STRATASYS LTD.

Exhibit 99.1

STRATASYS LTD.

CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

FOR THE THREE AND NINE MONTHS ENDED

SEPTEMBER 30, 2022

(UNAUDITED)

INDEX TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2022

(UNAUDITED)

Item		Page
Consolidated Balance Sheets		2
Consolidated Statements of Operations and Comprehensive Loss		3
Consolidated Statements of Changes in Equity		4-5
Consolidated Statements of Cash Flows		6
Notes to Condensed Consolidated Interim Financial Statements		7-18

STRATASYS LTD.

CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

(Unaudited)

Consolidated Balance Sheets
(in thousands, except share data)
		September 30, 2022			December 31, 2021
ASSETS
Current assets
Cash and cash equivalents	$	150,672		$	243,179
Short-term deposits		198,056			259,000
Accounts receivable, net of allowance for credit losses of $0.7 million and $0.5 million as of September 30, 2022 and December 31, 2021		140,258			129,382
Inventories		170,434			129,147
Prepaid expenses		8,146			6,871
Other current assets		26,838			33,123
Total current assets		694,404			800,702
Non-current assets
Property, plant and equipment, net		194,214			203,295
Goodwill		64,844			65,144
Other intangible assets, net		129,682			152,244
Operating lease right-of-use assets		19,010			14,651
Long-term investments		143,928			28,667
Other non-current assets		21,309			12,519
Total non-current assets		572,987			476,520

Total assets	$	1,267,391		$	1,277,222

LIABILITIES AND EQUITY
Current liabilities
Accounts payable	$	67,957		$	51,976
Accrued expenses and other current liabilities		55,152			55,358
Accrued compensation and related benefits		34,862			44,684
Deferred revenues - short term		48,735			51,174
Operating lease liabilities - short term		6,977			7,276
Total current liabilities		213,683			210,468
Non-current liabilities
Deferred revenues - long term		23,581			21,133
Deferred income taxes - long term		4,084			7,341
Operating lease liabilities - long term		11,738			7,693
Contingent consideration - long term		38,551			53,478
Other non-current liabilities		27,028			21,095
Total non-current liabilities		104,982			110,740

Total liabilities	$	318,665		$	321,208

Contingencies (see note 12)

Equity
Ordinary shares, NIS 0.01 nominal value, authorized 180,000 thousand shares; 66,784 thousand shares and 65,677 thousand shares issued and outstanding at September 30, 2022 and December 31, 2021, respectively		186			182
Additional paid-in capital		3,037,225			3,012,481
Accumulated other comprehensive loss		(14,223	)		(8,771	)
Accumulated deficit		(2,074,462	)		(2,047,878	)
Total equity		948,726			956,014

Total liabilities and equity	$	1,267,391		$	1,277,222

The accompanying notes are an integral part of these condensed consolidated interim financial statements.

STRATASYS LTD.

CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

(Unaudited)

Consolidated Statements of Operations and Comprehensive Loss
(in thousands, except per share data)
	Three Months Ended September 30,						Nine Months Ended September 30,
		2022			2021			2022			2021

Revenues
Products	$	112,133		$	108,888		$	340,927		$	299,517
Services		50,059			50,121			151,297			140,686
		162,192			159,009			492,224			440,203
Cost of revenues
Products		55,916			54,820			176,421			151,471
Services		35,527			36,001			107,984			101,697
		91,443			90,821			284,405			253,168

Gross profit		70,749			68,188			207,819			187,035

Operating expenses
Research and development, net		23,145			22,645			71,489			65,683
Selling, general and administrative		63,230			67,462			195,085			184,353
		86,375			90,107			266,574			250,036

Operating loss		(15,626	)		(21,919	)		(58,755	)		(63,001	)

Gain from deconsolidation of subsidiary		39,136			-			39,136			-
Financial income (expense), net		452			(634	)		(2,080	)		(1,383	)

Income (loss) before income taxes		23,962			(22,553	)		(21,699	)		(64,384	)

Income tax expense (benefit)		3,298			(699	)		2,796			6,009
Share in profit (losses) of associated companies		(1,915	)		3,778			(2,089	)		1,229

Net income (loss)	$	18,749		$	(18,076	)	$	(26,584	)	$	(57,146	)

Net income (loss) per share - basic and diluted	$	0.28		$	(0.28	)	$	(0.40	)	$	(0.91	)

Weighted average ordinary shares outstanding - basic		66,772			65,018			66,356			62,888
Weighted average ordinary shares outstanding - diluted		67,038			65,018			66,356			62,888

Comprehensive income (loss)
Net income (loss)		18,749			(18,076	)		(26,584	)		(57,146	)
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments		(1,598	)		(2,247	)		(5,089	)		(2,105	)
Unrealized gains (losses) on derivatives designated as cash flow hedges		729			578			(363	)		2,579
Other comprehensive income (loss), net of tax		(869	)		(1,669	)		(5,452	)		474

Comprehensive income (loss)	$	17,880		$	(19,745	)	$	(32,036	)	$	(56,672	)

The accompanying notes are an integral part of these condensed consolidated interim financial statements.

STRATASYS LTD.

CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

(Unaudited)

Consolidated Statements of Changes in Equity
(in thousands)
Three and Nine Months Ended September 30, 2022
											Accumulated
					Additional						Other
	Ordinary Shares				Paid-In			Accumulated			Comprehensive			Total
	Number of shares		Par Value		Capital			deficit			Loss			Equity
Balance as of December 31, 2021	65,677	$	182	$	3,012,481		$	(2,047,878	)	$	(8,771	)	$	956,014
Issuance of shares in connection with stock-based compensation plans	731		3		152			-			-			155
Stock-based compensation	-		-		8,533			-			-			8,533
Comprehensive loss	-		-		-			(20,948	)		(1,053	)		(22,001	)
Balance as of March 31, 2022	66,408	$	185	$	3,021,166		$	(2,068,826	)	$	(9,824	)	$	942,701
Issuance of shares in connection with stock-based compensation plans	336		1		91			-			-			92
Stock-based compensation	-		-		8,831			-			-			8,831
Comprehensive loss	-		-		-			(24,385	)		(3,530	)		(27,915	)
Balance as of June 30, 2022	66,744	$	186	$	3,030,088		$	(2,093,211	)	$	(13,354	)	$	923,709
Issuance of shares in connection with stock-based compensation plans	40		-		13			-			-			13
Stock-based compensation	-		-		7,391			-			-			7,391
Other items					(267	)								(267	)
Comprehensive income (loss)	-		-		-			18,749			(869	)		17,880
Balance as of September 30, 2022	66,784	$	186	$	3,037,225		$	(2,074,462	)	$	(14,223	)	$	948,726

The accompanying notes are an integral part of these condensed consolidated interim financial statements.

STRATASYS LTD.

CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

(Unaudited)

Consolidated Statements of Changes in Equity
(in thousands )
Three and Nine Months Ended September 30, 2021
												Accumulated
						Additional						Other
	Ordinary Shares					Paid-In			Accumulated			Comprehensive			Total
		Number of shares		Par Value		Capital			deficit			Loss			Equity
Balance as of December 31, 2020		56,617	$	155	$	2,753,955		$	(1,985,896	)	$	(8,846	)	$	759,368
Issuance of shares in connection with stock-based compensation plans		670		2		2,881			-			-			2,883
Stock-based compensation		-		-		7,205			-			-			7,205
Public offering of ordinary shares, net		7,931		24		218,851			-			-			218,875
Deferred tax assets in connection with public offering expenses		-		-		1,156			-			-			1,156
Comprehensive income (loss)		-		-		-			(18,911	)		1,212			(17,699	)
Balance as of March 31, 2021		65,218	$	181	$	2,984,048		$	(2,004,807	)	$	(7,634	)	$	971,788
Issuance of shares in connection with stock-based compensation plans		178		-		633			-			-			633
Stock-based compensation		-		-		7,977			-			-			7,977
Deferred tax assets in connection with public offering expenses		-		-		175			-			-			175
Comprehensive income (loss)		-		-		-			(20,159	)		931			(19,228	)
Balance as of June 30, 2021		65,396	$	181	$	2,992,833		$	(2,024,966	)	$	(6,703	)	$	961,345
Issuance of shares in connection with stock-based compensation plans		71		1		692			-			-		$	693
Stock-based compensation		-		-		7,958			-			-			7,958
Expenses in connection with March 2021 public offering		-		-		(25	)		-			-			(25	)
Reduction of redeemable non-controlling interest		-		-		227			-			-			227
Comprehensive income (loss)		-		-		-			(18,076	)		(1,669	)		(19,745	)
Balance as of September 30, 2021		65,467	$	182	$	3,001,685		$	(2,043,042	)	$	(8,372	)	$	950,453

The accompanying notes are an integral part of these condensed consolidated interim financial statements.

STRATASYS LTD.

CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

(Unaudited)

Consolidated Statements of Cash Flows
in thousands	Nine Months Ended September 30,
		2022			2021
Cash flows from operating activities
Net loss	$	(26,584	)	$	(57,146	)

Adjustments to reconcile net loss to net cash provided by operating activities:
Impairment of other long-lived assets		3,865			1,944
Depreciation and amortization		44,451			41,412
Stock-based compensation		24,755			23,140
Foreign currency transaction loss		13,978			4,210
Gain from deconsolidation of subsidiary		(39,136	)		-
Share in loss of associated companies		2,089			(1,229	)
Revaluation of investments		3,217			556
Other non-cash items, net		826			364

Change in cash attributable to changes in operating assets and liabilities:
Accounts receivable, net		(21,832	)		(17,023	)
Inventories		(64,286	)		8,271
Other current assets and prepaid expenses		3,898			(11,911	)
Other non-current assets		(17,003	)		3,834
Accounts payable		17,286			29,204
Other current liabilities		2,013			14,047
Deferred revenues		4,860			3,470
Deferred income taxes, net and uncertain tax positions		(301	)		(6,677	)
Other non-current liabilities		(9,385	)		(5,070	)
Net cash provided by (used in) operating activities		(57,289	)		31,396

