The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited consolidated financial statements and the related notes included as Exhibit 99.1 to the Report of Foreign Private Issuer on Form 6-K to which this Operating and Financial Review and Prospects is attached, or the Form 6-K. The discussion below contains forward-looking statements (within the meaning of the United States federal securities laws) that are based upon our current expectations and are subject to uncertainty and changes in circumstances. Actual results may differ materially from these expectations due to inaccurate assumptions and known or unknown risks and uncertainties, including those identified in “Forward-Looking Statements and Factors that May Affect Future Results of Operations”, below, as well in the “Risk Factors” in Item 3.D of our Annual Report on Form 20-F for the year ended December 31, 2017, or our 2017 Annual Report.

We are a leading global provider of applied additive technology solutions for industries including aerospace, automotive, healthcare, consumer products and education. We focus on customers’ business requirements and seek to create new value for our customers across their product lifecycle processes, from design prototypes to manufacturing tools and final production parts. We operate a 3D printing ecosystem of solutions and expertise, comprised of advanced materials; software with voxel level control; precise, repeatable and reliable fused deposition modeling (FDM) and PolyJet 3D printers; application-based services; on-demand parts and key partnerships. We strive to ensure that our solutions are integrated seamlessly into each customer’s evolving workflow. Our applications are industry-specific and geared towards accelerating business processes, optimizing value chains and driving business performance improvements. Our customers range from individuals and smaller businesses to large, global enterprises, and we include a number of Fortune 100 companies among our customers.

Our 3D printers include systems ranging from entry-level desktop 3D printers to systems for rapid prototyping, or RP, and large production systems for direct digital manufacturing, or DDM. We also develop, manufacture and sell materials for use with our systems and provide related services offerings. We offer a powerful range of additive manufacturing materials, including clear, rubberlike and biocompatible photopolymers, and tough high-performance thermoplastics. We believe that the range of 3D printing consumable materials that we offer, consisting of 58 FDM cartridge-based materials, 37 PolyJet cartridge-based materials, 158 non-color digital materials, and over 500,000 color variations, is the widest in the industry. Our service offerings include Stratasys Direct Manufacturing, or SDM, printed parts services which offers additive manufacturing, or AM, capabilities encompassing a wide range of technologies allowing for plastic and metal parts for rapid prototyping and production processes, as well as related professional services.

We conduct our business globally and provide products and services to our global customer base through our main operational facilities which are located in Israel, the United States, Germany and Hong Kong as well through our offices in China, Brazil, India, Japan, Korea, Mexico, Switzerland and the United Kingdom. Our extensive global reach is well-positioned through a network of approximately 200 resellers and selling agents around the world and an online channel. We have approximately 2,300 employees and hold more than 1,200 granted or pending additive manufacturing patents globally.

Our unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America, or GAAP. In the opinion of our management, all adjustments considered necessary for a fair statement of the unaudited condensed consolidated financial statements have been included herein and are of a normal recurring nature. The following discussion compares the actual results, on a GAAP basis, for the three and six months ended June 30, 2018 with the corresponding periods in 2017.

Comparison of Three Months Ended June 30, 2018 to Three Months Ended June 30, 2017

The following table sets forth certain statement of operations data for the periods indicated:

	Three Months Ended June 30,
	2018					2017
	U.S. $ in			% of		U.S. $ in			% of
	thousands			Revenues		thousands			Revenues
Revenues	$	170,236		100.0	%	$	169,990		100.0	%
Cost of revenues		86,589		50.9	%		86,598		50.9	%
Gross profit		83,647		49.1	%		83,392		49.1	%
Research and development, net		23,689		13.9	%		23,251		13.7	%
Selling, general and administrative		61,887		36.4	%		65,186		38.3	%
Operating loss		(1,929	)	-1.1	%		(5,045	)	-3.0	%
Financial income (expense), net		(83	)	0.0	%		429		0.3	%
Loss before income taxes		(2,012	)	-1.2	%		(4,616	)	-2.7	%
Income tax expenses		205		0.1	%		1,308		0.8	%
Share in losses of associated companies		(1,360	)	-0.8	%		(229	)	-0.1	%
Net loss attributable to non-controlling interests		(26	)	0.0	%		(166	)	-0.1	%
Net loss attributable to Stratasys Ltd.		(3,551	)	-2.1	%		(5,987	)	-3.5	%

