UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

(Mark One)



x☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, ~~2017~~2022



¨☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number: 0-23081

FARO TECHNOLOGIES, INC.

(Exact Name of Registrant as Specified in Its Charter)



Florida			59-3157093
(State or other Jurisdiction of Incorporation or Organization)			(I.R.S. Employer Identification No.)

250 Technology Park,	Lake Mary, ~~Florida~~	Florida	32746
(Address of Principal Executive Offices)			(Zip Code)

(407) 333-9911

(Registrant’s Telephone Number, including Area Code)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, par value $.001	FARO	Nasdaq Global Select Market LLC

Indicate by check mark whether the ~~registrant~~registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ~~YES~~ x NO ¨Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically ~~and posted on its corporate Web site, if any,~~ every Interactive Data File required to be submitted ~~and posted~~ pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit ~~and post~~ such files). ~~YES~~ x NO ¨Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” ~~“and emerging~~and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

x☒

Accelerated filer

o☐

Non-accelerated filer

o☐

~~(Do not check if a smaller reporting company)~~

Smaller reporting company

o☐

Emerging growth company

o☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ~~YES~~ ¨ NO
Yes ☐ No x

There were ~~16,711,152~~18,779,816 shares of the registrant’s common stock outstanding as of October ~~24, 2017.~~

31, 2022.

Table of Contents

FARO TECHNOLOGIES, INC.

Quarterly Report on Form 10-Q

Quarter Ended September 30, ~~2017~~2022

INDEX


				PAGE
PART I.		FINANCIAL INFORMATION

			~~PAGE~~
~~PART I.~~Item 1.	~~FINANCIAL INFORMATION~~

~~Item 1.~~	Financial Statements

a)		Condensed Consolidated Balance Sheets as of September 30, ~~2017~~2022 (Unaudited) and December 31, ~~2016~~2021		3

b)		Condensed Consolidated Statements of Operations (Unaudited) For the Three and Nine Months Ended September 30, ~~2017~~2022 and September 30, ~~2016~~2021		4

c)		Condensed Consolidated Statements of Comprehensive ~~Income~~Loss (Unaudited) For the Three and Nine Months Ended September 30, ~~2017~~2022 and September 30, ~~2016~~2021		5

d)		Condensed Consolidated Statements of Cash Flows (Unaudited) For the Nine Months Ended September 30, ~~2017~~2022 and September 30, ~~2016~~2021		6

e)		Condensed Consolidated Statements of Shareholders’ Equity (Unaudited) For the Three and Nine Months Ended September 30, 2022 and September 30, 2021		7

f)		Notes to Condensed Consolidated Financial Statements (Unaudited)		78

Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations		2022

Item 3.		Quantitative and Qualitative Disclosures About Market Risk		3332

Item 4.		Controls and Procedures		3433

PART II.		OTHER INFORMATION

Item 1.		Legal Proceedings		3534

Item 1A.		Risk Factors		3534

Item 2.		Unregistered Sales of Equity Securities and Use of Proceeds		35

Item 6.		Exhibits		3637

SIGNATURES				3738

Table of Contents

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

FARO TECHNOLOGIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share data) September 30,
2017
(unaudited) December 31,
2016
ASSETS
Current assets:
Cash and cash equivalents $ 129,841
$ 106,169
Short-term investments 10,970
42,942
Accounts receivable, net 60,449
61,364
Inventories, net 59,044
51,886
Prepaid expenses and other current assets 20,919
16,304
Total current assets 281,223
278,665
Property and equipment:
Machinery and equipment 66,049
57,063
Furniture and fixtures 6,863
6,099
Leasehold improvements 19,588
18,778
Property and equipment, at cost 92,500
81,940
Less: accumulated depreciation and amortization (60,189 ) (50,262 )
Property and equipment, net 32,311
31,678
Goodwill 52,567
46,744
Intangible assets, net 22,983
22,279
Service and sales demonstration inventory, net 35,250
29,136
Deferred income tax assets, net 14,498
14,307
Other long-term assets 1,049
905
Total assets $ 439,881
$ 423,714
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable $ 11,964
$ 11,126
Accrued liabilities 22,507
24,572
Income taxes payable —
618
Current portion of unearned service revenues 29,080
27,422
Customer deposits 3,065
2,872
Total current liabilities 66,616
66,610
Unearned service revenues - less current portion 12,665
13,813
Deferred income tax liabilities 1,683
1,409
Other long-term liabilities 2,191
2,225
Total liabilities 83,155
84,057
Commitments and contingencies - See Note 16

Shareholders’ equity:
Common stock - par value $.001, 50,000,000 shares authorized; 18,197,628 and 18,170,267 issued, respectively; 16,711,152 and 16,680,791 outstanding, respectively 18
18
Additional paid-in capital 218,242
212,602
Retained earnings 179,682
183,436
Accumulated other comprehensive loss (9,387 ) (24,561 )
Common stock in treasury, at cost; 1,486,476 and 1,489,476 shares, respectively (31,829 ) (31,838 )
Total shareholders’ equity 356,726
339,657
Total liabilities and shareholders’ equity $ 439,881
$ 423,714


(in thousands, except share and per share data)	September 30, 2022 (unaudited)		December 31, 2021
ASSETS
Current assets:
Cash and cash equivalents	$	48,534	$	121,989
Accounts receivable, net	75,347		78,523
Inventories, net	50,956		53,145
Prepaid expenses and other current assets	33,801		19,793
Total current assets	208,638		273,450
Non-current assets:
Property, plant and equipment, net	20,424		22,194
Operating lease right-of-use assets	18,404		22,543
Goodwill	101,279		82,096
Intangible assets, net	48,094		25,616
Service and sales demonstration inventory, net	28,249		30,554
Deferred income tax assets, net	18,092		21,277
Other long-term assets	2,047		2,010
Total assets	$	445,227	$	479,740
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	17,546	$	14,199
Accrued liabilities	22,881		28,208
Income taxes payable	6,421		4,499
Current portion of unearned service revenues	36,440		40,838
Customer deposits	5,873		5,399
Lease liabilities	5,532		5,738
Total current liabilities	94,693		98,881
Unearned service revenues - less current portion	20,868		22,350
Lease liabilities - less current portion	14,344		18,648
Deferred income tax liabilities	5,708		1,058
Income taxes payable - less current portion	10,131		11,297
Other long-term liabilities	19		1,047
Total liabilities	145,763		153,281
Commitments and contingencies - See Note 12
Shareholders’ equity:
Common stock - par value $0.001, 50,000,000 shares authorized; 20,153,287 and 19,588,003 issued, respectively; 18,776,936 and 18,205,636 outstanding, respectively	20		20
Additional paid-in capital	325,244		301,061
Retained earnings	49,022		73,544
Accumulated other comprehensive loss	(44,165)		(17,374)
Common stock in treasury, at cost - 1,376,351 and 1,382,367 shares held, respectively	(30,657)		(30,792)
Total shareholders’ equity	299,464		326,459
Total liabilities and shareholders’ equity	$	445,227	$	479,740

The accompanying notes are an integral part of these condensed consolidated financial statements.

