STRATASYS LTD.

Exhibit 99.1

STRATASYS LTD.

CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

FOR THE THREE AND NINE MONTHS ENDED

SEPTEMBER 30, 2023

(UNAUDITED)

INDEX TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2023

(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		7-21

STRATASYS LTD.

CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

(Unaudited)

Consolidated Balance Sheets
(in thousands, except per share data)
		September 30, 2023			December 31, 2022
ASSETS
Current assets
Cash and cash equivalents	$	104,563		$	150,470
Short-term deposits		80,000			177,367
Accounts receivable, net of allowance for credit losses of $1.4 million and $0.9 million as of September 30, 2023 and December 31, 2022, respectively		164,075			144,739
Inventories		197,420			194,054
Prepaid expenses		9,732			5,767
Other current assets		27,534			27,823
Total current assets		583,324			700,220
Non-current assets
Property, plant and equipment, net		198,272			195,063
Goodwill		90,187			64,953
Other intangible assets, net		141,201			121,402
Operating lease right-of-use assets		19,533			18,122
Long-term investments		129,738			141,610
Other non-current assets		19,510			18,420
Total non-current assets		598,441			559,570

Total assets	$	1,181,765		$	1,259,790

LIABILITIES AND EQUITY
Current liabilities
Accounts payable	$	60,845		$	72,921
Accrued expenses and other current liabilities		49,817			45,912
Accrued compensation and related benefits		31,502			34,432
Deferred revenues - short term		51,751			50,220
Operating lease liabilities - short term		6,511			7,169
Total current liabilities		200,426			210,654
Non-current liabilities
Deferred revenues - long term		28,559			25,214
Deferred income taxes - long term		6,889			5,638
Operating lease liabilities - long term		12,692			10,670
Contingent consideration - long term		25,884			23,707
Other non-current liabilities		24,172			24,475
Total non-current liabilities		98,196			89,704

Total liabilities	$	298,622		$	300,358

Contingencies (see note 13)

Equity
Ordinary shares, NIS 0.01 nominal value, authorized 180,000 shares; 69,165 shares and 67,086 shares issued and outstanding at September 30, 2023 and December 31, 2022, respectively		194			187
Additional paid-in capital		3,080,877			3,048,915
Accumulated other comprehensive loss		(12,958	)		(12,818	)
Accumulated deficit		(2,184,970	)		(2,076,852	)
Total equity		883,143			959,432

Total liabilities and equity	$	1,181,765		$	1,259,790

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,
		2023			2022			2023			2022

Revenues
Products	$	113,270		$	112,133		$	323,353		$	340,927
Services		48,863			50,059			147,908			151,297
		162,133			162,192			471,261			492,224
Cost of revenues
Products		59,546			55,916			168,235			176,421
Services		36,938			35,527			105,760			107,984
		96,484			91,443			273,995			284,405

Gross profit		65,649			70,749			197,266			207,819

Operating expenses
Research and development, net		23,567			23,145			69,347			71,489
Selling, general and administrative		84,880			63,230			221,173			195,085
		108,447			86,375			290,520			266,574

Operating loss		(42,798	)		(15,626	)		(93,254	)		(58,755	)

Gain from deconsolidation of subsidiary		-			39,136			-			39,136
Financial income (expenses), net		687			452			2,147			(2,080	)

Income (loss) before income taxes		(42,111	)		23,962			(91,107	)		(21,699	)

Income tax expenses		(645	)		(3,298	)		(5,145	)		(2,796	)
Share in losses of associated companies		(4,523	)		(1,915	)		(11,866	)		(2,089	)

Net income (loss)	$	(47,279	)	$	18,749		$	(108,118	)	$	(26,584	)

Net income (loss) per share - basic and diluted	$	(0.68	)	$	0.28		$	(1.58	)	$	(0.40	)
Weighted average ordinary shares outstanding. - basic		69,093			66,772			68,432			66,356
Weighted average ordinary shares outstanding. - diluted		69,093			67,038			68,432			66,356

Comprehensive income (loss)
Net income (loss)		(47,279	)		18,749			(108,118	)		(26,584	)
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments		(1,353	)		(1,598	)		482			(5,089	)
Unrealized gains (losses) on derivatives designated as cash flow hedges		1,066			729			(622	)		(363	)
Other comprehensive loss, net of tax		(287	)		(869	)		(140	)		(5,452	)