Cash flows from investing activities
Cash paid for acquisitions, net of cash acquired		-			(6,669	)
Purchase of property and equipment		(11,761	)		(16,193	)
Investments in short-term bank deposits		(307,485	)		(249,000	)
Proceeds from short-term bank deposits		368,429			89,000
Purchase of intangible assets		(5,980	)		(1,219	)
Other investing activities		84			(85	)
Investments in unconsolidated entities		(67,274	)		(7,000	)
Net cash used in investing activities		(23,987	)		(191,166	)

Cash flows from financing activities
Proceeds from public offering, net of issuance costs		-			218,850
Proceeds from exercise of stock options		260			3,699
Payment of contingent consideration		(1,386	)		-
Other financing activities		(281	)		406
Net cash provided by (used in) financing activities		(1,407	)		222,955

Effect of exchange rate changes on cash, cash equivalents and restricted cash		(9,787	)		(2,413	)

Net change in cash, cash equivalents and restricted cash		(92,470	)		60,772
Cash, cash equivalents and restricted cash, beginning of period		243,293			272,216
Cash, cash equivalents and restricted cash, end of period	$	150,823		$	332,988

Supplemental disclosures of cash flow information:
Transfer of inventory to fixed assets		6,306			2,760
Transfer of fixed assets to inventory		123			844
Reconciliation of cash, cash equivalents and restricted cash reported in the consolidated balance sheets:
Cash and cash equivalents		150,672			332,871
Restricted cash included in other current assets		151			117
Total cash, cash equivalents and restricted cash shown in the consolidated statement of cash flows	$	150,823		$	332,988

The accompanying notes are an integral part of these condensed consolidated interim financial statements.

STRATASYS LTD.

NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS (UNAUDITED)

Note 1. Business Description and Basis of Presentation

Stratasys Ltd. (collectively with its subsidiaries, the “Company” or “Stratasys”) is a global leader in connected, polymer-based 3D printing solutions, across the entire manufacturing value chain. The Company leverages its competitive advantages, which include a broad set of best-in-class 3D printing platforms, software, a materials and technology partner ecosystem, innovative leadership, and global GTM infrastructure, in order to position itself to capture share in a significant and growing global marketplace, with a focus on manufacturing. The Company’s approximately 1,700 granted and pending additive technology patents to date have been used to create models, prototypes, manufacturing tools, and production parts for a multitude of industries including aerospace, automotive, transportation, healthcare, consumer products, dental, medical, and education. Stratasys’ products and comprehensive solutions improve product quality, development time, cost, and time-to-market. The Company’s 3D ecosystem of solutions and expertise includes 3D printers, materials, software, expert services, and on-demand parts production.

The condensed consolidated interim financial information herein is unaudited; however, such information reflects all adjustments (consisting of normal, recurring adjustments), which are, in the opinion of management, necessary for a fair statement of results for the interim period. The condensed consolidated interim financial statements include the accounts of Stratasys Ltd. and its subsidiaries. All intercompany accounts and transactions, including profits from intercompany sales not yet realized outside the Company, have been eliminated in consolidation.

The Company’s financial statements are prepared in conformity with U.S. generally accepted accounting principles (“GAAP”), which require the Company to make estimates based on assumptions about current and, for some estimates, future economic and market conditions which affect reported amounts and related disclosures in its financial statements. Although the Company’s current estimates contemplate current and expected future conditions, as applicable, it is reasonably possible that actual conditions could differ from the Company’s expectations, which could materially affect its results of operations and financial position.

In particular, a number of estimates have been and will continue to be affected by macroeconomic conditions that have been triggered in the wake of the COVID-19 pandemic or steps taken to counter it. The global economic environment that has set in after the COVID-19 pandemic remains uncertain, rapidly changing and difficult to predict. The magnitude and duration of, as well as the consequences of, global macroeconomic trends triggered, in large part, by the pandemic or the recovery from the pandemic, such as inflationary pressures and supply chain problems, are currently difficult to predict. As a result, the accounting estimates and assumptions underlying the Company’s financial statements may change over time. Such changes could have an additional impact on the Company’s long-lived asset and intangible asset valuation; inventory valuation; assessment of the annual effective tax rate; and the allowance for expected credit losses and bad debt.

The results of operations for the three and nine months ended September 30, 2022 are not indicative of results that could be expected for the entire fiscal year. Certain financial information and footnote disclosures normally included in the annual consolidated financial statements prepared in accordance with GAAP have been condensed or omitted. The reader is referred to the Company’s audited consolidated financial statements and notes thereto for the year ended December 31, 2021, filed with the U.S. Securities and Exchange Commission (the “SEC”) on February 24, 2022 as part of the Company’s Annual Report on Form 20-F for such year.

Note 2. New Accounting Pronouncements

Accounting Pronouncements Adopted in 2022

In August 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2020-06 “Debt – Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815 – 40).” This guidance simplifies the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts on an entity’s own equity. The amendments to this guidance are effective for fiscal years beginning after December 15, 2021, and interim periods within those fiscal years. The Company adopted this guidance effective January 1, 2022, with no material impact on its consolidated financial statements.

