Non-GAAP Discussion Disclosure

The information discussed within this release includes financial results and projections that are in accordance with accounting principles generally accepted in the United States (GAAP). In addition, certain non-GAAP financial measures have been provided excluding certain charges, expenses and income. The non-GAAP measures should be read in conjunction with the corresponding GAAP measures and should be considered in addition to, and not as an alternative or substitute for, the measures prepared in accordance with GAAP. The non-GAAP financial measures are provided in an effort to provide information that investors may deem relevant to evaluate results from the company’s core business operations and to compare the company’s performance with prior periods. The non-GAAP financial measures primarily identify and exclude certain discrete items, such as merger-related expenses, amortization expenses and expenses associated with share-based compensation required under ASC 718. The company uses these non-GAAP financial measures for evaluating comparable financial performance against prior periods.

This release is available on the Stratasys web site at www.stratasys.com.

Stratasys Ltd. (Nasdaq: SSYS), headquartered in Minneapolis, Minn. and Rehovot, Israel, manufactures 3D printers and materials for prototyping and production. The company’s patented FDM® and PolyJetTM 3D Printing technologies produce prototypes and manufactured goods directly from 3D CAD files or other 3D content. Systems include 3D printers for idea development, prototyping and direct digital manufacturing. Stratasys subsidiaries include MakerBot and Solidscape, and the company operates the RedEye digital-manufacturing service. Stratasys has more than 1800 employees, holds over 550 granted or pending additive manufacturing patents globally, and has received more than 20 awards for its technology and leadership. Online at: www.stratasys.com or http://blog.stratasys.com.

Stratasys Ltd.
Consolidated Statements of Operations
(in thousands, except per share data)
		Three Months Ended December 31,								Twelve Months Ended December 31,
		2013				2012				2013				2012
		(unaudited)				(unaudited)
Net sales
Products		$	134,943			$	59,461			$	414,853			$	179,762
Services			20,142				11,690				69,550				35,482
			155,085				71,151				484,403				215,244
Cost of sales
Products			65,088				32,138				213,427				86,742
Services			12,195				6,175				44,803				18,591
			77,283				38,313				258,230				105,333
Gross profit			77,802				32,838				226,173				109,911
Operating expenses
Research and development, net			17,669				7,083				52,310				19,659
Selling, general and administrative			64,462				30,764				202,040				73,130
Change in fair value of earn-out obligations			(853	)			-				754				-
			81,278				37,847				255,104				92,789
Operating income (loss)			(3,476	)			(5,009	)			(28,931	)			17,122
Other income (expense)			(650	)			871				(450	)			1,388
Income (loss) before income taxes			(4,126	)			(4,138	)			(29,381	)			18,510
Income taxes (benefit)			(2,137	)			(239	)			(2,474	)			9,687
Net income (loss)		$	(1,989	)		$	(3,899	)		$	(26,907	)		$	8,823
Net income (loss) attributable to non-controlling interest		$	-			$	332			$	47			$	332
Net income (loss) attributable to Stratasys Ltd.		$	(1,989	)		$	(4,231	)		$	(26,954	)		$	8,491
Net income (loss) per ordinary share attributable to Stratasys Ltd.
Basic		$	(0.04	)		$	(0.16	)		$	(0.64	)		$	0.37
Diluted			(0.07	)			(0.16	)			(0.68	)			0.36
Weighted average ordinary shares outstanding
Basic			48,955				27,261				42,079				22,812
Diluted			49,036				27,261				42,099				23,776

Stratasys Ltd.
Consolidated Balance Sheets
(in thousands)
			December 31,			December 31,
			2013			2012
ASSETS
Current assets
Cash and cash equivalents			$	414,088		$	133,826
Short-term bank deposits				200,370			20,063
Accounts receivable less allowance for doubtful accounts of $1,804 at December 31, 2013 and $654 at December 31, 2012				99,200			64,678
Inventories				88,406			67,995
Net investment in sales-type leases, net for doubtful accounts of $183 at December 31, 2013 and $301 at December 31, 2012				6,696			5,134
Prepaid expenses				5,470			2,751
Deferred income taxes				16,501			4,968
Other current assets				21,398			23,863
Total current assets				852,129			323,278
Non-current assets
Goodwill				1,195,891			822,475
Other intangible assets, net				622,330			510,372
Net investment in sales-type leases				11,219			7,872
Amounts funded in respect of employees rights upon retirement				3,166			2,628
Property, plant and equipment, net				91,005			62,070
Other non-current assets				6,481			2,818
Total non-current assets				1,930,092			1,408,235
Total assets			$	2,782,221		$	1,731,513
LIABILITIES AND EQUITY
Current liabilities
Accounts payable			$	35,375		$	35,235
Accrued expenses and other current liabilities				32,849			22,197
Accrued compensation and related benefits				21,441			16,849
Earn-out obligation				12,027			-
Unearned revenues				36,033			18,068
Total current liabilities				137,725			92,349
Non-current liabilities
Employee rights upon retirement				4,683			4,188
Earn-out obligation - long-term				16,998			-
Deferred tax liabilities				105,901			54,693
Unearned revenues - long-term				3,315			3,181
Other non-current liabilities				13,812			4,946
Total liabilities				282,434			159,357
Commitments and contingencies
Equity
Ordinary shares, NIS 0.01 nominal value, authorized 180,000 shares; 49,211 and 38,372 shares issued and outstanding at December 31, 2013 and 2012, respectively				133			101
Additional paid-in capital				2,412,197			1,459,294
Retained earnings				85,549			112,503
Accumulated other comprehensive income (loss)				1,908			(238	)
Equity attributable to Stratasys Ltd.				2,499,787			1,571,660
Non-controlling interest				-			496
Total equity				2,499,787			1,572,156
Total liabilities and equity			$	2,782,221		$	1,731,513

