not have all of the equipment needed to produce parts on-site, or design teams to produce

prototype parts prior to production. Not only could that be cost-prohibitive, but also capacity-straining. A service

bureau provides the third-party outsourcing often needed for prototyping or short-run variable production runs in a

more cost-effective way.

There are also a number of hybrid models where traditional manufacturers have added

additive technologies alongside traditional manufacturing equipment such as CNC and

injection molding machines. In some cases the AM systems are geared to producing faster

prototype parts for customers, both current and prospective. The AM systems give the

company the ability to make custom jigs and fixtures and tooling for their traditional

manufacturing processes to reduce cycle time. They also give the companies the flexibility to

design parts more optimally and to leverage advanced software and materials to create new

markets through innovative design solutions.

What we have found in talking to and working with service bureaus is they provide the most cost effective riskless

introduction for many manufacturing customers to the range of AM technologies. Service bureaus with both additive

and subtractive technologies provide the greatest flexibility for customers and the most unbiased manufacturing

solutions to a design. A manufacturer may bid out a project to a number of traditional machine shops and service

bureaus. In many cases, especially for complex designs, the service bureaus secure the contracts because they were

able to deliver a functional prototype in a matter of days versus weeks.

Many service bureaus point out that speed, and accuracy to the customer’s design requirements were critical to

winning a contract; cost was not a factor. For customers, it is about speed to market and beating the competition

with the next innovation. We feel this is especially true in the current economy, where consumers are more diligent

with their purchasing decisions and loyal to innovation. Missing the next auto cycle, for example, because the OEM

tried to save money on the prototyping will likely be a hauntingly bad decision.

From an adoption standpoint, service bureaus provide a gateway to experiment with AM

capabilities without the prohibitive upfront capital commitment. A service bureau may

complete an initial project that awards them a series of other projects. The volume of

business being outsourced may reach an economic tipping point where the decision is

made to bring that specific technology in-house, but this will not necessarily be a universal

decision. In addition to the capacity service bureaus provide, there is also machine

expertise, vertical expertise, and in some cases facility certification, especially for

aerospace, medical, defense and firearms. None of these attributes are quickly replicated. Also, some customers may

elect to focus on a core competency of part and system design, and continue to outsource all facets of prototyping

and manufacturing to remain focused and nimble.

For OEMs that also have a service bureau business, greater customer demand of a certain technology can lead to

machine and consumable sales. While the OEMs welcome the migration from service to system and material

customer, it is not likely that a complete migration will occur. Customers of both stand-alone service bureaus and

- 28 -

OEMs with a service business will still outsource less frequently used additive technologies based on economic

tipping points.

More recently, we have some selective vertical integration of OEM systems manufacturers with service bureaus.

Some want the ability to attract customers at lower volumes of demand, so they can develop that relationship

through potential machine sales. Others are also acquiring vertical expertise such as in aerospace or medical along

with certified facilities, so they can be paid to learn more about what software, systems and materials are ideally

suited for growth in those markets as they increase and modify their portfolios in subsequent periods.

KEY PLAYERS

ARC GROUP WORLDWIDE

ARC Group Worldwide (ARCW - BUY) is a global diversified manufacturer specializing in metal injection

molding. Through its subsidiaries, the company manufactures and distributes precision components, specialty

hermetic seals, flanges and wireless equipment. With operations in the U.S. and Europe, ARCW leverages the

capabilities within each unit in an effort to consolidate its customers’ supply chain, providing them a complete

plastic and metals fabrication service, while emphasizing a shortened time to market. End markets include

Automotive, Aerospace and Defense, Medical Device, Oil and Gas, and General Industrials.

ARCW aims to further grow its revenues and profits by leveraging the complementary technologies of its Precision

Components segment and its newly established 3DMT business. By incorporating rapid prototyping with traditional

manufacturing techniques, specifically injection molding, ARCW can be more of a single source for engineering,

rapid prototyping, short run production, specialized tooling and high volume production. As we have seen with other

service bureaus and foundries, there is a measurable advantage in both time and cost that can be achieved by

complementing traditional manufacturing processes with AM technologies. We have seen this lead to these

companies winning more contracts and increasing growth opportunities. (See our initiation report, 8/14/14)

MATERIALISE

Materialise provides online 3D printing services as well as rapid prototyping services for clients in the automotive,

art, architecture, consumer goods, industrial goods, and aerospace market. The company offers a wide range of

printing technologies including: Stereolithography (SLA), Fused Deposition Modeling (FDM), Laser Sintering,

PolyJet, and Vacuum Casting. Through its RapidFit+ platform, the company provides the automotive market with

customized, highly precise, and in some cases, patent-protected measurement and fixturing tools. MTLS also offers

a Design & Engineering team to help create an optimal 3D printable design as well as 24/7 online quoting and

ordering service called Materialise OnSite. Through i.Materialise, MTLS offers consumer 3D printing services.

MTLS’s proprietary software platforms, enables and enhances the functionality of 3D printers and of 3D printing

operations, have become a market standard for professional 3D printing, with a current installed base of more than

8,000 licenses. MTLS also introduced commercial 3D modeling services based on CT, MRI, as well as 2D and 3D

X-Ray image data, enabling surgeons to analyze and plan complex surgeries by using anatomically accurate, 3D-

printed replicas. In the healthcare sector, Materialise’s technology was directly responsible for the design and

manufacture of over 146,000 customized, patient-specific medical devices during 2013.

The company believes that its commitment to enabling 3D printing technologies has significantly supported and

accelerated the acceptance and proliferation of additive. In its 3D printing service centers, including what is believed

to be the world’s largest single-site additive manufacturing service center in Leuven, Belgium, MTLS printed more

than 500,000 medical devices, prototypes, production parts, and consumer products during 2013. (See our initiation

report, 7/21/14)

- 29 -

MORRIS TECHNOLOGIES

Morris Technologies (GE - NR) is the in-house service bureau for GE, and combines traditional manufacturing

capabilities such as CNC machining, injection molding and castings with additive manufacturing processes,

specifically DMLS, and SLS. Prior to being acquired, Morris supplied prototypes and end use parts to GE’s

Aviation, Power Systems and Global Research Center as well as a variety of other customers.

PROTO LABS

Proto Labs (PRLB - BUY) combines three different manufacturing prototyping service capabilities; FineLine

Additive Manufacturing, Firstcut CNC Machining, and Protomold Injection Molding. Within FineLine, the service

bureau has technology including SLA, SLS and Direct Metal Laser Sintering (DMLS). FineLine provides these

technologies through a variety of different machine manufacturers, including 3D Systems, and Concept Laser. With

the additional capabilities offered by Firstcut and Protomold, Protolabs incorporates both traditional and additive

manufacturing techniques to meet their customers’ needs.

