Three Months Ended September 30,

Nine Months Ended September 30,

(dollars in thousands)

2019

2018

2019

2018

Emerging Verticals total sales, as reported

$

10,615

$

11,813

$

32,553

$

30,205

GSA sales adjustment ⁽¹⁾

—

—

2,062

—

Non-GAAP Emerging Verticals total sales

$

10,615

$

11,813

$

34,615

$

30,205

⁽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"). 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").

FARO TECHNOLOGIES, INC. AND SUBSIDIARIES

RECONCILIATION OF NET INCOME (LOSS) TO EBITDA AND ADJUSTED EBITDA

(UNAUDITED)

Three months ended

(in thousands)

March 31,
2018

June 30,
2018

September 30,
2018

December 31,
2018

Net income (loss)

$

455

$

1,205

$

(2,488)

$

5,758

Interest (income) expense, net

(73)

(87)

(96)

313

Income tax expense (benefit)

127

300

(354)

(445)

Depreciation and amortization

4,343

4,377

4,747

4,846

EBITDA

4,852

5,795

1,809

10,472

Loss on foreign currency transactions

184

509

226

220

Stock-based compensation

1,551

2,000

2,166

1,904

GSA sales adjustment ⁽¹⁾

—

—

—

4,789

Inventory reserve charge ⁽²⁾

—

—

4,734

—

Adjusted EBITDA

$

6,587

$

8,304

$

8,935

$

17,385