Our products and services revenues for the three months ended June 30, 2018 and 2017, as well as the percentage change reflected thereby, were as follows:

	Three Months Ended June 30,
	2018		2017		% Change
	U.S. $ in thousands
Products	$	118,403	$	121,021	-2.2	%
Services		51,833		48,969	5.8	%
	$	170,236	$	169,990	0.1	%

Revenues derived from products (including systems and consumable materials) decreased by $2.6 million, or 2.2%, for the three months ended June 30, 2018, as compared to the three months ended June 30, 2017. The decrease in products revenues was driven by a decrease in our systems revenues and was partially offset by an increase in our consumables revenues.

Systems revenues for the three months ended June 30, 2018 decreased by 8.2% as compared to the three months ended June 30, 2017. The decrease in systems revenues was driven primarily by a decrease in our lower-end systems.

Consumables revenues for the three months ended June 30, 2018 increased by 4.8% as compared to the three months ended June 30, 2017. The increase reflects higher utilization of our installed base of systems.

Services revenues (including SDM, maintenance contracts, spare parts and other services) increased by $2.9 million for the three months ended June 30, 2018, or 5.8%, as compared to the three months ended June 30, 2017. Within services revenues, customer support revenue, which includes revenue generated mainly by maintenance contracts on our systems, increased by 9.6%, driven primarily by growth in our installed base of systems and improvement in our service contract attach rate.

Revenues and the percentage of revenues by region for the three months ended June 30, 2018 and 2017, as well as the percentage change in revenues in each such region reflected thereby, were as follows:

	Three Months Ended June 30,
	2018				2017				% Change
	U.S.$ in		% of		U.S.$ in		% of
	thousands		Revenues		thousands		Revenues
Americas*	$	106,790	62.7	%	$	108,138	63.6	%	-1.2	%
EMEA		37,227	21.9	%		36,700	21.6	%	1.4	%
Asia Pacific		26,219	15.4	%		25,152	14.8	%	4.2	%
	$	170,236	100.0	%	$	169,990	100.0	%	0.1	%

Revenues in the Americas region decreased by $1.3 million, or 1.2%, to $106.8 million for the three months ended June 30, 2018, compared to $108.1 million for the three months ended June 30, 2017. The decrease was driven by lower system revenues, partially offset by higher service and consumables revenues.

Revenues in the EMEA region increased by $0.5 million, or 1.4%, to $37.2 million for the three months ended June 30, 2018, compared to $36.7 million for the three months ended June 30, 2017. The increase reflects higher service and consumables revenues, partially offset by lower systems revenues. In local currencies terms, revenues in the EMEA region for the three months ended June 30, 2018 decreased by 4.8% as compared to the three months ended June 30, 2017. Revenues in the EMEA region were favorably impacted by approximately $2.3 million, on a constant currency basis when using prior period’s exchange rates.

Revenues in the Asia Pacific region increased by $1.1 million, or 4.2%, to $26.2 million for the three months ended June 30, 2018, compared to $25.2 million for the three months ended June 30, 2017. The increase reflects higher products and services revenues as well as favorable impact of foreign exchange fluctuations.

Gross profit for our products and services for the three months ended June 30, 2018 and 2017, as well as the percentage change reflected thereby, were as follows:

	Three Months Ended June 30,
	2018		2017
	U.S. $ in thousands				Change in %
Gross profit attributable to:
Products	$	65,141	$	66,298	-1.7	%
Services		18,506		17,094	8.3	%
	$	83,647	$	83,392	0.3	%

Gross profit as a percentage of revenues for our products and services for the three months ended June 30, 2018 and 2017, were as follows:

	Three Months Ended June 30,
	2018		2017
Gross profit as a percentage of revenues from:
Products	55.0	%	54.8	%
Services	35.7	%	34.9	%
Total gross profit	49.1	%	49.1	%

Gross profit attributable to products revenues decreased by $1.2 million, or 1.7%, to $65.1 million for the three months ended June 30, 2018, compared to gross profit of $66.3 million for the three months ended June 30, 2017. Gross profit attributable to products revenues as a percentage of products revenues increased to 55.0% for the three months ended June 30, 2018, compared to gross profit of 54.8% for the three months ended June 30, 2017.

