Stratasys Reports Record Third Quarter Financial Results

This release is available on the Stratasys web site at www.stratasys.com

Stratasys Ltd. (Nasdaq: SSYS), headquartered in Minneapolis, Minnesota and Rehovot, Israel, is a leading global provider of 3D printing and additive and additive manufacturing solutions. The company's patented FDM®, PolyJet™ and WDM™ 3D Printing technologies produce prototypes and manufactured goods directly from 3D CAD files or other 3D content. Systems include 3D printers for idea development, prototyping and direct digital manufacturing. Stratasys subsidiaries include MakerBot and Solidscape, and the company operates a digital-manufacturing service comprising RedEye, Solid Concepts and Harvest Technologies. Stratasys has more than 2,800 employees, holds over 600 granted or pending additive manufacturing patents globally, and has received more than 25 awards for its technology and leadership. Online at: www.stratasys.com or http://blog.stratasys.com.

Stratasys Ltd.

Consolidated Statements of Operations

(in thousands, except per share data)

	Three Months Ended September 30,						Nine Months Ended September 30,
	2014			2013			2014			2013
	(unaudited)			(unaudited)			(unaudited)			(unaudited)
Net sales
Products	$	160,200		$	107,887		$	443,542		$	279,910
Services		43,410			17,739			89,474			49,408
		203,610			125,626			533,016			329,318

Cost of sales
Products		85,437			53,565			219,853			148,339
Services		30,326			11,469			55,954			32,608
		115,763			65,034			275,807			180,947

Gross profit		87,847			60,592			257,209			148,371

Operating expenses
Research and development, net		23,353			13,514			59,081			34,640
Selling, general and administrative		110,803			51,587			256,349			137,577
Change in the fair value of obligations in connection with acquisitions		5,578			1,607			(1,289	)		1,607
		139,734			66,708			314,141			173,824

Operating loss		(51,887	)		(6,116	)		(56,932	)		(25,453	)

Other income (loss)		(1,384	)		(452	)		(2,383	)		200

Loss before income taxes		(53,271	)		(6,568	)		(59,315	)		(25,253	)

Income taxes (benefit)		(21,919	)		80			(31,877	)		(337	)

Net loss	$	(31,352	)	$	(6,648	)	$	(27,438	)	$	(24,916	)

Net loss (income) attributable to non-controlling interest	$	(24	)	$	(22	)	$	(24	)	$	46

Net loss attributable to Stratasys Ltd.	$	(31,328	)	$	(6,626	)	$	(27,414	)	$	(24,962	)

Net loss per ordinary share attributable to Stratasys Ltd.
Basic	$	(0.62	)	$	(0.16	)	$	(0.55	)	$	(0.63	)
Diluted		(0.62	)		(0.16	)		(0.55	)		(0.63	)

Weighted average ordinary shares outstanding
Basic		50,490			41,976			49,717			39,754
Diluted		50,490			41,976			49,717			39,754

Stratasys Ltd.

Consolidated Balance Sheets

(in thousands)
	September 30,			December 31,
	2014			2013
	(unaudited)
ASSETS

Current assets
Cash and cash equivalents	$	383,501		$	414,088
Short-term bank deposits		75,375			200,370
Accounts receivable, net		140,676			99,200
Inventories		119,262			88,406
Investment in sales-type leases, net		7,478			6,696
Prepaid expenses		9,759			5,470
Deferred income taxes		22,268			16,501
Other current assets		37,114			21,398

Total current assets		795,433			852,129

Non-current assets
Goodwill		1,425,416			1,195,891
Other intangible assets, net		607,662			622,330
Investment in sales-type leases		14,643			11,219
Amounts funded in respect of employee rights upon retirement		3,255			3,166
Property, plant and equipment, net		143,335			91,005
Other non-current assets		8,137			6,481

Total non-current assets		2,202,448			1,930,092

Total assets	$	2,997,881		$	2,782,221

LIABILITIES AND EQUITY

Current liabilities
Accounts payable	$	39,093		$	35,375
Short term debt		50,000			-
Accrued expenses and other current liabilities		40,530			32,849
Accrued compensation and related benefits		36,228			21,441
Obligations in connection with acquisitions		42,037			12,027
Unearned revenues		40,909			36,033

