Stratasys Reports Record Financial Results for Q3 2013

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 merger-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. Stratasys manufactures 3D printers and materials for prototyping and production. The company’s 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 has been the widest in the industry and includes more than 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



Stratasys Ltd.

Consolidated Statements of Operations

(in thousands, except per share data)

	Three Months Ended September 30,					Nine Months Ended September 30,
	2013			2012		2013			2012
	(unaudited)			(unaudited)		(unaudited)			(unaudited)
Net sales
Products	$	107,887		$	41,318	$	279,910		$	120,308
Services		17,739			8,406		49,408			23,786
		125,626			49,724		329,318			144,094

Cost of sales
Products		53,565			17,564		148,339			54,026
Services		11,469			4,203		32,608			12,997
		65,034			21,767		180,947			67,023

Gross profit		60,592			27,957		148,371			77,071

Operating expenses
Research and development, net		13,514			4,067		34,640			12,576
Selling, general and administrative		51,587			14,781		137,577			42,366
Change in fair value of earn-out obligations		1,607			-		1,607			-
		66,708			18,848		173,824			54,942

Operating income (loss)		(6,116	)		9,109		(25,453	)		22,129

Other income (expense)		(452	)		163		200			518

Income (loss) before income taxes		(6,568	)		9,272		(25,253	)		22,647

Income taxes (benefit)		80			4,089		(337	)		9,924

Net income (loss)	$	(6,648	)	$	5,183	$	(24,916	)	$	12,723

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

Net income (loss) attributable to Stratasys Ltd.	$	(6,626	)	$	5,183	$	(24,962	)	$	12,723

Net income (loss) per ordinary share attributable to Stratasys Ltd.
Basic	$	(0.16	)	$	0.24	$	(0.63	)	$	0.60
Diluted		(0.16	)		0.24		(0.63	)		0.58

Weighted average ordinary shares outstanding
Basic		41,976			21,468		39,754			21,349
Diluted		41,976			22,008		39,754			21,857


Stratasys Ltd.

Consolidated Balance Sheets

(in thousands)
	September 30,		December 31,
	2013		2012
	(unaudited)
ASSETS

Current assets
Cash and cash equivalents	$	414,890	$	133,826
Short-term bank deposits		200,000		20,063
Restricted deposits		863		929
Accounts receivable:
Trade, net		86,588		64,678
Other		22,858		22,934
Inventories		79,784		67,995
Net investment in sales-type leases, net		6,008		5,134
Prepaid expenses		4,442		2,751
Deferred income taxes		17,045		4,968

Total current assets		832,478		323,278

Property, plant and equipment, net		80,707		62,070

Other assets
Goodwill		1,195,021		822,475
Other intangible assets, net		638,170		510,372
Net investment in sales-type leases		8,990		7,872
Long-term investments - available for sale		1,634		-
Amounts funded in respect of employees rights upon retirement		2,984		2,628
Other non-current assets		2,309		2,818

Total other assets		1,849,108		1,346,165

Total assets	$	2,762,293	$	1,731,513

LIABILITIES AND EQUITY

Current liabilities
Accounts payable	$	31,919	$	35,235
Other current liabilities		46,833		41,124
Earn-out obligation		13,709		-
Unearned revenues		30,555		18,068

Total current liabilities		123,016		94,427

Non-current liabilities
Employee rights upon retirement		4,694		4,188
Earn-out obligation - long-term		16,169		-
Deferred tax liabilities		112,499		54,693
Unearned revenues - long-term		3,156		3,181
Other non-current liabilities		8,203		2,868

Total liabilities		267,737		159,357

Commitments and contingencies

Equity
Ordinary shares, NIS 0.01 nominal value, authorized 180,000 shares; 48,738 and 38,372 shares issued and outstanding at September 30, 2013 and December 31, 2012, respectively		131		101
Additional paid-in capital		2,404,852		1,459,294
Retained earnings		87,540		112,503
Accumulated other comprehensive income (loss)		1,447		(238	)

Equity attributable to Stratasys Ltd.		2,493,970		1,571,660

Non-controlling interest		586		496

Total equity		2,494,556		1,572,156

Total liabilities and equity	$	2,762,293	$	1,731,513


Stratasys Ltd.

Reconciliation of Pro Forma GAAP to Pro Forma Non-GAAP Results of Operations

(in thousands, except per share data)

	Three Months Ended September 30, 2013									Three Months Ended September 30, 2012
										Pro Forma						Pro Forma
										Including Objet						Including Objet
	GAAP						Non-GAAP			GAAP						Non-GAAP
	(unaudited)			Adjustments*			(unaudited)			(unaudited)			Adjustments*			(unaudited)
Net sales
Products	$	107,887		$	434		$	108,321		$	77,074		$	-		$	77,074
Services		17,739			-			17,739			13,847			-			13,847
		125,626			434			126,060			90,921			-			90,921

Cost of sales
Products		53,565			(12,713	)		40,852			38,782			(10,977	)		27,805
Services		11,469			(395	)		11,074			9,054			(420	)		8,634
		65,034			(13,108	)		51,926			47,836			(11,397	)		36,439

Gross profit		60,592			13,542			74,134			43,085			11,397			54,482

Operating expenses
Research and development, net		13,514			(1,538	)		11,976			8,809			(889	)		7,920
Selling, general and administrative		51,587			(13,660	)		37,927			33,291			(8,505	)		24,786
Change in fair value of earn-out obligations		1,607			(1,607	)		-
		66,708			(16,805	)		49,903			42,100			(9,394	)		32,706

Operating income (loss)		(6,116	)		30,347			24,231			985			20,791			21,776

Other expenses		(452	)		-			(452	)		(192	)		-			(192	)