Recently issued accounting pronouncements not yet adopted

In October 2021, the FASB issued ASU 2021-08 “Business Combinations (Topic 805), Accounting for Contract Assets and Contract Liabilities from Contracts with Customers”, which requires contract assets and contract liabilities acquired in a business combination to be recognized and measured by the acquirer on the acquisition date in accordance with Accounting Standards Codification (ASC) 606, Revenue from Contracts with Customers. The guidance will result in the acquirer recognizing contract assets and contract liabilities at the same amounts recorded by the acquiree. The guidance should be applied prospectively to acquisitions occurring on or after the effective date. The guidance is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. Early adoption is permitted, including in interim periods, for any financial statements that have not yet been issued. The Company is currently evaluating this guidance to determine the impact it may have on its consolidated financial statements.

STRATASYS LTD.

NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS (UNAUDITED)

Note 3. Certain Transactions

Investment in Xaar 3D Ltd. ("Xaar 3D")

During the fourth quarter of 2019, the Company entered into an agreement with Xaar plc (“Xaar”) to purchase additional shares of Xaar 3D that would increase its stake from 15 to 45 percent, with Xaar retaining the remaining 55 percent. Xaar and Stratasys had announced the formation of Xaar 3D Ltd in July 2018 for the purpose of developing Powder Bed Fusion (“PBF”) additive manufacturing solutions that Stratasys can bring to the market. In addition, the agreement included an option for Stratasys to acquire the remaining shares of Xaar 3D.

Following the additional investment, the Company considered the FASB guidance in accordance with ASC Topic 810 “Consolidation” regarding the propriety of implementing consolidation, for both the variable interest entity and voting model, or equity method accounting. The Company concluded that it should continue accounting for the investment according to the equity method, as it had retained the ability to exercise significant influence but did not control Xaar 3D. For its additional interest in Xaar 3D, the Company paid approximately $15.7 million.

The investment was presented under other non-current assets in the Company’s consolidated balance sheets.

On November 1, 2021 (the “Xaar 3D transaction date”) , the Company acquired the remaining 55% share of Xaar 3D, for an aggregate purchase price of $29.3 million. The Company paid cash upon closing and it is obligated to make additional earn-out payments and payments of royalties on products and services sales for up to 15 years.

The Xaar 3D transaction is reflected in accordance with ASC Topic 805, “Business Combinations”, using the acquisition method of accounting, with the Company as the acquirer. The Company accounted for the acquisition of the remaining equity of Xaar 3D as a step acquisition, which required re-measurement of the Company’s previous ownership interest to fair value prior to completing purchase accounting. Using step acquisition accounting, the Company increased the value of its previously-held equity investment to its fair value of $23.8 million, which resulted in a gain of approximately $14.4 million, recorded in the consolidated statements of operations in the fourth quarter of 2021. The acquisition of the remaining equity interest also resulted in the recognition of a previously unrealized foreign currency gain of $0.6 million, which was reclassified from accumulated other comprehensive income (OCI). The fair value of the previously held equity method investment was determined based upon a valuation of the acquired business, as of the date of acquisition, as detailed below.

The following table summarizes the fair value of the consideration transferred to Xaar 3D’s stockholders for the Xaar 3D transaction:

		U.S. $ in thousands
Cash payments	$	13,967
Contingent consideration at estimated fair value		15,314
Total consideration for 55% holding		29,281

Fair value of 45% holding		23,775

Total consideration	$	53,056

In accordance with ASC Topic 805, the estimated contingent consideration as of the Xaar 3D transaction date was included in the purchase price. The total contingent payments could reach a maximum aggregate amount of up to $21 million. The estimated fair value of the contingent consideration is based on management’s assessment of whether, and at what level, the financial metrics will be achieved, and the present value factors associated with the timing of the payments. This fair value measurement is based on significant unobservable inputs in the market and thus represents a Level 3 measurement within the fair value hierarchy. Changes in the fair value of contingent consideration will be recorded in operating expenses.

STRATASYS LTD.

NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS (UNAUDITED)

The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the Xaar 3D transaction date. The estimated fair values are preliminary and based on the information that was available as of November 1, 2021. Thus, the measurements of fair value that are reflected are subject to changes, and such changes could be significant. The preliminary allocation of the purchase price to assets acquired and liabilities assumed is as follows:

		Allocation of Purchase Price
		(U.S. $ in thousands)
Cash and cash equivalents	$	82
Goodwill		25,375
Intangible assets		45,000
Other assets		5,280
Total assets acquired		75,737

Net deferred tax liabilities		1,736
Other labilities		20,945
Total liabilities assumed		22,681

Net assets acquired	$	53,056

RPS acquisition

On February 16, 2021 the Company acquired RP Support Limited (“RPS”), a provider of industrial stereolithography 3D printers and solutions. In exchange for 100% of the outstanding shares of RPS, the Company paid cash upon closing and is obligated to make additional payments (in cash), subject to performance-based criteria, via earn-out payments over two years.

Marketable equity investment

The Company recognized losses for the revaluation of an equity investment, in amounts of $0.9 million and $2.0 million in the three-month periods ended September 30, 2022 and 2021, respectively. A loss of $3.2 million and a loss of $1.2 million were recognized in the nine-month periods ended September 30, 2022 and 2021, respectively.

The entity in which the Company invested became public during the first quarter of 2021 and accordingly the investment is treated as a marketable equity investment. Prior to the first quarter of 2021, the investment was treated as a non-marketable equity investment without readily determinable fair value.

