Stratasys Reports Third Quarter 2015 Financial Results

Non-GAAP Discussion Disclosure

The information provided within this press release includes financial results and projections that have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP). In addition, certain non-GAAP financial measures have been provided, which exclude 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 have been included 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 of intangible assets, impairment charges, reorganization and other related costs, one time write off of deferred tax assets, 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.


Stratasys Ltd.

Consolidated Balance Sheets

(in thousands)
	September 30,			December 31,
	2015			2014

ASSETS

Current assets
Cash and cash equivalents	$	232,219		$	442,141
Short-term bank deposits		30,208			595
Accounts receivable, net		130,699			150,806
Inventories		140,783			123,385
Net investment in sales-type leases		10,702			8,170
Prepaid expenses		6,895			7,931
Deferred income taxes		30,366			25,697
Other current assets		19,108			37,903

Total current assets		600,980			796,628

Non-current assets
Goodwill		308,549			1,323,502
Other intangible assets, net		459,112			597,903
Property, plant and equipment, net		209,432			157,036
Net investment in sales-type leases - long term		17,769			14,822
Other non-current assets		32,129			9,216

Total non-current assets		1,026,991			2,102,479

Total assets	$	1,627,971		$	2,899,107

LIABILITIES AND EQUITY

Current liabilities
Accounts payable	$	38,497		$	37,359
Short term debt		-			50,000
Accrued expenses and other current liabilities		42,189			47,760
Accrued compensation and related benefits		36,130			42,332
Obligations in connection with acquisitions		5,949			28,092
Deferred revenues		49,273			45,023

Total current liabilities		172,038			250,566

Non-current liabilities
Obligations in connection with acquisitions - long term		4,784			26,461
Deferred tax liabilities		38,466			55,835
Deferred revenues - long-term		6,908			5,946
Other non-current liabilities		22,350			25,091

Total non-current liabilities		72,508			113,333

Total liabilities		244,546			363,899

Redeemable non-controlling interests		2,472			3,969

Equity
Ordinary shares, NIS 0.01 nominal value, authorized 180,000 shares; 52,301 and 50,923 shares issued and outstanding at September 30, 2015 and December 31, 2014, respectively		141			139
Additional paid-in capital		2,600,286			2,568,149
Accumulated deficit		(1,211,048	)		(33,871	)
Accumulated other comprehensive loss		(8,699	)		(3,647	)
Equity attributable to Stratasys Ltd.		1,380,680			2,530,770
Non-controlling interest		273			469

Total equity		1,380,953			2,531,239

Total liabilities and equity	$	1,627,971		$	2,899,107


Stratasys Ltd.

Consolidated Statements of Operations

(in thousands, except per share data)

	Three Months Ended September 30,						Nine Months Ended September 30,
	2015			2014			2015			2014
	(unaudited)			(unaudited)			(unaudited)			(unaudited)
Net sales
Products	$	118,473		$	160,200		$	379,630		$	443,542
Services		49,107			43,410			143,003			89,474
		167,580			203,610			522,633			533,016

Cost of sales
Products		80,796			85,437			246,833			219,853
Services		34,045			30,326			94,065			55,954
		114,841			115,763			340,898			275,807

Gross profit		52,739			87,847			181,735			257,209

Operating expenses
Research and development, net		35,398			23,353			88,142			59,081
Selling, general and administrative		106,512			110,803			306,701			256,349
Goodwill impairment		868,101			-			1,018,501			-
Change in the fair value of obligations in connection with acquisitions		(3,022	)		5,578			(22,958	)		(1,289	)
		1,006,989			139,734			1,390,386			314,141

Operating loss		(954,250	)		(51,887	)		(1,208,651	)		(56,932	)

Financial expense		(3,505	)		(1,384	)		(9,340	)		(2,383	)

Loss before income taxes		(957,755	)		(53,271	)		(1,217,991	)		(59,315	)

Income tax benefit		(19,633	)		(21,919	)		(40,321	)		(31,877	)

Net loss		(938,122	)		(31,352	)		(1,177,670	)		(27,438	)

Net loss attributable to non-controlling interest		(164	)		(24	)		(493	)		(24	)

Net loss attributable to Stratasys Ltd.	$	(937,958	)	$	(31,328	)	$	(1,177,177	)	$	(27,414	)

Net loss per ordinary share attributable to Stratasys Ltd.
Basic	$	(18.06	)	$	(0.62	)	$	(22.92	)	$	(0.55	)
Diluted		(18.06	)		(0.62	)		(22.92	)		(0.55	)

Weighted average ordinary shares outstanding
Basic		51,941			50,490			51,437			49,717
Diluted		51,941			50,490			51,437			49,717


Stratasys Ltd.