Table of Contents

FARO TECHNOLOGIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

Three Months Ended Nine Months Ended
(in thousands, except share and per share data) September 30, 2017 September 30, 2016 September 30, 2017 September 30, 2016
Sales
Product $ 68,563
$ 61,280
$ 193,476
$ 182,232
Service 21,687
18,320
61,018
51,654
Total sales 90,250
79,600
254,494
233,886
Cost of Sales
Product 26,673
25,880
78,186
74,938
Service 11,543
11,042
33,765
29,665
Total cost of sales (exclusive of depreciation and amortization, shown separately below) 38,216
36,922
111,951
104,603
Gross Profit 52,034
42,678
142,543
129,283
Operating Expenses:
Selling and marketing 25,990
19,781
74,884
56,399
General and administrative 10,307
10,747
32,883
31,139
Depreciation and amortization 4,368
3,381
12,075
9,733
Research and development 9,019
7,928
26,530
22,344
Total operating expenses 49,684
41,837
146,372
119,615
Income (loss) from operations 2,350
841
(3,829 ) 9,668
Other (income) expense
Interest income, net (78 ) (21 ) (249 ) (119 )
Other (income) expense, net (147 ) (167 ) 320
824
Income (loss) before income tax expense (benefit) 2,575
1,029
(3,900 ) 8,963
Income tax expense (benefit) 947
(61 ) (442 ) 1,401
Net income (loss) $ 1,628
$ 1,090
$ (3,458 ) $ 7,562
Net income (loss) per share - Basic $ 0.10
$ 0.07
$ (0.21 ) $ 0.45
Net income (loss) per share - Diluted $ 0.10
$ 0.07
$ (0.21 ) $ 0.45
Weighted average shares - Basic 16,708,446
16,674,176
16,697,729
16,647,662
Weighted average shares - Diluted 16,796,518
16,701,617
16,697,729
16,669,550


	Three Months Ended				Nine Months Ended
	September 30, 2022		September 30, 2021		September 30, 2022		September 30, 2021
Sales
Product	$	65,581	$	57,838	$	182,015	$	172,748
Service	19,751		21,331		59,891		64,862
Total sales	85,332		79,169		241,906		237,610
Cost of sales
Product	30,375		25,650		82,879		75,909
Service	11,692		11,188		34,299		33,481
Total cost of sales	42,067		36,838		117,178		109,390
Gross profit	43,265		42,331		124,728		128,220
Operating expenses
Selling, general and administrative	37,226		33,433		108,734		100,375
Research and development	12,586		12,731		36,756		36,464
Restructuring costs	580		1,376		2,512		3,679
Total operating expenses	50,392		47,540		148,002		140,518
Loss from operations	(7,127)		(5,209)		(23,274)		(12,298)
Other (income) expense
Interest (income) expense, net	(24)		5		(28)		54
Other (income) expense, net	(1,428)		299		(3,077)		(433)
Loss before income tax expense (benefit)	(5,675)		(5,513)		(20,169)		(11,919)
Income tax expense (benefit)	586		(1,658)		4,352		(3,667)
Net loss	$	(6,261)	$	(3,855)	$	(24,521)	$	(8,252)
Net loss per share - Basic	$	(0.34)	$	(0.21)	$	(1.34)	$	(0.45)
Net loss per share - Diluted	$	(0.34)	$	(0.21)	$	(1.34)	$	(0.45)
Weighted average shares - Basic	18,436,615		18,194,960		18,336,537		18,166,930
Weighted average shares - Diluted	18,436,615		18,194,960		18,336,537		18,166,930

The accompanying notes are an integral part of these condensed consolidated financial statements.

Table of Contents

FARO TECHNOLOGIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE ~~INCOME~~LOSS

(UNAUDITED)

Three Months Ended Nine Months Ended
(in thousands) September 30, 2017 September 30, 2016 September 30, 2017 September 30, 2016
Net income (loss) $ 1,628
$ 1,090
$ (3,458 ) $ 7,562
Currency translation adjustments, net of income tax 3,875
1,339
15,174
6,165
Comprehensive income $ 5,503
$ 2,429
$ 11,716
$ 13,727


	Three Months Ended				Nine Months Ended
(in thousands)	September 30, 2022		September 30, 2021		September 30, 2022		September 30, 2021
Net loss	$	(6,261)	$	(3,855)	$	(24,521)	$	(8,252)
Currency translation adjustments, net of income taxes	(11,796)		(328)		(26,791)		(5,635)
Comprehensive loss	$	(18,057)	$	(4,183)	$	(51,312)	$	(13,887)

The accompanying notes are an integral part of these condensed consolidated financial statements.

Table of Contents

FARO TECHNOLOGIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

Nine Months Ended
(in thousands) September 30, 2017 September 30, 2016
Cash flows from:
Operating activities:
Net (loss) income $ (3,458 ) $ 7,562
Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities:
Depreciation and amortization 12,075
9,733
Stock-based compensation 4,823
4,068
Provision for bad debts 321
727
Loss on disposal of assets 263
814
Provision for excess and obsolete inventory 1,271
2,937
Deferred income tax expense (benefit) 224
(734 )
Income tax benefit from exercise of stock options —
(354 )
Change in operating assets and liabilities:
Decrease (increase) in:
Accounts receivable 3,701
12,850
Inventories (11,450 ) (8,689 )
Prepaid expenses and other current assets (3,834 ) (995 )
(Decrease) increase in:
Accounts payable and accrued liabilities (2,774 ) 1,128
Income taxes payable (598 ) —
Customer deposits (6 ) (1,155 )
Unearned service revenues (1,326 ) 559
Net cash (used in) provided by operating activities (768 ) 28,451
Investing activities:
Proceeds from sale of investments 32,000
11,000
Purchases of property and equipment (6,081 ) (5,272 )
Payments for intangible assets (1,345 ) (1,440 )
Acquisition of business (5,496 ) (20,911 )
Net cash provided by (used in) investing activities 19,078
(16,623 )
Financing activities:
Payments on capital leases (6 ) (6 )
Payment of contingent consideration for acquisitions (521 )
(434 )
Income tax benefit from exercise of stock options —
354
Proceeds from issuance of stock 387
519
Net cash (used in) provided by financing activities (140 ) 433
Effect of exchange rate changes on cash and cash equivalents 5,502
1,732
Increase in cash and cash equivalents 23,672
13,993
Cash and cash equivalents, beginning of period 106,169
107,356
Cash and cash equivalents, end of period $ 129,841
$ 121,349


	Nine Months Ended
(in thousands)	September 30, 2022		September 30, 2021
Cash flows from:
Operating activities:
Net loss	$	(24,521)	$	(8,252)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization	10,061		9,560
Stock-based compensation	10,024		8,657
Provisions for bad debts, net of recoveries	80		33
Loss on disposal of assets	356		130
Provision for excess and obsolete inventory	209		1,955
Deferred income tax expense (benefit)	568		(3,667)
Change in operating assets and liabilities:
Decrease (Increase) in:
Accounts receivable	867		4,311
Inventories	2,129		(9,106)
Prepaid expenses and other current assets	(14,566)		(2,935)
(Decrease) Increase in:
Accounts payable and accrued liabilities	(2,249)		(14,153)
Income taxes payable	1,008		(1,847)
Customer deposits	588		1,966
Unearned service revenues	(2,710)		(2,223)
Net cash used in operating activities	(18,156)		(15,571)
Investing activities:
Purchases of property and equipment	(4,978)		(4,845)
Cash paid for technology development, patents and licenses	(9,154)		(1,933)
Acquisition of business, net of cash acquired	(29,068)		(33,908)
Net cash used in investing activities	(43,200)		(40,686)
Financing activities:
Payments on finance leases	(172)		(229)
Payments for taxes related to net share settlement of equity awards	(1,584)		(4,137)
Proceeds from issuance of stock related to stock option exercises	—		5,835
Net cash (used in) provided by financing activities	(1,756)		1,469
Effect of exchange rate changes on cash and cash equivalents	(10,343)		(5,031)
Decrease in cash and cash equivalents	(73,455)		(59,819)
Cash and cash equivalents, beginning of period	121,989		185,633
Cash and cash equivalents, end of period	$	48,534	$	125,814

The accompanying notes are an integral part of these condensed consolidated financial statements.

