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 or gains, and (y) excluding non-cash items such as stock-based compensation expenses, acquired intangible assets amortization, including intangible assets amortization related to equity method investments, impairment of long-lived assets, changes in fair value of obligations in connection with acquisitions and the corresponding tax effect of those items. 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
(Unaudited)
(in thousands, except share data)
			June 30,					December 31,
			2018					2017
ASSETS
Current assets
Cash and cash equivalents			$	346,697				$	328,761
Accounts receivable, net				123,466					132,671
Inventories				117,039					115,717
Net investment in sales-type leases				4,758					7,208
Prepaid expenses				7,036					7,696
Other current assets				24,332					22,858
Total current assets				623,328					614,911
Non-current assets
Net investment in sales-type leases - long term				2,627					4,439
Property, plant and equipment, net				195,944					199,951
Goodwill				386,746					387,108
Other intangible assets, net				125,039					142,122
Other non-current assets				34,694					31,219
Total non-current assets				745,050					764,839
Total assets			$	1,368,378				$	1,379,750
LIABILITIES AND EQUITY
Current liabilities
Accounts payable			$	47,189				$	39,849
Current portion of long term-debt				5,143					5,143
Accrued expenses and other current liabilities				33,586					30,041
Accrued compensation and related benefits				30,290					35,356
Deferred revenues				54,063					52,908
Total current liabilities				170,271					163,297
Non-current liabilities
Long-term debt				24,571					27,143
Deferred tax liabilities				2,995					7,069
Deferred revenues - long-term				15,098					15,200
Other non-current liabilities				29,953					32,899
Total non-current liabilities				72,617					82,311
Total liabilities				242,888					245,608
Redeemable non-controlling interests				997					1,635
Equity
Ordinary shares, NIS 0.01 nominal value, authorized 180,000 thousands shares; 53,729 thousands shares and 53,631 thousands shares issued and outstanding at June 30, 2018 and December 31, 2017, respectively				146					145
Additional paid-in capital				2,670,404					2,663,274
Accumulated other comprehensive loss				(9,103	)				(7,023	)
Accumulated deficit				(1,536,954	)				(1,523,906	)
Equity attributable to Stratasys Ltd.				1,124,493					1,132,490
Non-controlling interest				-					17
Total equity				1,124,493					1,132,507
Total liabilities and equity			$	1,368,378				$	1,379,750

Stratasys Ltd.
Consolidated Statements of Operations
(in thousands, except per share data)
			Three Months Ended June 30,										Six Months Ended June 30,
			2018					2017					2018					2017
			(unaudited)					(unaudited)					(unaudited)					(unaudited)
Net sales
Products			$	118,403				$	121,021				$	222,320				$	236,108
Services				51,833					48,969				$	101,749				$	97,044
				170,236					169,990					324,069					333,152
Cost of sales
Products				53,262					54,723					98,480					109,203
Services				33,327					31,875					66,292					63,677
				86,589					86,598					164,772					172,880
Gross profit				83,647					83,392					159,297					160,272
Operating expenses
Research and development, net				23,689					23,251					48,799					47,885
Selling, general and administrative				61,887					65,186					118,892					130,061
				85,576					88,437					167,691					177,946
Operating loss				(1,929	)				(5,045	)				(8,394	)				(17,674	)
Financial income (expense), net				(83	)				429					(75	)				685
Loss before income taxes				(2,012	)				(4,616	)				(8,469	)				(16,989	)
Income tax expenses				205					1,308					806					2,634
Share in losses of associated companies				(1,360	)				(229	)				(7,433	)				(517	)
Net loss				(3,577	)				(6,153	)				(16,708	)				(20,140	)
Net loss attributable to non-controlling interests				(26	)				(166	)				(116	)				(296	)
Net loss attributable to Stratasys Ltd.			$	(3,551	)			$	(5,987	)			$	(16,592	)			$	(19,844	)
Net loss per ordinary share attributable to Stratasys Ltd.
Basic			$	(0.08	)			$	(0.11	)			$	(0.33	)			$	(0.38	)
Diluted				(0.08	)				(0.11	)			$	(0.33	)			$	(0.38	)
Basic				53,722					52,778					53,689					52,733
Diluted				53,722					52,778					53,689					52,733

