FARO TECHNOLOGIES, INC. AND SUBSIDIARIES

RECONCILIATION OF GAAP TO NON-GAAP

NET (LOSS) INCOME

(UNAUDITED)

Three Months Ended June 30,

Six Months Ended June 30,

(dollars in thousands)

2019

2018

2019

2018

Net (loss) income, as reported

$

(6,405)

$

1,205

$

(6,253)

$

1,660

GSA sales adjustment ⁽¹⁾

5,805

—

5,840

—

Interest expense increase due to GSA adjustment ⁽¹⁾

442

—

487

—

Advisory fees for GSA Matter ⁽²⁾

653

—

1,244

—

CEO succession expenses ⁽³⁾

1,525

—

2,425

—

Present4D impairment ⁽⁴⁾

1,535

—

1,535

—

Total tax impact of adjustments

(1,944)

—

(2,197)

—

Adjustments, net of tax

$

8,016

$

—

$

9,334

$

—

Tax liability for uncertain tax position ⁽⁵⁾

864

—

864

—

Total adjustment

$

8,880

$

—

$

10,198

$

—

Non-GAAP net income

$

2,475

$

1,205

$

3,945

$

1,660

⁽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"). In fourth quarter 2018, we reduced our total sales by an estimated cumulative adjustment of $4.8 million. We also retained outside legal counsel and forensic accountants to conduct a comprehensive review of our pricing and other practices under the Contracts (the "Review"). On July 15, 2019, we submitted a report to the GSA and its Office of Inspector General setting forth the findings of the Review. Based on the results of the Review, in second quarter 2019 we reduced our total sales by an incremental $5.8 million (the "GSA sales adjustment") and recorded imputed interest expense of $0.4 million and $0.5 million related to the GSA Matter for the three and six months ended June 30, 2019, respectively.

⁽²⁾ In connection with the GSA Matter, we retained outside legal counsel and forensic accountants to conduct the Review, which resulted in $0.7 million and $1.2 million in advisory fees incurred during the three and six months ended June 30, 2019, respectively.

⁽³⁾ In January 2019, we announced that our Chief Executive Officer, Dr. Simon Raab, would be retiring after 35 years with the company. Effective June 17, 2019, Michael D. Burger was appointed as our Chief Executive Officer ("CEO"). The CEO succession expenses reflect the additional compensation expense recognized during 2019 in connection with the June 2019 vesting of option awards held by Dr. Raab and our payment of a signing bonus to our current CEO, Mr. Burger.

⁽⁴⁾ On April 27, 2018, we invested $1.8 million in present4D GmbH ("present4D"), a software solutions provider for professional virtual reality presentations and training environments, in the form of an equity capital contribution. During the three months ended June 30, 2019, we determined it is more likely than not that we will not recover our cost basis in present4D and recorded an impairment charge of $1.5 million, which is included in Other expense, net.

⁽⁵⁾ In second quarter 2019, we recorded an increase in our reserve for uncertain tax positions of $0.9 million for the three and six months ended June 30, 2019 due to a change in our judgment on the recognition of a tax position during the quarter.