Coinciding with the addition of FineLine Prototyping, PRLB is launching a new Additive Manufacturing (AM)

Service. This complements PRLBs' existing prototyping capabilities and bridges the technology gap between its

CNC business (Firstcut), which offers rapid prototyping for smaller volumes of high precision parts, and its injection

molding business (Protomold) which provides higher volume runs of more complex parts. We expect over time a

more focused customer interface will allow PRLB to increase value to customers by recommending the method of

part production that leverages its software and manufacturing expertise and allows designers to focus on design not

on production method. (See our initiation report, 5/9/13)

QUICKPARTS

Quickparts, the service bureau component of 3D Systems (DDD), is a manufacturing service company that provides

customers with an online e-commerce system to procure low and high-volume custom manufactured parts. Using

the company’s QuickQuote® System, users upload their 3D CAD geometry and the QuickQuote analysis engine

evaluates the part geometry, the required materials, lead time and quantity and provides instant quotes for the

production part. Capabilities include rapid prototyping, injection molding and investment casting patterns using

SLA, SLS, ColorJet Printing, MultiJet Printing, Plastic Jet Printing, cast urethane molding, CNC machining, plaster

mold casting and metal casting technologies.

REDEYE

RedEye is the service bureau division of Stratasys (SSYS), providing rapid prototyping and digital manufacturing to

companies around the world. Technologies include PolyJet, cast urethane molding, injection molding, and one of the

largest Fused Deposition Modeling (FDM) 3D printer capacities in the world. Stratasys recently acquired two

service bureaus, Solid Concepts and Harvest Technologies. These acquisitions will nearly double SSYS's service

business to roughly $140 mil.

Solid Concepts, is based in California with capacity of more than 80 additive manufacturing machines and a variety

of traditional complementary manufacturing technologies such as tooling and molding, CNC and cast urethane

systems over its 6 locations. Texas-based Harvest Technologies has been in the additive manufacturing business for

nearly 20 years and was the first AM in North America to achieve AS9100/ISO9001 certification. Harvest has over

30 SLA, laser sintering and FDM machines.

SHAPEWAYS

Shapeways provides 3D printing services to its online “community” through which users upload, share, create and

sell their designs. The company caters to a primarily consumer customer base. The large online community allows

- 30 -

designers/customers to have access to a variety of industrial 3D printing technology, capable of printing models in a

variety of materials.

ADOPTION CYCLE

Each year, Gartner releases a special report of emerging technologies, which includes its proprietary hype cycle for

the most significant technologies spanning its research areas. The below chart (Figure 19) depicts the stages through

which a technology is either adopted or becomes obsolete prior to adoption. Each technology is plotted over time

and against the level of expectations for that technology. Within the additive manufacturing space, there were four

technologies that were included in the most recently hype cycle, published in August, 2014.

Figure 19

3D BIOPRINTING – Innovation Trigger

As we address in our END USERS discussion, advances in the medical field using 3D printing are accelerating at a

rapid pace. Within the context of the hype cycle, bioprinting is emerging from a point of first-generation products,

high price, lots of customization needed and moving into a phase where early adopters investigate the technology.

Despite its early placement along the hype cycle, the time to adoption is a mere 5-10 years, aided by the

advancements in other 3D printing technologies.

CONSUMER 3D PRINTING – Rounding the Peak of Inflated Expectations

In this context, Consumer 3D printing is defined by the end-user, rather than our previously stated sub-$5,000 price

point. What we see at this stage in the cycle is that expectations of the technology are at their peak, beyond early

adopters and moving quickly into the phase where negative press begins. We have certainly seen this in the

mainstream media as several articles have been written questioning the validity of 3D printing in the consumer

Gartner Hype Cycle of Emerging Technologies

Source: Gartner August, 2014

- 31 -

space. Gartner also forecasts that “consumers’ budgets will constrain purchases through 2015” and that “a

compelling consumer application will surface by 2016, driving growth.12”

ENTERPRISE 3D PRINTING – Moving into the Slope of Enlightenment

Where we believe to be the most substantial, disruptive change is within this segment of the technology. Here

defined as Enterprise 3D printing, this encompasses prototyping, production and industrial applications. At this

phase second generation products are rolling out, complemented by some services, and the adoption rate is moving

into a phase where methodologies and best practices are developing. This plateau eventually leads to a period of

high-growth adoption (20-30% of potential audience has adopted the innovation).

3D SCANNERS – Slope of Enlightenment

We believe 3D scanning technology is one of the most underestimated technologies and has the potential to

significantly increase the widespread adoption of additive manufacturing. Just a year ago, 3D scanning was

approaching the peak of inflated expectations with the expectation that adoption would be reached in 5-10 years.

Over that one year period, 3D scanning has surpassed consumer and enterprise 3D printing to now be at the point of

nearly full adoption.

Figure 20 isolates the hype cycles for just the 3D printing technologies. Consistent with our thesis, industrial

printing is just reaching the transition between the innovation trigger and the peak of inflated expectations and is

expected to reach the plateau of productivity within 5-10 years.

Figure 20

While we do not take this tool as indicative of stock performance, it is important to understand where we are in the

adoption of these technologies and the potential they have to shape a variety of industries.

12

Gartner, 3D Printing: The Hype, Reality and Opportunities- Today, October, 2013

Gartner Hype Cycle for 3D Printing

Source: Gartner August, 2014

- 32 -

The advantages are even

greater when the

physician can customize

instruments and implants

based on the patient’s

own image data

END USERS

End users of additive manufacturing and related technology span a variety of industries from industrial

manufacturing to fashion and design, and notably healthcare and dentistry, as we will discuss further. The earlier

discussed case studies are a representation of the various companies that have adopted or used additive

manufacturing. More broadly, companies include leading names from aerospace and defense, architecture,

automotive, commercial products, consumer goods, biotech, medical, dental, consumer electronics and computing

industries.

HEALTHCARE

Among the end users to adopt additive manufacturing technologies from an early stage is the healthcare industry.

According to Terry Wohlers’ research, 28% of all money spent on 3D printing in 2012 was used to manufacture

industrial parts with the greatest percent of that money being spent in the medical and dental industries13

.

Applications within the field are similar to those in the manufacturing space, including rapid prototyping for product

development; pattern making for metal casting and the manufacture of tools, primarily in the dental sector.