MakerBot and Ultimaker transaction

On August 31, 2022, Stratasys completed the merger of MakerBot (previously, a fully owned subsidiary) with Ultimaker and formed a new entity under the name Ultimaker. The Company recorded a net gain of $39.1 million from deconsolidation of MakerBot, representing the difference between the book value of MakerBot's net assets and the fair value allocated to such net assets in the transaction.

The Company accounts for its investment in the combined company according to the equity method in accordance with ASC Topic 323, as it has retained the ability to exercise significant influence but does not control the new entity. the Company recognized an equity method investment in a total amount of $105.6 million, representing a share of 46.5% in the new entity.

Covestro acquisition

On August 8, 2022, the Company announced it has signed a definitive agreement to acquire the additive manufacturing materials business of Covestro AG. The acquisition is expected to close during the first quarter of 2023. The purchase price is approximately $42.3 million (43 million euros), plus additional inventory, less certain liabilities. In addition, there is a potential earnout payment of up to $36.4 million (37 million euros), subject to the achievement of various performance metrics.

STRATASYS LTD.

NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS (UNAUDITED)

Note 4. Revenues

Disaggregation of Revenues

The following table presents the Company’s revenues disaggregated by geographical region (based on the Company's customers' locations) and revenue type for the three and nine months ended September 30, 2022 and 2021:

	Three months ended September 30,				Nine months ended September 30,
		2022		2021		2022		2021
	(U.S. $ in thousands)				(U.S. $ in thousands)
Americas
Systems	$	34,869	$	34,136	$	96,719	$	82,546
Consumables		33,303		31,474		99,319		90,415
Service		39,281		37,962		117,207		105,673
Total Americas		107,453		103,572		313,245		278,634

EMEA
Systems		11,811		10,214		41,648		30,393
Consumables		13,666		16,682		45,759		44,830
Service		5,983		7,165		19,320		20,279
Total EMEA		31,460		34,061		106,727		95,502

Asia Pacific
Systems		9,626		7,926		31,319		24,781
Consumables		8,861		8,456		26,166		26,552
Service		4,792		4,994		14,767		14,734
Total Asia Pacific		23,279		21,376		72,252		66,067

Total Revenues	$	162,192	$	159,009	$	492,224	$	440,203

The following table presents the Company’s revenues disaggregated based on the timing of revenue recognition (at a specific point in time or over the course of time) for the three and nine months ended September 30, 2022 and 2021:

	Three months ended September 30,				Nine months ended September 30,
		2022		2021		2022		2021
	(U.S. $ in thousands)				(U.S. $ in thousands)
Revenues recognized at point in time from:
Products	$	112,133	$	108,888	$	340,927	$	299,517
Services		13,519		12,056		39,158		33,781
Total revenues recognized at point in time		125,652		120,944		380,085		333,298


Revenues recognized over time from:
Services		36,540		38,065		112,139		106,905
Total revenues recognized over time		36,540		38,065		112,139		106,905

Total Revenues	$	162,192	$	159,009	$	492,224	$	440,203

STRATASYS LTD.

NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS (UNAUDITED)

Contract Assets and Contract Liabilities

Contract assets are recorded when the Company's right to consideration is conditioned on constraints other than the passage of time. The Company had no material contract assets as of September 30, 2022 and December 31, 2021.

Contract liabilities include advance payments and billings in excess of revenue recognized, which are primarily related to advanced billings for service type warranty. Contract liabilities are presented under deferred revenues. The Company's deferred revenues as of September 30, 2022 and December 31, 2021 were as follows:

		September 30, 2022		December 31, 2021
	U.S. $ in thousands
Deferred revenue*	$	72,316	$	72,307

*Includes $23.6 million and $21.1 million under long-term deferred revenue in the Company's consolidated balance sheets as of September 30, 2022 and December 31, 2021, respectively.

Revenue recognized in 2022 that was included in deferred revenue balance as of December 31, 2021 was $10.6 million and $41.1 million for the three and nine months ended September 30, 2022.

Remaining Performance Obligations

Remaining Performance Obligations (“RPO“) represent contracted revenue that has not yet been recognized, which includes deferred revenue and amounts that will be invoiced and recognized as revenue in future periods. As of September 30, 2022, the total RPO amounted to $103.6 million. The Company expects to recognize $77.5 million of this RPO during the next 12 months, $14.9 million over the subsequent 12 months and the remaining $11.2 million thereafter.

Incremental Costs of Obtaining a Contract

Sales commissions earned mainly by the Company’s sales agents are considered incremental costs of obtaining a contract with a customer, as the Company expects the benefit of those commissions to be longer than one year. The majority of the sales commissions are not subject to capitalization, as the commission expense is recognized as the related revenue is recognized. Sales commissions for initial contracts related to the service type warranty are deferred and then amortized on a straight-line basis over the expected customer relationship period if the Company expects to recover those costs. Amortization expense is included in selling, general and administrative expenses in the consolidated statements of operations and comprehensive loss. As of September 30, 2022 and December 31, 2021, the deferred commissions amounted to $8.9 million and $7.4 million, respectively.

STRATASYS LTD.

NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS (UNAUDITED)

Note 5. Inventories

Inventories consisted of the following as of the below balance sheet dates:

		September 30, 2022		December 31, 2021
	U.S. $ in thousands
Finished goods	$	80,251	$	58,784
Work-in-process		8,031		4,360
Raw materials		82,152		66,003
	$	170,434	$	129,147

Note 6. Goodwill and Other Intangible Assets

Goodwill

Changes in the carrying amount of the Company’s goodwill during the nine months ended September 30, 2022 were as follows:

		U.S. $ in thousands

Goodwill as of January 1, 2022	$	65,144
Foreign currency translation adjustments		(300	)
Goodwill as of September 30, 2022	$	64,844

STRATASYS LTD.

NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS (UNAUDITED)

Other Intangible Assets

Other intangible assets consisted of the following:

	September 30, 2022							December 31, 2021
		Carrying Amount,					Net		Carrying Amount,					Net
		Net of		Accumulated			Book		Net of		Accumulated			Book
		Impairment		Amortization			Value		Impairment		Amortization			Value
	U.S. $ in thousands
Developed technology	$	387,146	$	(276,273	)	$	110,873	$	406,578	$	(279,037	)	$	127,541
Patents		16,696		(8,681	)		8,015		16,220		(8,503	)		7,717
Trademarks and trade names		16,261		(13,750	)		2,511		26,055		(22,241	)		3,814
Customer relationships		93,288		(85,005	)		8,283		100,731		(87,559	)		13,172
Capitalized software development costs		7,066		(7,066	)		-		7,410		(7,410	)		-
	$	520,457	$	(390,775	)	$	129,682	$	556,994	$	(404,750	)	$	152,244

Amortization expenses relating to intangible assets for the three-month periods ended September 30, 2022 and 2021 were approximately $9.0 million and $7.7 million, respectively. Amortization expenses relating to intangible assets for the nine month periods ended September 30, 2022 and 2021 were approximately $27.4 million and $23.0 million, respectively.

As of September 30, 2022, the estimated amortization expenses relating to intangible assets for each of the following future periods were as follows:

		Estimated
		amortization expense
		(U.S. $ in thousands)
Remaining 3 months of 2022	$	9,842
2023		22,585
2024		18,530
2025		16,051
2026		15,957
2027 and thereafter		46,717
Total	$	129,682

Note 7. Net Income (Loss) Per Share

The following table presents the numerator and denominator of the basic and diluted net income (loss) per share computations for the three and nine months ended September 30, 2022 and 2021:

	Three Months Ended September 30,					Nine Months Ended September 30,
		2022		2021			2022			2021
	In thousands, except per share amounts					In thousands, except per share amounts
Numerator:
Net income (loss) for basic and diluted net income (loss) per share	$	18,749	$	(18,076	)	$	(26,584	)	$	(57,146	)

Denominator:
Weighted average shares - for basic net income (loss) per share		66,772		65,018			66,356			62,888
Weighted average shares - for diluted net income (loss) per share		67,038		65,018			66,356			62,888

Net income (loss) per share
Basic and diluted	$	0.28	$	(0.28	)	$	(0.40	)	$	(0.91	)

The computation of diluted net income (loss) per share excluded share awards of 4.1 million shares and 5.0 million shares for the three month ended September 30, 2022 and 2021, respectively, and 5.0 million shares for the nine month ended September 30, 2022 and 2021, respectively, because their inclusion would have had an anti-dilutive effect on the diluted net income (loss) per share.

STRATASYS LTD.

NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS (UNAUDITED)

Note 8. Income Taxes

The Company had income tax expense of $3.3 million for the three-month period ended September 30, 2022, compared to income tax benefit of $0.7 million for the three-month period ended September 30, 2021. The Company had income tax expense of $2.8 million for the nine-month period ended September 30, 2022, and income tax benefit of $6.0 million for the nine-month period ended September 30, 2021. The Company’s effective tax rate as of September 30, 2022, was primarily impacted by the geographic mix of its earnings and losses, as well as changes in its valuation allowance.

Note 9. Fair Value Measurements

Financial instruments measured at fair value

The following table summarizes the Company’s financial assets and liabilities that are carried at fair value on a recurring basis, in its consolidated balance sheets:

	September 30, 2022					December 31, 2021
		Level 2			Level 3		Level 2			Level 3
	(U.S. $ in thousands)
Assets:
Foreign exchange forward contracts not designated as hedging instruments	$	249		$	-	$	82		$	-
Foreign exchange forward contracts designated as hedging instruments		1,899			-		910			-

Liabilities:
Foreign exchange forward contracts not designated as hedging instruments		(427	)		-		(89	)		-
Foreign exchange forward contracts designated as hedging instruments		(2,481	)		-		(60	)		-
Total contingent consideration*		-			55,412		-			55,919
	$	(760	)	$	55,412	$	843		$	55,919

*Includes $16.9 million and $2.4 million under Accrued expenses and other current liabilities in the Company's consolidated balance sheets as of September 30, 2022 and December 31, 2021, respectively.

The Company’s foreign exchange forward contracts are classified as Level 2, as they are not actively traded and are valued using pricing models that use observable market inputs, including interest rate curves and both forward and spot prices for currencies (Level 2 inputs).

Contingent consideration represents liabilities recorded at fair value in connection with acquisitions, and thus represents a Level 3 measurement within the fair value hierarchy (refer to Note 3).

