Exhibit 99.1

STRATASYS LTD.

CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED

MARCH 31, 2019

(UNAUDITED)

INDEX TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2019
(UNAUDITED)

Item	Page
Consolidated Balance Sheets	2
Consolidated Statements of Operations and Comprehensive Loss	3
Consolidated Statements of Changes in Equity	4
Consolidated Statements of Cash Flows	5
Notes to Condensed Consolidated Financial Statements	6-17

1

STRATASYS LTD.
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Consolidated Balance Sheets
(in thousands, except share data)
	March 31, 2019			December 31, 2018
ASSETS
Current assets
Cash and cash equivalents	$	367,843		$	393,167
Accounts receivable, net		128,420			138,146
Inventories		131,731			123,524
Net investment in sales-type leases		2,193			2,658
Prepaid expenses		7,750			6,398
Other current assets		21,023			20,278
Total current assets		658,960			684,171
Non-current assets
Net investment in sales-type leases - long-term		965			1,552
Property, plant and equipment, net		188,255			188,150
Goodwill		385,612			385,849
Other intangible assets, net		101,486			107,274
Operating lease right-of-use assets		27,408			-
Other non-current assets		22,456			21,258
Total non-current assets		726,182			704,083
Total assets	$	1,385,142		$	1,388,254
LIABILITIES AND EQUITY
Current liabilities
Accounts payable	$	43,033		$	45,855
Current portion of long-term debt		-			5,143
Accrued expenses and other current liabilities		29,831			39,115
Accrued compensation and related benefits		35,516			31,703
Deferred revenues		53,997			53,965
Operating lease liabilities - short term		9,439			-
Total current liabilities		171,816			175,781
Non-current liabilities
Long-term debt		-			22,000
Deferred tax liabilities		1,391			1,662
Deferred revenues - long-term		17,307			18,422
Operating lease liabilities - long term		18,481			-
Other non-current liabilities		28,474			27,422
Total non-current liabilities		65,653			69,506
Total liabilities	$	237,469		$	245,287
Contingencies (see note 11)
Redeemable non-controlling interests		809			852
Equity
Ordinary shares, NIS 0.01 nominal value, authorized 180,000 thousands shares; 54,048 thousands shares and 53,881 thousands shares issued and outstanding at March 31, 2019 and December 31, 2018, respectively		146			146
Additional paid-in capital		2,687,499			2,681,048
Accumulated other comprehensive loss		(7,185	)		(7,753	)
Accumulated deficit		(1,533,596	)		(1,531,326	)
Total equity		1,146,864			1,142,115
Total liabilities and equity	$	1,385,142		$	1,388,254

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

2

STRATASYS LTD.
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Consolidated Statements of Operations and Comprehensive Loss
	Three Months Ended March 31,
in thousands, except per share data	2019			2018
Net sales
Products	$	105,091		$	103,917
Services		50,209			49,916
		155,300			153,833
Cost of sales
Products		44,169			45,218
Services		34,674			32,965
		78,843			78,183
Gross profit		76,457			75,650
Operating expenses
Research and development, net		22,574			25,110
Selling, general and administrative		57,154			57,005
		79,728			82,115
Operating loss		(3,271	)		(6,465	)
Financial income, net		753			8
Loss before income taxes		(2,518	)		(6,457	)
Income tax expenses		1,218			601
Share in profits (losses) of associated companies		1,423			(6,073	)
Net loss	$	(2,313	)	$	(13,131	)
Net loss attributable to non-controlling interests		(43	)		(90	)
Net loss attributable to Stratasys Ltd.	$	(2,270	)	$	(13,041	)
Net loss per ordinary share attributable to Stratasys Ltd. - basic and diluted	$	(0.04	)	$	(0.24	)
Weighted average ordinary shares outstanding - basic and diluted		53,966			53,657
Comprehensive loss
Net loss		(2,313	)		(13,131	)
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments		(427	)		2,011
Unrealized gains (losses) on derivatives designated as cash flow hedges		995			(325	)
Other comprehensive income, net of tax		568			1,686
Comprehensive loss		(1,745	)		(11,445	)
Less: comprehensive loss attributable to non-controlling interests		(43	)		(90	)
Comprehensive loss attributable to Stratasys Ltd.	$	(1,702	)	$	(11,355	)

