FARO TECHNOLOGIES, INC. AND SUBSIDIARIES

RECONCILIATION OF GAAP TO NON-GAAP

(UNAUDITED)

Three Months Ended September 30,

Nine Months Ended September 30,

(dollars in thousands, except per share data)

2021

2020

2021

2020

Total sales, as reported

$

79,169

$

70,736

$

237,610

$

210,815

GSA sales adjustment ⁽¹⁾

—

—

—

608

Non-GAAP total sales

$

79,169

$

70,736

$

237,610

$

211,423

Gross profit, as reported

$

42,331

$

36,298

$

128,220

$

109,067

GSA sales adjustment ⁽¹⁾

—

—

—

608

Stock-based compensation ⁽²⁾

190

127

470

491

Non-GAAP adjustments to gross profit

190

127

470

1,099

Non-GAAP gross profit

$

42,521

$

36,425

$

128,690

$

110,166

Gross margin, as reported

53.5

%

51.3

%

54.0

%

51.7

%

Non-GAAP gross margin

53.7

%

51.5

%

54.2

%

52.1

%

Selling, general and administrative, as reported

$

33,433

$

30,163

$

100,375

$

96,523

Stock-based compensation ⁽²⁾

(2,581)

(1,527)

(6,789)

(4,666)

Purchase accounting intangible amortization

(276)

(127)

(649)

(371)

Non-GAAP selling, general and administrative

$

30,576

$

28,509

$

92,937

$

91,486

Research and development, as reported

$

12,731

$

10,754

$

36,464

$

31,355

Stock-based compensation ⁽²⁾

(509)

(430)

(1,398)

(1,271)

Purchase accounting intangible amortization

(420)

(366)

(1,061)

(1,094)

Non-GAAP research and development

$

11,802

$

9,958

$

34,005

$

28,990

Operating expenses, as reported

$

47,540

$

41,156

$

140,518

$

142,441

Stock-based compensation ⁽²⁾

(3,090)

(1,957)

(8,187)

(5,937)

Restructuring costs ⁽³⁾

(1,376)

(239)

(3,679)

(14,563)

Purchase accounting intangible amortization

(696)

(493)

(1,710)

(1,465)

Non-GAAP adjustments to operating expenses

(5,162)

(2,689)

(13,576)

(21,965)

Non-GAAP operating expenses

$

42,378

$

38,467

$

126,942

$

120,476

Loss from operations, as reported

$

(5,209)

$

(4,858)

$

(12,298)

$

(33,374)

Non-GAAP adjustments to gross profit

190

127

470

1,099

Non-GAAP adjustments to operating expenses

5,162

2,689

13,576

21,965

Non-GAAP income (loss) from operations

$

143

$

(2,042)

$

1,748

$

(10,310)

Other expense (income), net, as reported

$

304

$

(95)

$

(379)

$

741

Interest expense increase due to GSA sales adjustment ⁽¹⁾

—

(161)

—

(559)

Non-GAAP adjustments to other expense (income), net

—

(161)

—

(559)

Non-GAAP other expense (income), net

$

304

$

(256)

$

(379)

$

182

Net loss, as reported

$

(3,855)

$

(3,024)

$

(8,252)

$

(26,779)

Non-GAAP adjustments to gross profit

190

127

470

1,099

Non-GAAP adjustments to operating expenses

5,162

2,689

13,576

21,965

Non-GAAP adjustments to other expense (income), net

—

161

—

559

Income tax effect of non-GAAP adjustments

(1,619)

(1,292)

(4,241)

(4,930)

Non-GAAP net (loss) income

$

(122)

$

(1,339)

$

1,553

$

(8,086)

Net loss per share - Diluted, as reported

$

(0.21)

$

(0.17)

$

(0.45)

$

(1.51)

GSA sales adjustment ⁽¹⁾

—

—

—

0.03

Stock-based compensation ⁽²⁾

0.18

0.12

0.48

0.36

Restructuring costs ⁽³⁾

0.07

0.01

0.20

0.82

Purchase accounting intangible amortization

0.04

0.03

0.09

0.08

Interest expense increase due to GSA sales adjustment ⁽¹⁾

—

0.01

—

0.03

Income tax effect of non-GAAP adjustments

(0.09)

(0.08)

(0.23)

(0.27)

Non-GAAP net (loss) income per share - Diluted

$

(0.01)

$

(0.08)

$

0.09

$

(0.46)

⁽¹⁾ Late in the fourth quarter of 2018, during an internal review we preliminarily determined that certain of our pricing practices may have resulted in the U.S. Government being overcharged under our General Services Administration ("GSA") Federal Supply Schedule contracts (the "Contracts") (the "GSA Matter"). During the nine months ended September 30, 2020, we reduced our total sales by $0.6 million (the "GSA sales adjustment") and recorded imputed interest expense of $0.6 million related to the GSA Matter. Effective as of February 25, 2021, as a result of the review, we entered into a settlement agreement with the GSA and have paid in full and final satisfaction of any and all claims, causes of actions, appeals and the like, including damages, costs, attorney's fees and interest arising under or related to the GSA Matter.

⁽²⁾ We exclude stock-based compensation, which is non-cash, from the non-GAAP financial measures because the Company believes that such exclusion provides a better comparison of results of ongoing operations for current and future periods with such results from past periods.

⁽³⁾ On February 14, 2020, our Board of Directors approved a global restructuring plan (the "Restructuring Plan"), which is intended to support our strategic plan in an effort to improve operating performance and ensure that we are appropriately structured and resourced to deliver increased and sustainable value to our shareholders and customers. In connection with the Restructuring Plan, during the nine months ended September 30, 2021 and September 30, 2020 we recorded a pre-tax charge of approximately $3.7 million and $14.6 million, respectively, primarily consisting of severance and related benefits.