Stratasys Ltd.
Reconciliation of Pro Forma GAAP to Pro Forma Non-GAAP Results of Operations
(in thousands, except per share data)
			Three Months Ended December 31, 2013												Three Months Ended December 31, 2012
															Pro Forma								Pro Forma
															Including Objet								Including Objet
			GAAP								Non-GAAP				GAAP								Non-GAAP
			(unaudited)				Adjustments*				(unaudited)				(unaudited)				Adjustments*				(unaudited)
Net sales
Products			$	134,943			$	668			$	135,611			$	81,651			$	-			$	81,651
Services				20,142				-				20,142				14,711				-				14,711
				155,085				668				155,753				96,362				-				96,362
Cost of sales
Products				65,088				(14,765	)			50,323				41,641				(10,936	)			30,705
Services				12,195				(495	)			11,700				10,329				(397	)			9,932
				77,283				(15,260	)			62,023				51,970				(11,333	)			40,637
Gross profit				77,802				15,928				93,730				44,392				11,333				55,725
Operating expenses
Research and development, net				17,669				(2,207	)			15,462				10,210				(988	)			9,222
Selling, general and administrative				64,462				(17,633	)			46,829				38,200				(10,059	)			28,141
Change in fair value of earn-out obligations				(853	)			853				-				-				-				-
				81,278				(18,987	)			62,291				48,410				(11,047	)			37,363
Operating income (loss)				(3,476	)			34,915				31,439				(4,018	)			22,380				18,362
Other income (expenses)				(650	)			-				(650	)			1,408				-				1,408
Income (loss) before income taxes				(4,126	)			34,915				30,789				(2,610	)			22,380				19,770
Income taxes (benefit)				(2,137	)			7,133				4,996				747				2,606				3,353
Net income (loss)			$	(1,989	)		$	27,782			$	25,793			$	(3,357	)		$	19,774			$	16,417
Net income attributable to non-controlling interest			$	-			$	-			$	-			$	158			$	-			$	158
Net income (loss) attributable to Stratasys Ltd.			$	(1,989	)		$	27,782			$	25,793			$	(3,515	)		$	19,774			$	16,259
Net income (loss) per ordinary share attributable to Stratasys Ltd.
Basic			$	(0.04	)						$	0.53			$	(0.09	)						$	0.43
Diluted				(0.07	)							0.50				(0.09	)							0.40
Weighted average ordinary shares outstanding
Basic				48,955								48,964				37,557								37,557
Diluted				49,036								51,429				37,557								40,327

The Company considers these non-GAAP measures to be indicative of its core operating results and facilitates a comparison of operating results across reporting periods. The Company uses these non-GAAP measures when evaluating its financial results as well as for internal planning and forecasting purposes, however these measures should not be viewed as a substitute for the Company’s GAAP results.

* Refer to the "Reconciliation of Non-GAAP Adjustments" herein for further information regarding adjustments.