Table of Contents

FARO TECHNOLOGIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(UNAUDITED)


				Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Loss		Common Stock in Treasury
	Common Stock
(in thousands, except share data)	Shares	Amounts										Total
BALANCE JANUARY 1, 2022	18,205,636	$	20	$	301,061	$	73,544	$	(17,374)	$	(30,792)	$	326,459
Net loss	—	—		—		(9,687)		—		—		(9,687)
Currency translation adjustment	—	—		—		—		(1,984)		—		(1,984)
Stock-based compensation	—	—		2,867		—		—		—		2,867
Common stock issued, net of shares withheld for employee taxes	55,041	—		(1,051)		—		—		135		(916)
BALANCE MARCH 31, 2022	18,260,677	$	20	$	302,877	$	63,857	$	(19,358)	$	(30,657)	$	316,739
Net loss	—	—		—		(8,574)		—		—		(8,574)
Currency translation adjustment	—	—		—		—		(13,011)		—		(13,011)
Stock-based compensation	—	—		3,491		—		—		—		3,491
Common stock issued, net of shares withheld for employee taxes	6,080	—		(249)		—		—		—		(249)
BALANCE JUNE 30, 2022	18,266,757	$	20	$	306,119	$	55,283	$	(32,369)	$	(30,657)	$	298,396
Net loss	—	—		—		(6,261)		—		—		(6,261)
Currency translation adjustment	—	—		—		—		(11,796)		—		(11,796)
Stock-based compensation	—	—		3,666		—		—		—		3,666
Common stock issued, net of shares withheld for employee taxes	4,617	—		(418)		—		—		—		(418)
Acquisition of business	495,562	—		15,878		—		—		—		15,878
BALANCE SEPTEMBER 30, 2022	18,766,936	$	20	$	325,244	$	49,022	$	(44,165)	$	(30,657)	$	299,464


				Additional Paid-in Capital				Accumulated Other Comprehensive Loss		Common Stock in Treasury
	Common Stock					Retained Earnings
(in thousands, except share data)	Shares	Amounts										Total
BALANCE JANUARY 1, 2021	17,990,707	$	19	$	287,979	$	113,508	$	(10,160)	$	(31,043)	$	360,303
Net loss	—	—		—		(3,221)		—		—		(3,221)
Currency translation adjustment	—	—		—		—		(10,174)		—		(10,174)
Stock-based compensation	—	—		2,094		—		—		—		2,094
Common stock issued, net of shares withheld for employee taxes	163,457	—		1,530		—		—		251		1,781
BALANCE MARCH 31, 2021	18,154,164	$	19	$	291,603	$	110,287	$	(20,334)	$	(30,792)	$	350,783
Net loss	—	—		—		(1,176)		—		—		(1,176)
Currency translation adjustment	—	—		—		—		4,867		—		4,867
Stock-based compensation	—	—		3,283		—		—		—		3,283
Common stock issued, net of shares withheld for employee taxes	20,709	1		(396)		—		—		—		(395)
BALANCE JUNE 30, 2021	18,174,873	$	20	$	294,490	$	109,111	$	(15,467)	$	(30,792)	$	357,362
Net loss	—	—		—		(3,855)		—		—		(3,855)
Currency translation adjustment	—	—		—		—		(328)		—		(328)
Stock-based compensation	—	—		3,280		—		—		—		3,280
Common stock issued, net of shares withheld for employee taxes	27,543	—		312		—		—		—		312
BALANCE SEPTEMBER 30, 2021	18,202,416	20		$	298,082	$	105,256	$	(15,795)	$	(30,792)	$	356,771

The accompanying notes are an integral part of these condensed consolidated financial statements.

Table of Contents

FARO TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

(in thousands, except share and per share data, or as otherwise noted)

NOTE 1 – DESCRIPTION OF BUSINESS

FARO Technologies, Inc. and its subsidiaries (collectively “FARO,” the “Company,” “us,” “we” or “our”) ~~is a global technology company that designs, develops, manufactures, markets~~design, develop, manufacture, market and ~~supports~~support software driven, three-dimensional (“3D”) measurement, imaging, and realization ~~systems. This~~solutions for the 3D metrology, architecture, engineering and construction (“AEC”), Operations and Maintenance (“O&M”) and public safety analytics markets. We enable our customers to capture, measure, manipulate, interact with and share 3D and 2D data from the physical world in a virtual environment and then translate this information back into the physical domain. Our broad technology ~~permits high-precision~~set equips our customers with a wide range of 3D ~~measurement, imaging~~capture technologies that range from ultra-high accuracy laser-scanner-based technology to lower accuracy, photogrammetry-based technology. Our FARO suite of 3D products and ~~comparison of parts and complex structures within production and quality assurance processes. Our devices~~software solutions are used for inspection of components and assemblies, rapid prototyping, reverse engineering, documenting large volume or structures in 3D, surveying and construction, construction management, assembly layout, machine guidance as well as ~~for~~in investigation and ~~reconstruction~~reconstructions of ~~accident sites or~~crash and crime scenes. We sell the majority of our ~~products~~solutions through a direct sales force, with an increasing volume being sold through an indirect channel across ~~a broad number of customers in~~ a range of ~~manufacturing, industrial,~~industries including automotive, aerospace, metal and machine fabrication, surveying, architecture, ~~surveying, building information modeling,~~engineering and construction, public safety forensics ~~cultural heritage~~ and other ~~applications.~~industries.

COVID-19 and Impact On Our ~~FaroArm~~^®~~, FARO Laser ScanArm~~^®~~, FARO Gage~~^®~~, FARO Laser Tracker~~^TM~~, FARO Laser Projector, FARO Cobalt Array Imager,~~Business

Our business is significantly vulnerable to the economic effects of pandemics and ~~their companion CAM2~~^® ~~and BuildIT software solutions, provide for Computer-Aided Design~~other public health crises, including the ongoing coronavirus (“~~CAD”~~COVID-19”) based inspection, factory-level statistical process control, high-density surveying and laser-guided assembly and production. Together, these products integrate the measurement, quality inspection, and reverse engineering functions with CAD and 3D software to improve productivity, enhance product quality, and decrease rework and scrappandemic that has surfaced in virtually every country of our global operating footprint. During 2020, we experienced a significant decline in the ~~manufacturing process, mainly supporting applications in~~demand for our ~~Factory Metrology vertical. Our FARO Focus~~products and ~~FARO Scanner Freestyle~~^3D~~X laser scanners, and their companion SCENE, FARO PointSense, and FARO public safety forensics software offerings, are utilized for a wide variety~~services across all of ~~3D modeling, documentation and high-density surveying applications in~~ our ~~Construction Building Information Modeling-Construction Information Management (“Construction BIM-CIM”) and Public Safety Forensics verticals. Our FARO Laser ScanArm~~^®~~, FARO Cobalt Array Imager, FARO Scanner Freestyle~~^3DX laser scanners and their companion SCENE software also enable a fully digital workflow used to capture real world geometry for the purpose of empowering design, enabling innovation, and speeding up the design cycle, supporting our Product Design vertical. FARO Visual Inspect^TM enables large, complex 3D CAD data to be transferred to a tablet device and then used for mobile visualization and comparison to real world conditions, facilitating in-process inspection, assembly, guidance and positioning for applications in our Factory Metrology and Construction BIM-CIM verticals. Our line of galvanometer-based scan heads and laser scan controllers are used in a variety of laser applications and are integrated into larger components and systems.

~~We report our segment information in accordance with the provisions of Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 280,~~ ~~Segment Reporting~~ (“FASB ASC Topic 280”). During fiscal 2016, we evaluated our reportable segments based on our new internal management structure organized around operating activities and the changes implemented in connection with our initiatives to reorganize our business around certain vertical markets. We evaluate business performance based upon several metrics, using revenue growth and segment profit as the primary financial measures. As a result of this assessment, we now report our activities in the following three reportable segments:

The Factory Metrology reporting segment provides solutions for manual and automated measurement and inspection in an industrial or manufacturing environment. Applications include alignment, part inspection, dimensional analysis, first article inspection, incoming and in-process inspection, machine calibration, non-contact inspection, robot calibration, tool building and set-up, and assembly guidance.