The decrease in gross profit attributable to products revenues was primarily driven by product mix.

Gross profit attributable to services revenues increased by $1.4 million, or 8.3%, to $18.5 million for the three months ended June 30, 2018, compared to $17.1 million for the three months ended June 30, 2017. Gross profit attributable to services revenues as a percentage of services revenues in the three months ended June 30, 2018 increased to 35.7%, as compared to 34.9% for the three months ended June 30, 2017. The improvement in gross profit attributable to services revenues was primarily driven by benefits from economies of scale due to higher services revenues.

The amount of each type of operating expense for the three months ended June 30, 2018 and 2017, as well as the percentage change reflected thereby, and total operating expenses as a percentage of our total revenues in each such quarter, were as follows:

	Three Months Ended June 30,
	2018			2017			% Change
	U.S. $ in thousands
Research and development, net	$	23,689		$	23,251		1.9	%
Selling, general & administrative		61,887			65,186		-5.1	%
	$	85,576		$	88,437		-3.2	%
Percentage of revenues		50.3	%		52.0	%

Research and development expenses, net increased by $0.4 million, or 1.9%, to $23.7 million for the three months ended June 30, 2018, compared to $23.3 million for the three months ended June 30, 2017. The amount of research and development expenses constituted 13.9% of our revenues for the three months ended June 30, 2018, as compared to 13.7% for the three months ended June 30, 2017.

Our research and development expenses were impacted by timing of projects' spending based on our portfolio management, product launches, as well as payroll related expenses. We continue to invest in long-term initiatives that include advancements in our core FDM and PolyJet technologies, as well as our new metal additive manufacturing platform, advanced composite materials, and software and application development.

Selling, general and administrative expenses decreased by $3.3 million, or 5.1%, to $61.9 million for the three months ended June 30, 2018, as compared to $65.2 million for the three months ended June 30, 2017. The amount of selling, general and administrative expenses constituted 36.4% of our revenues for the three months ended June 30, 2018, as compared to 38.3% for the three months ended June 30, 2017.

The decrease in our selling, general and administrative expenses was primarily driven by lower commissions and lower payroll related expenses, partially offset by higher marketing expenses.

Operating loss and operating loss as a percentage of our total revenues for the three months ended June 30, 2018 and 2017, were as follows:

Operating loss amounted to $1.9 million for the three months ended June 30, 2018 compared to an operating loss of $5.0 million for the three months ended June 30, 2017. The decrease in operating loss was primarily attributable to lower operating expenses for the three months ended June 30, 2018 compared to the three months ended June 30, 2017, as discussed above.

Financial expense, net, which was primarily comprised of effects of foreign currencies changes, as well as interest income and interest expense, amounted to $0.1 million, compared to financial income, net of $0.4 million, for the three months ended June 30, 2018 and 2017, respectively.

Income taxes and income taxes as a percentage of net loss before taxes for the three months ended June 30, 2018 and 2017, as well as the percentage change in each reflected thereby, were as follows:

	Three Months Ended
	June 30,
	2018			2017
	U.S. $ in thousands						Change in %
Income tax expense	$	205		$	1,308		-84.3	%

As a percent of loss before income taxes		-10.2	%		-28.3	%	-64.0	%

We had a negative effective tax rate of 10.2% for the three-month period ended June 30, 2018 compared to a negative effective tax rate of 28.3% for the three-month period ended June 30, 2017. Our effective tax rate was primarily impacted by different geographic mixes of earnings and losses.

Share in losses of associated companies reflects our proportionate share of the losses of unconsolidated entities accounted for by using the equity method of accounting. During the three months ended June 30, 2018, our proportionate share of the losses of our equity method investments was $1.4 million compared to $0.2 million in the three months ended June 30, 2017.