Stratasys Ltd.
Reconciliation of Pro Forma GAAP to Pro Forma Non-GAAP Results of Operations
(in thousands, except per share data)
			Twelve Months Ended December 31, 2013												Twelve Months Ended December 31, 2012
															Pro Forma								Pro Forma
															Including Objet								Including Objet
			GAAP								Non-GAAP				GAAP								Non-GAAP
							Adjustments*				(unaudited)				(unaudited)				Adjustments*				(unaudited)
Net sales
Products			$	414,853			$	2,316			$	417,169			$	306,043			$	-			$	306,043
Services				69,550				-				69,550				53,011				-				53,011
				484,403				2,316				486,719				359,054				-				359,054
Cost of sales
Products				213,427				(58,826	)			154,601				158,828				(42,964	)			115,864
Services				44,803				(1,575	)			43,228				36,303				(1,475	)			34,828
				258,230				(60,401	)			197,829				195,131				(44,439	)			150,692
Gross profit				226,173				62,717				288,890				163,923				44,439				208,362
Operating expenses
Research and development, net				52,310				(5,490	)			46,820				36,923				(3,597	)			33,326
Selling, general and administrative				202,040				(57,652	)			144,388				141,232				(40,354	)			100,878
Change in fair value of earn-out obligations				754				(754	)			-				-				-				-
				255,104				(63,896	)			191,208				178,155				(43,951	)			134,204
Operating income (loss)				(28,931	)			126,613				97,682				(14,232	)			88,390				74,158
Other income (expenses)				(450	)			-				(450	)			2,124				-				2,124
Income (loss) before income taxes				(29,381	)			126,613				97,232				(12,108	)			88,390				76,282
Income taxes (benefit)				(2,474	)			17,575				15,101				9,407				7,225				16,632
Net income (loss)			$	(26,907	)		$	109,038			$	82,131			$	(21,515	)		$	81,165			$	59,650
Net income attributable to non-controlling interest			$	47			$	125			$	172			$	62			$	-			$	62
Net income (loss) attributable to Stratasys Ltd.			$	(26,954	)		$	108,913			$	81,959			$	(21,577	)		$	81,165			$	59,588
Net income (loss) per ordinary share attributable to Stratasys Ltd.
Basic			$	(0.64	)						$	1.95			$	(0.58	)						$	1.61
Diluted				(0.68	)							1.84				(0.58	)							1.49
Weighted average ordinary shares outstanding
Basic				42,079								42,079				36,987								36,987
Diluted				42,099								44,511				36,987								39,970

TheCompany considers these non-GAAP measures to be indicative of its core operating results and facilitates a comparison of operating results across reporting periods. The Company uses these non-GAAP measures when evaluating its financial results as well as for internal planning and forecasting purposes, however these measures should not be viewed as a substitute for the Company’s GAAP results.

* Refer to the "Reconciliation of Non-GAAP Adjustments" herein for further information regarding adjustments.

Stratasys Ltd.
Reconciliation of Non-GAAP Adjustments
(in thousands)
			Three Months Ended December 31,								Twelve Months Ended December 31,
			2013				2012				2013				2012
Net sales, products
Deferred revenue step-up				668				-				2,316				-
Cost of sales, products
Intangible assets amortization expense				(14,233	)			(10,260	)			(57,027	)			(41,038	)
Non-cash stock-based compensation expense				(496	)			(361	)			(1,535	)			(1,190	)
Merger related expense				(36	)			(315	)			(264	)			(736	)
				(14,765	)			(10,936	)			(58,826	)			(42,964	)
Cost of sales, services
Non-cash stock-based compensation expense				(424	)			(397	)			(1,445	)			(1,475	)
Merger related expense				(71	)			-				(130	)			-
				(495	)			(397	)			(1,575	)			(1,475	)
Research and development, net
Non-cash stock-based compensation expense				(925	)			(988	)			(3,491	)			(3,597	)
Performance bonus expense				(1,282	)			-				(1,999	)			-
				(2,207	)			(988	)			(5,490	)			(3,597	)
Selling, general and administrative
Intangible assets amortization expense				(5,319	)			(2,375	)			(17,066	)			(9,500	)
Non-cash stock-based compensation expense				(4,954	)			(5,187	)			(17,791	)			(21,592	)
Merger related expense				(2,724	)			(2,497	)			(15,681	)			(9,262	)
Performance bonus expense				(4,636	)			-				(7,114	)			-
				(17,633	)			(10,059	)			(57,652	)			(40,354	)
Change in fair value of earn-out obligation
Change in Earn-out obligation				853				-				(754	)			-
Income taxes
Tax expense related to non-GAAP adjustments				7,133				2,606				17,575				7,225
Net income attributable to non-controlling interest
Depreciation and amortization expense attributable to non-controlling interest				-				-				125				-
Net income			$	27,782			$	19,774			$	108,913			$	81,165

Stratasys Ltd.
Reconciliation of GAAP to Non-GAAP Forward Looking Guidance
Fiscal Year 2014
(in millions, except per share data)
GAAP net income		$10.5 to $19.9
Adjustments
Stock-based compensation expense		$25.1 to $28.2
Intangible assets amortization expense		$64.8
Merger related expense		$8.8 to $9.8
Non-GAAP net income		$113.3 to $118.6
GAAP diluted earnings per share		$0.20 to $0.38
Non-GAAP diluted earnings per share		$2.15 to $2.25

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