Comprehensive income (loss)	$	(47,566	)	$	17,880		$	(108,258	)	$	(32,036	)

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, 2023
											Accumulated
						Additional					Other
	Ordinary Shares					Paid-In		Accumulated			Comprehensive			Total
		Number of shares		Par Value		Capital		deficit			Loss			Equity
Balance as of December 31, 2022		67,086	$	187	$	3,048,915	$	(2,076,852	)	$	(12,818	)	$	959,432
Issuance of shares in connection with stock-based compensation plans		1,017		3		1		-			-			4
Stock-based compensation		-		-		8,241		-			-			8,241
Comprehensive loss		-		-		-		(22,224	)		(990	)		(23,214	)
Balance as of March 31, 2023		68,103	$	190	$	3,057,157	$	(2,099,076	)	$	(13,808	)	$	944,463
Issuance of shares in connection with stock-based compensation plans		268		1		4		-			-			5
Stock-based compensation		-		-		8,022		-			-			8,022
Comprehensive income (loss)		-		-		-		(38,615	)		1,137			(37,478	)
Issuance of Common stock under employee stock purchase plan		253		1		3,013		-			-			3,014
Issuance of shares as part of the Covestro acquisition		318		1		5,200		-			-			5,201
Balance as of June 30, 2023		68,942	$	193	$	3,073,396	$	(2,137,691	)	$	(12,671	)	$	923,227
Issuance of shares in connection with stock-based compensation plans		223		1		-		-			-			1
Stock-based compensation		-		-		7,481		-			-			7,481
Comprehensive loss		-		-		-		(47,279	)		(287	)		(47,566	)
Balance as of September 30, 2023		69,165	$	194	$	3,080,877	$	(2,184,970	)	$	(12,958	)	$	883,143

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 Cash Flows
(in thousands)	Nine Months Ended September 30,
		2023			2022
Cash flows from operating activities
Net loss	$	(108,118	)	$	(26,584	)

Adjustments to reconcile net loss to net cash used in operating activities:
Impairment of other long-lived assets		4,471			3,865
Depreciation and amortization		37,198			44,451
Stock-based compensation		23,744			24,755
Foreign currency transaction loss		4,087			13,978
Gain from deconsolidation of subsidiary		-			(39,136	)
Share in losses of associated companies		11,866			2,089
Revaluation of investments		5,681			3,217
Other non-cash items, net		2,494			826

Change in cash attributable to changes in operating assets and liabilities:
Accounts receivable, net		(19,676	)		(21,832	)
Inventories		(752	)		(64,286	)
Other current assets and prepaid expenses		(3,512	)		3,898
Other non-current assets		4,198			(17,003	)
Accounts payable		(13,031	)		17,286
Other current liabilities		(2,967	)		2,013
Deferred revenues		5,123			4,860
Deferred income taxes, net and uncertain tax positions		2,891			(301	)
Other non-current liabilities		(7,609	)		(9,385	)
Net cash used in operating activities		(53,912	)		(57,289	)

Cash flows from investing activities
Cash paid for acquisitions, net of cash acquired		(68,360	)		-
Purchase of property and equipment		(8,816	)		(11,761	)
Investments in short-term bank deposits		(31,448	)		(307,485	)
Proceeds from short-term bank deposits		128,815			368,429
Purchase of intangible assets		(1,487	)		(5,980	)
Other investing activities		(1,585	)		84
Investments in unconsolidated entities		(6,274	)		(67,274	)
Net cash provided by (used in) investing activities		10,845			(23,987	)

Cash flows from financing activities
Proceeds from exercise of stock options		10			260
Payment of contingent consideration		(906	)		(1,386	)
Other financing activities		(188	)		(281	)
Net cash used in financing activities		(1,084	)		(1,407	)

Effect of exchange rate changes on cash, cash equivalents and restricted cash		(1,703	)		(9,787	)

Net change in cash, cash equivalents and restricted cash		(45,854	)		(92,470	)
Cash, cash equivalents and restricted cash, beginning of period		150,686			243,293
Cash, cash equivalents and restricted cash, end of period	$	104,832		$	150,823