Beyond traditional applications, 3D printing is being used to create medical devices and implants for hip and knee

implants, custom hearing aids, orthotic inserts, implants and patient specific prosthetics. Developments have also

been made in the printing production of biomedical material such as skin, bones, tissue and human organs.

According to Phil Reeves, author of 3D Printing & Additive Manufacturing in the Medical

and Healthcare Marketplace, the uses for additive manufacturing within the healthcare

industry are virtually limitless. However, not all applications represent potential for growth

and market saturation. The greatest areas for opportunity and market saturation, Reeves

asserts, are in the areas of digital dentistry and the adoption of AM by eyewear

manufacturers.

As of 2013, the medical field has invested an estimated $131.8 million in 3D printing machines, a number expected

to grow to $306 million within five years and $555.7 million within ten years. This represents approximate annual

revenue derived from machine sales alone of $24 million in 2014 to $56 million in 2020. Potential for material sales

is up to 10x machine sales within 10 years14

.

As medical procedures have become increasingly complex, there has been a trend in the industry to both customize

patient care and minimize invasive surgery. For many medical applications, the quality of plastic or medical devices

manufactured using AM can match or exceed the quality compared to traditional methods. The reduced cost of

complexity inherent in AM allows medical device companies to design a new generation of devices that include

increased functionalities. The advantages are even greater when the physician can customize instruments and

implants based on the patient’s own image data.

We recently visited one the leading surgical simulation labs in the country to see how they are using AM to improve

surgical simulation to train surgeons, and to plan and practice procedures before actually going into the operating

room (see our 6/20/14 Note: User Visits Validate Industry-Wide Capacity Increases). The surgeon with whom we

met specializes in pediatrics, which creates an additional layer of complexity to a surgical procedure.

13 http://www.forbes.com/sites/rakeshsharma/2013/12/31/an-interesting-and-frightening-situation-terry-wohlers-assessment-of-the-year-in-3d-printing/

14 3D Printing & Additive Manufacturing in the Medical and Healthcare Marketplace, Phil Reeves, 3D Printing Industry

- 33 -

The hospital uses a combination of technologies from DDD and SSYS as well as specifically designed medical

software (Mimics and 3-matic) by MTLS to produce models of actual patient abnormalities from CT and MRI scan

data. In one example they 3D printed models of a child’s rib cage and skeletal structure to surround the soft tissue

they were going to operate on to simulate the real issues surgeons will face during a procedure.

This simulation has allowed surgeons to investigate unforeseen issues, which results in improved outcomes, reduced

operating room time, and time the patient is under anesthesia, which is a major concern for children in terms of

developmental issues. As has been the conclusion with many AM users we have met, the hospital is looking into

new ways to leverage AM technology and they need more printers and systems to accomplish this. Another area

under investigation is helping patients who suffer from congenital heart disease. With expected advancements in 3-

matic software, surgeons will be better able to segment tissue to identify internal organs, tumors, and other

abnormalities, which can be difficult to analyze with current technologies.

According to Reeves, the AM companies positioned to benefit most from this expanding revenue opportunity are

those with a competitive advantage in specific materials. Within the polymeric material space, EnvisionTec,

Stratasys and 3D Systems are currently well positioned because of its resin-based system expertise. Within the

metallic applications, Arcam, EOS, Renishaw and Phenix (subsidiary of 3D Systems) are uniquely positioned to

benefit from its expertise in bespoke surgical implants and dental implants, both areas seen to drive revenue growth

over the next 10 years, as depicted in Figure 21, below.

Figure 21

Application Raw Material

Material

Revenue

Potential

Process

Hardware

Revenue

Potential

Lead Vendor Adopted VendorPotential

Vendors

Hearing and

audibility aidsResin Very Low Polymer jet / cure Low Envisiontec

Stratasys / 3D

SystemsDWS

Orthopaedic

implantsTitanium Low

Metallic ebeam /

laserLow Arcam

EOS / Renishaw /

SLM

Concept Laser /

Realizer

Dental aligners

and cosmeticsResin Medium Polymer jet / cure Very High 3D Systems

Envisiontec /

StratasysDWS / EOS

Prosthetics &

rehabilitationNylon Very Low Laser sintering Very Low Unclear

EOS / 3D

SystemsVoxeljet

Orthotic foot

wareNylon Low Laser sintering Low 3D Systems Unclear EOS / Voxeljet

Indirect dental

crownsResin Low Polymer jet / cure Very Low Envisiontec

Stratasys / 3D

SystemsDWS

Direct dental

crownsCobalt Chrome Low Metallic laser Very High EOS

3D Systems /

Renishaw

Concept Laser /

Realizer

Stone models Resin Very High Polymer jet / cure Very High Stratasys3D Systems /

EnvisiontecDWS

Opthalmic &

visionNylon Medium Laser sintering Low EOS 3D Systems None

Trauma &

surgical devicesTitanium Low

Metallic ebeam /

laserMedium EOS

Arcam /

Renishaw / SLM

Concept Laser /

Realizer

Neonatal

modelling Resin Very Low Polymer jet / cure Low Stratasys None None

Birth

ControlNylon Very Low Laser sintering Very Low None None

EOS / 3D

Systems

Source: Econolyst

- 34 -

Figure 22

Prototype32%

Hobby/DIY22%

Scale model8%

Other12%

Gadget14%

Art/Fashion8%

Household5%

Popular Consumer Print Categories

Source: www.3dhubs.com/trends, as reported by users

We have seen increased

demand for 3D printing

in aerospace due to its

ability to create more

complex parts

AEROSPACE

Additive manufacturing technologies are used in a number of applications to meet the engineering demand within

the aerospace industry from design and engineering to production and post-processing. AM offers the benefit of

design freedom, as well as stronger, lighter, and more durable components in many cases, which is critical within

the aerospace industry. We have seen increased demand for 3D printing within this end market due to its ability to

create more complex parts that eliminate a high number of smaller parts to be assembled, and to create spare parts

for legacy systems where many replacement parts no longer exist.

The number of case studies found for applications in Aerospace are endless and range from

GE’s jet fuel nozzle (as we discussed); to Bell Helicopter using FDM to build polycarbonate

wiring conduits for its heavy-lift “tilt-rotor” hybrid (airplane/helicopter) aircraft; to NASA

using 3D scanning and reverse engineering software to recreate the obsolete F-1 engine,

originally used in the Apollo Program between 1967-1973, without the use of an accurate

blueprint15

. AM technologies have helped alleviate many of the obstacles brought on using

only traditional manufacturing techniques faced by aerospace engineers.

