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 that 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 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 transaction-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) is the corporate entity formed in 2012 by the merger of 3D printing companies Stratasys Inc. and Objet Ltd., based in Minneapolis, Minn. and Rehovot, Israel. The Company manufactures 3D printers and materials for prototyping and production. Its patented FDM^® and PolyJet^® processes produce prototypes and manufactured goods directly from 3D CAD files or other 3D content. Systems include affordable desktop 3D printers for idea development, a range of systems for prototyping, and large production systems for direct digital manufacturing. Since June 2012, the Company’s range of over 130 3D printing materials is the widest in the industry and includes in excess of 120 proprietary inkjet-based photopolymer materials and 10 proprietary FDM-based thermoplastic materials. Stratasys also manufactures Solidscape 3D Printers and operates the RedEye On Demand digital-manufacturing service. The Company has more than 1100 employees, holds more than 500 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 / www.objet.com or http://blog.objet.com.

Stratasys Ltd.
Consolidated Statements of Operations
(in thousands, except per share data)
		Three Months Ended December 31,								Twelve Months Ended December 31, 2011
		2012				2011				2012			2011
		(unaudited)				(unaudited)				(unaudited)
Net sales
Products		$	59,461			$	36,203			$	179,762		$	127,476
Services			11,690				7,369				35,482			28,418
			71,151				43,572				215,244			155,894
Cost of sales
Products			32,138				17,792				86,742			61,545
Services			6,175				2,916				18,591			11,945
			38,313				20,708				105,333			73,490
Gross profit			32,838				22,864				109,911			82,404
Operating expenses
Research and development, net			7,083				3,672				19,659			14,360
Selling, general and administrative			30,764				10,300				73,130			39,038
			37,847				13,972				92,789			53,398
Operating income (loss)			(5,009	)			8,892				17,122			29,006
Other income (expense)			871				(187	)			1,388			2,346
Income (loss) before income taxes			(4,138	)			8,705				18,510			31,352
Income taxes (benefit)			(239	)			2,919				9,687			10,726
Net income (loss)		$	(3,899	)		$	5,786			$	8,823		$	20,626
Net income attributable to non-controlling interest		$	332			$	-			$	332		$	-
Net income (loss) attributable to Stratasys Ltd.		$	(4,231	)		$	5,786			$	8,491		$	20,626
Net income (loss) per ordinary share attributable to Stratasys Ltd.
Basic		$	(0.16	)		$	0.27			$	0.37		$	0.98
Diluted			(0.16	)			0.27				0.36			0.95
Weighted average ordinary shares outstanding
Basic			27,261				21,207				22,812			21,133
Diluted			27,261				21,588				23,776			21,653

Stratasys Ltd.
Consolidated Balance Sheets
(in thousands)
December 31,				2012				2011
ASSETS
Current assets
Cash and cash equivalents			$	133,826			$	20,092
Short-term bank deposits				20,063				-
Restricted deposits				929				-
Short-term investments				-				14,602
Accounts receivable:
	Trade, less allowance for doubtful accounts of $654 at December 31, 2012 and $1,089 at December 31, 2011			64,678				24,642
	Other			22,934				1,589
Inventories				67,995				22,771
Net investment in sales-type leases, less allowance for doubtful accounts of $301 at December 31, 2012 and $230 at December 31, 2011				5,134				3,295
Prepaid expenses				2,751				3,259
Deferred income taxes				4,968				2,973
	Total current assets			323,278				93,223
Property, plant and equipment, net				62,070				39,669
Other assets
Goodwill				822,475				25,394
Other intangible assets, net				510,372				25,295
Net investment in sales-type leases				7,872				5,495
Long-term investments				1,634				32,581
Amounts funded in respect of employees rights upon retirement				2,628				-
Other non-current assets				1,184				113
	Total other assets			1,346,165				88,878
Total assets			$	1,731,513			$	221,770
LIABILITIES AND EQUITY
Current liabilities
Accounts payable			$	35,235			$	8,541
Other current liabilities				40,179				10,827
Deferred tax liabilities				945				-
Unearned revenues				18,068				9,769
	Total current liabilities			94,427				29,137
Non-current liabilities
Employee rights upon retirement				4,188				-
Deferred tax liabilities				54,693				6,760
Unearned revenues - long-term				3,181				2,562
Other non-current liabilities				2,868				-
Total liabilities				159,357				38,459
Commitments and contingencies
Equity
Ordinary shares, NIS 0.01 nominal value, authorized 60,000 shares; 38,372 and 21,246 shares issued and outstanding at December 31, 2012 and 2011, respectively				101				55
Additional paid-in capital				1,459,294				79,343
Retained earnings				112,503				104,012
Accumulated other comprehensive loss				(238	)			(99	)
Equity attributable to Stratasys Ltd.				1,571,660				183,311
Non-controlling interest				496				-
Total equity				1,572,156				183,311
Total liabilities and equity			$	1,731,513			$	221,770
Note: Certain reclassifications have been made to prior period balances to conform to current period presentation.

