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)

2024

2023

2024

2023

Gross profit, as reported

$        45,976

$        41,674

$      134,072

$      114,713

Stock-based compensation ⁽¹⁾

381

280

1,085

972

Restructuring and other costs ⁽²⁾

—

456

2

1,326

Non-GAAP adjustments to gross profit

381

736

1,087

2,298

Non-GAAP gross profit

$        46,357

$        42,410

$      135,159

$      117,011

Gross margin, as reported

55.7 %

48.0 %

53.9 %

44.1 %

Non-GAAP gross margin

56.1 %

48.9 %

54.3 %

45.0 %

Selling, general and administrative, as reported

$        34,041

$        37,970

$      106,224

$      117,907

Stock-based compensation ⁽¹⁾

(1,858)

(3,588)

(5,996)

(9,710)

Restructuring and other costs ⁽²⁾

—

—

(3,453)

—

Purchase accounting intangible amortization

(283)

(663)

(1,167)

(2,024)

Non-GAAP selling, general and administrative

$        31,900

$        33,719

$        95,608

$      106,173

Research and development, as reported

$          9,771

$          8,188

$        28,628

$        32,568

Stock-based compensation ⁽¹⁾

(529)

176

(1,390)

(1,594)

Purchase accounting intangible amortization

(1,085)

(501)

(2,089)

(1,541)

Non-GAAP research and development

$          8,157

$          7,863

$        25,149

$        29,433

Operating expenses, as reported

$        43,812

$        48,600

$      135,468

$      165,605

Stock-based compensation ⁽¹⁾

(2,387)

(3,411)

(7,386)

(11,304)

Restructuring and other costs ⁽²⁾

—

(2,495)

(4,069)

(16,337)

Purchase accounting intangible amortization

(1,368)

(1,164)

(3,256)

(3,565)

Non-GAAP adjustments to operating expenses

(3,755)

(7,070)

(14,711)

(31,206)

Non-GAAP operating expenses

$        40,057

$        41,530

$      120,757

$      134,399

Income (loss) from operations, as reported

$          2,164

$        (6,926)

$        (1,396)

$      (50,892)

Non-GAAP adjustments to gross profit

381

737

1,087

2,298

Non-GAAP adjustments to operating expenses

3,755

7,070

14,711

31,206

Non-GAAP income (loss) from operations

$          6,300

$              881

$        14,402

$      (17,388)

Net loss, as reported

$            (289)

$        (8,756)

$        (8,080)

$      (58,165)

Non-GAAP adjustments to gross profit

381

737

1,087

2,298

Non-GAAP adjustments to operating expenses

3,755

7,070

14,711

31,206

Income tax effect of non-GAAP adjustments ⁽³⁾

(819)

(1,952)

(3,532)

(10,409)

Other tax adjustments ⁽³⁾

967

3,358

4,861

17,700

Non-GAAP net income (loss)

$          3,995

$              457

$          9,047

$      (17,370)

Net loss per share - Diluted, as reported

$           (0.02)

$           (0.46)

$           (0.42)

$           (3.08)

Stock-based compensation ⁽¹⁾

0.14

0.19

0.44

0.65

Restructuring and other costs ⁽²⁾

—

0.16

0.21

0.93

Purchase accounting intangible amortization

0.08

0.06

0.17

0.19

Income tax effect of non-GAAP adjustments ⁽³⁾

(0.04)

(0.10)

(0.18)

(0.55)

Other tax adjustments ⁽³⁾

0.05

0.18

0.25

0.94

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

$             0.21

$             0.03

$             0.47

$           (0.92)

⁽¹⁾

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.

⁽²⁾    

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. On February 7, 2023, our Board of Directors approved an integration plan (the "Integration Plan"), which is intended to streamline and simplify operations, particularly around our recent acquisitions and the resulting redundant operations and offerings. The Restructuring and other costs primarily consist of severance and related benefits associated with the Restructuring Plan, Integration Plan, and executive transitions.

⁽³⁾

The Income tax effect of non-GAAP adjustments is calculated by applying a statutory tax rate to Non-GAAP adjustments, including Stock-based compensation, Restructuring and other costs, non-recurring Inventory reserve charges, and Purchase accounting intangible amortization and fair value adjustments. In addition, when estimating our Non-GAAP income tax rate, we exclude the impact of items that impact our reported income tax rate that we do not believe are representative of our ongoing operating results, including the impact of valuation allowances we are currently recording in certain jurisdictions and certain discrete items such as adjustments to uncertain tax position reserves, as these items are difficult to predict and can impact our effective income tax rate. Specifically, Other tax adjustments during the nine months ended September 30, 2024 were comprised of $4.4 million related to the impact of valuation allowance adjustments and $0.5 million related to other discrete items. During the three months ended September 30, 2024, Other tax adjustments were comprised of $0.8 million related to the impact of valuation allowance adjustments and $0.2 million related to other discrete items. In 2023, Other tax adjustments during the nine months ended September 30, 2023 were comprised of $11.2 million related to the impact of valuation allowance adjustments and $6.5 million related to other items, including equity based compensation book to tax differences, non-GAAP adjustments impact on Global intangible low-taxed income and Prepaid tax on intercompany profit. During the three months ended September 30, 2023, Other tax adjustments were comprised of $2.0 million related to the impact of valuation allowance adjustments and $1.4 million related to other items, including equity based compensation book to tax differences, non-GAAP adjustments impact on Global intangible low-taxed income and Prepaid tax on intercompany profit.