Net loss attributable to Stratasys Ltd., and diluted net loss per share, for the three months ended June 30, 2018 and 2017, were as follows:

	Three Months Ended June 30,
	2018			2017
	U.S. $ in thousands
Net loss attributable to Stratasys Ltd.	$	(3,551	)	$	(5,987	)

Percentage of revenues		-2.1	%		-3.5	%

Diluted net loss per share	$	(0.08	)	$	(0.11	)

Net loss attributable to Stratasys Ltd. was $3.5 million for the three months ended June 30, 2018 compared to net loss of $6.0 million for the three months ended June 30, 2017. The decrease in the net loss attributable to Stratasys Ltd. was primarily attributable to decreased operating expenses, partially offset by an increase in share in losses of associated companies, as described above. In computing our loss per share for the three months ended June 30, 2018, we adjusted the net loss attributable to Stratasys Ltd. by $0.9 million due to an excess redemption amount of redeemable non-controlling interest.

Diluted net loss per share was $0.08 and $0.11 for the three months ended June 30, 2018 and 2017, respectively. The weighted average fully diluted share count was 53.7 million for the three months ended June 30, 2018, compared to 52.8 million for the three months ended June 30, 2017.

Comparison of Six Months Ended June 30, 2018 to Six Months Ended June 30, 2017

The following table sets forth certain statement of operations data for the periods indicated:

	Six Months Ended June 30,
	2018					2017
	U.S. $ in			% of		U.S. $ in			% of
	thousands			Revenues		thousands			Revenues
Revenues	$	324,069		100.0	%	$	333,152		100.0	%
Cost of revenues		164,772		50.8	%		172,880		51.9	%
Gross profit		159,297		49.2	%		160,272		48.1	%
Research and development, net		48,799		15.1	%		47,885		14.4	%
Selling, general and administrative		118,892		36.7	%		130,061		39.0	%
Operating loss		(8,394	)	-2.6	%		(17,674	)	-5.3	%
Financial income (expense), net		(75	)	0.0	%		685		0.2	%
Loss before income taxes		(8,469	)	-2.6	%		(16,989	)	-5.1	%
Income tax expenses		806		0.2	%		2,634		0.8	%
Share in losses of associated companies		(7,433	)	-2.3	%		(517	)	-0.2	%
Net loss attributable to non-controlling interests		(116	)	0.0	%		(296	)	-0.1	%
Net loss attributable to Stratasys Ltd.		(16,592	)	-5.1	%		(19,844	)	-6.0	%

Our products and services revenues for the six months ended June 30, 2018 and 2017, as well as the percentage change reflected thereby, were as follows:

	Six Months Ended June 30,
	2018		2017		% Change
	U.S. $ in thousands
Products	$	222,320	$	236,108	-5.8	%
Services		101,749		97,044	4.8	%
	$	324,069	$	333,152	-2.7	%

Revenues derived from products (including AM systems and consumable materials) decreased by $13.8 million, or 5.8%, for the six months ended June 30, 2018, as compared to the six months ended June 30, 2017. The decrease in products revenues was driven by a decrease in our systems revenues and was partially offset by an increase in our consumables revenues.

Systems revenues for the six months ended June 30, 2018 decreased by 14.1% as compared to the six months ended June 30, 2017. Consumables revenues for the six months ended June 30, 2018 increased by 3.3% as compared to the six months ended June 30, 2017.

Services revenues (including SDM, maintenance contracts, spare parts and other services) increased by $4.7 million for the six months ended June 30, 2018, or 4.8%, as compared to the six months ended June 30, 2017. Within services revenues, customer support revenue, which includes revenue generated mainly by maintenance contracts on our systems, increased by 8.4%, reflecting our growing installed base of systems and our effective support solutions suitable for end-users’ needs.

Revenues and the percentage of revenues by region for the six months ended June 30, 2018 and 2017, as well as the percentage change in revenues in each such region reflected thereby, were as follows:

	Six Months Ended June 30,
	2018				2017				% Change
	U.S.$ in		% of		U.S.$ in		% of
	thousands		Revenues		thousands		Revenues
Americas*	$	194,704	60.1	%	$	209,888	63.0	%	-7.2	%
EMEA		76,198	23.5	%		70,765	21.2	%	7.7	%
Asia Pacific		53,167	16.4	%		52,499	15.8	%	1.3	%
	$	324,069	100.0	%	$	333,152	100.0	%	-2.7	%

Revenues in the Americas region decreased by $15.2 million, or 7.2%, to $194.7 million for the six months ended June 30, 2018, compared to $209.9 million for the six months ended June 30, 2017. The decrease was primarily driven by lower systems revenues.