AUTOMOTIVE

The automotive industry was one of the earliest adopters of AM technologies, using rapid prototyping for concept

design and testing. Now AM is being used to manufacture end use parts, improve safety and fuel efficiency and

create more durable and in some cases, more attractive vehicles. According to some industry experts, most concept

cars contain as many as 100 parts manufactured using SLA technology alone16

. OEMs and parts manufacturers in

the auto industry have used 3D laser scanning and inspection software to optimize rubber hoses which feed air into

the engine, coolant into the radiator and fluids to the breaks; FDM to create rapid prototypes for tire treads; and

manufacturing custom, one of a kind metal components to control oil pressure in high-performance cars. We believe

that the automotive industry’s use of AM is one of the greatest drivers propelling adoption of these technologies.

While mostly used for prototyping today, we envision a time when AM systems will be robust enough to produce

production auto parts.

CONSUMERS

A lot of attention has been paid to the consumer uses of 3D

printing. Personal 3D printers have created a lot of excitement

and stock price volatility. We believe that consumer use of 3D

printing is important in order to increase adoption of the

technology, but this niche market, in our opinion, does not

represent the greatest opportunity and the breadth of use of

additive manufacturing. That said, each of the systems

manufacturers we cover derive a proportion of their revenues

from either the sale of consumer printers or materials and

therefore we cannot ignore the impact that this business

segment will have on their respective growth prospects. From

a secular growth standpoint, we view this segment as vital to

the long-term broad adoption of all AM systems from plastics

to metals. We know of several cases where users started with

15 3D Systems: Reigniting the F-1 Apollo Engine with Geomagic Solutions 16 3D Systems: Parker Hannifin brings fuel filters to market faster with high-temperature SLA functional prototypes Webcast

- 35 -

We view this segment as

vital to the long-term broad

adoption of all AM systems

from plastics to metals

a sub-$5,000 printer, but quickly learned the benefits and outgrew its capabilities, leading to the purchase of a

production printer, priced 20x higher from the same OEM.

It is also worth noting that among users polled, the prevailing use of 3D printers is rapid

prototyping, revealing that the term “consumer” may be a misnomer as it relates more to

the price point of the hardware, rather than the demographic of the user.

According to data collected about users of consumer 3D printers at www.3Dhubs.com, a crowd source website and

database dedicated to connecting 3D printer owners and those that wish to experiment with the technology, Stratasys

dominates the consumer segment, due in large part to its acquisitions of MakerBot. Since Nov-13, the number of

registered users of Stratasys machines has increased +333%, primarily driven by an increase in MakerBot Replicator

2 and Replicator 2x printers (See Figure 23). The number of 3D Systems’ Cube systems registered increased

+230%. As a reference, registered owners overall increased +339% over the same period. While this is not

necessarily indicative of machines sold over this period, it does support Stratasys’ current position as the industry

leader in the consumer segment. With 12 new consumer products introduced by 3D Systems in January, 2014, we

believe we may see the pendulum swing more in its favor as those devices become available in 2H14.

Figure 23

ADDRESSABLE MARKETS

Our method for determining the addressable market size for additive manufacturing involves identifying the primary

industries driving revenue growth such as those discussed previously in the END USERS section of this report. Using

some assumptions about those industries including growth rates and the impact of AM within those industries, we

determine the total market opportunity for the current year and over the next five and ten years. While some of our

estimates may appear overly optimistic and others overly conservative, keep in mind that these forecasts are simply

used to illustrate the potential market impact and the leading determinants of growth.

0

500

1000

1500

2000

2500

Stratasys RepRap DIY Kit Ultimaker 3D Systems Other

Machin

es R

eg

iste

red

Consumer Manufacturer Distribution

Aug-14

Jun-14

May-14

Apr-14

Feb-14

Jan-14

Dec-13

Nov-13

Growth:297%

Growth:219%

Growth:230%

Growth:529%

Source: www.3dhubs.com/trends, as reported by users

Growth:333%

- 36 -

OEM8%

Software10%

Medical12%

Industrial31%

Materials34%

Hobbyist/ Model

8%

AM Market Segmentation, 2014E

Source: IBIS World, JMS estimates

By 2019, the total

addressable market for AM

equipment, services and

related products could

surpass $23 bil globally

Based on our analysis, we estimate that the current AM market

opportunity is driven by the segments shown in Figure 24. While

the AM OEMs often take center stage within the market and our

coverage, we believe that the manufacturing of systems represents a

smaller slice of the total revenue opportunity within this industry.

Industrial applications and services, such as those provided by

service bureaus represent a substantial portion of the market

opportunity and this is consistent with the recent M&A trends in

the industry. End markets served within this segment include

Automotive, Aerospace, Consumer Goods and general Machine

Shop services.

We also estimate that the market opportunity for material

development and sales is a substantial component to the overall

market opportunity within this space. We view metal materials a

particularly large area of potential expansion over the next ten years, since these materials are more geared to

production of end-use parts, rather than prototyping.

Overall, based on our forecasts, we estimate that by 2019, the total addressable market for

additive manufacturing equipment, services and related products could surpass $23 bil

globally, and that by 2024 the market could expand to just under $38 bil with nearly a third

of that coming from industrial applications (See Figure 25). Note that while this may seem

out of reach, the combined ten year CAGR assumed to reach these estimates is a modest

3.9%.

Figure 25

OEM Software Medical Industrial Materials Hobbyist/Model Total

2014E $1,432 $1,819 $2,247 $5,858 $6,471 $1,153 $18,979

2019E $2,969 $2,320 $2,878 $7,307 $6,852 $1,500 $23,826

2024E $4,569 $3,070 $3,187 $8,217 $7,101 $1,656 $27,799

F10Y CAGR 12.3% 5.4% 3.6% 3.4% 0.9% 3.7% 3.89%

$0

$2,000

$4,000

$6,000

$8,000

$10,000

$12,000

Ind

ust

ry R

eve

nu

e

AM Addressable Market Segmentation

Source: IBIS World, JMS estimates $mil

Figure 24

- 37 -

When sheets of bucky

paper are stacked and

compressed, the resulting

material is up to 500x

stronger than steel at 1/10th

the weight

INNOVATION

In our observation, the leading trends in additive manufacturing primarily center on creating equipment that has a

larger build envelope, a faster build speed, with more complex materials, all while improving print quality and

repeatability. Recognizing that this list is far from comprehensive, we have included just a few examples of the

variety of innovations driving the industry.