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

3

STRATASYS LTD.
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Consolidated Statements of Changes in Equity
(in thousands )
Three Months Ended March 31, 2019 and 2018
						Retained			Accumulated
	Ordinary Shares			Additional		Earnings			Other			Equity
	Number of			Paid-In		(accumulated			Comprehensive			attributable to			Non-controlling			Total
	shares	Par Value		Capital		deficit)			Loss			Stratasys Ltd.			Interests			Equity
Balance as of December 31, 2018	53,881		146		2,681,048		(1,531,326	)		(7,753	)		1,142,115			-			1,142,115
Issuance of shares in connection with stock-based compensation plans	167		*		2,222		-			-			2,222			-			2,222
Stock-based compensation	-		-		4,229		-			-			4,229			-			4,229
Comprehensive loss	-		-		-		(2,270	)		568			(1,702	)		-			(1,702	)
Balance as of March 31, 2019	54,048	$	146	$	2,687,499	$	(1,533,596	)	$	(7,185	)	$	1,146,864		$	-		$	1,146,864
						Retained			Accumulated
	Ordinary Shares			Additional		Earnings			Other			Equity
	Number of			Paid-In		(accumulated			Comprehensive			attributable to			Non-controlling			Total
	shares	Par Value		Capital		deficit)			Loss			Stratasys Ltd.			Interests			Equity
Balance as of December 31, 2017	53,631		145		2,663,274		(1,523,906	)		(7,023	)		1,132,490			17			1,132,507
Cumulative effect of changes in accounting principles	-		-		-		3,544			-			3,544			-			3,544
Issuance of shares in connection with stock-based compensation plans	79		*		334		-			-			334			-			334
Stock-based compensation	-		-		3,415		-			-			3,415			-			3,415
Comprehensive loss	-		-		-		(13,041	)		1,686			(11,355	)		(34	)		(11,389	)
Balance as of March 31, 2018	53,710	$	145	$	2,667,023	$	(1,533,403	)	$	(5,337	)	$	1,128,428		$	(17	)	$	1,128,411

* Represents an amount less than 0.5 thousand

4

STRATASYS LTD.
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Consolidated Statements of Cash Flows
	Three Months Ended March 31,
in thousands	2019			2018
Cash flows from operating activities
Net loss	$	(2,313	)	$	(13,131	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization		12,700			15,372
Stock-based compensation		4,229			3,415
Foreign currency transaction gain		(210	)		(1,678	)
Deferred income taxes		(685	)		(922	)
Share in (profits) losses of associated companies		(1,423	)		6,073
Other non-cash items, net		1,018			709
Change in cash attributable to changes in operating assets and liabilities:
Accounts receivable, net		9,124			13,990
Inventories		(9,598	)		(3,573	)
Net investment in sales-type leases		1,052			2,244
Other current assets and prepaid expenses		(2,133	)		266
Other non-current assets		(219	)		(304	)
Accounts payable		(2,805	)		981
Other current liabilities		(5,172	)		4,110
Deferred revenues		(781	)		1,594
Other non-current liabilities		1,820			(2,094	)
Net cash provided by operating activities		4,604			27,052
Cash flows from investing activities
Purchase of property and equipment		(6,114	)		(7,607	)
Investment in unconsolidated entities		-			(5,000	)
Purchase of intangible assets		(310	)		(271	)
Proceeds from sale of plant and property		118			3,770
Other investing activities		577			(162	)
Net cash used in investing activities		(5,729	)		(9,270	)
Cash flows from financing activities
Repayment of long-term debt		(27,293	)		(1,286	)
Proceeds from exercise of stock options		2,222			1,002
Net cash used in financing activities		(25,071	)		(284	)
Effect of exchange rate changes on cash, cash equivalents and restricted cash		878			296
Net change in cash, cash equivalents and restricted cash		(25,318	)		17,794
Cash, cash equivalents and restricted cash, beginning of period		393,734			329,359
Cash, cash equivalents and restricted cash, end of period	$	368,416		$	347,153
Supplemental disclosures of cash flow information:
Transfer of fixed assets to inventory		97			109
Transfer of inventory to fixed assets		1,028			320