Revenues in the EMEA region increased by $5.4 million, or 7.7%, to $76.2 million for the six months ended June 30, 2018, compared to $70.8 million for the six months ended June 30, 2017. The increase reflects higher products and services revenues. In local currencies terms, revenues in the EMEA region for the six months ended June 30, 2018 decreased by 2.0% as compared to the six months ended June 30, 2017. Revenues in the EMEA region were favorably impacted by approximately $6.8 million, on a constant currency basis when using prior period’s exchange rates.

Revenues in the Asia Pacific region increased by $0.7 million, or 1.3%, to $53.2 million for the six months ended June 30, 2018, compared to $52.5 million for the six months ended June 30, 2017. The increase reflects higher services revenues, partially offset by lower products revenues.

Gross profit for our products and services for the six months ended June 30, 2018 and 2017, as well as the percentage change reflected thereby, were as follows:

	Six Months Ended June 30,
	2018		2017
	U.S. $ in thousands				Change in %
Gross profit attributable to:
Products	$	123,840	$	126,905	-2.4	%
Services		35,457		33,367	6.3	%
	$	159,297	$	160,272	-0.6	%

Gross profit as a percentage of revenues for our products and services for the six months ended June 30, 2018 and 2017, were as follows:

	Six Months Ended June 30,
	2018		2017
Gross profit as a percentage of revenues from:
Products	55.7	%	53.7	%
Services	34.8	%	34.4	%
Total gross profit	49.2	%	48.1	%

Gross profit attributable to products revenues decreased by $3.1 million, or 2.4%, to $123.9 million for the six months ended June 30, 2018, compared to gross profit of $126.9 million for the six months ended June 30, 2017. Gross profit attributable to products revenues as a percentage of products revenues increased to 55.7% for the six months ended June 30, 2018, compared to gross profit of 53.7% for the six months ended June 30, 2017.

Gross profit attributable to services revenues increased by $2.1 million, or 6.3%, to $35.5 million for the six months ended June 30, 2018, compared to $33.4 million for the six months ended June 30, 2017. Gross profit attributable to services revenues as a percentage of services revenues in the six months ended June 30, 2018 increased to 34.8%, as compared to 34.4% for the six months ended June 30, 2017.

The amount of each type of operating expense for the six months ended June 30, 2018 and 2017, as well as the percentage change reflected thereby, and total operating expenses as a percentage of our total revenues in each such period, were as follows:

	Six Months Ended June 30,
	2018			2017			% Change
	U.S. $ in thousands
Research and development, net	$	48,799		$	47,885		1.9	%
Selling, general & administrative		118,892			130,061		-8.6	%
	$	167,691		$	177,946		-5.8	%
Percentage of revenues		51.7	%		53.4	%

Research and development expenses, net increased by $0.9 million, or 1.9%, to $48.8 million for the six months ended June 30, 2018, compared to $47.9 million for the six months ended June 30, 2017. The amount of research and development expenses constituted 15.1% of our revenues for the six months ended June 30, 2018, as compared to 14.4% for the six months ended June 30, 2017.

Selling, general and administrative expenses decreased by $11.2 million, or 8.6%, to $118.9 million for the six months ended June 30, 2018, as compared to $130.1 million for the six months ended June 30, 2017. The amount of selling, general and administrative expenses constituted 36.7% of our revenues for the six months ended June 30, 2018, as compared to 39.0% for the six months ended June 30, 2017.

The decrease in our selling, general and administrative expenses was primarily driven by lower commissions, lower depreciation and impairment expenses, as well as favorable impact resulted from the gain on sale of one of our facilities in Minnesota.