Reconciliation of GAAP to Non-GAAP Results of Operations

(in thousands, except per share data)

	Three Months Ended September 30, 2015									Three Months Ended September 30, 2014

	GAAP						Non-GAAP			GAAP						Non-GAAP
	(unaudited)			Adjustments*			(unaudited)			(unaudited)			Adjustments*			(unaudited)
Net sales
Products	$	118,473		$	-		$	118,473		$	160,200		$	-		$	160,200
Services		49,107			-			49,107			43,410			-			43,410
		167,580			-			167,580			203,610			-			203,610

Cost of sales
Products		80,796			(31,892	)		48,904			85,437			(26,760	)		58,677
Services		34,045			(572	)		33,473			30,326			(4,236	)		26,090
		114,841			(32,464	)		82,377			115,763			(30,996	)		84,767

Gross profit		52,739			32,464			85,203			87,847			30,996			118,843

Operating expenses
Research and development, net		35,398			(10,324	)		25,074			23,353			(4,178	)		19,175
Selling, general and administrative		106,512			(36,400	)		70,112			110,803			(42,936	)		67,867
Goodwill impairment		868,101			(868,101	)		-			-			-			-
Change in the fair value of obligations in connection with acquisitions		(3,022	)		3,022			-			5,578			(5,578	)		-
		1,006,989			(911,803	)		95,186			139,734			(52,692	)		87,042

Operating income (loss)		(954,250	)		944,267			(9,983	)		(51,887	)		83,688			31,801

Financial income (expense)		(3,505	)		2,705			(800	)		(1,384	)		-			(1,384	)

Income (loss) before income taxes		(957,755	)		946,972			(10,783	)		(53,271	)		83,688			30,417

Income taxes (benefit)		(19,633	)		8,350			(11,283	)		(21,919	)		22,269			350

Net income (loss)		(938,122	)		938,622			500			(31,352	)		61,419			30,067

Net loss attributable to non-controlling interest		(164	)		-			(164	)		(24	)		-			(24	)

Net income (loss) attributable to Stratasys Ltd.	$	(937,958	)	$	938,622		$	664		$	(31,328	)	$	61,419		$	30,091

Net income (loss) per ordinary share attributable to Stratasys Ltd.
Basic	$	(18.06	)				$	0.01		$	(0.62	)				$	0.60
Diluted		(18.06	)					0.01			(0.62	)					0.58

Weighted average ordinary shares outstanding
Basic		51,941						51,941			50,490						50,490
Diluted		51,941						53,108			50,490						52,261


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 GAAP to Non-GAAP Results of Operations

(in thousands, except per share data)

	Nine Months Ended September 30, 2015									Nine Months Ended September 30, 2014


	GAAP			Adjustments*			Non-GAAP			GAAP			Adjustments*			Non-GAAP
Net sales
Products	$	379,630		$	-		$	379,630		$	443,542		$	235		$	443,777
Services		143,003			-			143,003			89,474			-			89,474
		522,633			-			522,633			533,016			235			533,251

Cost of sales
Products		246,833			(93,778	)		153,055			219,853			(55,228	)		164,625
Services		94,065			(2,823	)		91,242			55,954			(5,010	)		50,944
		340,898			(96,601	)		244,297			275,807			(60,238	)		215,569

Gross profit		181,735			96,601			278,336			257,209			60,473			317,682

Operating expenses
Research and development, net		88,142			(16,157	)		71,985			59,081			(6,991	)		52,090
Selling, general and administrative		306,701			(93,265	)		213,436			256,349			(74,076	)		182,273
Goodwill impairment		1,018,501			(1,018,501	)		-			-			-			-
Change in the fair value of obligations in connection with acquisitions		(22,958	)		22,958			-			(1,289	)		1,289			-
		1,390,386			(1,104,965	)		285,421			314,141			(79,778	)		234,363

Operating income (loss)		(1,208,651	)		1,201,566			(7,085	)		(56,932	)		140,251			83,319

