FARO Announces Second Quarter 2021 Financial Results

FARO TECHNOLOGIES, INC. AND SUBSIDIARIES RECONCILIATION OF GAAP TO NON-GAAP (UNAUDITED)

	Three Months Ended June 30,						Six Months Ended June 30,
(dollars in thousands, except per share data)	2021			2020			2021			2020
Total sales, as reported	$	82,110		$	60,564		$	158,441		$	140,079
GSA sales adjustment ⁽¹⁾	—			608			—			608
Non-GAAP total sales	$	82,110		$	61,172		$	158,441		$	140,687

Gross profit, as reported	$	45,482		$	28,896		$	85,889		$	72,769
GSA sales adjustment ⁽¹⁾	—			608			—			608
Stock-based compensation ⁽²⁾	214			93			280			364
Non-GAAP adjustments to gross profit	214			701			280			972
Non-GAAP gross profit	$	45,696		$	29,597		$	86,169		$	73,741
Gross margin, as reported	55.4		%	47.7		%	54.2		%	51.9		%
Non-GAAP gross margin	55.7		%	48.4		%	54.4		%	52.4		%

Selling, general and administrative, as reported	$	33,594		$	30,036		$	66,942		$	66,360
Stock-based compensation ⁽²⁾	(2,526)			(1,617)			(4,208)			(3,140)
Purchase accounting intangible amortization	(188)			(120)			(373)			(244)
Non-GAAP selling, general and administrative	$	30,880		$	28,299		$	62,361		$	62,976

Research and development, as reported	$	11,760		$	10,186		$	23,733		$	20,601
Stock-based compensation ⁽²⁾	(543)			(459)			(889)			(841)
Purchase accounting intangible amortization	(313)			(327)			(641)			(728)
Non-GAAP research and development	$	10,904		$	9,400		$	22,203		$	19,032

Operating expenses, as reported	$	46,133		$	40,858		$	92,978		$	101,285
Stock-based compensation ⁽²⁾	(3,069)			(2,076)			(5,097)			(3,981)
Restructuring costs ⁽³⁾	(779)			(636)			(2,303)			(14,324)
Purchase accounting intangible amortization	(501)			(447)			(1,014)			(972)
Non-GAAP adjustments to operating expenses	(4,349)			(3,159)			(8,414)			(19,277)
Non-GAAP operating expenses	$	41,784		$	37,699		$	84,564		$	82,008

Loss from operations, as reported	$	(651)		$	(11,962)		$	(7,089)		$	(28,516)
Non-GAAP adjustments to gross profit	214			701			280			972
Non-GAAP adjustments to operating expenses	4,349			3,159			8,414			19,277
Non-GAAP income (loss) from operations	$	3,912		$	(8,102)		$	1,605		$	(8,267)

Other expense (income), net, as reported	$	922		$	329		$	(683)		$	836
Interest expense increase due to GSA sales adjustment ⁽¹⁾	—			(249)			—			(398)
Non-GAAP adjustments to other expense (income), net	—			(249)			—			(398)
Non-GAAP other expense (income), net	$	922		$	80		$	(683)		$	438

Net loss, as reported	$	(1,176)		$	(8,932)		$	(4,397)		$	(23,755)
Non-GAAP adjustments to gross profit	214			701			280			972
Non-GAAP adjustments to operating expenses	4,349			3,159			8,414			19,277
Non-GAAP adjustments to other (income) expense, net	—			249			—			398
Income tax effect of non-GAAP adjustments	(1,144)			(1,505)			(2,622)			(3,638)
Non-GAAP net income (loss)	$	2,243		$	(6,328)		$	1,675		$	(6,746)

Net loss per share - Diluted, as reported	$	(0.06)		$	(0.50)		$	(0.24)		$	(1.34)
GSA sales adjustment ⁽¹⁾	—			0.03			—			0.03
Stock-based compensation ⁽²⁾	0.18			0.12			0.30			0.24
Restructuring costs ⁽³⁾	0.04			0.04			0.13			0.82
Purchase accounting intangible amortization	0.02			0.03			0.05			0.06
Interest expense increase due to GSA sales adjustment ⁽¹⁾	—			0.01			—			0.02
Income tax effect of non-GAAP adjustments	(0.06)			(0.09)			(0.15)			(0.21)
Non-GAAP net income (loss) per share - Diluted	$	0.12		$	(0.36)		$	0.09		$	(0.38)

⁽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 six months ended June 30, 2020, we reduced our total sales by $0.6 million (the "GSA sales adjustment") and recorded imputed interest expense of $0.2 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 first half 2020 and 2021 we recorded a pre-tax charge of approximately $14.3 million and $2.3 million, respectively, primarily consisting of severance and related benefits.

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