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, 2012											Three Months Ended December 31, 2011
		Pro Forma								Pro Forma			Pro Forma								Pro Forma
		GAAP								Non-GAAP			GAAP								Non-GAAP
		(unaudited)				Adjustments*				(unaudited)			(unaudited)				Adjustments*				(unaudited)
Net sales
Products		$	81,651			$	-			$	81,651		$	66,512			$	-			$	66,512
Services			14,711				-				14,711			11,778				-				11,778
			96,362				-				96,362			78,290				-				78,290
Cost of sales
Products			41,641				(10,936	)			30,705			38,039				(10,519	)			27,520
Services			10,329				(397	)			9,932			6,656				(438	)			6,218
			51,970				(11,333	)			40,637			44,695				(10,957	)			33,738
Gross profit			44,392				11,333				55,725			33,595				10,957				44,552
Operating expenses
Research and development, net			10,210				(988	)			9,222			8,241				(879	)			7,362
Selling, general and administrative			38,200				(10,059	)			28,141			29,166				(7,399	)			21,767
			48,410				(11,047	)			37,363			37,407				(8,278	)			29,129
Operating income (loss)			(4,018	)			22,380				18,362			(3,812	)			19,235				15,423
Other income (expense)			1,408				-				1,408			(77	)			-				(77	)
Income (loss) before income taxes			(2,610	)			22,380				19,770			(3,889	)			19,235				15,346
Income taxes			747				2,606				3,353			2,408				1,285				3,693
Net income (loss)		$	(3,357	)		$	19,774			$	16,417		$	(6,297	)		$	17,950			$	11,653
Net income attributable to non-controlling interest		$	158			$	-			$	158		$	-			$	-			$	-
Net income (loss) attributable to Stratasys Ltd.		$	(3,515	)		$	19,774			$	16,259		$	(6,297	)		$	17,950			$	11,653
Net income (loss) per ordinary share attributable to Stratasys Ltd.
Basic		$	(0.09	)						$	0.43		$	(0.17	)						$	0.32
Diluted			(0.09	)							0.40			(0.17	)							0.30
Weighted average ordinary shares outstanding
Basic			37,557								37,557			36,652								36,652
Diluted			37,557								40,327			36,652								39,480
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, 2012											Twelve Months Ended December 31, 2011
										Pro Forma											Pro Forma
		Pro Forma								Non-GAAP			Pro Forma								Non-GAAP
		(unaudited)				Adjustments*				(unaudited)			(unaudited)				Adjustments*				(unaudited)
Net sales
Products		$	306,043			$	-			$	306,043		$	233,235			$	-			$	233,235
Services			53,011				-				53,011			43,755				-				43,755
			359,054				-				359,054			276,990				-				276,990
Cost of sales
Products			158,828				(42,964	)			115,864			137,556				(41,826	)			95,730
Services			36,303				(1,475	)			34,828			26,395				(1,504	)			24,891
			195,131				(44,439	)			150,692			163,951				(43,330	)			120,621
Gross profit			163,923				44,439				208,362			113,039				43,330				156,369
Operating expenses
Research and development, net			36,923				(3,597	)			33,326			31,934				(3,005	)			28,929
Selling, general and administrative			141,232				(40,354	)			100,878			104,928				(28,287	)			76,641
			178,155				(43,951	)			134,204			136,862				(31,292	)			105,570