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

5

STRATASYS LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Note 1. Business Description and Basis of Presentation

Stratasys Ltd. (collectively with its subsidiaries, the “Company”) is a global provider of applied additive technology solutions for a broad range of industries. The Company focuses on customers’ business requirements and seeks to create new value for its customers across their product lifecycle processes, from design prototypes to manufacturing tools and final production parts. The Company operates a 3D printing ecosystem of solutions and expertise, comprised of: 3D printers ranging from entry-level desktop 3D printers to systems for rapid prototyping (“RP”) and large production systems for direct digital manufacturing (“DDM”) based on precise fused deposition modeling (“FDM”) and PolyJet technologies; advanced materials for use with its 3D printers; software with voxel level control; application-based services; on-demand parts; and key partnerships.

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 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 results of operations for the three months ended March 31, 2019 are not necessarily indicative of the results to be expected for the full year. Certain financial information and footnote disclosures normally included in the annual consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“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, 2018, filed with the U.S. Securities and Exchange Commission (the “SEC”) as part of the Company’s Annual Report on Form 20-F for such year on March 7, 2019.

Note 2. New Accounting Pronouncements

Accounting Pronouncements Adopted in the Current Period

In June 2018, the Financial Accounting Standards Board (“FASB”) issued a new Accounting Standards Update (“ASU”) which substantially aligns the measurement and classification guidance for share-based payments to non-employees with the guidance for share-based payments to employees. That ASU also clarifies that any share-based payment issued to a customer should be evaluated based upon the new revenue recognition standard. The new ASU required a modified retrospective transition approach. The Company adopted this guidance effective January 1, 2019, which has not had a material impact on its consolidated financial statements.

In August 2017, the FASB issued an ASU which simplifies the designation and measurement requirements of hedge accounting in certain situations and allows companies to better align their hedge accounting with their risk management activities. The ASU also eases certain hedge effectiveness assessment requirements, expands the eligibility of hedging strategies that may qualify for hedge accounting and modifies certain presentation and disclosure requirements. The Company adopted this guidance effective January 1, 2019, which has not had a material impact on its consolidated financial statements.

In February 2016, the FASB issued a new ASU which amended its lease accounting guidance. Under the new lease accounting guidance, lessees are required to recognize a right-of-use asset and a lease liability for all leases, including leases classified as operating leases. The lease liability and the right-of-use asset are measured based on the present value of the lease payments. In addition, disclosures of qualitative and quantitative information about leasing arrangements are required. The new lease accounting guidance also contains amended guidance regarding the identification of embedded leases in service contracts and the identification of lease and non-lease components of an arrangement.

The Company adopted the new lease accounting guidance on January 1, 2019, using a modified retrospective transition approach, with certain practical expedients, and as a result did not adjust prior periods. Following the adoption, the Company recognized right-of-use assets of $27.4 million and lease liabilities of $27.9 million for its operating leases. The Company does not have material finance leases. The new lease accounting guidance had no material impact on the Company's Condensed Consolidated Statements of Operations and Comprehensive Loss and no material impact on the Condensed Consolidated Statements of Cash Flows.

The Company determines whether an arrangement contains a lease at the inception of a contract. If an arrangement is a lease, the Company determines whether it is an operating lease or a finance lease. The Company’s lease terms include all non-cancelable periods and may include options to extend the lease when it is reasonably certain that the Company will exercise that option. Lease expense for operating leases is recognized on a straight-line basis over the lease term. All leases with a lease term greater than twelve months result in the recognition of a right-of-use asset and a corresponding lease liability.

The right-of-use assets represent the Company’s right to control the use of an underlying asset for the lease term. The lease liabilities represent the present value of the Company's future lease payments over the expected lease term, which is determined using the Company's incremental borrowing rate at the lease commencement date. This rate is determined considering factors such as the lease term, credit standing and the economic environment of the location of the lease.