Total current liabilities		248,797			137,725

Non-current liabilities
Employee rights upon retirement		4,859			4,683
Obligations in connection with acquisitions - long term		37,132			16,998
Deferred tax liabilities		65,393			105,901
Unearned revenues - long-term		5,528			3,315
Other non-current liabilities		18,502			13,812

Total liabilities		380,211			282,434

Equity
Ordinary shares, NIS 0.01 nominal value, authorized 180,000 shares; 50,898 and 49,211 shares issued and outstanding at September 30, 2014 and December 31, 2013, respectively		139			133
Additional paid-in capital		2,560,256			2,412,197
Retained earnings		58,135			85,549
Accumulated other comprehensive income (loss)		(1,355	)		1,908
Equity attributable to Stratasys Ltd.		2,617,175			2,499,787
Non-controlling interest		495

Total equity		2,617,670			2,499,787

Total liabilities and equity	$	2,997,881		$	2,782,221

Stratasys Ltd.

Reconciliation of GAAP to Non-GAAP Results of Operations

(in thousands, except per share data)

	Three Months Ended September 30, 2014									Three Months Ended September 30, 2013

	GAAP						Non-GAAP			GAAP						Non-GAAP
	(unaudited)			Adjustments*			(unaudited)			(unaudited)			Adjustments*			(unaudited)
Net sales
Products	$	160,200		$	-		$	160,200		$	107,887		$	434		$	108,321
Services		43,410			-			43,410			17,739			-			17,739
		203,610			-			203,610			125,626			434			126,060

Cost of sales
Products		85,437			(26,760	)		58,677			53,565			(12,713	)		40,852
Services		30,326			(4,236	)		26,090			11,469			(395	)		11,074
		115,763			(30,996	)		84,767			65,034			(13,108	)		51,926

Gross profit		87,847			30,996			118,843			60,592			13,542			74,134

Operating expenses
Research and development, net		23,353			(4,178	)		19,175			13,514			(1,538	)		11,976
Selling, general and administrative		110,803			(42,936	)		67,867			51,587			(13,660	)		37,927
Change in the fair value of obligations in connection with acquisitions		5,578			(5,578	)		-			1,607			(1,607	)		-
		139,734			(52,692	)		87,042			66,708			(16,805	)		49,903

Operating income (loss)		(51,887	)		83,688			31,801			(6,116	)		30,347			24,231

Other loss		(1,384	)		-			(1,384	)		(452	)		-			(452	)

Income (loss) before income taxes		(53,271	)		83,688			30,417			(6,568	)		30,347			23,779

Income taxes (benefit)		(21,919	)		22,269			350			80			3,640			3,720

Net income (loss)	$	(31,352	)	$	61,419		$	30,067		$	(6,648	)	$	26,707		$	20,059

Net loss (income) attributable to non-controlling interest	$	(24	)	$	-		$	(24	)	$	(22	)	$	61		$	39

Net income (loss) attributable to Stratasys Ltd.	$	(31,328	)	$	61,419		$	30,091		$	(6,626	)	$	26,646		$	20,020

Net income (loss) per ordinary share attributable to Stratasys Ltd.
Basic	$	(0.62	)				$	0.60		$	(0.16	)				$	0.48
Diluted		(0.62	)					0.58			(0.16	)					0.45

Weighted average ordinary shares outstanding
Basic		50,490						50,490			41,976						41,976
Diluted		50,490						52,261			41,976						44,289


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, 2014									Nine Months Ended September 30, 2013

	GAAP						Non-GAAP			GAAP						Non-GAAP
	(unaudited)			Adjustments*			(unaudited)			(unaudited)			Adjustments*			(unaudited)
Net sales
Products	$	443,542		$	235		$	443,777		$	279,910		$	1,647		$	281,557
Services		89,474			-			89,474			49,408			-			49,408
		533,016			235			533,251			329,318			1,647			330,965

Cost of sales
Products		219,853			(55,228	)		164,625			148,339			(44,062	)		104,277
Services		55,954			(5,010	)		50,944			32,608			(1,080	)		31,528
		275,807			(60,238	)		215,569			180,947			(45,142	)		135,805