HIGH SPEED SINTERING (HSS)

Researchers from The University of Sheffield and University of Loughborough have created a new AM process

called High Speed Sintering (HSS) that is not only able to produce better and cheaper parts than laser sintering but is

also extremely fast. The HSS process is claimed to be quick and cheap enough that it can even compete with

traditional manufacturing methods in low volume applications. Currently the process is limited to grey nylon but

researchers are looking into expanding the range of materials and functionality.

GRAPHENE

A recent development of a new graphene filament for 3D printers could allow users to print operation-ready devices,

such as batteries, sensors, chips, and flexible custom body armor. The material will enable users to print operational

devices in a one-step, fully computerized process. Graphene is a highly conductive material, more conductive than

copper, made up of a single layer of carbon atoms bonded together in a lattice structure and is considered one of the

strongest and thinnest materials known.

A common application of graphene is the production of a substance known as “bucky

paper” which is compressed carbon nanotubes, or rolled sheets of graphene. According to

American Graphite Technologies, when these sheets of bucky paper are stacked and

compressed, the resulting material is up to 500x stronger than steel, at one-tenth the

weight17

. The combination of graphene and additive manufacturing could create parts and

products with strength to weight ratios that were never feasible before. The ability to 3D

print complex parts with this lightweight strong conductive material could potentially result

in cheaper solar cells, lithium-ion batteries that recharge faster, reinforced armor plating, integrated circuits,

transistors that operate at higher frequencies and many other applications.

AEROSWIFT PROJECT

The Council for Scientific and Industrial Research’s (CSIR’s) National Laser Centre (NLC), Airbus, and Aerosud

signed a collaboration agreement in September 2012 to create a “titanium powder-based additive layer

manufacturing for fabrication of large and complex aerospace components.” This massive machine can produce

parts as large as 2 m x 0.6 m and is considered the fastest powder bed AM facility in the world. This large-scale

additive manufacturing machine will significantly reduce manufacturing costs and minimize material waste which in

turn will result in more fuel efficient airplanes. The machine is still in prototype phase and will undergo two years

of testing, evaluation, and process development. If the parts are approved, the machine will then be dissembled and

transferred to an Aerosud facility for aerospace part production. Full scale production is expected to start in 2015.

17 http://americangraphitetechnologies.com/graphene-technology/

- 38 -

Companies are now

creating hybrid machines

that combine AM with

traditional manufacturing

HYBRID MACHINES

Companies are now creating hybrid machines that combine additive manufacturing technology with traditional

manufacturing technology. The productions of these hybrid machines drive home the point we made earlier with

regard to AM not replacing traditional manufacturing methods, but rather complimenting it. These companies are

creating hybrid machines in one of two ways; either they are producing a new line of all-in-one machines, or they

are installing adapters to existing traditional equipment such as CNC machines. Companies that are creating these

hybrid machines include: Optomec, Hurco, Lumex, DMG Mori, FABtotum.

The following exhibit (Figure 26) illustrates a hybrid machine incorporating additive

manufacturing, through laser cladding technology, with a subtractive 5-axis milling

machine. As metal powder is melted and fused into each layer, it becomes welded to the

surface. After cooling, the metal is able to be machined into a finished part. The flexibility

of being able to switch dynamically from building to milling allows for the direct

machining of features of the component that are no longer accessible on the finished part,

as seen in Box 3.

Figure 26

Laser Cladding1. Basic construction of cam ring

Laser Cladding2. Generation of f lange w/o supporting geometry

Milling3. Flange drilling

Laser Cladding4. Cladding the cone

Milling6. Milling the inner contour

Laser Cladding5. Construction of connectors

Hybrid Manufacturing Process

Source: DMG Mori

- 39 -

COVERAGE

M&A

We anticipate greater mergers and acquisitions as well as joint ventures within the additive manufacturing space

driven by the greater adoption of additive manufacturing technologies that we anticipate. Customers are going to

continue to look for a full suite of products to produce polymer and metal parts as well as design tools (CAD,

Scanners) to design and reverse engineer parts. The complete demand can be sourced from multiple OEMs like

today, but if additive OEMs want to capture more of the market and have greater touch points for customers and re-

sellers their portfolios will continue to broaden. In the short-term, we see the market as large enough for more

focused companies to thrive, but longer-term we expect to see more combinations of technologies and services

under fewer roofs.