Financial income (expense)		(9,340	)		2,705			(6,635	)		(2,383	)		-			(2,383	)

Income (loss) before income taxes		(1,217,991	)		1,204,271			(13,720	)		(59,315	)		140,251			80,936

Income taxes (benefit)		(40,321	)		16,444			(23,877	)		(31,877	)		34,153			2,276

Net income (loss)		(1,177,670	)		1,187,827			10,157			(27,438	)		106,098			78,660

Net loss attributable to non-controlling interest		(493	)		-			(493	)		(24	)		-			(24	)

Net income (loss) attributable to Stratasys Ltd.	$	(1,177,177	)	$	1,187,827		$	10,650		$	(27,414	)	$	106,098		$	78,684

Net income (loss) per ordinary share attributable to Stratasys Ltd.
Basic	$	(22.92	)				$	0.21		$	(0.55	)				$	1.58
Diluted		(22.92	)					0.20			(0.55	)					1.53

Weighted average ordinary shares outstanding
Basic		51,437						51,437			49,717						49,717
Diluted		51,437						52,715			49,717						51,573


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 Non-GAAP Adjustments

(in thousands)

	Three Months Ended September 30,						Nine Months Ended September 30,
	2015			2014			2015			2014
Net sales, products
Deferred revenue step-up	$	-		$	-		$	-		$	235

Cost of sales, products
Acquired intangible assets amortization		(12,317	)		(14,328	)		(39,523	)		(41,582	)
Impairment charges		(18,338	)		(11,635	)		(48,120	)		(11,635	)
Non-cash stock-based compensation expense		(372	)		(797	)		(2,833	)		(2,011	)
Reorganization and other related costs		(865	)		-			(3,302	)		-
		(31,892	)		(26,760	)		(93,778	)		(55,228	)
Cost of sales, services
Acquired intangible assets amortization		-			(536	)		-			(537	)
Non-cash stock-based compensation expense		(367	)		(485	)		(1,536	)		(1,217	)
Reorganization and other related costs		(49	)		-			(124	)		-
Merger and acquisition related expense		(156	)		(3,215	)		(1,163	)		(3,256	)
		(572	)		(4,236	)		(2,823	)		(5,010	)
Research and development, net
Non-cash stock-based compensation expense		(985	)		(1,098	)		(4,359	)		(2,921	)
Impairment charges		(7,546	)		(3,000	)		(7,546	)		(3,000	)
Reorganization and other related costs		(728	)		-			(1,345	)		-
Merger and acquisition related expense		(1,065	)		(80	)		(2,907	)		(1,070	)
		(10,324	)		(4,178	)		(16,157	)		(6,991	)

Selling, general and administrative
Acquired intangible assets amortization		(5,832	)		(6,474	)		(17,972	)		(17,344	)
Non-cash stock-based compensation expense		(3,112	)		(5,217	)		(15,432	)		(15,262	)
Merger and acquisition related expense		(9,773	)		(31,245	)		(22,616	)		(41,470	)
Reorganization and other related costs		(106	)		-			(6,245	)		-
Impairment charges		(17,577	)		-			(31,000	)		-
		(36,400	)		(42,936	)		(93,265	)		(74,076	)

Goodwill impairment		(868,101	)		-			(1,018,501	)		-

Change in the fair value of obligations in connection with acquisitions
Change in the fair value of obligations in connection with acquisitions		3,022			(5,578	)		22,958			1,289

Financial expense
Credit facility extinguishment related costs		(2,705	)		-			(2,705	)		-

Income taxes
Tax expense related to non-GAAP adjustments		8,350			22,269			16,444			34,153


Net income	$	938,622		$	61,419		$	1,187,827		$	106,098


Stratasys Ltd.

Reconciliation of GAAP to Non-GAAP Forward Looking Guidance

Three Months Ended December 31, 2015

(in millions, except per share data)

GAAP net loss			($35.3) to ($28.3)

Adjustments
Stock-based compensation expense			$7 to $7.5
Intangible assets amortization expense			$17
Merger and acquisition related expense			$2.5
Reorganization and other related costs			$4 to $5
Tax expense related to Non-GAAP adjustments			($5.2) to ($5.7)

Non-GAAP net loss			($9) to ($3)

GAAP loss per share			($0.68) to ($0.54)

Non-GAAP loss per share			($0.17) to ($0.06)

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