FARO TECHNOLOGIES, INC. AND SUBSIDIARIES

RECONCILIATION OF GAAP TO NON-GAAP

OPERATING (LOSS) INCOME AND OPERATING MARGIN

(UNAUDITED)

Three months ended June 30,

Six Months Ended June 30,

(dollars in thousands)

2019

% of
Sales

2018

% of
Sales

2019

% of
Sales

2018

% of
Sales

Operating (loss) income and
operating margin, as reported

$

(4,893)

(5.2)

%

$

1,927

2.0

%

$

(4,535)

(2.4)

%

$

2,620

1.4

%

GSA sales adjustment ⁽¹⁾

5,805

6.2

%

—

—

%

5,840

3.1

%

—

—

%

Advisory fees for GSA Matter ⁽²⁾

653

0.7

%

1,244

0.7

%

CEO succession expenses ⁽³⁾

1,525

1.6

%

—

—

%

2,425

1.3

%

—

—

%

Non-GAAP operating income
and operating margin

$

3,090

3.1

%

$

1,927

2.0

%

$

4,974

2.6

%

$

2,620

1.4

%

⁽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").

⁽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.