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)
			March 31,					December 31,
			2017					2016
			(unaudited)
ASSETS
Current assets
Cash and cash equivalents			$	297,246				$	280,328
Accounts receivable, net				115,099					120,411
Inventories				116,018					117,521
Net investment in sales-type leases				10,844					11,717
Prepaid expenses				6,371					7,571
Other current assets				19,411					15,491
Total current assets				564,989					553,039
Non-current assets
Net investment in sales-type leases - long term				9,655					12,126
Property, plant and equipment, net				206,722					208,415
Goodwill				385,808					385,629
Other intangible assets, net				169,302					177,458
Other non-current assets				31,626					29,382
Total non-current assets				803,113					813,010
Total assets			$	1,368,102				$	1,366,049
LIABILITIES AND EQUITY
Current liabilities
Accounts payable			$	44,805				$	40,933
Current portion of long term-debt				3,714					3,714
Accrued expenses and other current liabilities				28,582					32,207
Accrued compensation and related benefits				42,797					34,186
Obligations in connection with acquisitions				4,315					3,619
Deferred revenues				50,673					49,952
Total current liabilities				174,886					164,611
Non-current liabilities
Long-term debt				21,357					22,286
Deferred tax liabilities				4,916					5,952
Deferred revenues - long-term				12,942					12,922
Other non-current liabilities				24,293					22,251
Total non-current liabilities				63,508					63,411
Total liabilities				238,394					228,022
Redeemable non-controlling interests				1,939					2,029
Equity
Ordinary shares, NIS 0.01 nominal value, authorized 180,000 thousands shares; 52,728 thousands shares and 52,639 thousands shares issued and outstanding at March 31, 2017 and December 31, 2016, respectively				142					142
Additional paid-in capital				2,637,561					2,633,129
Accumulated other comprehensive loss				(12,243	)				(13,479	)
Accumulated deficit				(1,497,782	)				(1,483,925	)
Equity attributable to Stratasys Ltd.				1,127,678					1,135,867
Non-controlling interest				91					131
Total equity				1,127,769					1,135,998
Total liabilities and equity			$	1,368,102				$	1,366,049

Stratasys Ltd.
Consolidated Statements of Operations
(in thousands, except per share data)
			Three Months Ended March 31,
			2017					2016
			(unaudited)					(unaudited)
Net sales
Products			$	115,087				$	118,634
Services				48,075					49,272
				163,162					167,906
Cost of sales
Products				54,480					56,938
Services				31,802					29,799
				86,282					86,737
Gross profit				76,880					81,169
Operating expenses
Research and development, net				24,634					25,115
Selling, general and administrative				64,179					76,387
Change in the fair value of obligations in connection with acquisitions				696					727
				89,509					102,229
Operating loss				(12,629	)				(21,060	)
Financial income, net				256					180
Loss before income taxes				(12,373	)				(20,880	)
Income tax expenses				1,326					2,291
Share in losses of associated company				(288	)				-
Net loss				(13,987	)				(23,171	)
Net loss attributable to non-controlling interest				(130	)				(30	)
Net loss attributable to Stratasys Ltd.			$	(13,857	)			$	(23,141	)
Net loss per ordinary share attributable to Stratasys Ltd.
Basic			$	(0.26	)			$	(0.44	)
Diluted				(0.26	)				(0.44	)
Weighted average ordinary shares outstanding
Basic				52,690					52,098
Diluted				52,690					52,098

Stratasys Ltd.
Reconciliation of GAAP to Non-GAAP Results of Operations
					Three Months Ended March 31,
					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)			$	76,880				$	6,614				$	83,494			$	81,169				$	11,278				$	92,447
		Operating income (loss) (1,2)				(12,629	)				16,658					4,029				(21,060	)				25,013					3,953
		Net income (loss) attributable to Stratasys Ltd. (1,2,3)				(13,857	)				16,265					2,408				(23,141	)				23,737					596
		Net income (loss) per diluted share attributable to Stratasys Ltd. (4)			$	(0.26	)			$	0.31				$	0.05			$	(0.44	)			$	0.45				$	0.01
(1)		Acquired intangible assets amortization expense									5,705														10,414
		Non-cash stock-based compensation expense									643														723
		Reorganization and other related costs									94														-
		Merger and acquisition and other expense									172														141
											6,614														11,278
(2)		Acquired intangible assets amortization expense									2,544														3,760
		Non-cash stock-based compensation expense									3,261														4,900
		Change in fair value of obligations in connection with acquisitions									696														727
		Reorganization and other related costs									1,686														-
		Merger and acquisition and other expense									1,857														4,348
											10,044														13,735
											16,658														25,013
(3)		Corresponding tax effect									(585	)													(1,276	)
		Amortization expense of associated company									192														-
										$	16,265													$	23,737
(4)		Weighted average number of ordinary shares outstanding- Diluted				52,690										53,341				52,098										53,143

Stratasys Ltd.
Reconciliation of GAAP to Non-GAAP Forward Looking Guidance
Fiscal Year 2017
(in millions, except per share data)
GAAP net loss			($53) to ($39)
Adjustments
Stock-based compensation expense			$18 to $20
Intangible assets amortization expense			$34
Merger and acquisition related expense			$2 to $3
Reorganization and other related costs			$8-$10
Tax expense related to Non-GAAP adjustments			($3) to ($4)
Non-GAAP net income			$10 to $20
GAAP loss per share			($1.00) to ($0.73)
Non-GAAP diluted earnings per share			$0.19 to $0.37

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