Use of non-GAAP financial measures

The non-GAAP data included herein, which excludes certain items as described below, are non-GAAP financial measures. Our management believes that these non-GAAP financial measures are useful information for investors and shareholders of our Company in gauging our results of operations (x) on an ongoing basis after excluding merger and acquisition related expense and reorganization-related charges, and (y) excluding non-cash items such as stock-based compensation expenses, acquired intangible assets amortization, impairment of goodwill and other long-lived assets, changes in fair value of obligations in connection with acquisitions and the corresponding tax effect of those items. We also exclude, when applicable, non-recurring changes of non-cash valuation allowance on deferred tax assets, as well as, non-recurring significant tax charges or benefits that relate to prior periods which we do not believe are reflective of ongoing business and operating results. These non-GAAP adjustments either do not reflect actual cash outlays that impact our liquidity and our financial condition or have a non-recurring impact on the statement of operations, as assessed by management. These non-GAAP financial measures are presented to permit investors to more fully understand how management assesses our performance for internal planning and forecasting purposes. The limitations of using these non-GAAP financial measures as performance measures are that they provide a view of our results of operations without including all items indicated above during a period, which may not provide a comparable view of our performance to other companies in our industry. Investors and other readers should consider non-GAAP measures only as supplements to, not as substitutes for or as superior measures to, the measures of financial performance prepared in accordance with GAAP. Reconciliation between results on a GAAP and non-GAAP basis is provided in a table below.

Stratasys Ltd.
Consolidated Balance Sheets
(in thousands, except share data)
		Sep 30,				December 31,
		2017				2016
		(unaudited)
ASSETS
Current assets
Cash and cash equivalents		$	302,795			$	280,328
Accounts receivable, net			120,504				120,411
Inventories			124,056				117,521
Net investment in sales-type leases			8,499				11,717
Prepaid expenses			7,167				7,571
Other current assets			19,635				15,491
Total current assets			582,656				553,039
Non-current assets
Net investment in sales-type leases - long term			5,844				12,126
Property, plant and equipment, net			202,995				208,415
Goodwill			386,887				385,629
Other intangible assets, net			152,807				177,458
Other non-current assets			32,137				29,382
Total non-current assets			780,670				813,010
Total assets		$	1,363,326			$	1,366,049
LIABILITIES AND EQUITY
Current liabilities
Accounts payable		$	44,490			$	40,933
Current portion of long-term debt			3,714				3,714
Accrued expenses and other current liabilities			28,486				32,207
Accrued compensation and related benefits			34,338				34,186
Obligations in connection with acquisitions			-				3,619
Deferred revenues			51,834				49,952
Total current liabilities			162,862				164,611
Non-current liabilities
Long-term debt			19,500				22,286
Deferred tax liabilities			2,625				5,952
Deferred revenues - long-term			14,181				12,922
Other non-current liabilities			28,682				22,251
Total non-current liabilities			64,988				63,411
Total liabilities			227,850				228,022
Redeemable non-controlling interests			1,721				2,029
Equity
Ordinary shares, NIS 0.01 nominal value, authorized 180,000 thousands shares; 53,202 thousands shares and 52,639 thousands shares issued and outstanding at September 30, 2017 and December 31, 2016, respectively			143				142
Additional paid-in capital			2,655,754				2,633,129
Accumulated other comprehensive loss			(8,276	)			(13,479	)
Accumulated deficit			(1,513,926	)			(1,483,925	)
Equity attributable to Stratasys Ltd.			1,133,695				1,135,867
Non-controlling interests			60				131
Total equity			1,133,755				1,135,998
Total liabilities and equity		$	1,363,326			$	1,366,049

Stratasys Ltd.
Consolidated Statements of Operations
(in thousands, except per share data)
		Three Months Ended Sep 30,								Nine Months Ended Sep 30,
		2017				2016				2017				2016
		(unaudited)				(unaudited)				(unaudited)				(unaudited)
Net sales
Products		$	108,401			$	110,083			$	344,509			$	352,475
Services			47,466				47,093				144,510				144,680
			155,867				157,176				489,019				497,155
Cost of sales
Products			49,840				54,332				159,043				172,683
Services			30,788				29,163				94,465				90,090
			80,628				83,495				253,508				262,773
Gross profit			75,239				73,681				235,511				234,382
Operating expenses
Research and development, net			21,767				23,993				69,652				73,474
Selling, general and administrative			60,280				69,069				189,028				218,340
Change in the fair value of obligations in connection with acquisitions			65				(24	)			1,378				116
			82,112				93,038				260,058				291,930
Operating loss			(6,873	)			(19,357	)			(24,547	)			(57,548	)
Financial income, net			(305	)			104				380				1,216
Loss before income taxes			(7,178	)			(19,253	)			(24,167	)			(56,332	)
Income tax expenses			2,571				1,538				5,205				6,283
Share in losses of associated company			(489	)			(182	)			(1,006	)			(182	)
Net loss			(10,238	)			(20,973	)			(30,378	)			(62,797	)
Net loss attributable to non-controlling interests			(81	)			(146	)			(377	)			(339	)
Net loss attributable to Stratasys Ltd.		$	(10,157	)		$	(20,827	)		$	(30,001	)		$	(62,458	)
Net loss per ordinary share attributable to Stratasys Ltd. - basic and diluted		$	(0.19	)		$	(0.40	)		$	(0.57	)		$	(1.20	)
Weighted average ordinary shares outstanding - basic and diluted			53,012				52,432				52,827				52,232