The Construction BIM-CIM reporting segment provides solutions for as-built data capturing and 3D visualization in building information modeling and construction information management applications, allowing our customers in the architecture, engineering and constructionserved markets to quickly and accurately extract two-dimensional (“2D”) and 3D measurement points. Applications include as-built documentation, construction monitoring, surveying, asset and facility management, and heritage preservation.

The Other reporting segment includes our Product Design, Public Safety Forensics and 3D Machine Vision (formerly known as 3D Solutions) operating segments. Our Product Design operating segment provides advanced 3D solutions to assist in the engineering or design of a movable object, enabling a full digital workflow for applications that include reverse engineering and virtual simulation. Our Public Safety Forensics operating segment provides solutions to public safety officials and professionals to capture environmental or situational scenes in 2D and 3D for crime, crash and fire scene investigations and environmental safety evaluations. Our 3D Machine Vision operating segment provides solutions to customers who require customized 3D measurement and realization solutions not otherwise addressed by our off-the-shelf product offerings.

All operating segments that do not meet the criteria to be reportable segments are aggregated in the Other reporting segment and have been combined based on the aggregation criteria and quantitative thresholds in accordance with the provisions of FASB ASC Topic 280. There has been no change in our total consolidated financial condition or results of operations previously reported as a result of the ~~change~~impact of the spread of COVID-19.

During 2022, we continue to mitigate the ongoing impact of COVID-19 on our business results and we remain committed to taking actions to mitigate both the impact on the health and safety of our employees, as well as negative business effects resulting from demand disruption, material availability and potential production and shipment challenges, including, but not limited to, the following:

•Operating our business with a focus on our employee health and safety, which includes minimizing travel, implementing remote work policies, maintaining employee distancing and enhancing the sanitation of all of our facilities;

•Recommending that our employees receive vaccinations and vaccine boosters to help protect our colleagues, families, and communities;

•Aggressively pursuing required raw materials to ensure continuity of supply and minimize material cost increases in collaboration with our ~~reportable segments. The amounts related~~third party manufacturer, Sanmina;

•Aggressively pursuing alternative logistics paths when intermittent government-ordered shutdowns affect current logistics paths;

•Monitoring our liquidity, disciplined inventory management, and scrutinizing our capital expenditures while executing our strategic plan; and

•Continuously reviewing our financial strategy to ~~our segment information for the three~~enhance financial flexibility in these volatile financial markets.

We continue to maintain a strong capital structure with a cash balance of $48.5 million and ~~nine months ended~~no debt as of September 30, ~~2016 have been restated throughout this Quarterly Report on Form 10-Q~~2022. We believe that our liquidity position is adequate to ~~reflect~~meet our projected needs in the ~~change~~reasonably foreseeable future.

Future developments, such as the potential resurgence of COVID-19 in ~~reporting segments. Each~~countries and new actions taken by governments in response to future resurgence, are highly uncertain. Therefore, the Company is not able to predict the extent to which the COVID-19 outbreak continues to impact the Company’s results of ~~our reporting segments employs consistent accounting policies. See Note 15 – Segment Reporting for further information.~~operations and financial conditions.

NOTE 2 – PRINCIPLES OF CONSOLIDATION

Our condensed consolidated financial statements include the accounts of FARO Technologies, Inc. and its subsidiaries, all of which are wholly owned. All intercompany transactions and balances have been eliminated. The financial statements of our foreign subsidiaries are translated into U.S. dollars using exchange rates in effect at period-end for assets and liabilities and average exchange rates during each reporting period for results of operations. Adjustments resulting from financial statement translations are reflected as a separate component of accumulated other comprehensive loss. Foreign currency transaction gains and losses are included in ~~income.~~net loss.

Table of Contents

NOTE 3 – BASIS OF PRESENTATION

The accompanying unaudited condensed consolidated financial statements and notes thereto have been prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”) for interim financial information and with the instructions of Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. These condensed consolidated financial statements include all normal recurring accruals and adjustments considered necessary by management for a fair presentation in conformity with U.S. GAAP. Preparing financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ materially from those estimates. The condensed consolidated results of operations for the ~~three and~~ nine months ended September 30, ~~2017~~2022 are not necessarily indicative of results that may be expected for the year ending December 31, ~~2017~~2022 or any future ~~interim~~ period.

The information included in this Quarterly Report on Form 10-Q, including the interim condensed consolidated financial statements and the accompanying notes, should be read in conjunction with the audited consolidated financial statements and related notes included in our Annual Report on Form 10-K for the fiscal year ended December 31, ~~2016.~~2021. The accompanying December 31, ~~2016~~2021 condensed consolidated balance sheet has been derived from those audited consolidated financial statements.

~~NOTE 4 – RECLASSIFICATIONS~~

~~Certain prior period amounts have been reclassified~~Stock-based compensation expense is allocated to the applicable departmental cost in ~~the accompanying~~our condensed consolidated financial ~~statements to conform to~~statements. The following table summarizes total stock-based compensation expense for each of the current period presentation. Certain prior period stock compensation expenses were reclassified between cost of product sales, cost of service sales, selling and marketing, general and administrative, and research and development expenses in the accompanyingline items on our condensed consolidated statements of operations for the three and nine months ended September 30, 2016 to reflect the appropriate departmental costs. In addition, deferred income tax assets, net were reclassified from current to non-current in our condensed consolidated balance sheet asoperations:


	Three Months Ended				Nine Months Ended
	September 30, 2022		September 30, 2021		September 30, 2022		September 30, 2021
Cost of sales
Product	$	231	$	147	$	635	$	435
Service	42		43		121		$	35
Total cost of sales	$	273	$	190	$	756	$	470

Operating expenses
Selling, general and administrative	$	2,742	$	2,581	$	7,475	$	6,789
Research and development	651		509		1,793		1,398
Total operating expenses	$	3,393	$	3,090	$	9,268	$	8,187

Table of ~~December 31, 2016 as a result of adopting Accounting Standards Update ("ASU") No. 2015-17,~~ ~~Income Taxes (Topic 740: Balance Sheet Classification of Deferred Taxes~~ ~~("ASU 2015-17"). See Note 5 – Impact of Recently Issued Accounting Pronouncements for further details.~~Contents

NOTE 54 – IMPACT OF RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

Impact of Recently Adopted Accounting Standards

In ~~January 2017,~~December 2019, the FASB issued ASU No. ~~2017-04,~~ ~~Intangible - Goodwill and Other~~2019-12, Income Taxes (Topic ~~350)~~740): Simplifying the ~~Test~~Accounting for ~~Goodwill Impairment~~ ~~(“ASU 2017-04”),~~Income Taxes, which ~~is intended~~amends and aims to simplify accounting disclosure requirements regarding a number of topics, including intraperiod tax allocation, accounting for deferred taxes when there are changes in consolidation of certain investments, tax basis step up in an acquisition and the ~~subsequent measurement~~application of ~~goodwill by eliminating Step 2 from~~effective rate changes during interim periods, amongst other improvements. We adopted ASU 2019-12 effective as of January 1, 2021, and the ~~goodwill impairment test. Under the current guidance, performance~~adoption of Step 2 requires us to calculate the implied fair value of goodwill by following procedures that would be required in determining the fair value of assets acquired and liabilities assumed in a business combination. Under the new guidance we will perform our goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An impairment charge will be recognized for the amount by which the carrying amount exceeds the reporting unit’s fair value up to the amount of the goodwill allocated to the reporting unit. The new guidance also eliminates the requirements for any reporting unit with a zero or negative carrying amount to perform Step 2 of the goodwill impairment test if it fails the qualitative assessment. As a result, all reporting units will be subject to the same impairment assessment. We will still have the option to perform the qualitative assessment for a reporting unit to determine if the quantitative impairment test is necessary.