Figure 27

COMPS

Figure 28

0

2

4

6

8

10

12

2001 2003 2008 2009 2010 2011 2012 2013 2014

M&A Deal Flow

ARCW DDD PRLB SSYS XONE

Source: Company reports, CapIQ

Industry Comps

2014E 2015E 2016E

Price/Sales EV/EBITDA Price/Sales EV/EBITDA Price/Sales EV/EBITDA

ARCW 3.4x 20.0x 2.1x 12.4x 1.7x 7.3x

DDD 7.7x 29.3x 5.9x 21.3x 4.7x 16.6x

MTLS 5.4x 106.5x 4.3x 52.2x 3.8x 38.1x

PRLB 8.8x 22.7x 7.0x 18.2x 5.9x 16.2x

SSYS 8.1x 26.9x 6.1x 21.4x 4.8x 16.7x

XONE 6.6x NM 4.8x 63.4x 3.4x 10.7x

Average 7.3x 46.3x 5.6x 35.3x 4.5x 19.7x

Source: CapIQ, JMS Estimates

- 40 -

OPERATING METRICS

Figure 29

Figure 30

0% 20% 40% 60% 80% 100%

XONE

SSYS

PRLB

MTLS

DDD

ARCW

Source of Revenue, 2013A

Products/Machines Services Materials

Source: Company Reports, JMS Estimates

2012A 2013A 2014E 2015E

ARCW 30,407 68,486 81,691 126,223

DDD 353,633 513,400 702,810 900,022

MTLS 59,107 68,722 77,314 97,159

PRLB 125,991 163,112 213,506 256,889

SSYS 359,054 484,403 750,658 1,046,966

XONE 28,657 39,480 55,394 72,537

$0

$200,000

$400,000

$600,000

$800,000

$1,000,000

$1,200,000

Re

ven

ue

$0

00

Annual Revenue 2012A-2015E

Source: Company Reports, JMS Estimates $000

- 41 -

Figure 31

Figure 32

39%

27%

30% 30%

51% 52% 52%53%

60% 60% 61% 62%60% 62% 62% 63%

46% 47%

52%52%

42%39%

32%

43%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

2012A 2013A 2014E 2015E

Annual Gross Margin 2012A-2015E

ARCW DDD MTLS PRLB SSYS XONE

Source: Company Reports, JMS Estimates

17%

7%

12% 12%

17%

16%

11%

15%

4%6%

0%

3%

28%31%

30% 30%

-4%-6%

-1%

5%

-28%

-14%

-20%

-1%

-35%

-25%

-15%

-5%

5%

15%

25%

35%

45%

2012A 2013A 2014E 2015E

Annual Operating Margin 2012A-2015E

ARCW DDD MTLS PRLB SSYS XONE

Source: Company Reports, JMS Estimates

- 42 -

Figure 33

6.6%

8.5%

10.2%

8.6%

10.9% 10.7%11.1%

10.5%

7.3% 7.3%

7.9% 7.8%

10.3%

10.8% 10.7%

9.0%

6.7%

13.0%

14.4%

12.5%

-1%

1%

3%

5%

7%

9%

11%

13%

15%

2012A 2013A 2014E 2015E

Annual R&D as % Sales 2012A-2015E

DDD MTLS PRLB SSYS XONE

Source: Company Reports, JMS Estimates; ARCW does not report R&D seperately

- 43 -

Key Metrics Key Metrics

Recent Price: $18.52

12 Mos Fair Value Estimate: $26

EPS F2013A: $0.24

EPS F2014E: $0.45

52 Week High $25.00

52 Week Low $2.47

Market Cap $276

10-year Revenue CAGR: N/A

Core Revenue Growth

F2013A: 125.2%

F2014E: 13.1%

F2015E: 7.1%

ARC Group Worldwide

ARC GROUP WORLDWIDE (ARCW)

COMPANY DESCRIPTION:

Headquartered in DeLand, Florida, ARC Group Worldwide, through its subsidiaries, manufactures and distributes precision components, specialty hermetic seals, flanges and wireless equipment. The company operates in 4 reporting segments: Precision Components, 3DMT, Fittings & Flanges and Wireless.

INVESTMENT THESIS:

• The company operates in four primary segments, Precision Components (~85% of revenue), Fittings and Flanges (~7% of revenue), Wireless (~2% of revenue), and 3D Material Technologies (3DMT) (~5% of revenue).

• With operations in the U.S. and Europe, ARCW leverages the capabilities within each unit to consolidate its customers’ supply chain, providing them a complete plastic and metals fabrication service, while emphasizing a shortened time to market.

• ARCW is among a much smaller sub-set of companies positioned as a full-service provider, present in each phase of the manufacturing process from design and prototyping to production and finishing.

• Growth strategy is based on enhancing its current portfolio with core manufacturing advancements supplemented by bolt-on acquisitions to attract new customers and increase market share with existing customers

• Aims to further grow its revenues and profits by leveraging the complementary technologies of its Precision Components segment and its newly established 3DMT business

• By incorporating rapid prototyping with traditional manufacturing techniques, specifically injection molding, ARCW can be more of a single source for engineering, rapid prototyping, short run production, specialized tooling and high volume production

TRADING & VALUATION

-100%

-50%

0%

50%

100%

150%

200%

250%

300%

350%

400%

0.00

5.00

10.00

15.00

20.00

25.00

Aug

-12

Sep

-12

No

v-1

2

Dec-1

2

Jan-1

3

Mar-

13

Ap

r-13

May-1

3

Jul-13

Aug

-13

Sep

-13

No

v-1

3

Dec-1

3

Jan-1

4

Mar-

14

Ap

r-14

May-1

4

Jul-14

Aug

-14

ARCW Price Performance, Absolute & Relative to S&P500Reverse Merger - Present

ARCW Relative to S&P

Soure: Capital IQ

$0

$2

$4

$6

$8

$10

$12

$14

$16

$18

-$5,000

$0

$5,000

$10,000

$15,000

$20,000

2012

2013

2014E

2015E

2016E

2017E

2018E

2019E

2020E

2021E

2022E

2023E

Calculated vs. Market Implied Residual

EV

A

Sh

are

Pric

e

Firearms/ Defense

31%

Auto31%

Medical/ Dental

16%

Consumer13%

Flanges

6%

Wireless3%

ARCW Revenue by End Market FY14E

Source: Company Reports, JMS Estimates

- 44 -

Asia Pacific

19%

Europe26%

North America

55%

DDD Revenue Breakdown by Geography, 2013A

Source: Company Reports

3D SYSTEM

3D SYSTEMS (DDD)

COMPANY DESCRIPTION:

Headquartered in Rock Hill, South Carolina, 3D Systems develops, manufactures and markets 3D printers, print materials and custom parts services. DDD’s primary print engines include stereolithography, selective laser sintering, multi-jet modeling, selective laser melting, plastic jet printers and ProJets.

INVESTMENT THESIS:

• Pioneer of additive manufacturing (AM or 3D) systems for over 25 years.

• Completed roughly 20 acquisitions since Jan-12 complimenting its growth strategy and market share.

• Additive manufacturing technologies are not one- for-one replacement of traditional manufacturing methods. Technologies are complementary.

• DDD’s printers convert CAD data into physical objects from engineered plastic, metal, and composite print materials. It primarily serves manufacturers of automotive, aerospace, computer, electronic, defense, education, consumer, energy and healthcare products, as well as OEMs, government agencies, universities and independent service bureaus.

• Adoption should occur at geometric rate not linear; advances in technology and user expertise will push each other at a compound rate.

• Despite the last few years of very high growth, driven in part by the expanded use of rapid prototyping, these technologies are still in their infancy and we continue to be early in the penetration and adoption of this technology.

TRADING & VALUATION

-200%

0%

200%

400%

600%

800%

1000%

1200%

1400%

0.00

10.00

20.00

30.00

40.00

50.00

60.00

70.00

80.00

90.00

100.00

Aug

-04

Aug

-05

Aug

-06

Aug

-07

Aug

-08

Aug

-09

Aug

-10

Aug

-11

Aug

-12

Aug

-13

Aug

-14

DDD Price Performance, Absolute & Relative to S&P500Last 10 Years

DDD Relative to S&P

Soure: Capital IQ

$0

$10

$20

$30

$40

$50

$60

$70

$80

$90

$100

-$100,000

$0

$100,000

$200,000

$300,000

$400,000

$500,000

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014E

2015E

2016E

2017E

2018E

2019E

2020E

2021E

2022E

2023E

Calculated vs. Market Implied Residual Income

Key Metrics Key Metrics

Recent Price: $49.54

12 Mos Fair Value Estimate: $84

EPS 2013A: $0.85

EPS 2014E: $0.78

52 Week High $97.28

52 Week Low $43.35

Market Cap $5,445

10-year Revenue CAGR: 16.7%

Core Revenue Growth

2013A: 29.4%

2014E: 30.0%

2015E: 28.1%

- 45 -

MATERIALISE

MATERIALISE (MTLS)

COMPANY DESCRIPTION:

Headquartered in Leuven, Belgium, Materialise (MTLS) is a leading provider of additive manufacturing software and 3D printing services. The company’s customers are active in a wide variety of industries, including healthcare, automotive, aerospace, art and design and consumer products.