The Company's leases primarily relate to buildings for the Company’s administrative, research and development, sales and marketing, and manufacturing activities, as well as vehicles leases.

As of March 31, 2019, the weighted average remaining lease term for the Company’s leases was 3.9 years, and weighted-average discount rate was 5.1%.

6

STRATASYS LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Recently Issued Accounting Pronouncements Not Yet Adopted

In August 2018, the FASB issued an ASU that clarifies the accounting for implementation costs in cloud computing arrangements. This ASU requires the implementation costs incurred by customers in cloud computing arrangements to be deferred and recognized over the term of the arrangement, if those costs would be capitalized by the customers in a software licensing arrangement. The guidance will be effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019, with early adoption permitted. The Company is currently evaluating the impact of the adoption of the new guidance on its consolidated financial statements.

In June 2016, the FASB issued an ASU that supersedes the existing impairment model for most financial assets to a current expected credit loss model. The new guidance requires an entity to recognize an impairment allowance equal to its current estimate of all contractual cash flows the entity does not expect to collect. The ASU also requires that credit losses relating to available-for-sale debt securities will be recorded through an allowance for credit losses. The new guidance is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption is permitted. The Company is currently evaluating the impact of the adoption of the new guidance on its consolidated financial statements.

7

STRATASYS LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Note 3. 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 months ended March 31, 2019 and 2018:

	March 31,
	2019		2018
	(U.S. $ in thousands)
Americas
Products	$	58,054	$	50,244
Service		38,444		37,670
Total Americas		96,498		87,914
EMEA
Products		28,085		31,981
Service		6,698		6,990
Total EMEA		34,783		38,971
Asia Pacific
Products		18,952		21,692
Service		5,067		5,256
Total Asia Pacific		24,019		26,948
Total Revenues	$	155,300	$	153,833

The following table presents the Company’s revenues disaggregated based on the timing of revenue recognized for the three months ended March 31, 2019 and 2018:

	March 31,
	2019		2018
	(U.S. $ in thousands)
Revenues recognized in point in time from:
Products	$	105,091	$	103,917
Services		31,435		30,882
Total revenues recognized in point in time		136,526		134,799
Revenues recognized over time from:
Services		18,774		19,034
Total revenues recognized over time		18,774		19,034
Total Revenues	$	155,300	$	153,833

8

STRATASYS LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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 March 31, 2019.

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 March 31, 2019 and December 31, 2018 were as follows:

	March 31,	December 31,
	2019	2018
	U.S. $ in thousands
Deferred revenue*	71,304	72,387

* Includes $17.3 million and $18.4 million under long term deferred revenue in the Company's consolidated balance sheets as of March 31, 2019 and December 31, 2018, respectively.

Revenue recognized in the first quarter of 2019 that was included in deferred revenue balance as of January 1, 2019 was $17.8 million.

Remaining Performance Obligations

Remaining Performance Obligations ("RPO") represents 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 March 31, 2019, the total RPO amounted to $92.2 million. The Company expects to recognize $74.0 million of this RPO during the next 12 months, $12.0 million over the subsequent 12 months and the remainder 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. As of March 31, 2019, the deferred commission amounted to $3.3 million.

9

STRATASYS LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 4. Inventories

Inventories consisted of the following:

	March 31,		December 31,
	2019		2018
	U.S. $ in thousands
Finished goods	$	66,184	$	61,391
Work-in-process		2,437		2,616
Raw materials		63,110		59,517
		131,731		123,524

Note 5. Goodwill and Other Intangible Assets

Goodwill

Changes in the carrying amount of the Company’s goodwill for the three-months ended March 31, 2019 were as follows:

	U.S. $ in millions
Goodwill as of January 1, 2019	$	385.8
Translation differences		(0.2	)
Goodwill as of March 31, 2019	$	385.6

During the fourth quarter of 2018, the Company performed a quantitative assessment for goodwill impairment for its Stratasys-Objet reporting unit.