Operating loss and operating loss as a percentage of our total revenues for the six months ended June 30, 2018 and 2017, were as follows:

Operating loss amounted to $8.4 million for the six months ended June 30, 2018 compared to an operating loss of $17.7 million for the six months ended June 30, 2017. The decrease in operating loss was primarily attributable to lower operating expenses for the six months ended June 30, 2018 compared to the six months ended June 30, 2017, as discussed above.

Financial expense, net, which was primarily comprised of effects of foreign currencies, interest income and interest expense, amounted to $0.1 million and income of $0.7 million for the six months ended June 30, 2018 and 2017, respectively.

Income taxes and income taxes as a percentage of net loss before taxes for the six months ended June 30, 2018 and 2017, as well as the percentage change in each reflected thereby, were as follows:

	Six Months Ended
	June 30,
	2018			2017
	U.S. $ in thousands						Change in %
Income tax expense	$	806		$	2,634		-69.4	%

As a percent of loss before income taxes		-9.5	%		-15.5	%	-38.6	%

We had a negative effective tax rate of 9.5% for the six-month period ended June 30, 2018 compared to a negative effective tax rate of 15.5% for the six-month period ended June 30, 2017. Our effective tax rate was primarily impacted by different geographic mixes of earnings and losses.

Share in losses of associated companies reflects our proportionate share of the earnings of unconsolidated entities accounted for by using the equity method of accounting. During the six months ended June 30, 2018, our proportionate share of the earnings of our equity method investments was $7.4 million compared to $0.5 million in the six months ended June 30, 2017. The difference is primarily due to an in-process research and development (IPR&D) write-off resulting from the Evolve transaction. For further information, see Note 3 to our unaudited condensed consolidated financial statements attached as Exhibit 99.1 to the Form 6-K.

Net loss attributable to Stratasys Ltd., and diluted net loss per share, for the six months ended June 30, 2018 and 2017, were as follows:

	Six Months Ended June 30,
	2018			2017
	U.S. $ in thousands
Net loss attributable to Stratasys Ltd.	$	(16,592	)	$	(19,844	)

Percentage of revenues		-5.1	%		-6.0	%

Diluted net loss per share	$	(0.33	)	$	(0.38	)

Net loss attributable to Stratasys Ltd. was $16.6 million for the six months ended June 30, 2018 compared to net loss of $19.8 million for the six months ended June 30, 2017. The decrease in the net loss attributable to Stratasys Ltd. was primarily attributable to decreased operating expenses, partially offset by an increase in share in losses of associated companies, as described above. In computing our loss per share for the six months ended June 30, 2018, we adjusted the net loss attributable to Stratasys Ltd. by $0.9 million due to an excess redemption amount of redeemable non-controlling interest.

Diluted net loss per share was $0.33 and $0.38 for the six months ended June 30, 2018 and 2017, respectively. The weighted average fully diluted share count was 53.7 million for the six months ended June 30, 2018, compared to 52.7 million for the six months ended June 30, 2017.

The following non-GAAP data, 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.

The following tables present the GAAP measures, the corresponding non-GAAP amounts and related non-GAAP adjustments for the applicable periods:

Our cash, cash equivalents and restricted cash balances increased to $347.3 million on June 30, 2018 from $329.4 million on December 31, 2017. The increase in cash and cash equivalents in the six months ended June 30, 2018 was primarily due to net cash provided by operating activities in an amount of $40.1 million, partially offset by net cash used in investing activities of $17.1 million and net cash used in financing activities of $3.0 million.

Our cash, cash equivalents and restricted cash balances increased to $305.7 million at June 30, 2017 from $280.6 million at December 31, 2016.

We generated $40.1 million of cash from operating activities during the six months ended June 30, 2018. This cash generated by our operating activities reflects our $16.7 million net loss for this period, as adjusted to eliminate non-cash charges including depreciation and amortization of $30.6 million, share in losses of associated companies of $7.4 million and stock-based compensation expense of $7.7 million. In addition, changes in our working capital balances and other assets and liabilities increased our cash flow provided by operating activities by $9.0 million. The favorable impact of the changes in our working capital balances reflect our close monitoring of our operating working capital including effective collection efforts.