ASU 2017-04 becomes effective for annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019, with early adoption permitted for annual or any interim goodwill impairment tests after January 1, 2017. The amendments in this ASU will be applied on a prospective basis. Disclosure of the nature and reason for the change in accounting principle is required upon transition. This disclosure is required in the first annual period and in the interim period within the first annual period when we initially adopt the amendments in this ASU. We dodid not ~~expect that the adoption of this guidance will~~ have a material impact on our condensed consolidated financial statements.

In ~~January 2017,~~October 2021, the FASB issued ASU No. ~~2017-01,~~ 2021-08, Business Combinations (Topic 805): ~~Clarifying~~Accounting for Contract Asset and Contract Liabilities from Contracts with Customers, which intends to simplify the ~~Definition of a Business~~ ~~(“ASU 2017-01”)~~accounting for acquired revenue contracts with customers in ~~order to clarify the definition of~~ a business combination and ~~provide additional guidance~~ to ~~assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals)~~also remove inconsistencies in this topic related to recognition of ~~assets or businesses. Currently, ASC Topic 805 recognizes three elements of a business: inputs, processes,~~an acquired contract liability and ~~outputs. While~~payment terms and their effect on subsequent revenue recognized by the acquirer. ASU No. 2021-08 allows an ~~integrated set of~~acquirer to recognize and measure contract assets and ~~activities (collectively referred to as a “set”) that is~~contract liabilities acquired in a business usually has outputs, outputs are not required to be present. Additionally, all the inputs and processes that a seller uses in operating a set are not required if market participants can acquire the set and continue to produce outputs. ASU 2017-01 provides a screen to determine when a set is not a business. The screen requires that when substantially all of the fair value of the gross assets acquired (or disposed of) is concentratedcombination in a ~~single identifiable asset or a group of~~ similar ~~identifiable assets, the set is not a business. If the screen is not met, the new guidance (1) requires that~~manner to be considered a business, a set must include, at a minimum, an input and a substantive process that together significantly contribute to the ability to create output and (2) removes the evaluation of whether a market participant could replace missing elements. The new guidance provides a framework to assist entities in evaluating whether both an input and a substantive processhow they are present. This framework includes two sets of criteria to consider that depend on whether a set has outputs. Although outputs are not required for a set to be a business, outputs generally are a key element of a business. ASU 2017-01 provides more stringent criteria for sets without outputs and more narrowly defines the term output.

~~ASU 2017-01 becomes effective for annual periods beginning after December 15, 2017, including interim periods within those periods, and will be applied prospectively commencing~~recorded on the ~~effective date. No disclosures are required~~acquiree’s financial statements at ~~transition. Early application is permitted under certain circumstances. We do not expect that the adoption of this guidance will have a material impact on our consolidated financial statements.~~

~~In October 2016, the FASB issued ASU No. 2016-16,~~ ~~Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other than Inventory~~ ~~(“ASU 2016-16”), which removes the prohibition in ASC Topic 740,~~ ~~Income Taxes~~, against the immediate recognition of the current and deferred income tax effects of intra-entity transfers of assets other than inventory. This ASU requires the tax effects of intra-entity transactions, other than sales of inventory, to be recognized when the transfer occurs, instead of deferred until the transferred asset is sold to a third party or otherwise recovered through use of the asset. The new guidance must be applied on a modified retrospective basis through a cumulative-effect adjustment directly to retained earnings as of the beginning of the period of adoption and is effective for annual periods beginning after December 15, 2017, and interim periods therein, with early adoption permitted. Currently, we do not expect that the adoption of this guidance will have a material impact on our consolidated financial statements. We will continue to monitor our business for changes that could be impacted due to the adoption of this guidance.

~~In August 2016, the FASB issued ASU No. 2016-15,~~ ~~Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments~~ (“ASU 2016-15”), which clarifies how companies present and classify certain cash receipts and cash payments in the statement of cash flows. ASU 2016-15 is effective for annual periods beginning after December 15, 2017, and interim periods therein.book value. Early adoption is ~~permitted. We do not expect that~~permitted and we early adopted ASU No. 2021-08 in the fourth quarter of 2021. As a result of the early adoption of ~~this guidance will have a material impact on~~ASU No.2021-08, we recorded the deferred revenue associated with the acquisition of Holobuilder in 2021 at its book value of approximately $4.0 million. Further, we recorded the deferred revenue associated with the acquisition of GeoSLAM in 2022 at its book value of approximately $1.3 million.

Table of Contents

NOTE 5 – REVENUES

The following tables present our revenues by sales type as presented in our condensed consolidated ~~financial statements.~~

~~In February 2016,~~statements of operations disaggregated by the ~~FASB issued ASU 2016-02,~~ ~~Leases~~ (~~Topic 842) (~~“ASU 2016-02”), which is intended to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements to enable userstiming of financial statements to assess the amount, timing, and uncertainty of cash flows arising from leases. ASU 2016-02 must be applied on a modified retrospective basis and is effective for fiscal years beginning after December 15, 2018, and interim periods within those years, with early adoption permitted. We are currently evaluating the impact of adopting this standard on our consolidated financial statements and related disclosures.

~~In May 2014, the FASB issued ASU No. 2014-09,~~ ~~Revenue from Contracts with Customers: (Topic 606)~~ ~~(“ASU 2014-09”), amending its accounting guidance related to revenue recognition. Under this ASU and subsequently issued amendments, revenue is recognized to depict the~~ transfer of goods or ~~services to customers in an amount that reflects~~services:


	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
	2022		2021		2022		2021
Product sales
Product transferred to customers at a point in time	$	60,090	$	53,536	$	165,750	$	161,080
Product transferred to customers over time	5,491		4,302		16,265		11,668
Total product sales	$	65,581	$	57,838	$	182,015	$	172,748


	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
	2022		2021		2022		2021
Service sales
Service transferred to customers at a point in time	$	8,651	$	9,332	$	25,973	$	28,931
Service transferred to customers over time	11,100		11,999		33,918		35,931
Total service sales	$	19,751	$	21,331	$	59,891	$	64,862

The following table presents our revenues disaggregated by geography, based on the consideration to which the entity expects to be entitled in exchange for those goods or services. Additional disclosures are required to provide the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract. The ASU and subsequently issued amendments to it are effective for us on January 1, 2018 and permit the use of either the full retrospective or modified retrospective method.

~~We are currently evaluating the effect that this guidance will have on our consolidated financial statements by analyzing both transactional and analytical data for each~~billing addresses of our ~~revenue streams. The following is a status of our evaluation of impacts by significant revenue stream:~~customers:


	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
	2022		2021		2022		2021
Total sales to external customers
Americas (1)	$	38,732	$	33,944	$	110,077	$	100,195
EMEA (1)	22,802		23,387		66,494		75,315
APAC (1)	23,798		21,838		65,335		62,100
	$	85,332	$	79,169	$	241,906	$	237,610

•~~Measurement equipment~~

(1) Regions represent North America and ~~related software:~~ ~~Under current accounting guidance, sales of measurement, imaging~~South America (the “Americas”); Europe, the Middle East, and ~~realization equipment~~Africa (“EMEA”); and related software sales are generally recognized upon shipment, as we consider the earnings process complete as of the shipping date. The related software sold with our measurement, imaging and realization equipment functions together with such equipment to deliver the tangible product’s essential functionality. Upon adopting the new guidance, we do not expect material changes to our accounting forAsia-Pacific (“APAC”).