Following its quantitative assessment, the Company concluded that the fair value of its Stratasys-Objet reporting unit exceeded its carrying amount by approximately 8%, with a carrying amount of goodwill assigned to this reporting unit in an amount of $386 million.

When evaluating the fair value of its Stratasys-Objet reporting unit the Company used a discounted cash flow model which utilized Level 3 measures that represent unobservable inputs into the valuation method. Key assumptions used to determine the estimated fair value include: (a) expected cash flows for five years following the assessment date which were based on, among other factors, expected revenue growth, costs to produce, operating profit margins and estimated capital needs; (b) an estimated terminal value that utilized a terminal year growth rate of 3.1% that was determined based on the growth prospects of the reporting unit; and (c) a discount rate of 14.0% based on management’s best estimate of the after-tax weighted average cost of capital. If any of these were to vary materially from the Company's estimates, the Company could face impairment of goodwill allocated to this reporting unit in the future.

Actual results may differ from those assumed in the Company's valuation method. It is reasonably possible that the Company's assumptions described above could change in future periods. If any of these were to vary materially from the Company's plans, it may record impairment of goodwill allocated to this reporting unit in the future.

A hypothetical decrease in the growth rate of 1% or an increase of 1% to the discount rate would have reduced the fair value of Stratasys-Objet reporting unit by approximately $48 million and $80 million, respectively.

Based on the Company’s assessment as of December 31, 2018, no goodwill was determined to be impaired.

During the first quarter of 2019 the Company reaffirmed that no significant events or circumstances occurred that contradict the assumptions and data used in the annual impairment test performed in the fourth quarter of 2018.

10

STRATASYS LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Determining the fair value of the Stratasys-Objet reporting unit requires significant judgment, including judgments about the appropriate discount rates, terminal growth rates, weighted average costs of capital and the amount and timing of projected future cash flows. The Company will continue to monitor the fair value of its Stratasys-Objet reporting unit to determine whether events and changes in circumstances such as a deterioration in the business climate or operating results, significant decline in the Company's share price, changes in management’s business strategy or downward changes of the Company's cash flows projections, warrant further interim impairment testing.

Other Intangible Assets

Other intangible assets consisted of the following:

	March 31, 2019							December 31, 2018
	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	$	299,100	$	(240,316	)	$	58,784	$	299,100	$	(236,375	)	$	62,725
Patents		10,483		(5,960	)		4,523		10,127		(5,752	)		4,375
Trademarks and trade names		26,224		(20,404	)		5,820		26,212		(19,067	)		7,145
Customer relationships		102,914		(70,868	)		32,046		102,984		(70,353	)		32,631
Capitalized software development costs		19,541		(19,228	)		313		19,540		(19,142	)		398
	$	458,262	$	(356,776	)	$	101,486	$	457,963	$	(350,689	)	$	107,274

Amortization expense relating to intangible assets for the three-month periods ended March 31, 2019 and 2018 was approximately $6.1 million and $8.1 million, respectively.

As of March 31, 2019, the estimated amortization expense relating to intangible assets currently subject to amortization for each of the following periods was as follows:

	Estimated
	amortization expense
	(U.S. $ in thousands)
Remaining 9 months of 2019	$	18,124
2020		23,933
2021		23,772
2022		23,678
2023		6,698
Thereafter		5,281
Total	$	101,486

11

STRATASYS LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Note 6. Loss Per Share

The following table presents the numerator and denominator of the basic and diluted net loss per share computations for the three months ended March 31, 2019 and 2018:

	Three months ended March 31,
	2019			2018
	In thousands, except per share amounts
Numerator:
Net loss attributable to Stratasys Ltd. for basic and diluted loss per share	$	(2,270	)	$	(13,041	)
Denominator:
Weighted average shares – denominator for basic and diluted net loss per share		53,966			53,657
Net loss per share attributable to Stratasys Ltd.
Basic	$	(0.04	)	$	(0.24	)
Diluted	$	(0.04	)	$	(0.24	)

The computation of diluted net loss per share excluded share awards of 5.1 million shares and 3.3 million shares for the three months ended March 31, 2019 and 2018, respectively, because their inclusion would have had an anti-dilutive effect on the diluted net loss per share.