Gross profit		257,209			60,473			317,682			148,371			46,789			195,160

Operating expenses
Research and development, net		59,081			(6,991	)		52,090			34,640			(3,282	)		31,358
Selling, general and administrative		256,349			(74,076	)		182,273			137,577			(40,017	)		97,560
Change in the fair value of obligations in connection with acquisitions		(1,289	)		1,289			-			1,607			(1,607	)		-
		314,141			(79,778	)		234,363			173,824			(44,906	)		128,918

Operating income (loss)		(56,932	)		140,251			83,319			(25,453	)		91,695			66,242

Other income (loss)		(2,383	)		-			(2,383	)		200			-			200

Income (loss) before income taxes		(59,315	)		140,251			80,936			(25,253	)		91,695			66,442

Income taxes (benefit)		(31,877	)		34,153			2,276			(337	)		10,442			10,105

Net income (loss)	$	(27,438	)	$	106,098		$	78,660		$	(24,916	)	$	81,253		$	56,337

Net loss (income) attributable to non-controlling interest	$	(24	)	$	-		$	(24	)	$	46		$	126		$	172

Net income (loss) attributable to Stratasys Ltd.	$	(27,414	)	$	106,098		$	78,684		$	(24,962	)	$	81,127		$	56,165

Net income (loss) per ordinary share attributable to Stratasys Ltd.
Basic	$	(0.55	)				$	1.58		$	(0.63	)				$	1.41
Diluted		(0.55	)					1.53			(0.63	)					1.33

Weighted average ordinary shares outstanding
Basic		49,717						49,717			39,754						39,754
Diluted		49,717						51,573			39,754						42,185

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,
	2014			2013			2014			2013
Net sales, products
Deferred revenue step-up	$	-		$	434		$	235		$	1,647

Cost of sales, products
Acquired intangible assets amortization		(14,328	)		(12,252	)		(41,582	)		(42,795	)
Impairment charges		(11,635	)		-			(11,635	)		-
Non-cash stock-based compensation expense		(797	)		(406	)		(2,011	)		(1,039	)
Merger related expense		-			(55	)		-			(228	)
		(26,760	)		(12,713	)		(55,228	)		(44,062	)
Cost of sales, services
Acquired intangible assets amortization		(536	)		-			(537	)		-
Non-cash stock-based compensation expense		(485	)		(387	)		(1,217	)		(1,020	)
Merger related expense		(3,215	)		(8	)		(3,256	)		(60	)
		(4,236	)		(395	)		(5,010	)		(1,080	)
Research and development, net
Non-cash stock-based compensation expense		(1,098	)		(822	)		(2,921	)		(2,566	)
Impairment charges		(3,000	)		-			(3,000	)		-
Merger related expense		(80	)		(716	)		(1,070	)		(716	)
		(4,178	)		(1,538	)		(6,991	)		(3,282	)

Selling, general and administrative
Acquired intangible assets amortization		(6,474	)		(3,838	)		(17,344	)		(14,758	)
Non-cash stock-based compensation expense		(5,217	)		(4,997	)		(15,262	)		(12,837	)
Merger and acquisition related expense		(31,245	)		(4,825	)		(41,470	)		(12,422	)
		(42,936	)		(13,660	)		(74,076	)		(40,017	)
Change in the fair value of obligations in connection with acquisitions
Change in the fair value of obligations in connection with acquisitions		(5,578	)		(1,607	)		1,289			(1,607	)

Income taxes
Tax expense related to non-GAAP adjustments		22,269			3,640			34,153			10,442

Net income attributable to non-controlling interest
Depreciation and amortization expense attributable to non-controlling interest		-			61			-			126

Net income	$	61,419		$	26,646		$	106,098		$	81,127


Stratasys Ltd.

Reconciliation of GAAP to Non-GAAP Forward Looking Guidance

Fiscal Year 2014

(in millions, except per share data)

GAAP net loss			($31.6) to ($24.4)

Adjustments
Stock-based compensation expense			$29.4 to $29.9
Intangible assets amortization expense			$80.6 to $81.1
Impairment charges			$14.6
Merger related expense			$66.7 to $68.7
Tax expense related to Non-GAAP adjustments			($46.9) to ($47.9)

Non-GAAP net income			$114.9 to $120.1

GAAP loss per share			($0.63) to ($0.49)

Non-GAAP diluted earnings per share			$2.21 to $2.31

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