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)
			June 30,					December 31,
			2017					2016
			(unaudited)
ASSETS
Current assets
Cash and cash equivalents			$	305,345				$	280,328
Accounts receivable, net				120,342					120,411
Inventories				116,486					117,521
Net investment in sales-type leases				9,921					11,717
Prepaid expenses				6,701					7,571
Other current assets				17,557					15,491
Total current assets				576,352					553,039
Non-current assets
Net investment in sales-type leases - long term				7,406					12,126
Property, plant and equipment, net				207,689					208,415
Goodwill				386,513					385,629
Other intangible assets, net				160,926					177,458
Other non-current assets				32,335					29,382
Total non-current assets				794,869					813,010
Total assets			$	1,371,221				$	1,366,049
LIABILITIES AND EQUITY
Current liabilities
Accounts payable			$	46,087				$	40,933
Current portion of long term-debt				3,714					3,714
Accrued expenses and other current liabilities				28,910					32,207
Accrued compensation and related benefits				39,744					34,186
Obligations in connection with acquisitions				4,932					3,619
Deferred revenues				50,464					49,952
Total current liabilities				173,851					164,611
Non-current liabilities
Long-term debt				20,429					22,286
Deferred tax liabilities				4,197					5,952
Deferred revenues - long-term				14,087					12,922
Other non-current liabilities				25,984					22,251
Total non-current liabilities				64,697					63,411
Total liabilities				238,548					228,022
Redeemable non-controlling interests				1,811					2,029
Equity
Ordinary shares, NIS 0.01 nominal value, authorized 180,000 thousands shares; 52,854 thousands shares and 52,639 thousands shares issued and outstanding at June 30, 2017 and December 31, 2016, respectively				142					142
Additional paid-in capital				2,644,579					2,633,129
Accumulated other comprehensive loss				(10,143	)				(13,479	)
Accumulated deficit				(1,503,769	)				(1,483,925	)
Equity attributable to Stratasys Ltd.				1,130,809					1,135,867
Non-controlling interest				53					131
Total equity				1,130,862					1,135,998
Total liabilities and equity			$	1,371,221				$	1,366,049

Stratasys Ltd.
Consolidated Statements of Operations
(in thousands, except per share data)
			Three Months Ended June 30,										Six Months Ended June 30,
			2017					2016					2017					2016
			(unaudited)					(unaudited)					(unaudited)					(unaudited)
Net sales
Products			$	121,021				$	123,758				$	236,108				$	242,392
Services				48,969					48,315					97,044					97,587
				169,990					172,073					333,152					339,979
Cost of sales
Products				54,723					61,413					109,203					118,351
Services				31,875					31,128					63,677					60,927
				86,598					92,541					172,880					179,278
Gross profit				83,392					79,532					160,272					160,701
Operating expenses
Research and development, net				23,251					24,366					47,885					49,481
Selling, general and administrative				64,569					72,884					128,748					149,271
Change in the fair value of obligations in connection with acquisitions				617					(587	)				1,313					140
				88,437					96,663					177,946					198,892
Operating loss				(5,045	)				(17,131	)				(17,674	)				(38,191	)
Financial income, net				429					932					685					1,112
Loss before income taxes				(4,616	)				(16,199	)				(16,989	)				(37,079	)
Income taxe expenses				1,308					2,454					2,634					4,745
Share in losses of associated company				(229	)				-					(517	)				-
Net loss				(6,153	)				(18,653	)				(20,140	)				(41,824	)
Net loss attributable to non-controlling interest				(166	)				(163	)				(296	)				(193	)
Net loss attributable to Stratasys Ltd.			$	(5,987	)			$	(18,490	)			$	(19,844	)			$	(41,631	)
Net loss per ordinary share attributable to Stratasys Ltd.
Basic			$	(0.11	)			$	(0.35	)			$	(0.38	)			$	(0.80	)
Diluted				(0.11	)				(0.36	)				(0.38	)				(0.80	)
Basic				52,778					52,169					52,733					52,133
Diluted				52,778					52,496					52,733					52,133

Stratasys Ltd.
Reconciliation of GAAP to Non-GAAP Results of Operations
					Three Months Ended June 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)			$	83,392				$	6,784				$	90,176			$	79,532				$	16,715				$	96,247
		Operating income (loss) (1,2)				(5,045	)				16,117					11,072				(17,131	)				27,332					10,201
		Net income (loss) attributable to Stratasys Ltd. (1,2,3)				(5,987	)				15,165					9,178				(18,490	)				24,728					6,238
		Net income (loss) per diluted share attributable to Stratasys Ltd. (4)			$	(0.11	)			$	0.28				$	0.17			$	(0.36	)			$	0.48				$	0.12
(1)		Acquired intangible assets amortization expense									5,688														10,510
		Impairment charges of other intangible assets									-														1,779
		Non-cash stock-based compensation expense									799														729
		Reorganization and other related costs									137														3,543
		Merger and acquisition and other expense									160														154
											6,784														16,715
(2)		Acquired intangible assets amortization expense									2,588														3,621
		Non-cash stock-based compensation expense									4,532														4,750
		Change in fair value of obligations in connection with acquisitions									617														(587	)
		Reorganization and other related costs									598														956
		Merger and acquisition and other expense									998														1,877
											9,333														10,617
											16,117														27,332
(3)		Corresponding tax effect									(1,150	)													(2,604	)
		Amortization expense of associated company									198														-
										$	15,165													$	24,728
(4)		Weighted average number of ordinary shares outstanding- Diluted				52,778										53,473				52,496										53,238

Stratasys Ltd.
Reconciliation of GAAP to Non-GAAP Results of Operations
					Six Months Ended June 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)			$	160,272				$	13,398				$	173,670			$	160,701				$	27,993				$	188,694
		Operating income (loss) (1,2)				(17,674	)				32,775					15,101				(38,191	)				52,345					14,154
		Net income (loss) attributable to Stratasys Ltd. (1,2,3)				(19,844	)				31,430					11,586				(41,631	)				48,465					6,834
		Net income (loss) per diluted share attributable to Stratasys Ltd. (4)			$	(0.38	)			$	0.60				$	0.22			$	(0.80	)			$	0.93				$	0.13
(1)		Acquired intangible assets amortization expense									11,393														20,924
		Impairment charges of other intangible assets									-														1,779
		Non-cash stock-based compensation expense									1,442														1,452
		Reorganization and other related costs									231														3,321
		Merger and acquisition and other expense									332														517
											13,398														27,993
(2)		Acquired intangible assets amortization expense									5,132														7,382
		Non-cash stock-based compensation expense									7,793														9,650
		Change in fair value of obligations in connection with acquisitions									1,313														140
		Reorganization and other related costs									2,284														1,461
		Merger and acquisition and other expense									2,855														5,719
											19,377														24,352
											32,775														52,345
(3)		Corresponding tax effect									(1,735	)													(3,880	)
		Amortization expense of associated company									390														-
										$	31,430													$	48,465
(4)		Weighted average number of ordinary shares outstanding- Diluted				52,733										53,406				52,133										53,201

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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