Stratasys Ltd.
Reconciliation of GAAP to Non-GAAP Results of Operations
					Three Months Ended Sep 30,
					2017				Non-GAAP				2017				2016				Non-GAAP				2016
					GAAP				Adjustments				Non-GAAP				GAAP				Adjustments				Non-GAAP
					U.S. dollars and shares in thousands (except per share amounts)
		Gross profit (1)			$	75,239			$	6,598			$	81,837			$	73,681			$	11,248			$	84,929
		Operating income (loss) (1,2)				(6,873	)			14,933				8,060				(19,357	)			22,651				3,294
		Net income (loss) attributable to Stratasys Ltd. (1,2,3)				(10,157	)			14,299				4,142				(20,827	)			20,936				109
		Net income (loss) per diluted share attributable to Stratasys Ltd. (4)			$	(0.19	)		$	0.27			$	0.08			$	(0.40	)		$	0.40			$	0.00
(1)		Acquired intangible assets amortization expense								5,688												10,394
		Non-cash stock-based compensation expense								642												680
		Reorganization and other related costs								72												249
		Merger and acquisition and other expense								196												(75	)
										6,598												11,248
(2)		Acquired intangible assets amortization expense								2,593												3,697
		Non-cash stock-based compensation expense								4,256												4,105
		Change in fair value of obligations in connection with acquisitions								65												(24	)
		Reorganization and other related costs								383												1,959
		Merger and acquisition and other expense								1,038												1,666
										8,335												11,403
										14,933												22,651
(3)		Corresponding tax effect								(836	)											(1,998	)
		Amortization expense of associated company								202												283
									$	14,299											$	20,936
(4)		Weighted average number of ordinary shares outstanding- Diluted				53,012								53,664				52,432								53,168

Stratasys Ltd.
Reconciliation of GAAP to Non-GAAP Results of Operations
					Nine Months Ended Sep 30,
					2017				Non-GAAP				2017				2016				Non-GAAP					2016
					GAAP				Adjustments				Non-GAAP				GAAP				Adjustments					Non-GAAP
					U.S. dollars and shares in thousands (except per share amounts)
		Gross profit (1)			$	235,511			$	19,996			$	255,507			$	234,382			$	39,241				$	273,623
		Operating income (loss) (1,2)				(24,547	)			47,708				23,161				(57,548	)			74,996					17,448
		Net income (loss) attributable to Stratasys Ltd. (1,2,3)				(30,001	)			45,729				15,728				(62,458	)			69,401					6,943
		Net income (loss) per diluted share attributable to Stratasys Ltd. (4)			$	(0.57	)		$	0.86			$	0.29			$	(1.20	)		$	1.33				$	0.13
(1)		Acquired intangible assets amortization expense								17,081												31,318
		Impairment charges of other intangible assets								-												1,779
		Non-cash stock-based compensation expense								2,084												2,132
		Reorganization and other related costs								303												3,570
		Merger and acquisition and other expense								528												442
										19,996												39,241
(2)		Acquired intangible assets amortization expense								7,725												11,079
		Non-cash stock-based compensation expense								12,049												13,755
		Change in fair value of obligations in connection with acquisitions								1,378												116
		Reorganization and other related costs								2,667												3,420
		Merger and acquisition and other expense								3,893												7,385
										27,712												35,755
										47,708												74,996
(3)		Corresponding tax effect								(2,571	)											(5,878	)
		Amortization expense of associated company								592												283
									$	45,729											$	69,401
(4)		Weighted average number of ordinary shares outstanding- Diluted				52,827								53,521				52,232									53,182

Stratasys Ltd.
Reconciliation of GAAP to Non-GAAP Forward-Looking Guidance
Fiscal Year 2017
(in millions, except per share data)
GAAP net loss		($39) to ($31)
Adjustments
Stock-based compensation expense		$17 to $18
Intangible assets amortization expense		$34
Merger and acquisition related expense		$3 to $4
Reorganization and other related costs		$6-$8
Tax expense related to Non-GAAP adjustments		($3) to ($4)
Non-GAAP net income		$22 to $26
GAAP loss per share		($0.73) to ($0.59)
Non-GAAP diluted earnings per share		$0.40 to $0.48

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