Income (loss) before income taxes		(6,568	)		30,347			23,779			793			20,791			21,584

Income taxes		80			3,640			3,720			3,647			1,419			5,066

Net income (loss)	$	(6,648	)	$	26,707		$	20,059		$	(2,854	)	$	19,372		$	16,518

Net income (loss) attributable to non-controlling interest	$	(22	)	$	61		$	39		$	(95	)	$	-		$	(95	)

Net income (loss) attributable to Stratasys Ltd.	$	(6,626	)	$	26,646		$	20,020		$	(2,759	)	$	19,372		$	16,613

Net income (loss) per ordinary share attributable to Stratasys Ltd.
Basic	$	(0.16	)				$	0.48		$	(0.07	)				$	0.45
Diluted		(0.16	)					0.45			(0.07	)					0.41

Weighted average ordinary shares outstanding
Basic		41,976						41,976			36,912						36,912
Diluted		41,976						44,289			36,912						40,408

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)

	Nine Months Ended September 30, 2013								Nine Months Ended September 30, 2012
									Pro Forma						Pro Forma
									Including Objet						Including Objet
	GAAP						Non-GAAP		GAAP						Non-GAAP
	(unaudited)			Adjustments*			(unaudited)		(unaudited)			Adjustments*			(unaudited)
Net sales
Products	$	279,910		$	1,647		$	281,557	$	224,392		$	-		$	224,392
Services		49,408			-			49,408	$	38,301			-			38,301
		329,318			1,647			330,965		262,693			-			262,693

Cost of sales
Products		148,339			(44,062	)		104,277		117,188			(32,029	)		85,159
Services		32,608			(1,080	)		31,528		25,975			(1,078	)		24,897
		180,947			(45,142	)		135,805		143,163			(33,107	)		110,056

Gross profit		148,371			46,789			195,160		119,530			33,107			152,637

Operating expenses
Research and development, net		34,640			(3,282	)		31,358		26,714			(2,610	)		24,104
Selling, general and administrative		137,577			(40,017	)		97,560		103,039			(30,296	)		72,743
Change in fair value of earn-out obligations		1,607			(1,607	)		-
		173,824			(44,906	)		128,918		129,753			(32,906	)		96,847

Operating income (loss)		(25,453	)		91,695			66,242		(10,223	)		66,013			55,790

Other income		200			-			200		715			-			715

Income (loss) before income taxes		(25,253	)		91,695			66,442		(9,508	)		66,013			56,505

Income taxes (benefit)		(337	)		10,442			10,105		8,644			4,633			13,277

Net income (loss)	$	(24,916	)	$	81,253		$	56,337	$	(18,152	)	$	61,380		$	43,228

Net income (loss) attributable to non-controlling interest	$	46		$	126		$	172	$	(95	)	$	-		$	(95	)

Net income (loss) attributable to Stratasys Ltd.	$	(24,962	)	$	81,127		$	56,165	$	(18,057	)	$	61,380		$	43,323

Net income (loss) per ordinary share attributable to Stratasys Ltd.
Basic	$	(0.63	)				$	1.41	$	(0.49	)				$	1.18
Diluted		(0.63	)					1.33		(0.49	)					1.08

Weighted average ordinary shares outstanding
Basic		39,754						39,754		36,794						36,794
Diluted		39,754						42,185		36,794						40,086

* 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,
	2013			2012			2013			2012
Net sales, products
Deferred revenue step-up		434			-			1,647			-

Cost of sales, products
Intangible assets amortization expense		(12,252	)		(10,260	)		(42,795	)		(30,779	)
Non-cash stock-based compensation expense		(406	)		(297	)		(1,039	)		(740	)
Merger related expense		(55	)		(420	)		(228	)		(510	)
		(12,713	)		(10,977	)		(44,062	)		(32,029	)
Cost of sales, services
Non-cash stock-based compensation expense		(387	)		(330	)		(1,020	)		(1,078	)
Merger related expense		(8	)		(90	)		(60	)		-
		(395	)		(420	)		(1,080	)		(1,078	)
Research and development, net
Non-cash stock-based compensation expense		(822	)		(889	)		(2,566	)		(2,610	)
Performance bonus expense		(716	)		-			(716	)		-
		(1,538	)		(889	)		(3,282	)		(2,610	)
Selling, general and administrative
Intangible assets amortization expense		(3,838	)		(2,375	)		(14,758	)		(7,125	)
Non-cash stock-based compensation expense		(4,997	)		(5,800	)		(12,837	)		(16,404	)
Merger related expense		(2,347	)		(330	)		(9,944	)		(6,767	)
Performance bonus expense		(2,478	)		-			(2,478	)		-
		(13,660	)		(8,505	)		(40,017	)		(30,296	)
Change in fair value of earn-out obligation
Earn-out obligation expense		(1,607	)		-			(1,607	)		-

Income taxes
Tax expense related to non-GAAP adjustments		3,640			1,419			10,442			4,633

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

Net income	$	26,646		$	19,372		$	81,127		$	61,380


Stratasys Ltd.

Reconciliation of GAAP to Non-GAAP Forward Looking Guidance

Fiscal Year 2013

(in millions, except per share data)

GAAP net loss							($35.0) to ($23.1)

Adjustments
Stock-based compensation expense							$22.2 to $24.9
Intangible assets amortization expense							$67.2
Merger related expense							$18.1 to $20.7

Non-GAAP net income							$77.7 to $84.4

GAAP loss per share							($0.83) to ($0.55)

Non-GAAP diluted earnings per share							$1.75 to $1.90

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