We generated $36.2 million of cash from operating activities during the six months ended June 30, 2017. That cash generated by our operating activities reflected our $20.1 million net loss for that period, as adjusted to eliminate non-cash charges such as $33.0 million of depreciation and amortization and $9.2 million of stock-based compensation expense, as well as $20.3 million of changes in our working capital balances and other assets.

We used $17.1 million of cash in our investing activities during the six months ended June 30, 2018. Cash was primarily used to invest $12.4 million to purchase property and equipment. Our principal property and equipment purchases were for our new buildings complex under construction in Rehovot, Israel. The new facility in Rehovot, Israel, which will contain two buildings, houses our Israeli headquarters, research and development facilities and certain marketing activities.

In addition, we used $7.9 million of cash for investments in unconsolidated entities. Cash used was partially offset by the $3.8 million of cash that we received from the sale of one of our operational facilities in Minnesota.

We used $14.7 million of cash in our investing activities during the six months ended June 30, 2017. Cash was primarily used to invest $11.3 million to purchase property and equipment and for certain strategic investments in unconsolidated entities.

We used $3.0 million of cash in our financing activities during the six months ended June 30, 2018. Cash used for financing activities was mainly attributable to the quarterly repayments of our long-term loan in an amount of $2.6 million.

We generated $0.4 million of cash from our financing activities during the six months ended June 30, 2017. Cash provided by financing activities was mainly attributable to proceeds of $2.2 million from the exercise of stock options and was partially offset by the quarterly repayments of our long-term loan of $1.9 million.

Our total current assets amounted to $623.3 million as of June 30, 2018, of which $347.3 million consisted of cash, cash equivalents and restricted cash. Total current liabilities amounted to $170.3 million. Most of our cash and cash equivalents are held in banks in Israel, Switzerland and the U.S.

The credit risk related to our accounts receivable is limited due to the relatively large number of customers and their wide geographic distribution. In addition, we seek to reduce the credit exposure related to our accounts receivable by credit limits, credit insurance, ongoing credit evaluation and account monitoring procedures.

We believe that we will have adequate cash and cash equivalents to fund our ongoing operations and that these sources of liquidity will be sufficient to satisfy our capital expenditure and debt requirements for the next twelve months.

In December 2016, we entered into a secured loan agreement with Bank Hapoalim Ltd. in connection with our new office facility in Israel, which agreement we refer to as the Bank Loan Agreement. Pursuant to the Bank Loan Agreement, our company borrowed $26 million initially in December 2016, which we refer to as the Bank Loan, and secured a credit line for an additional $24 million, or the Credit Line. Any loans drawn upon the Credit Line will be under similar terms as the Bank Loan. The Bank Loan will mature in December 2023 and is payable in equal consecutive quarterly principal installments of principal and accrued interest. Any early repayment of the Bank Loan is subject to, within the initial three year term of the Bank Loan, a maximum 1% penalty of the amount prepaid. The repayment of the Bank Loan is secured by a first-priority lien on all of our company’s rights in the property of our new office facility in Israel. The Bank Loan bears interest at the rate of LIBOR plus 3.35%. The Bank Loan Agreement contains customary representations and warranties, affirmative covenants and negative covenants, which include, without limitation, restrictions on indebtedness, liens, investments, and certain dispositions with respect to the property secured by the lien. The Bank Loan Agreement also contains customary events of default that entitle the lender to cause any or all of our company's indebtedness to become immediately due and payable and to foreclose on the lien, and includes customary grace periods before certain events are deemed events of default. Borrowings under the Bank Loan Agreement are available mainly for the financing of our new facility in Israel. As of June 30, 2018, we had borrowed $10 million under the Credit Line.

We believe that we were in compliance with all of the covenants under the Bank Loan Agreement, including those related to the Bank Loan and Credit Line, as of June 30, 2018.

We have prepared our consolidated financial statements and related disclosures in conformity with accounting principles generally accepted in the United States of America. This has required us to make estimates, judgments, and assumptions that affected the amounts we reported. Actual results may differ from those estimates. To facilitate the understanding of our business activities, certain accounting policies that are important to the presentation of our financial condition and results of operations and that require management’s subjective judgments are described in our 2017 Annual Report. We base our judgments on our experience and various assumptions that we believe to be reasonable under the circumstances.