Note 7. Income Taxes

The Company had a negative effective tax rate of 48.4% for the three-month period ended March 31, 2019 compared to a negative effective tax rate of 9.3% for the three-month period ended March 31, 2018. The Company’s effective tax rate was primarily impacted by different geographic mixes of earnings and losses, as well as a valuation allowance on losses of the Company's US subsidiaries.

Note 8. Fair Value Measurements

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. A hierarchy has been established for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available.

Observable inputs are inputs that are developed using market data, such as publicly available information about actual events or transactions, and that reflect the assumptions that market participants would use when pricing the asset or liability. Unobservable inputs are inputs for which market data are not available and that are developed using the best information available about the assumptions that market participants would use when pricing the asset or liability.

The fair value hierarchy is categorized into three Levels. Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the reporting entity can access at the measurement date. Level 2 inputs include inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly.

Level 3 inputs are unobservable inputs for the asset or liability. The fair value hierarchy gives the highest priority to quoted prices (unadjusted) in active markets for identical assets or liabilities (Level 1 inputs) and the lowest priority to unobservable inputs (Level 3 inputs). Categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement.

12

STRATASYS LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Financial instruments measured at fair value

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

	March 31, 2019			December 31, 2018
	(U.S. $ in thousands)
Assets:
Foreign exchange forward contracts not designated as hedging instruments	$	445		$	374
Foreign exchange forward contracts designated as hedging instruments		377			-
Liabilities:
Foreign exchange forward contracts not designated as hedging instruments		(319	)		(196	)
Foreign exchange forward contracts designated as hedging instruments		(9	)		(628	)
	$	494		$	(450	)

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).

Other financial instruments consist mainly of cash and cash equivalents, current and non-current receivables, net investment in sales-type leases, accounts payable and other financial commitments. The fair value of these financial instruments approximates their carrying values.

13

STRATASYS LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Note 9. Derivative instruments and hedging activities

The Company conducts its operations globally and may be 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. As part of the Company’s risk management strategy, the Company enters into transactions involving foreign currency exchange derivative financial instruments. For its non-hedging transactions, 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 is primarily exposed to foreign exchange risk with respect to recognized assets and liabilities and forecasted transactions denominated in the New Israeli Shekel (“NIS”), the Euro 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. The Company does not enter into derivative transactions for trading purposes.

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

		Fair Value						Notional Amount
		March 31,			December 31,			March 31,		December 31,
	Balance sheet location	2019			2018			2019		2018
		U.S. $ in thousands
Assets derivatives -Foreign exchange contracts, not designated as hedging instruments	Other current assets	$	445		$	374		$	82,946	$	34,695
Assets derivatives -Foreign exchange contracts, designated as cash flow hedge	Other current assets		377			-			26,715		-
Liability derivatives -Foreign exchange contracts, not designated as hedging instruments	Accrued expenses and other current liabilities		(319	)		(196	)		11,616		54,425
Liability derivatives -Foreign exchange contracts, designated as hedging instruments	Accrued expenses and other current liabilities		(9	)		(628	)		4,208		41,303
		$	494		$	(450	)	$	125,485	$	130,423

As of March 31, 2019, the notional amounts of the Company’s outstanding exchange forward contracts, not designated as hedging instruments, were $94.6 million, and were used to reduce foreign currency exposures related to the Euro, the NIS, Japanese Yen, Korean Won and Chinese Yuan. With respect to such derivatives, gain of $1.2 million and a loss of $2.3 million were recognized under financial income, net for the three-month periods ended March 31, 2019 and 2018, respectively. Such losses or gains partially offset the foreign currencies revaluation changes of the balance sheet items. These foreign currencies revaluation changes are also recognized under financial income, net.

As of March 31, 2019, the Company had in effect foreign exchange forward contracts, designated as cash flow hedge for accounting purposes, for the conversion of $30.9 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 and related costs denominated in NIS. The changes in fair value of those contracts are included in the Company’s accumulated other comprehensive loss. These contracts mature through December 2019.