Operating income (loss)			(14,232	)			88,390				74,158			(23,823	)			74,622				50,799
Other income (expense)			2,124				-				2,124			1,118				(1,831	)			(713	)
Income (loss) before income taxes			(12,108	)			88,390				76,282			(22,705	)			72,791				50,086
Income taxes			9,407				7,225				16,632			8,148				4,768				12,916
Net income (loss)		$	(21,515	)		$	81,165			$	59,650		$	(30,853	)		$	68,023			$	37,170
Net income attributable to non-controlling interest		$	62			$	-			$	62		$	-			$	-			$	-
Net income (loss) attributable to Stratasys Ltd.		$	(21,577	)		$	81,165			$	59,588		$	(30,853	)		$	68,023			$	37,170
Net income (loss) per ordinary share attributable to Stratasys Ltd.
Basic		$	(0.58	)						$	1.61		$	(0.84	)						$	1.02
Diluted			(0.58	)							1.49			(0.84	)							0.94
Weighted average ordinary shares outstanding
Basic			36,987								36,987			36,577								36,577
Diluted			36,987								39,970			36,577								39,656
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 December 31,								Twelve Months Ended December 31,
			2012				2011				2012				2011
Cost of sales, products
Objet intangible assets amortization expense			(9,824	)			(9,824	)			(39,294	)			(39,294	)
Solidscape intangible assets amortization expense			(436	)			(436	)			(1,744	)			(1,163	)
Non-cash stock-based compensation expense			(361	)			(259	)			(1,190	)			(808	)
Merger related expense			(194	)			-				(265	)			-
Expense related to the revaluation of Solidscape, Inc. and Fasotech Co., Ltd inventory at acquisition			(121	)			-				(471	)			(561	)
			(10,936	)			(10,519	)			(42,964	)			(41,826	)
Cost of sales, services
Non-cash stock-based compensation expense			(397	)			(438	)			(1,475	)			(1,504	)
Research and development, net
Non-cash stock-based compensation expense			(988	)			(879	)			(3,597	)			(3,005	)
Selling, general and administrative
Objet intangible assets amortization expense			(2,242	)			(2,242	)			(8,967	)			(8,967	)
Solidscape intangible assets amortization expense			(133	)			(133	)			(533	)			(356	)
Non-cash stock-based compensation expense			(5,187	)			(5,024	)			(21,592	)			(18,349	)
Solidscape acquisition expense			-				-				-				(615	)
Merger related expense			(2,497	)			-				(9,262	)			-
			(10,059	)			(7,399	)			(40,354	)			(28,287	)
Other income
Sale of an auction rate security			-				-				-				(626	)
Sale of an equity investment			-				-				-				(1,205	)
			-				-				-				(1,831	)
Income taxes
Tax expense related to non-GAAP adjustments			2,606				1,285				7,225				4,768
Net income		$	19,774			$	17,950			$	81,165			$	68,023

Stratasys Ltd.
Reconciliation of GAAP to Non-GAAP Forward Looking Guidance
Fiscal Year 2013				Earnings (loss) Per Diluted Share Range
U.S. GAAP measure				($0.41) to ($0.16)
Adjustments
		Stock-based compensation expense		$0.49 to $0.55
		Intangible assets amortization expense		$1.45
		Merger related expense		$0.17 to $0.21
Non-GAAP estimate				$1.80 to $1.95

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