Supplemental disclosures of cash flow information:
Non-cash investing and financing activities
Transfer of inventory to fixed assets		7,316			6,306
Transfer of fixed assets to inventory		118			123
Issuance of Common stock under employee stock purchase plan		3,014			-
Issuance of shares as part of Covestro acquisition (Refer to Note 3)		5,201			-
Contingent consideration		2,794			-
Reconciliation of cash, cash equivalents and restricted cash reported in the consolidated balance sheets:
Cash and cash equivalents		104,563			150,672
Restricted cash included in other current assets		269			151
Total cash, cash equivalents and restricted cash shown in the consolidated statement of cash flows	$	104,832		$	150,823

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, which the Company views as having the largest and fastest growing total addressable market. The Company’s approximately 2,400 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, fashion and education. Stratasys’ products and comprehensive solutions improve product quality, development time, cost, time-to-market and patient care. 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 global events and other longer-term macroeconomic conditions, most prominently, the extent and speed at which inflation subsides, whether interest rate hikes continue, tighter credit markets and whether capital markets and global supply chains fully recover. As a result, the accounting estimates and assumptions may change over time. Such changes could have an additional impact on the Company’s long-lived asset and intangible asset valuation; and the allowance for expected credit losses. These consolidated financial statements reflect the financial statement effects based upon management’s estimates and assumptions utilizing the most currently available information.

The results of operations for the three and nine months periods ended September 30, 2023 are not necessarily 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, 2022, filed with the U.S. Securities and Exchange Commission (the “SEC”) on March 3, 2023 as part of the Company’s Annual Report on Form 20-F for such year.

Note 2. New Accounting Pronouncements

Accounting Pronouncements Adopted in 2023

In October 2021, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“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. The Company adopted this guidance effective January 1, 2023, with no material impact on its consolidated financial statements.

STRATASYS LTD.

NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS (UNAUDITED)

Note 3. Certain Transactions

MakerBot and Ultimaker transaction (“Ultimaker”)

On August 31, 2022, Stratasys completed the merger of MakerBot (previously, a fully owned subsidiary) with Ultimaker, which together formed a new entity under the name Ultimaker. The Company recorded a net gain of $39.1 million from the 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, as follows:

		U.S. $ in thousands
Fair Value, net	$	55,751
Net assets deconsolidated		(14,146	)
Transaction expenses		(2,469	)
Gain on deconsolidation of subsidiary	$	39,136

The Company accounts for its investment in the combined company Ultimaker 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 $105.4 million comprised of the assumed fair value of the MakerBot shares and additional amount invested in cash by the Company, representing a 46.5% share in the new entity.

The allocation of the purchase price (“PPA”) to the underlying net assets acquired and liability assumed resulted in the recognition of intangible assets with a value of $27.4 million, goodwill of $49.3 million and other net assets of $28.7 million. The value assigned to intangible assets is amortized over a period of 4 to 13 years and the related amortization is included under share in net losses (profits) from associated companies. The estimated fair values are based on the information that was available as of August 31, 2022.

As of September 30, 2023 and December 31, 2022 the equity investment in Ultimaker amounted to $88.4 million and $100.2 million, respectively, which represented the original investment in Ultimaker, net of share in net losses for the respective periods (the nine months ended September 30, 2023 and year ended December 31, 2022) in amounts of $11.8 million and $5.4 million, respectively.

STRATASYS LTD.

NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS (UNAUDITED)

Covestro AG assets acquisition

On April 3, 2023 (the “Covestro transaction date”), the Company completed the acquisition of the additive manufacturing materials business of Covestro AG. Covestro’s additive manufacturing business is expected to give the Company the ability to accelerate innovative developments in 3D printing materials and to thereby further grow adoption of its newest technologies. Also, the Company acquired an IP portfolio comprised of hundreds of patents and pending patents, including all of the SOMOS™ portfolio.

The Covestro transaction is reflected in accordance with ASC Topic 805, “Business Combinations”. The assets acquisition transaction meets the definition of a business and was accounted for as a “Business Combinations” transaction, using the acquisition method of accounting with the Company as the acquirer. The following table summarizes the fair value of the consideration transferred to Covestro AG for the Covestro transaction:

		U.S. $ in thousands
Cash payments*	$	53,816
Issuance of ordinary shares to Covestro stockholders		5,201
Contingent consideration at estimated fair value		659
Total consideration	$	59,676

*Of which $50.0 million was paid on April 3, 2023 and the balance was paid on October 2, 2023.

The fair value of the ordinary shares issued was determined based on the closing market price of the Company's ordinary shares on the Covestro transaction date.