INVESTMENT THESIS:

• MTLS was founded in 1990 and went public on 6/25/14. What started with a single stereolithography system (SLS) purchased from 3D Systems (DDD), has grown to include industrial production, medical applications, and industry-leading additive manufacturing software and solutions

• MTLS’s proprietary software platforms, enables and enhances the functionality of 3D printers and of 3D printing operations, have become a market standard for professional 3D printing, with a current installed base of more than 8,000 licenses

• In the healthcare sector, Materialise’s technology was directly responsible for the design and manufacture of over 146,000 customized, patient-specific medical devices during 2013

• In its 3D printing service centers, including what is believed to be the world’s largest single-site additive manufacturing service center in Leuven, Belgium, MTLS printed more than 500,000 medical devices, prototypes, production parts, and consumer products during 2013.

TRADING & VALUATION

0.00

2.00

4.00

6.00

8.00

10.00

12.00

14.00

11.20

11.40

11.60

11.80

12.00

12.20

12.40

12.60

Jun-1

4

Jul-14

Aug

-14

MTLS Price Performance, Absolute & Relative to S&P500IPO - Present

MTLS Relative to S&P

Soure: Capital IQ

$0

$2

$4

$6

$8

$10

$12

$14

$16

$18

-$5,000

$0

$5,000

$10,000

$15,000

$20,000

2012

2013

2014E

2015E

2016E

2017E

2018E

2019E

2020E

2021E

2022E

2023E

Calculated vs. Market Implied Residual

EV

A

Sh

are

Pric

e

3D

Printing

Software

19.5%

Medical

41.0%

Industrial

Production

39.5%

MTLS Revenue by Segment, 2013A

Source: Company Reports

Key Metrics Key Metrics

Recent Price: $11.46

12 Mos Fair Value Estimate: $14

EPS 2013A: € 0.09

EPS 2014E: -€ 0.02

52 Week High $15.15

52 Week Low $9.85

Market Cap $539

10-year Revenue CAGR: N/A

Core Revenue Growth

2013A: 16.3%

2014E: 12.5%

2015E: 25.7%

- 46 -

PROTO LABS

PROTO LABS (PRLB)

COMPANY DESCRIPTION:

Proto Labs, Inc. produces CNC machined and injection molding plastic parts. The company was founded in 1999 and is headquartered in maple Plain, Minnesota. It has locations in the United States, the United Kingdom, Germany, Japan, Italy, France and Spain.

INVESTMENT THESIS:

• PRLB has a unique business model that really has no direct line for line competitor. The closest example of what PRLB does would be a large contract manufacturer or machine shop.

• Unique web based rapid quotation software. What historically takes days/weeks, takes minutes (verified by our own parts submissions).

• Started as rapid injection molding production (Protomold) now includes CNC machining (Firstcut); better price for small quantities/greater variety of materials, and Fineline additive manufacturing.

• High double-digit revenue growth can be driven by installed base adding new applications and new product developers adopting the Proto Lab model.

• More customers will outsource these steps of product development rather than incur the fixed and variable cost of keeping it in house.

• Model is scalable; therefore we expect incremental revenue growth to be met by lower increments of fixed cost rather than direct variable cost.

TRADING & VALUATION

-20%

0%

20%

40%

60%

80%

100%

120%

0.00

10.00

20.00

30.00

40.00

50.00

60.00

70.00

80.00

90.00

Aug

-12

Oct-

12

Jan-1

3

Mar-

13

Jun-1

3

Aug

-13

Oct-

13

Jan-1

4

Mar-

14

Jun-1

4

Aug

-14

PRLB Price Performance, Absolute & Relative to S&P500 IPO - Present

PRLB Relative to S&P

Soure: Capital IQ

($10)

$0

$10

$20

$30

$40

$50

$60

$70

$80

$0

$5,000

$10,000

$15,000

$20,000

$25,000

$30,000

2009

2010

2011

2012

2013

2014E

2015E

Calculated vs. Market Implied Residual Income

$0

$2

$4

$6

$8

$10

$12

$14

$16

$18

-$5,000

$0

$5,000

$10,000

$15,000

$20,000

2012

2013

2014E

2015E

2016E

2017E

2018E

2019E

2020E

2021E

2022E

2023E

Calculated vs. Market Implied Residual

EV

A

Sh

are

Pric

e

Protomold71%

Firstcut29%

PRLB Revenue Breakdown by Product, 2013A

Source: Company Reports

Key Metrics Key Metrics

Recent Price: $72.96

12 Mos Fair Value Estimate: $92

EPS 2013A: $1.47

EPS 2014E: $1.82

52 Week High $94.23

52 Week Low $58.06

Market Cap $1,876

10-year Revenue CAGR: N/A

Core Revenue Growth

2013A: 26.3%

2014E: 30.8%

2015E: 25.6%

- 47 -

STRATASYS

STRATASYS (SSYS)

COMPANY DESCRIPTION:

Stratasys provides additive manufacturing solutions for the creation of prototypes and the direct manufacture of end parts. Its AM systems utilize its patented fused deposition modeling (FDM) and inkjet-based PolyJet technologies to enable the production of prototypes, tools used for production and manufactured goods.

INVESTMENT THESIS:

• Leading developer and manufacturer of additive manufacturing (AM or 3D) systems.

• Co-founder developed fused deposition modeling (FDM); backbone of SSYS systems.

• With the acquisitions of Objet and MakerBot, SSYS offers multiple technologies to broaden customer adoption and customer breadth.

• Additive manufacturing technologies are not one- for-one replacement of traditional manufacturing methods. Technologies are complementary.

• Adoption should occur at geometric rate not linear; advances in technology and user expertise will push each other at compound rate.

• While we expect more share price volatility in this market, the demand for these products will expand faster than in the past in our estimation.