For revenue related to our measurement ~~imaging~~ and ~~realization~~imaging equipment and related ~~software.~~

•~~Extended warranties:~~ ~~Under current accounting guidance, extended warranty sales are recognized~~software, we allocate the contract price to performance obligations based on ~~a straight-line basis over the term~~our best estimate of the ~~warranty. Upon adopting~~standalone selling price. We make this allocation estimate utilizing data from the ~~new guidance, we do not expect material changes~~sale of our applicable products and services to customers separately in similar circumstances. Revenue related to our ~~accounting for revenue~~measurement and imaging equipment and related ~~to extended warranties.~~

•~~Software:~~ ~~Under current accounting guidance, software only sales are recognized when no further significant production, modification or customization of the~~ software is ~~required~~generally recognized upon shipment from our facilities or when delivered to the customer location, as determined by the agreed upon shipping terms, at which time we are entitled to payment and ~~when~~title and control has passed to the ~~following criteria are met: persuasive evidence of a sales agreement exists, delivery has occurred, and the sales price is fixed or determinable and deemed collectible. These software~~customer. Software arrangements generally include short-term maintenance that is considered post-contract ~~support.~~support (“PCS”), which is considered to be product transferred to the customer over time and a separate performance obligation. We generally establish a standalone sales price for this PCS component based on our maintenance renewal rate. Maintenance renewals ~~when sold,~~ are recognized on a straight-line basis over the term of the maintenance agreement. ~~Upon adopting~~Payments for products and services are collected within a short period of time following transfer of control or commencement of delivery of services, as applicable.

Further, customers frequently purchase extended hardware service contracts with the ~~new guidance,~~purchase of measurement equipment and related software. Hardware service contracts are considered a performance obligation when services are transferred to a customer over time, and, as such, we ~~do not expect material changes~~recognize revenue on a straight-line basis over the contractual term. Hardware service contracts include contract periods that extend between one month to ~~our accounting for revenue~~three years.

We capitalize commission expenses related to ~~software only sales and maintenance renewals.~~

~~Currently, we recognize sales commission expense as incurred. Under the new guidance, we expect~~deliverables transferred to ~~capitalize the commission expense for those sales arrangements that extend beyond one year~~a customer over time and amortize such costs ratably over the term of the contract. As ~~a result, we expect~~of September 30, 2022, the deferred cost asset related to ~~have an increase in~~ deferred ~~costs~~commissions was approximately $3.1 million. For classification purposes, $2.1 million and $1.0 million are comprised within the Prepaid expenses and other current assets and Other long-term assets, respectively, on our condensed consolidated balance sheet ~~upon~~as of September 30, 2022. As of December 31, 2021, the ~~adoption of~~deferred cost asset related to deferred commissions was approximately $3.5 million. For classification purposes, $2.3 million and $1.2 million were comprised within the ~~new guidance; however, we are still evaluating the expected impact of this change~~Prepaid expenses and other current assets and Other long-term assets, respectively, on our condensed consolidated balance ~~sheet. We do not expect that this will result in a material change to our results of operations or cash flows.~~

We plan to adopt this guidance utilizing the modified retrospective method and plan to apply the modified retrospective method only to contracts that are not completed as of the date of initial adoption, an option that is available under ASC Topic 606.

~~In March 2016, the FASB issued ASU 2016-09,~~ ~~Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting~~ (“ASU 2016-09”), simplifying several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. ASU 2016-09 became effective for annual periods beginning after December 15, 2016, and interim periods therein (our fiscal year 2017). We adopted ASU 2016-09 effective January 1, 2017. Under the new guidance, excess tax benefits that were not previously recognized because the related tax deduction had not reduced current taxes payable are to be recorded on a modified retrospective basis through a cumulative-effect adjustment to retained earnings as of the beginning of the period in which the new guidance is adopted. Historically, we recognized all excess tax benefits when an option was exercised or a share vested since we did not have a U.S. net operating loss carryforward. Therefore, no adjustment to retained earnings for prior excess tax benefits was required upon adoption.

Under the new guidance, all tax-related cash flows resulting from share-based payments are reported as operating activities in the statement of cash flows. This approach incorporates the net of the inflow and outflow from all tax-related cash flows resulting from share-based payments in the deferred income tax expense (benefit) line item and presents it along with other income tax cash flows as operating activities in the statement of cash flows. Effective January 1, 2017, we adopted this portion of the guidance on a prospective basis and therefore did not restate the prior period's condensed consolidated statement of cash flows.

We also elected to account for forfeitures related to the service condition-based awards as they occur effective January 1, 2017, which is a change from previous guidance that required an estimate of forfeitures. However, we continue to assess performance condition-based awards quarterly as required. In adopting the new policy using a modified retrospective approach, we assessed the cumulative effect adjustment and recorded to retained earnings the difference between the amount of compensation cost previously recorded and the amount that would have been recorded without assuming forfeitures. The cumulative effect adjustment recorded to retained earnings, net of income tax benefit, was not material.

In November 2015, the FASB issued ASU 2015-17, which requires that deferred tax liabilities and assets be classified as noncurrent in a classified balance sheet. ASU 2015-17 became effective for us on January 1, 2017. We adopted this guidance on

~~a retrospective basis, which resulted in the reclassification of current deferred tax assets totaling approximately $7.6 million~~sheet as of December 31, ~~2016 from current to non-current in these condensed consolidated financial statements.~~2021.

~~In July 2015, the FASB issued ASU 2015-11,~~ ~~Inventory (Topic 330): Simplifying the Measurement~~

Table of ~~Inventory~~ (“ASU 2015-11”), which changes the measurement principle for inventory from the lower of cost or market to the lower of cost or net realizable value. ASU 2015-11 defines net realizable value as estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. Contents

The new guidance must be applied on a prospective basis and became effective for fiscal years beginning after December 15, 2016 (i.e., our fiscal year 2017), and interim periods within those years, with early adoption permitted. We adopted ASU 2015-11 effective January 1, 2017. The adoption of this guidance did not have a material impactunearned service revenue liabilities reported on our condensed consolidated ~~financial statements.~~

~~NOTE 6 – STOCK-BASED COMPENSATION~~

~~Stock-based compensation expense reflects~~balance sheets reflect the ~~fair value~~contract liabilities to satisfy the remaining performance obligations for extended warranties, subscription-based software and software maintenance. The current portion of ~~stock-based awards measured at~~unearned service revenues on our condensed consolidated balance sheets is what we expect to recognize as revenue within twelve months after the ~~grant~~applicable balance sheet date relating to extended warranties, subscription-based software and ~~is recognized over the requisite~~software maintenance contract liabilities. The unearned service ~~period.~~

We have three compensation plans that provide for the granting of stock options and other share-based awards to key employees and non-employee members of the Board of Directors (the “Board”). The 2004 Equity Incentive Plan (“2004 Plan”), the 2009 Equity Incentive Plan (“2009 Plan”), and the 2014 Equity Incentive Plan (“2014 Plan”) provide for granting options, restricted stock, restricted stock units or stock appreciation rights to employees and non-employee directors. In May 2014, our shareholders approved the 2014 Plan, authorizing us to grant awards for up to 1,974,543 shares of common stock, as well as any shares underlying awards outstanding under the 2004 Plan and 2009 Plan as of the effective date of the 2014 Plan that thereafter terminate or expire unexercised or are canceled, forfeited or lapse for any reason. Under the terms of the 2014 Plan, we are not permitted to make any further grants under the 2004 Plan or the 2009 Plan.

