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

Three Months Ended December 31,

Twelve Months Ended December 31,

(dollars in thousands, except per share data)

2023

2022

2023

2022

Gross profit, as reported

$          50,286

$          51,035

$        164,999

$        175,763

Stock-based compensation ⁽¹⁾

364

294

1,335

1,050

Inventory reserve charge ⁽³⁾

1,208

—

9,340

—

Restructuring and other costs⁽²⁾

51

—

1,377

—

Purchase accounting intangible amortization and fair value
adjustments

—

3,550

—

3,550

Non-GAAP adjustments to gross profit

1,623

3,844

12,052

4,600

Non-GAAP gross profit

$          51,909

$          54,879

$        177,051

$        180,363

Gross margin, as reported

50.9 %

49.1 %

46.0 %

50.8 %

Non-GAAP gross margin

52.5 %

52.8 %

49.3 %

52.2 %

Selling, general and administrative, as reported

$          39,429

$          37,923

$        157,336

$        146,657

Stock-based compensation ⁽¹⁾

(4,488)

(2,179)

(14,198)

(9,654)

Purchase accounting intangible amortization

(634)

(811)

(2,658)

(1,373)

Non-GAAP selling, general and administrative

$          34,307

$          34,933

$        140,480

$        135,630

Research and development, as reported

$            9,238

$          12,659

$          41,806

$          49,415

Stock-based compensation ⁽¹⁾

(705)

(818)

(2,300)

(2,611)

Purchase accounting intangible amortization

(475)

(488)

(2,016)

(2,010)

Non-GAAP research and development

$            8,058

$          11,353

$          37,490

$          44,794

Operating expenses, as reported

$          48,930

$          52,684

$        214,535

$        200,686

Stock-based compensation ⁽¹⁾

(5,194)

(2,997)

(16,498)

(12,265)

Restructuring and other costs ⁽²⁾

(1,329)

(2,604)

(17,666)

(7,548)

Purchase accounting intangible amortization

(1,109)

(1,299)

(4,674)

(3,383)

Non-GAAP adjustments to operating expenses

(7,632)

(6,900)

(38,838)

(23,196)

Non-GAAP operating expenses

$          41,298

$          45,784

$        175,697

$        177,490

Income (loss) from operations, as reported

$            1,356

$          (1,649)

$        (49,536)

$        (24,923)

Non-GAAP adjustments to gross profit

1,622

3,844

12,052

4,600

Non-GAAP adjustments to operating expenses

7,632

6,900

38,838

23,196

Non-GAAP income from operations

$          10,610

$            9,095

$            1,354

$            2,873

Net income (loss), as reported

$            1,588

$          (2,235)

$        (56,577)

$        (26,756)

Non-GAAP adjustments to gross profit

1,622

3,844

12,052

4,600

Non-GAAP adjustments to operating expenses

7,632

6,900

38,838

23,196

Income tax effect of non-GAAP adjustments

(2,314)

(2,149)

(12,723)

(6,163)

Other tax adjustments ⁽⁴⁾

(1,738)

772

15,962

9,675

Non-GAAP net income (loss)

$            6,790

$            7,132

$          (2,448)

$            4,552

Net income (loss) per share - Diluted, as reported

$              0.08

$            (0.12)

$            (2.99)

$            (1.46)

Stock-based compensation ⁽¹⁾

0.28

0.18

0.94

0.73

Restructuring and other costs ⁽²⁾

0.07

0.14

1.01

0.41

Inventory reserve charge ⁽³⁾

0.06

—

0.49

—

Purchase accounting intangible amortization and fair value
adjustments

0.06

0.25

0.25

0.37

Income tax effect of non-GAAP adjustments

(0.11)

(0.11)

(0.67)

(0.33)

Other tax adjustments ⁽⁴⁾

(0.08)

0.04

0.84

0.53

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

$              0.36

$              0.38

$            (0.13)

$              0.25

⁽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.

⁽³⁾

During 2023, we recorded a charge of $9.3 million, increasing our reserve for excess and obsolete inventory, based on our analysis of our inventory reserves in connection with our strategy to simplify our product portfolio and cease selling certain products.

⁽⁴⁾

The other tax adjustments primarily relate to the impact of certain jurisdictions maintaining a full valuation allowance where benefit is not accrued on U.S. GAAP pre-tax book losses.