• Personal units accelerate awareness/adoption, but contribute to share price volatility.

TRADING & VALUATION

0%

200%

400%

600%

800%

1000%

1200%

1400%

1600%

1800%

2000%

0.00

20.00

40.00

60.00

80.00

100.00

120.00

140.00

Aug

-04

Aug

-05

Aug

-06

Aug

-07

Aug

-08

Aug

-09

Aug

-10

Aug

-11

Aug

-12

Aug

-13

Aug

-14

SSYS Price Performance, Absolute & Relative to S&P500Last 10 Years

SSYS Relative to S&P

Soure: Capital IQ

$0

$20

$40

$60

$80

$100

$120

$140

$160

-$90,000

-$80,000

-$70,000

-$60,000

-$50,000

-$40,000

-$30,000

-$20,000

-$10,000

$0

$10,000

$20,000

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014E

Calculated vs. Market Implied Residual Income

Products86%

Services14%

SSYS Revenue Breakdown by Product, 2013A

Source: Company Reports

Key Metrics Key Metrics

Recent Price: $124.41

12 Mos Fair Value Estimate: $142

EPS 2013A: $1.85

EPS 2014E: $2.25

52 Week High $138.10

52 Week Low $85.30

Market Cap $6,150

10-year Revenue CAGR: 25.3%

Core Revenue Growth

2013A: 27.5%

2014E: 30.9%

2015E: 26.8%

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EXONE

EXONE (XONE)

COMPANY DESCRIPTION:

The ExOne Company develops, manufactures, and sells 3D printing machines and printed products to industrial customers in the Americas, Europe, and Asia. The company’s Max, Print, Flex and Lab machines allow designers and engineers to produce industrial prototypes and production parts.

INVESTMENT THESIS:

• Leader in additive manufacturing (AM or 3D) systems with diversified end market exposure including Aerospace, Automotive, and Energy markets.

• Concentrated product focus with machine sales complimenting PSC business.

• Additive manufacturing technologies are not one- for-one replacement of traditional manufacturing methods. Technologies are complementary.

• Adoption should occur at geometric rate not linear; advances in technology and user expertise will push each other at compound rate.

• While we expect more share price volatility in this market, the demand for these products will expand faster than in the past in our estimation.

• Despite recent volatility in financial performance, we still believe XONE's technology is among the most positively disruptive for the $120+ billion global casting industry and metal part production. It's metal printers open opportunities for unique creation of parts and alloys not possible with other AM or subtractive technologies

TRADING & VALUATION

-40%

-20%

0%

20%

40%

60%

80%

100%

120%

140%

160%

0.00

10.00

20.00

30.00

40.00

50.00

60.00

70.00

80.00

Feb

-13

Mar-

13

May-1

3

Jun-1

3

Aug

-13

Sep

-13

No

v-1

3

Dec-1

3

Feb

-14

Mar-

14

May-1

4

Jun-1

4

Aug

-14

XONE Price Performance, Absolute & Relative to S&P500IPO - Present

XONE Relative to S&P

Soure: Capital IQ

$0

$10

$20

$30

$40

$50

$60

$70

$80

-$10,000

$0

$10,000

$20,000

$30,000

$40,000

$50,000

$60,000

$70,000

$80,000

2010

2011

2012

2013

2014E

2015E

2016E

2017E

2018E

2019E

2020E

2021E

2022E

2023E

Calculated vs. Market Implied Residual

EV

A

Sh

are

Pric

e

Machine 63%

PSC 37%

XONE Revenue Breakdown by Segment, 2013A

Source: Company Reports

Key Metrics

Recent Price: $24.82

12 Mos Fair Value Estimate: $50

EPS 2013A: -$0.50

EPS 2014E: -$0.80

52 Week High $70.25

52 Week Low $24.34

Market Cap $358

10-year Revenue CAGR: N/A

Core Revenue Growth

2013A: 37.8%

2014E: 39.4%

2015E: 30.9%

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IMPORTANT DISCLOSURES

Research Analyst Certification

I, John Baliotti, the Primarily Responsible Analyst for this research report, hereby certify that all of the views expressed inthis research report accurately reflect my personal views about any and all of the subject securities or issuers. No part of mycompensation was, is, or will be, directly or indirectly, related to the specific recommendations or views I expressed in this researchreport.

Janney Montgomery Scott LLC ("Janney") Equity Research Disclosure Legend

Individual disclosures for the companies mentioned in this report can be obtained by accessing our Firm’s Disclosure Site

Disclosure Site

Definition of Ratings

BUY: Janney expects that the subject company will appreciate in value. Additionally, we expect that the subject company willoutperform comparable companies within its sector.

NEUTRAL: Janney believes that the subject company is fairly valued and will perform in line with comparable companies withinits sector. Investors may add to current positions on short-term weakness and sell on strength as the valuations or fundamentalsbecome more or less attractive.

SELL: Janney expects that the subject company will likely decline in value and will underperform comparable companies withinits sector.

Janney Montgomery Scott Ratings Distribution as of 6/30/14

IB Serv./Past 12 Mos.

Rating Count Percent Count Percent

BUY [B] 207 53.80 53 25.60

NEUTRAL [N] 176 45.70 28 15.90

SELL [S] 2 0.50 0 0.00

*Percentages of each rating category where Janney has performed Investment Banking services over thepast 12 months.

Other Disclosures

Janney Montgomery Scott LLC, is a U.S. broker-dealer registered with the U.S. Securities and Exchange Commission and amember of the New York Stock Exchange, the Financial Industry Regulatory Authority and the Securities Investor Protection Corp.

This report is for your information only and is not an offer to sell or a solicitation of an offer to buy the securities or instrumentsnamed or described in this report. Interested parties are advised to contact the entity with which they deal or the entity that providedthis report to them, should they desire further information. The information in this report has been obtained or derived from sourcesbelieved by Janney Montgomery Scott LLC, to be reliable. Janney Montgomery Scott LLC, however, does not represent thatthis information is accurate or complete. Any opinions or estimates contained in this report represent the judgment of JanneyMontgomery Scott LLC at this time and are subject to change without notice.

Investment opinions are based on each stock's 6-12 month return potential. Our ratings are not based on formal price targets,however, our analysts will discuss fair value and/or target price ranges in research reports. Decisions to buy or sell a stock shouldbe based on the investor's investment objectives and risk tolerance and should not rely solely on the rating. Investors should read

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carefully the entire research report, which provides a more complete discussion of the analyst's views. Supporting informationrelated to the recommendation, if any, made in the research report is available upon request.

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