Upon election to the Board, each non-employee director receives an initial equity grant of shares of restricted common stock with a value equal to $100,000, calculated using the closing share price on the date of the non-employee director’s election to the Board. The initial restricted stock grant vests on the third anniversary of the grant date, subject to the non-employee director’s continued membership on the Board. Annually, the non-employee directors are granted restricted shares with a value equal to $100,000 on the first business day following the annual meeting of shareholders, calculated using the closing price of our common stock on that day. In addition, the Lead Director is annually granted restricted shares with a value equal to $40,000 on the first business day following the annual meeting of shareholders, calculated using the closing price of our common stock on that day. The shares of restricted stock granted annually to our non-employee directors and our Lead Director vest on the day prior to the following year’s annual meeting date, subject to the non-employee director’s continued membership on the Board. We record compensation cost associated with our restricted stock grants on a straight-line basis over the vesting term.

Annually, upon approval by our Compensation Committee, we grant stock options and restricted stock units to certain employees. We also grant stock options and restricted stock units to certain new employees throughout the year. The fair value of these stock-based awards is determined by using (a)revenues less the current ~~market price of~~portion on our ~~common stock~~condensed consolidated balance sheets is what we expect to recognize as revenue extending beyond twelve months after the applicable balance sheet date relating to extended warranties, subscription-based software and software maintenance contract liabilities. Customer deposits on ~~the grant date~~our condensed consolidated balance sheets represent customer prepayments on contracts for performance obligations that we must satisfy in the ~~case of restricted stock units or (b)~~future to recognize the ~~Black-Scholes option valuation model~~related contract revenue. These amounts are generally related to performance obligations which are delivered in less than 12 months. During the ~~case of stock options.~~

~~Our annual grants in March 2017~~three and March 2016 consisted of stock options and restricted stock units that are subject to only time-based vesting. The number of stock options and/or restricted stock units granted was based on the employee’s individual objectives, performance against operational metrics assigned to the employee and overall contribution over the last year. The stock options vest in three equal annual installments beginning one year after the grant date. The restricted stock unit awards vest in full on the three-year anniversary of the grant date. The fair value of these stock-based awards is determined by using (a) the Black-Scholes option valuation model in the case of stock options or (b) the current market price of our common stock on the grant date in the case of restricted stock units.

In 2015, we granted performance-based stock options and restricted stock units to certain executives. These awards vest in three annual installments beginning one year after the grant date if the applicable performance measures or strategic objectives are achieved. The related stock-based compensation expense is recognized over the requisite service period, taking into account the probability that we will satisfy the performance measures or strategic objectives. In addition to certain strategic objectives, the performance-based stock options and restricted stock units granted in 2015 are earned and vest based upon (1) our achievement of specified revenue and earnings per share targets, and (2) our total shareholder return (“TSR”) relative to the TSR attained by companies within our defined peer group.

Due to the application of TSR to certain performance-based grants, the fair value of these awards is determined using the Monte Carlo Simulation valuation model. We expense these market condition awards over the three-year vesting period regardless of the value the award recipients ultimately receive. In February 2017, our Compensation Committee determined that 9,616 performance-based stock options and 300 restricted stock units were earned for the 2016 performance period and 19,362 stock options and 604 restricted stock units were unearned, as the required metrics were not achieved.

The Black-Scholes option valuation model incorporates assumptions as to stock price volatility, the expected life of options or awards, a risk-free interest rate and dividend yield. The weighted-average grant-date fair value of the stock options that were granted during the nine months ended September 30, ~~2017~~2022, we recognized $8.7 million and ~~September 30, 2016~~$29.1 million of revenue that was deferred on our condensed consolidated balance sheet as of December 31, 2021. During the three and ~~valued using the Black-Scholes option valuation model was $14.51 and $12.42 per option, respectively. For stock options granted during the~~ nine months ended September 30, ~~2017~~2021, we recognized $7.6 million and $29.2 million of revenue that was deferred on our condensed consolidated balance sheet as of December 31, 2020.

The nature of certain of our contracts gives rise to variable consideration, primarily related to an allowance for sales returns. We are required to estimate the contract asset related to sales returns and record a corresponding adjustment to Cost of Sales. Our allowance for sales returns for September 30, 2022 and September 30, ~~2016 valued using the Black-Scholes option valuation model, we used the following assumptions:~~

Nine Months Ended
September 30,
2017 September 30,
2016
Risk-free interest rate 1.88% - 2.02%
1.06% - 1.21%
Expected dividend yield — % — %
Expected term of option 5 years
4 years
Expected volatility 45.2 % 46.7% - 47.0%
Weighted-average expected volatility 45.2 % 46.7 %

~~Historical information~~2021 was ~~the primary basis for the selection of the expected dividend yield, expected volatility~~approximately $0.2 million, and the expected lives of the options. The risk-free interest rate was based on the yields of U.S. zero coupon issues and U.S. Treasury issues, with a term equal to the expected life of the option being valued.

~~A summary of stock option activity and weighted-average exercise prices during the nine months ended September 30, 2017 follows:~~

Options
Weighted-
Average
Exercise Price

Weighted-Average
Remaining
Contractual Term
(Years)
Aggregate Intrinsic
Value as of
September 30, 2017
Outstanding at January 1, 2017 1,090,160
$ 48.02

Granted 267,039
34.79

Forfeited or expired (72,015 ) 44.39

Exercised (14,520 ) 26.68

Unearned performance-based options (19,362 ) 59.97

Outstanding at September 30, 2017 1,251,302
$ 45.47
4.2 $ 2,235
Options exercisable at September 30, 2017 963,891
$ 42.82
3.0 $ 612

The total intrinsic value of stock options exercised during each of the three months ended September 30, 2017 and September 30, 2016 was less than $0.1 million. For the nine months ended September 30, 2017 and September 30, 2016, the total intrinsic value of stock options exercised in the respective periods was $0.1 million, ~~and $1.7 million.~~

The fair value of stock options vested during each of the three months ended September 30, 2017 and September 30, 2016 was less than $0.1 million. The fair value of stock options vested during the nine months ended September 30, 2017 and September 30, 2016 was $3.0 million and $3.5 million, respectively.

~~The following table summarizes the restricted stock~~Shipping and ~~restricted stock unit activity~~handling fees billed to customers in a sales transaction are recorded in Product Sales and ~~weighted average grant-date fair values for the nine months ended September 30, 2017:~~shipping and handling costs incurred are recorded in Cost of Sales. We exclude from Sales any value-added sales and other taxes that we collect concurrently with revenue-producing activities.

Shares
Weighted-Average
Grant Date
Fair Value
Non-vested at January 1, 2017 150,682
$ 33.39
Granted 152,207
35.42
Forfeited (20,844 ) 33.84
Vested (21,101 ) 33.65
Unearned performance-based awards (604 ) 52.83
Non-vested at September 30, 2017 260,340
$ 34.60

We recorded total stock-based compensation expense of $1.6 million and $1.4 million for the three months ended September 30, 2017 and September 30, 2016, respectively, and $4.8 million and $4.1 million for the nine months ended September 30, 2017 and September 30, 2016, respectively.

As of September 30, 2017, there was $11.0 million of total unrecognized stock-based compensation expense related to non-vested stock-based compensation arrangements. The expense is expected to be recognized over a weighted average period of 2.0 years.

~~NOTE 7 – CASH AND CASH EQUIVALENTS~~

~~We consider cash on hand and all short-term, highly liquid investments that have original maturities of three months or less at the time of purchase to be cash and cash equivalents.~~

~~NOTE 8 – SHORT TERM INVESTMENTS~~

Short-term investments at September 30, 2017 consisted of U.S Treasury Bills totaling $11.0 million that mature through January 11, 2018. Short-term investments at December 31, 2016 consisted of U.S. Treasury Bills totaling $42.9 million that matured through June 15, 2017. The interest rate on the U.S. Treasury Bills is less than one percent. The investments are classified as held-to-maturity and recorded at cost plus accrued interest, which approximates fair value. The fair value of the U.S. Treasury Bills at September 30, 2017 and December 31, 2016 were classed as Level 1, as they are traded with sufficient frequency and volume to enable us to obtain pricing information on an ongoing basis. For further discussion of fair value, refer to Note 14 – Fair Value of Financial Instruments.