Stratasys Ltd.
Reconciliation of GAAP to Non-GAAP Results of Operations
					Three Months Ended June 30,
					2018					Non-GAAP					2018				2017					Non-GAAP					2017
					GAAP					Adjustments					Non-GAAP				GAAP					Adjustments					Non-GAAP
					U.S. dollars and shares in thousands (except per share amounts)
		Gross profit (1)			$	83,647				$	5,708				$	89,355			$	83,392				$	6,784				$	90,176
		Operating income (loss) (1,2)				(1,929	)				12,548					10,619				(5,045	)				16,117					11,072
		Net income (loss) attributable to Stratasys Ltd. (1,2,3)				(3,551	)				11,643					8,092				(5,987	)				15,165					9,178
		Net income (loss) per diluted share attributable to Stratasys Ltd. (4)			$	(0.08	)			$	0.23				$	0.15			$	(0.11	)			$	0.28				$	0.17
(1)		Acquired intangible assets amortization expense									5,220														5,688
		Non-cash stock-based compensation expense									442														799
		Reorganization and other related costs									36														137
		Merger and acquisition related expense									10														160
											5,708														6,784
(2)		Acquired intangible assets amortization expense									2,539														2,588
		Non-cash stock-based compensation expense									3,836														4,532
		Change in fair value of obligations in connection with acquisitions									-														617
		Reorganization and other related costs									431														598
		Merger and acquisition related expense									34														998
											6,840														9,333
											12,548														16,117
(3)		Corresponding tax effect									(1,119	)													(1,150	)
		Amortization of acquired intangibles assets related to equity method investments									214														198
										$	11,643													$	15,165
(4)		Weighted average number of ordinary shares outstanding- Diluted				53,722										53,745				52,778										53,473

Stratasys Ltd.
Reconciliation of GAAP to Non-GAAP Results of Operations
					Six Months Ended June 30,
					2018					Non-GAAP					2018				2017					Non-GAAP					2017
					GAAP					Adjustments					Non-GAAP				GAAP					Adjustments					Non-GAAP
					U.S. dollars and shares in thousands (except per share amounts)
		Gross profit (1)			$	159,297				$	11,307				$	170,604			$	160,272				$	13,398				$	173,670
		Operating income (loss) (1,2)				(8,394	)				23,935					15,541				(17,674	)				32,775					15,101
		Net income (loss) attributable to Stratasys Ltd. (1,2,3)				(16,592	)				27,406					10,814				(19,844	)				31,430					11,586
		Net income (loss) per diluted share attributable to Stratasys Ltd. (4)			$	(0.33	)			$	0.53				$	0.20			$	(0.38	)			$	0.60				$	0.22
(1)		Acquired intangible assets amortization expense									10,424														11,393
		Non-cash stock-based compensation expense									829														1,442
		Reorganization and other related costs									54														231
		Merger and acquisition related expense									-														332
											11,307														13,398
(2)		Acquired intangible assets amortization expense									5,097														5,132
		Non-cash stock-based compensation expense									6,864														7,793
		Change in fair value of obligations in connection with acquisitions									-														1,313
		Reorganization and other related costs									2,102														2,284
		Gain from sale of plant and property									(1,563	)													-
		Merger and acquisition related expense									128														2,855
											12,628														19,377
											23,935														32,775
(3)		Corresponding tax effect									(1,911	)													(1,735	)
		Amortization of acquired intangibles assets related to equity method investments									5,382														390
										$	27,406													$	31,430
(4)		Weighted average number of ordinary shares outstanding- Diluted				53,689										53,732				52,733										53,406

Stratasys Ltd.
Reconciliation of GAAP to Non-GAAP Forward Looking Guidance
Fiscal Year 2018
(in millions, except per share data)
GAAP net loss			($41) to ($25)
Adjustments
Stock-based compensation expense			$17 to $19
Intangible assets amortization expense			$32 to $34
Reorganization and other related costs			$7 to $9
Tax expense related to Non-GAAP adjustments			($4) to ($5)
Non-GAAP net income			$16 to $27
GAAP loss per share			($0.75) to ($0.46)
Non-GAAP diluted earnings per share			$0.30 to $0.50

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