Other financial instruments consist mainly of cash and cash equivalents, short-term deposits, current and non-current assets, accounts payable and other current liabilities. The fair value of these financial instruments approximates their carrying values.

STRATASYS LTD.

NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS (UNAUDITED)

Note 10. Derivative instruments and hedging activities

Since the Company conducts its operations globally, it is exposed to global market risks and to the risk that its earnings, cash flows and equity could be adversely impacted by fluctuations in foreign currency exchange rates. The Company enters into transactions involving foreign currency exchange derivative financial instruments. The Company manages its foreign currency exposures on a consolidated basis, which allows the Company to net exposures and take advantage of any natural hedging. The transactions are designed to manage the Company’s net exposure to foreign currency exchange rates and to reduce the volatility of earnings and cash flows associated with changes in foreign currency exchange rates. The Company does not enter into derivative transactions for trading purposes.

The Company is primarily exposed to foreign exchange risk with respect to recognized assets and liabilities and forecasted transactions denominated in the New Israeli Shekel (“NIS”), Euro, GBP, Korean Won, Chinese Yuan and the Japanese Yen. The gains and losses on the hedging instruments partially offset losses and gains on the hedged items. Financial markets and currency volatility may limit the Company’s ability to hedge these exposures. These contracts mature through December 2023.

The following table summarizes the consolidated balance sheets classification and fair values of the Company’s derivative instruments:

		Fair Value						Notional Amount
			September 30,			December 31,			September 30,		December 31,
	Balance sheet location		2022			2021			2022		2021
		U.S. $ in thousands
Assets derivatives -Foreign exchange contracts, not designated as hedging instruments	Other current assets	$	249		$	82		$	24,156	$	12,380
Assets derivatives -Foreign exchange contracts, designated as cash flow hedge	Other current assets		1,899			910			14,362		60,408
Liability derivatives -Foreign exchange contracts, not designated as hedging instruments	Accrued expenses and other current liabilities		(427	)		(89	)		34,026		33,047
Liability derivatives -Foreign exchange contracts, designated as hedging instruments	Accrued expenses and other current liabilities		(2,481	)		(60	)		57,780		26,320
		$	(760	)	$	843		$	130,324	$	132,155

Foreign exchange contracts not designated as hedging instruments

As of September 30, 2022, the notional amounts of the Company’s outstanding exchange forward contracts, not designated as hedging instruments, were $58.2 million, and were used to reduce foreign currency exposures. With respect to such derivatives, gain of $2.9 million and loss of $0.9 million were recognized under financial expenses, net for the three-month periods ended September 30, 2022 and 2021, respectively and gain of $6.0 million and gain of $2.6 million were recognized under financial expenses, net for the nine-month periods ended September 30, 2022 and 2021, respectively. Such gains or losses partially offset the foreign currency revaluation changes of the balance sheet items. These foreign currencies revaluation changes are also recognized under financial expenses, net.

Cash Flow Hedging - Hedges of forecasted foreign currency payroll and other operating expenses

As of September 30, 2022, the Company had in effect foreign exchange forward contracts, designated as cash flow hedges for accounting purposes, for the conversion of $58.4 million into NIS. The Company uses short-term cash flow hedge contracts to reduce its exposure to variability in expected future cash flows resulting mainly from payroll costs and other operating expenses denominated in NIS. The changes in fair value of those contracts are included in the Company’s accumulated other comprehensive loss.

Cash Flow Hedging - Hedges of forecasted foreign currency revenue

As of September 30, 2022, the Company had in effect foreign exchange forward contracts, designated as cash flow hedges for accounting purposes, for the conversion of 13.8 million Euro into U.S. dollars. The Company transacts business in U.S. dollars and in various other currencies. The Company may use foreign exchange or forward contracts to hedge certain cash flow exposures resulting from changes in these foreign currency exchange rates. These foreign exchange contracts, carried at fair value, have maturities of up to twelve months. The Company enters into these foreign exchange contracts to hedge a portion of its forecasted foreign currency denominated revenue in the normal course of business and accordingly, they are not speculative in nature.

STRATASYS LTD.

NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS (UNAUDITED)

Note 11. Equity

a. Stock-based compensation plans

Stock-based compensation expenses for equity-classified stock options, restricted share units (“RSUs”), performance-based restricted share units (”PSUs”) and Employee Share Purchase Plan ("ESPP") were allocated as follows:

	Three Months Ended September 30,				Nine Months Ended September 30,
		2022		2021		2022		2021
	U.S $ in thousands				U.S $ in thousands
Cost of revenues	$	1,061	$	805	$	3,041	$	2,227
Research and development, net		1,487		1,764		4,879		5,058
Selling, general and administrative		4,843		5,389		16,835		15,855
Total stock-based compensation expenses	$	7,391	$	7,958	$	24,755	$	23,140

A summary of the Company’s stock option activity for the nine months ended September 30, 2022 is as follows:

	Number of Options		Weighted Average Exercise Price
Options outstanding as of January 1, 2022	1,732,368		28.85
Granted	-		-
Exercised	(24,852	)	10.41
Forfeited	(35,421	)	26.80
Options outstanding as of September 30, 2022	1,672,095		29.17
Options exercisable as of September 30, 2022	1,365,231		32.04

As of September 30, 2022, the unrecognized compensation cost of $1.3 million related to all unvested, equity-classified stock options is expected to be recognized as an expense over a weighted-average period of 2.35 years.