In accordance with ASC Topic 805, the estimated contingent consideration as of the Covestro transaction date was included in the purchase price. The total contingent payments could amount to a maximum aggregate amount of up to $37 million. The payment will be settled through the issuance of ordinary shares. 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. Refer to note 10.

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 Covestro transaction date. The estimated fair values are preliminary and based on the information that was available as of April 3, 2023. Thus, the measurements of fair value 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)
Inventory	$	10,342
Fixed assets		8,245
Goodwill		20,199
Intangible assets		21,495
Total assets acquired		60,281


Other current liabilities		605
Total liabilities assumed		605

Net assets acquired	$	59,676

The preliminary allocation of the PPA to net assets acquired and liability assumed resulted in the recognition of intangible assets related to developed technology, customer relationship, and trade name. These intangible assets have a useful life of 7 to 10 years. The fair value estimate of the intangible assets is determined using a variation of the income approach known as the “Multi-Period Excess Earnings Approach”. This valuation technique estimates the fair value of an asset based on market participants’ expectations of the cash flows the asset would generate over its remaining useful life. The net cash flows were discounted to present value.

Pro forma information giving effect to the acquisition has not been provided, as the results would not be material.

Other investments

In addition to the investment in Ultimaker, other investments included under Long-term investments primarily consist of investments in non-marketable equity securities of several companies without readily determinable fair value in which the Company does not have a controlling interest or significant influence. During the nine months ended September 30, 2023 and during 2022, the Company invested a total of $5.4 million and $16.7 million, respectively, in non-marketable equity securities and convertible notes of several companies.

Restructuring and divestments

During the nine months ended September 30, 2023, the Company initiated certain restructuring activities for some parts of its operations, as part of aligning the business to the Company's growth strategy and streamlining the organization for improved efficiency. In connection with these activities, certain operations were discontinued, and others were divested. This restructuring resulted in an impairment charge to fixed assets, inventory write-off, employees related expenses and other charges. The restructuring activities were substantially completed by September 30, 2023. The Company recorded during the nine months ended September 30, 2023 restructuring charges of $12.0 million, $2.5 million and $3.9 million under Cost of sales, Research and development and Selling, general and administrative, respectively.

STRATASYS LTD.

NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS (UNAUDITED)

Note 4. Recent developments

Termination of Merger Agreement with Desktop Metal

On May 25, 2023, the Company and Desktop Metal, Inc., (“Desktop Metal”), jointly announced their entry into a merger agreement, whereby a wholly-owned Delaware subsidiary of the company was to merge with and into Desktop Metal, with Desktop Metal surviving the merger as a wholly-owned subsidiary of the Company. On September 28, 2023, the Company held an extraordinary general meeting of its shareholders, at which the merger was presented for the approval of the Company’s shareholders. The merger proposal was not approved by the Company’s shareholders at that meeting, and accordingly, pursuant to its rights under the merger agreement, Stratasys terminated the merger agreement with Desktop Metal, effective immediately on September 28, 2023. As a result, the Company recorded a termination fee of $10.0 million, which was included under selling, general & administrative expenses and was paid to Desktop Metal after the balance sheet date.

Nano Dimension Tender Offer and Board Contest

On May 25, 2023, following the announcement of the then-prospective merger with Desktop Metal, Nano Dimension Ltd. (“Nano”), a 14.1% shareholder of the Company in the 3D printing industry, launched a hostile partial tender offer whereby it sought to acquire—including shares already held by it— between 53% and 55% of the Company’s outstanding ordinary shares, at a price of $18.00 per share. The tender offer was subject to various conditions and was originally set to expire on June 26, 2023. Over the course of subsequent periods of time, the price offered by Nano in its tender offer was ultimately raised to $25.00 per share, with an accompanying reduction as to the percentage of Company shares to be held by it upon consummation of the offer, to between 46% and 51%, and the offer was extended ultimately through July 31, 2023. The offer expired on July 31, 2023 and Nano did not receive enough tendered shares and was therefore unable to complete the purchase of any of the Company ordinary shares pursuant to the offer.

The Company has also been subject to litigation with Nano in an Israeli district court regarding our shareholder rights plan, Nano’s tender offer, and the contested board election. The litigation has not changed the outcome of any of the developments described above. Please see note 13.