Forward-Looking Statements and Factors That May Affect Future Results of Operations

Certain information included in or incorporated by reference into the Report of Foreign Private Issuer on Form 6-K to which this Operating and Financial Review and Prospects is appended, or the Form 6-K, may be deemed to be “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, and Section 21E of the Securities Exchange Act of 1934. Forward-looking statements are those that predict or describe future events or trends and that do not relate solely to historical matters. You can generally identify forward-looking statements as statements containing the words “may,” “will,” “could,” “should,” “expect,” “anticipate,” “intend,” “estimate,” “believe,” “project,” “plan,” “assume” or other similar expressions, or negatives of those expressions, although not all forward-looking statements contain these identifying words.

These forward-looking statements may include, but are not limited to, statements regarding our future strategy, future operations, projected financial position, proposed products, estimated future revenues, projected costs, future prospects, the future of our industry and results that might be obtained by pursuing management’s current plans and objectives.

You should not place undue reliance on our forward-looking statements because the matters they describe are subject to certain risks, uncertainties and assumptions that are difficult to predict. Our forward-looking statements are based on the information currently available to us and speak only as of the date of this Form 6-K. Over time, our actual results, performance or achievements may differ from those expressed or implied by our forward-looking statements, and such difference might be significant and materially adverse to our shareholders. We undertake no obligation to update publicly any forward-looking statements, whether as a result of new information, future events or otherwise.

Important factors that could cause actual results, developments and business decisions to differ materially from those anticipated in these forward-looking statements include, among other things:

Readers are urged to carefully review and consider the various disclosures made throughout the Form 6-K, our 2017 Annual Report, and in our other reports filed with or furnished to the SEC, which are designed to advise interested parties of the risks and factors that may affect our business, financial condition, results of operations and prospects.

Reference is made to Item 11, “Quantitative and Qualitative Disclosures about Market Risk” in our 2017 Annual Report.

We are subject to various litigation and other legal proceedings. For a discussion of certain of these matters that we deem to be material to our company, see Note 12-“Contingencies” in the notes to our unaudited condensed consolidated financial statements attached as Exhibit 99.1 to the Form 6-K.

		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

		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 aquired 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

	Six Months Ended June 30,
	2018			2017
	U.S $ in thousands
Net loss	$	(16,708	)	$	(20,140	)
Depreciation and amortization		30,612			32,972
Deferred income taxes		(1,902	)		(1,581	)
Stock-based compensation		7,693			9,235
Other non-cash item, net		11,447			(4,528	)
Change in working capital and other items		8,956			20,279
Net cash provided by operating activities		40,098			36,237
Net cash used in investing activities		(17,141	)		(14,679	)
Net cash provided by financing activities		(3,036	)		358
Effect of exchange rate changes on cash, cash equivalents and restricted cash		(2,001	)		3,116
Net change in cash, cash equivalents and restricted cash		17,920			25,032
Cash, cash equivalents and restricted cash, beginning of period		329,359			280,623
Cash, cash equivalents and restricted cash, end of period	$	347,279		$	305,655

●	the extent of our success at introducing new or improved products and solutions that gain market share;

●	the extent of growth of the 3D printing market generally;

●	impairments of goodwill or other intangible assets in respect of companies that we acquire;

●	changes in our overall strategy, including as related to any reorganization activities and our capital expenditures;

●	the impact of shifts in prices or margins of the products that we sell or services we provide;

●	the extent of our success at efficiently and successfully integrating the operations of various companies that we have acquired or may acquire;

●	the impact of competition and new technologies;

●	global market, political and economic conditions, and in the countries in which we operate in particular;

●	government regulations and approvals;

●	litigation and regulatory proceedings;

●	infringement of our intellectual property rights by others (including for replication and sale of consumables for use in our systems), or infringement of others’ intellectual property rights by us;

●	the extent of our success at maintaining our liquidity and financing our operations and capital needs;

●	impact of tax regulations on our results of operations and financial condition; and

●	those factors referred to in Item 3.D, “Key Information - Risk Factors”, Item 4, “Information on the Company”, and Item 5, “Operating and Financial Review and Prospects” in our 2017 Annual Report, as well as in the 2017 Annual Report generally.