STRATASYS LTD.

NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS (UNAUDITED)

A summary of the Company’s RSUs and PSUs activity for the nine months ended September 30, 2022 is as follows:

	Number of RSUs and PSUs		Weighted Average Grant Date Fair Value
Unvested as of January 1, 2022	3,082,798		26.36
Granted	1,904,310		22.29
Vested	(1,077,117	)	24.87
Forfeited	(590,724	)	24.60
Unvested as of September 30, 2022	3,319,267		24.82

The fair value of RSUs and PSUs is determined based on the quoted price of the Company’s ordinary shares on the date of the grant.

As of September 30, 2022, the unrecognized compensation cost of $59 million related to all unvested, equity-classified RSUs and PSUs is expected to be recognized as expense over a weighted-average period of 2.40 years.

Employee Stock Purchase Plan

On October 2021, the Company adopted the 2021 Employee Stock Purchase Plan (the “ESPP”). According to the ESPP, eligible employees may use up to 15% of their salaries to purchase ordinary shares. The price of an ordinary share purchased under the ESPP is equal to 85% of the lower of the fair market value of the ordinary share on the beginning of each offering period or on the purchase date. The first offering period commenced on June 1, 2022 and will end on November 30, 2022.

In accordance with ASC Topic 718, the ESPP is considered compensatory and, as such, results in recognition of stock-based compensation expenses.

b. Accumulated other comprehensive loss

The following tables present the changes in the components of accumulated other comprehensive income (loss), net of taxes, for the nine months ended September 30, 2022 and 2021, respectively:

	Nine Months Ended September 30, 2022
		Net Unrealized Gain (Loss) on Cash Flow Hedges			Foreign Currency Translation Adjustments			Total
	U.S. $ in thousands
Balance as of January 1, 2022	$	1,572		$	(10,343	)	$	(8,771	)
Other comprehensive income (loss) before reclassifications		(506	)		(5,089	)		(5,595	)
Amounts reclassified from accumulated other comprehensive loss		143			-			143
Other comprehensive loss		(363	)		(5,089	)		(5,452	)
Balance as of September 30, 2022	$	1,209		$	(15,432	)	$	(14,223	)

STRATASYS LTD.

NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS (UNAUDITED)

	Nine Months Ended September 30, 2021
		Net Unrealized Gain (Loss) on Cash Flow Hedges			Foreign Currency Translation Adjustments			Total
	U.S. $ in thousands
Balance as of January 1, 2021	$	(1,673	)	$	(7,173	)	$	(8,846	)
Other comprehensive income before reclassifications		2,427			(2,105	)		322
Amounts reclassified from accumulated other comprehensive loss		152			-			152
Other comprehensive income		2,579			(2,105	)		474
Balance as of September 30, 2021	$	906		$	(9,278	)	$	(8,372	)

c. Rights plan

On July 24, 2022, the Company’s Board of Directors adopted a rights plan (the “Rights Plan”) to protect the interests of the Company’s shareholders. Each Right entitles the registered holder thereof to purchase from the Company one Ordinary Share at a price of $0.01 per share, subject to adjustment, once the Rights become exercisable, and subject to the exercise terms and conditions thereof described in the Rights Agreement. The rights would become exercisable only if an entity, person, or group acquires beneficial ownership of 15% or more of the Company’s outstanding ordinary shares in a transaction not approved by the Company’s Board. The Rights Plan has a 364-day term, expiring on July 24, 2023.

The adoption of the Rights Plan is intended to protect the long-term interests of Stratasys and all Stratasys shareholders. The Rights Plan is designed to reduce the likelihood that any entity, person, or group would gain control of, or significant influence over, Stratasys through the open-market accumulation of the Company’s shares without appropriately compensating all Stratasys shareholders for control. The Rights Plan will encourage anyone seeking to gain a significant interest in Stratasys to negotiate directly with the Board prior to attempting to control or significantly influence the Company. Further to those goals, the Rights may cause substantial dilution to a person or group that acquires 15% or more of the ordinary shares, par value NIS 0.01, of the Company (“Ordinary Shares”) or any existing holder of 15% or more of the Ordinary Shares who shall acquire any additional Ordinary Shares.

d. Public offering of ordinary shares

During March 2021, the Company completed a public offering of its ordinary shares that raised $218.9 million, net of underwriting discounts and offering expenses. The total number of shares sold by the Company in the public offering was 7,931,034.

A deferred tax asset in an amount of $1.3 million was recorded in respect of a tax benefit, arising from the underwriting discounts and offering expenses, as an increase to Additional Paid-In Capital.

Note 12. Contingencies

Legal proceedings

During the fourth quarter of 2021, the Company reached preliminary settlement on an employee-related litigation matter in the US. The financial statements for the period ended September 30, 2022 and the year ended December 31, 2021 include a provision in respect of this settlement.

The Company is a party to various legal proceedings from time to time, the outcome of which, in the opinion of management, will not have a significant effect on the financial position, profitability or cash flows of the Company.