3D Systems Offers

On May 30, 2023, and then again on June 27, 2023, the Company received an unsolicited non-binding indicative proposal from 3D Systems Corporation (“3D Systems”) to merge with the Company. On July 13, 2023, the Company received an updated proposal from 3D Systems, pursuant to which it would merge with the Company for $7.50 in cash and 1.5444 newly issued shares of common stock of 3D Systems per Stratasys ordinary share. The Stratasys board at first determined that the 3D Systems proposal of July 13^th would reasonably be expected to result in a “Superior Proposal” under the merger agreement with Desktop Metal and authorized Company management to enter into discussions with 3D Systems with respect to the proposal. Following an extensive due diligence process, Stratasys communicated its concerns regarding the 3D Systems’ proposal to 3D Systems and indicated that the last proposal was not itself a transaction which Stratasys would be prepared to enter into. 3D Systems revised its proposal on September 6, 2023, offering $7.00 in cash and 1.6387 newly issued shares of common stock of 3D Systems per Stratasys ordinary share. After consultation with its outside financial and legal advisors, the Stratasys board of directors unanimously determined that the September 6 proposal continued to significantly undervalue Stratasys and did not constitute a “Superior Proposal” pursuant to the terms of the merger agreement with Desktop Metal, and accordingly terminated discussions with 3D Systems.

Initiation of Strategic Alternatives Process

On September 28, 2023, the Company announced that it has initiated a comprehensive process to explore strategic alternatives for the Company. The Company noted that following the termination of the merger agreement with Desktop Metal, Stratasys is no longer subject to restrictions under that agreement regarding the solicitation of or entry into potential transactions.

STRATASYS LTD.

NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS (UNAUDITED)

Note 5. 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, 2023 and 2022:

	Three months ended September 30,				Nine months ended September 30,
		2023		2022		2023		2022
	(U.S. $ in thousands)				(U.S. $ in thousands)
Americas
Systems	$	30,545	$	34,869	$	80,706	$	96,719
Consumables		33,471		33,303		99,800		99,319
Service		37,809		39,281		113,594		117,207
Total Americas		101,825		107,453		294,100		313,245

EMEA
Systems		14,967		11,811		38,423		41,648
Consumables		18,654		13,666		55,475		45,759
Service		6,980		5,983		21,467		19,320
Total EMEA		40,601		31,460		115,365		106,727

Asia Pacific
Systems		5,978		9,626		21,126		31,319
Consumables		9,655		8,861		27,823		26,166
Service		4,074		4,792		12,847		14,767
Total Asia Pacific		19,707		23,279		61,796		72,252

Total Revenues	$	162,133	$	162,192	$	471,261	$	492,224

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, 2023 and 2022:

	Three months ended September 30,				Nine months ended September 30,
		2023		2022		2023		2022
	(U.S. $ in thousands)				(U.S. $ in thousands)
Revenues recognized in point in time from:
Products	$	113,270	$	112,133	$	323,353	$	340,927
Services		13,303		13,519		41,150		39,158
Total revenues recognized in point in time		126,573		125,652		364,503		380,085

Revenues recognized over time from:
Services		35,560		36,540		106,758		112,139
Total revenues recognized over time		35,560		36,540		106,758		112,139

Total Revenues	$	162,133	$	162,192	$	471,261	$	492,224

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 conditional on constraints other than the passage of time. The Company had no material contract assets as of September 30, 2023 and December 31, 2022.

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 revenue. The Company's deferred revenue as of September 30, 2023 and December 31, 2022 were as follows:

		September 30, 2023		December 31, 2022
	U.S. $ in thousands
Deferred revenue*	$	80,310	$	75,434

*Includes $28.5 million and $25.2 million under long-term deferred revenue in the Company's consolidated balance sheets as of September 30, 2023 and December 31, 2022, respectively.

Revenue recognized in 2023 that was included in deferred revenue balance as of December 31, 2022 was $8.8 million and $36.7 million for the three and nine months ended September 30, 2023.

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, 2023, the total RPO amounted to $93.5 million. The Company expects to recognize $61.8 million of this RPO during the next 12 months, $19.9 million over the subsequent 12 months and the remaining $11.7 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, 2023 and December 31, 2022, the deferred commissions amounted to $9.8 million and $9.6 million, respectively.

STRATASYS LTD.

NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS (UNAUDITED)

Note 6. Inventories

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

		September 30, 2023		December 31, 2022
	U.S. $ in thousands
Finished goods	$	86,980	$	81,564
Work-in-process		10,595		7,562
Raw materials		99,845		104,928
	$	197,420	$	194,054

Note 7. Goodwill and Other Intangible Assets

Goodwill

Changes in the carrying amount of the Company’s goodwill during the nine months ended September 30, 2023 were as follows:

		U.S. $ in thousands

Goodwill as of January 1, 2023	$	64,953
Goodwill acquired		24,973
Foreign currency translation adjustments		261
Goodwill as of September 30, 2023	$	90,187

STRATASYS LTD.

NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS (UNAUDITED)

Other Intangible Assets

Other intangible assets consisted of the following as of the below balance sheet dates:

	September 30, 2023							December 31, 2022
		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	$	406,822	$	(296,590	)	$	110,232	$	387,603	$	(283,671	)	$	103,932
Patents		18,963		(9,989	)		8,974		17,508		(8,970	)		8,538
Trademarks and trade names		21,355		(15,224	)		6,131		16,278		(14,030	)		2,248
Customer relationships		107,948		(92,084	)		15,864		93,609		(86,925	)		6,684
Capitalized software development costs		7,066		(7,066	)		-		7,066		(7,066	)		-
	$	562,154	$	(420,953	)	$	141,201	$	522,064	$	(400,662	)	$	121,402

Amortization expenses relating to intangible assets for the three-month periods ended September 30, 2023 and 2022 were approximately $7.0 million and $9.0 million, respectively. Amortization expenses relating to intangible assets for the nine-month periods ended September 30, 2023 and 2022 were approximately $20.5 million and $27.4 million, respectively.

As of September 30, 2023, the estimated amortization expenses relating to intangible assets for each of the following future periods were as follows:

		Estimated
		amortization expenses
		(U.S. $ in thousands)
Remaining 3 months of 2023	$	7,368
2024		23,725
2025		22,323
2026		22,246
2027		20,845
2028 and thereafter		44,694
Total	$	141,201

Note 8. Net Loss Per Share

The following table presents the numerator and denominator of the basic and diluted net loss per share computations for the three and nine months ended September 30, 2023 and 2022:

	Three Months Ended September 30,					Nine Months Ended September 30,
		2023			2022		2023			2022
	In thousands, except per share amounts					In thousands, except per share amounts
Numerator:
Net income(loss) for basic and diluted net loss per share	$	(47,279	)	$	18,749	$	(108,118	)	$	(26,584	)

Denominator:
Weighted average shares - for basic net income(loss) per share		69,093			66,772		68,432			66,356
Weighted average shares - for diluted net income(loss) per share		69,093			67,038		68,432			66,356

Net income(loss) per share
Basic and diluted	$	(0.68	)	$	0.28	$	(1.58	)	$	(0.40	)

The computation of diluted net loss per share excluded share awards of 2.4 million shares and 4.1 million shares for the three months ended September 30, 2023 and 2022, respectively, because the inclusion of those shares would have had an anti-dilutive effect on the diluted net loss per share.

The computation of diluted net loss per share excluded share awards of 2.1 million shares and 5.0 million shares for the nine months ended September 30, 2023 and 2022, respectively, because the inclusion of those shares would have had an anti-dilutive effect on the diluted net loss per share.

STRATASYS LTD.

NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS (UNAUDITED)

Note 9. Income Taxes

The Company’s effective tax rate as of September 30, 2023, was primarily impacted by the geographic mix of its earnings and losses, movements in its valuation allowance and changes in its uncertain tax positions.

Note 10. 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, 2023						December 31, 2022
		Level 2			Level 3			Level 2			Level 3
	(U.S. $ in thousands)
Assets:
Foreign exchange forward contracts not designated as hedging instruments	$	58		$	-		$	159		$	-
Foreign exchange forward contracts designated as hedging instruments		920			-			3			-
Convertible notes		-			5,423			-			1,894

Liabilities:
Foreign exchange forward contracts not designated as hedging instruments		(7	)		-			(38	)		-
Foreign exchange forward contracts designated as hedging instruments		(2,129	)		-			(1,640	)		-
Contingent consideration*		-			(41,221	)		-			(38,341	)
	$	(1,158	)	$	(35,798	)	$	(1,516	)	$	(36,447	)