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STRATASYS LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Note 10. Equity

a. Stock-based compensation plans

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

	Three Months Ended
	March 31,
	2019		2018
	U.S. $ in thousands
Cost of sales	$	354	$	387
Research and development, net		759		742
Selling, general and administrative		3,116		2,286
Total stock-based compensation expenses	$	4,229	$	3,415

A summary of the Company’s stock option activity for the three months ended March 31, 2019 is as follows:

			Weighted Average
	Number of Options		Exercise Price
Options outstanding as of January 1, 2019	2,551,743		$	30.82
Exercised	(109,345	)		20.32
Forfeited	(113,403	)		25.81
Options outstanding as of March 31, 2019	2,328,995		$	31.56
Options exercisable as of March 31, 2019	1,550,336		$	36.93

During the three-month periods ended March 31, 2019 and 2018, the Company issued 109,345 shares and 17,402 shares, respectively, upon the exercise of stock options. This resulted in an increase in equity of $2.2 million and $0.3 million for the three-month periods ended March 31, 2019 and 2018, respectively.

As of March 31, 2019, the unrecognized compensation cost of $7.8 million related to all unvested, equity-classified stock options is expected to be recognized as an expense over a weighted-average period of 1.8 years.

A summary of the Company’s RSUs and PSUs activity for the three months ended March 31, 2019 is as follows:

	Number of RSUs and		Weighted Average Grant
	PSUs		Date Fair Value
Unvested as of January 1, 2019	1,422,887		$	20.17
Granted	1,511,632			26.65
Forfeited	(61,500	)		21.73
Vested	(43,036	)		21.06
Unvested as of March 31, 2019	2,829,983		$	23.58

15

STRATASYS LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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 March 31, 2019, the unrecognized compensation cost of $59.0 million related to all unvested, equity-classified RSUs and PSUs is expected to be recognized as expense over a weighted-average period of 3.2 years.

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 three months ended March 31, 2019 and 2018, respectively:

	Three months ended March 31, 2019
	Net unrealized gain			Foreign currency
	(loss) on cash flow			translation
	hedges			adjustments			Total
	U.S. $ in thousands
Balance as of January 1, 2019	$	(627	)	$	(7,126	)	$	(7,753	)
Other comprehensive income (loss) before reclassifications		1,011			(427	)		584
Amounts reclassified from accumulated other comprehensive loss		(16	)		-			(16	)
Other comprehensive income (loss)		995			(427	)		568
Balance as of March 31, 2019	$	368		$	(7,553	)	$	(7,185	)

	Three months ended March 31, 2018
	Net unrealized gain			Foreign currency
	(loss) on cash flow			translation
	Hedges			adjustments			Total
	U.S. $ in thousands
Balance as of January 1, 2018	$	330		$	(7,353	)	$	(7,023	)
Other comprehensive income (loss) before reclassifications		(90	)		2,011			1,921
Amounts reclassified from accumulated other comprehensive loss		(235	)		-			(235	)
Other comprehensive income		(325	)		2,011			1,686
Balance as of March 31, 2018	$	5		$	(5,342	)	$	(5,337	)

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Note 11. Contingencies

Patent Law-Based Claim

On November 23, 2017, a former employee, whose employment had been terminated by the Company in 2008 and who had previously unsuccessfully filed a suit against the Company, brought an additional proceeding against the Company under Section 134 of the Israeli Patent Law seeking compensation and royalties for service inventions he invented while he served as an employee of the Company. In this new proceeding, the former employee claims to be entitled to receive royalties in an amount equal to: (a) 20% of the benefits, revenues and /or savings generated by the Company in the past and in the future, including the rise in the value of the Company, as determined in the merger with Stratasys Inc., which took place in December 2012; (b) 20% of the gross profit generated by the Company in the past and 9% of the gross profit produced and that will be produced by the Company; (c) 20% of the gross profit generated by the Company in the past and the relative share of the former Objet entity of the Company in the total gross profit produced and that will be produced by the Company; or (d) 20% of the value of the service inventions at issue. The former employee further sought an order of accounts. The Company rejects the claims that serve as a basis for the proceeding and is defending against them vigorously.

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

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