*Includes $15.3 million and $14.6 million under accrued expenses and other current liabilities in the Company's consolidated balance sheets as of September 30, 2023 and December 31, 2022, 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 receivables, 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 11. 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, British Pound, 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		2023			2022			2023		2022
		U.S. $ in thousands
Assets derivatives -Foreign exchange contracts, not designated as hedging instruments	Other current assets	$	58		$	159		$	41,202	$	101,733
Assets derivatives -Foreign exchange contracts, designated as cash flow hedge	Other current assets		920			3			24,798		4,900
Liability derivatives -Foreign exchange contracts, not designated as hedging instruments	Accrued expenses and other current liabilities		(7	)		(38	)		15,962		16,751
Liability derivatives -Foreign exchange contracts, designated as hedging instruments	Accrued expenses and other current liabilities		(2,129	)		(1,640	)		46,807		72,273
		$	(1,158	)	$	(1,516	)	$	128,769	$	195,657

Foreign exchange contracts not designated as hedging instruments

As of September 30, 2023, the notional amounts of the Company’s outstanding exchange forward contracts, not designated as hedging instruments, were $57.2 million, and were used to reduce foreign currency exposures. With respect to such derivatives, a gain of $1.3 million and a gain of $2.9 million were recognized under financial expenses, net for the three-month periods ended September 30, 2023 and 2022, respectively and a gain of $2.6 million and a gain of $6.0 million were recognized under financial expenses, net for the nine-month periods ended September 30, 2023 and 2022, 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 income, net.

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

As of September 30, 2023, the Company had in effect foreign exchange forward contracts, designated as cash flow hedges for accounting purposes, for the conversion of $51.6 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, 2023, the Company had in effect foreign exchange forward contracts, designated as cash flow hedges for accounting purposes, for the conversion of 20.0 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 12. 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 ordinary shares purchased by the Company’s employees under the Company’s Employee Share Purchase Plan (“ESPP”) were allocated as follows:

	Three Months Ended September 30,				Nine Months Ended September 30,
		2023		2022		2023		2022
	U.S $ in thousands				U.S $ in thousands
Cost of revenues	$	891	$	1,061	$	2,822	$	3,041
Research and development, net		1,605		1,487		5,561		4,879
Selling, general and administrative		4,985		4,843		15,361		16,835
Total stock-based compensation expenses	$	7,481	$	7,391	$	23,744	$	24,755

A summary of the Company’s stock option activity for the nine months ended September 30, 2023 is as follows:

	Number of Options		Weighted Average Exercise Price
Options outstanding as of January 1, 2023	1,619,559		27.62
Granted	54,632		14.54
Exercised	(2,549	)	3.56
Forfeited	(312,921	)	55.29
Options outstanding as of September 30, 2023	1,358,721		21.03
Options exercisable as of September 30, 2023	1,003,935		22.41

As of September 30, 2023, the unrecognized compensation cost of $2.5 million related to all unvested, equity-classified stock options is expected to be recognized as an expense over a weighted-average period of 2.4 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, 2023 is as follows:

	Number of RSUs and PSUs		Weighted Average Grant Date Fair Value
Unvested as of January 1, 2023	3,496,099		23.98
Granted	1,832,498		13.28
Vested	(1,485,905	)	23.52
Forfeited	(275,910	)	23.48
Unvested as of September 30, 2023	3,566,782		18.71

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, 2023, the unrecognized compensation cost of $51.26 million related to all unvested, equity-classified RSUs and PSUs is expected to be recognized as expense over a weighted-average period of 2.52 years.

Employee Share Purchase Plan

In November 2021, the Company adopted the 2021 ESPP. Under 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. There are two offering periods every year, first offering period commence on June 1, and the second period commence on November 30.

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, 2023 and 2022, respectively:

	Nine Months Ended September 30, 2023
		Net Unrealized Gain (Loss) on Cash Flow Hedges			Foreign Currency Translation Adjustments			Total
	U.S. $ in thousands

Balance as of January 1, 2023	$	(299	)	$	(12,519	)	$	(12,818	)
Other comprehensive income (loss) before reclassifications		(3,122	)		482			(2,640	)
Amounts reclassified from accumulated other comprehensive loss		2,500			-			2,500
Other comprehensive loss		(622	)		482			(140	)
Balance as of September 30, 2023	$	(921	)	$	(12,037	)	$	(12,958	)

	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 before reclassifications		(506	)		(5,089	)		(5,595	)
Amounts reclassified from accumulated other comprehensive loss		143			-			143
Other comprehensive income		(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)

c. Rights plan

On July 24, 2022, the Company’s Board of Directors adopted a shareholder 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, par value NIS 0.01, of the Company (“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 agreement governing the Rights Plan (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 originally had a 364-day term, expiring on July 24, 2023. On May 25, 2023, in connection with the execution and delivery on that day of the Company’s merger agreement with Desktop Metal (as described in Note 4, under the heading “Termination of Merger Agreement with Desktop Metal”), Stratasys entered into an amendment to the Rights Agreement with the rights agent that extended the expiration date of the Rights Agreement to the later of (a) July 24, 2023 and (b) the conclusion of Stratasys’ shareholder meeting (or, if adjourned, the conclusion of the reconvened meeting) at which the merger under the merger agreement with Desktop Metal would be brought for approval, or such time as that merger agreement would be terminated in accordance with its terms.

On September 28, 2023, in connection with Stratasys’ termination of the merger agreement with Desktop Metal, Stratasys entered into a second amendment to the Rights Agreement with the rights agent, under which the expiration date of the Rights Agreement was extended through December 31, 2023.

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 or any existing holder of 15% or more of the ordinary shares who shall acquire any additional ordinary shares.

Note 13. Contingencies

Legal proceedings

Litigation with Nano Dimension regarding Stratasys’ Rights Plan and Nano Dimension’s tender offer

On April 25, 2023, the Company was named as a defendant in an action filed by Nano in the Tel-Aviv District Court in which Nano sought declaratory relief declaring that Stratasys’ shareholder rights plan is both illegal and void, and also requested a court order enjoining the Company and its directors from intervening with, or hindering in any way, a tender offer that Nano at the time intended to launch to acquire Stratasys ordinary shares.

On June 8, 2023, in its statement of defense, the Company rejected all of Nano’s claims, stating, among other things, that there was a substantial change of circumstance since Nano’s action was filed due to Stratasys’ entry into the Desktop Metal Merger Agreement on May 25, 2023 and the launch of Nano’s tender offer on May 25, 2023. The Company argued that its rights plan is legal under Israeli law, and that due to the many flaws and unlawful conditions of Nano’s tender offer and Nano’s conduct and circumstances, The Company’s board was obligated to get involved and protect the Company and its shareholders. The Company also submitted a counterclaim to the court, seeking an order restraining Nano from completing its tender offer until certain conditions were to be fulfilled.

On July 18, 2023, in the context of an interim procedural decision, the Israeli court took the opportunity to express its preliminary view on the legality of shareholder rights plans for Israeli companies. The court indicated that it is inclined to view rights plans as permissible under Israeli law; that the adoption of a rights plan by a board should be viewed “with suspicion”; and that the board would bear the burden of proving certain matters related to the adoption of such a plan.

After Nano’s tender offer expired on July 31, 2023, the Tel-Aviv District Court decided that the litigation should be put on hold. On October 10, 2023, the court issued an order instructing the parties to inform the court by October 24, 2023 whether they consent to the dismissal of the claim and counter-claim, with no order for costs. This deadline has been postponed until November 15, 2023.On November 15, 2023, Nano informed the court that it requests to resume the proceedings.

Litigation with Nano Dimension regarding Stratasys board election

In a separate action, on July 13, 2023, Nano filed a motion in an Israeli court requesting that the court order, among other things, that (i) the Company correct the agenda sent out to its shareholders in advance of an annual general shareholder meeting scheduled for August 8, 2023, so that the agenda would include Nano’s individual director nominees for the Company’s board, and (ii) the Company issue a new proxy statement and proxy card for the annual general shareholder meeting.

On July 28, 2023, Nano issued a press release in which it announced that it intends to withdraw its nominees for the Company’s board, which Nano reiterated in a press release that it issued on August 1, 2023.

On September 26, 2023, at the parties’ request, the court dismissed the proceedings, without prejudice.

Ordinary course litigation

In addition to the foregoing litigations, the Company is also 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.

Note 14. Subsequent events

In October 2023, Israel was attacked by a terrorist organization and entered a state of war. As of the date of these financial statements, the situation is evolving. One of the Company’s global headquarters and one of its manufacturing facilities are located in Israel. Currently, such activities in Israel remain largely unaffected. The Company continues to maintain business continuity plans backed by our inventory levels located outside of Israel. As of the date of these financial statements, the impact of the war on the Company’s results of operations and financial condition is limited, but such impact may change, and could be significant, as a result of the continuation, escalation or expansion of such war.