NOTE 96 – ACCOUNTS RECEIVABLE

Accounts receivable consist of the following:


	As of September 30, 2022		As of December 31, 2021
Accounts receivable	$	77,591	$	80,754
Allowance for credit losses	(2,244)		(2,231)
Total	$	75,347	$	78,523

Activity related to the allowance for credit losses was as follows:


	Nine Months Ended September 30, 2022
Beginning balance of the allowance for credit losses	$	(2,231)
Current period provision for expected credit losses, net of recoveries	(80)
Charge-offs of amounts previously expensed	67
Ending balance of the allowance for credit losses	$	(2,244)

As of
September 30, 2017 As of
December 31, 2016
Accounts receivable $ 62,489
$ 63,193
Allowance for doubtful accounts (2,040 ) (1,829 )
Total $ 60,449
$ 61,364

Table of Contents

NOTE 107 – INVENTORIES

Inventories are stated at the lower of cost or net realizable value using the first-in first-out (FIFO) method. We have three principal categories of inventory: 1) manufactured product to be sold; 2) sales demonstration inventory - completed product used to support our sales force for demonstrations and ~~demonstrations;~~held for sale; and 3) service inventory - completed product and parts used to support our service ~~department.~~department and held for sale. Shipping and handling costs are classified as a component of ~~cost~~Cost of ~~sales~~Sales in our condensed consolidated statements of operations.

Sales demonstration inventory is held by our sales representatives for up to three years, at which time it would be refurbished and transferred to finished goods as used equipment, stated at the lower of cost or net realizable value. ~~Management expects~~We expect these refurbished units to remain in finished goods inventory and ~~to be~~ sold within 12 months at prices that ~~may~~ produce reduced gross margins.

Service inventory is used to provide a temporary replacement product to a customer covered by a premium warranty when the customer’s unit requires service or repair and as training equipment. Service inventory is available for sale; however, management does not expect service inventory to be sold within 12 months and, as such, classifies this inventory as a long-term asset. Service inventory that we utilize for training or repairs and which we deem as no longer available for sale is transferred to fixed assets at the lower of cost or net realizable value and depreciated over the remaining life, typically three years.

Inventories consist of the following:


	As of September 30, 2022		As of December 31, 2021
Raw materials	$	30,440	$	34,617
Finished goods	20,516		18,528
Inventories, net	$	50,956	$	53,145

Service and sales demonstration inventory, net	$	28,249	$	30,554

As of
September 30, 2017 As of
December 31, 2016
Raw materials $ 39,285
$ 36,760
Finished goods 19,759
15,126
Inventories, net $ 59,044
$ 51,886

Service and sales demonstration inventory, net $ 35,250
$ 29,136

Table of Contents

NOTE 118 – ~~EARNINGS~~NET LOSS PER SHARE

Basic ~~earnings~~net loss per share is computed by dividing net ~~(loss) or income~~loss by the weighted average number of shares outstanding. Diluted ~~earnings~~net loss per share is computed by also considering the impact of potential common stock on both net ~~income~~loss and the weighted average number of shares outstanding. Our potential common stock consists of employee ~~and director~~ stock options, restricted stock units and ~~performance-based~~market-based awards. Our potential common stock is included in the diluted earnings per share calculation when ~~doing so~~adding such potential common stock would not be anti-dilutive. ~~Performance-based~~Market-based awards are included in the computation of diluted earnings per share only to the extent that the underlying ~~performance~~ conditions (and any applicable market condition) (i) are satisfied as of the end of the reporting period or (ii) would be considered satisfied if the end of the reporting period were the end of the related contingency period and the result would be dilutive under the treasury stock method. When we report a net loss ~~which we did~~ for the ~~nine months ended September 30, 2017,~~period presented, the calculation of diluted net loss per share excludes our potential common stock, as the effect would be anti-dilutive.

For the three and nine months ended September 30, ~~2017,~~2022, there were approximately ~~1,143,523 and 1,145,632~~578,121 shares ~~respectively,~~ issuable upon the exercise of options, the vesting of time-based restricted stock and the contingent vesting of ~~performance-based awards~~market-based restricted stock units that were excluded from the dilutive calculations, as they were anti-dilutive. For the three months and nine months ended September 30, ~~2016,~~2021, there were approximately ~~1,002,856 and 1,042,366, respectively, shares~~393,995 issuable upon the exercise of options ~~and the contingent vesting of performance-based awards~~ that were excluded from the dilutive calculations, as they were anti-dilutive.

A reconciliation of the number of common shares used in the calculation of basic and diluted ~~earnings~~net loss per share ~~(“EPS”)~~ is presented below:


	Three Months Ended
	September 30, 2022			September 30, 2021
	Shares	Per-Share Amount		Shares	Per-Share Amount
Basic net loss per share	18,436,615	$	(0.34)	18,194,960	$	(0.21)
Effect of dilutive securities	—	—		—	—
Diluted net loss per share	18,436,615	$	(0.34)	18,194,960	$	(0.21)


	Nine Months Ended
	September 30, 2022			September 30, 2021
	Shares	Per-Share Amount		Shares	Per-Share Amount
Basic net loss per share	18,336,537	$	(1.34)	18,166,930	$	(0.45)
Effect of dilutive securities	—	—		—	—
Diluted net loss per share	18,336,537	$	(1.34)	18,166,930	$	(0.45)

Three Months Ended
September 30, 2017 September 30, 2016
Shares
Per-Share
Amount
Shares
Per-Share
Amount
Basic EPS 16,708,446
$ 0.10
16,674,176
$ 0.07
Effect of dilutive securities 88,072
—
27,441
—
Diluted EPS 16,796,518
$ 0.10
16,701,617
$ 0.07

Table of Contents

Nine months ended
September 30, 2017 September 30, 2016
Shares
Per-Share
Amount
Shares
Per-Share
Amount
Basic EPS 16,697,729
$ (0.21 ) 16,647,662
$ 0.45
Effect of dilutive securities —
—
21,888
—
Diluted EPS 16,697,729
$ (0.21 ) 16,669,550
$ 0.45

NOTE 129 – ACCRUED LIABILITIES

Accrued liabilities consist of the following:


	As of September 30, 2022		As of December 31, 2021
Accrued compensation and benefits	$	15,310	$	15,723
Accrued restructuring costs	520		3,919
Accrued warranties	2,192		1,880
Professional and legal fees	1,386		2,053
Taxes other than income	194		3,674
Other accrued liabilities	3,279		959
Total accrued liabilities	$	22,881	$	28,208

As of
September 30, 2017 As of
December 31, 2016
Accrued compensation and benefits $ 12,347
$ 13,649
Accrued warranties 2,584
2,594
Professional and legal fees 1,442
1,775
Taxes other than income 2,697
4,026
Other accrued liabilities 3,437
2,528
$ 22,507
$ 24,572

Activity related to accrued warranties was as follows:


	Nine Months Ended
	September 30, 2022		September 30, 2021
Balance, beginning of period	$	1,880	$	1,683
Provision for warranty expense	2,548		1,941
Fulfillment of warranty obligations	(2,236)		(1,951)
Balance, end of period	$	2,192	$	1,673

Nine Months Ended
September 30, 2017 September 30, 2016
Balance, beginning of period $ 2,594
$ 2,309
Provision for warranty expense 2,606
2,292
Fulfillment of warranty obligations (2,616 ) (1,925 )
Balance, end of period $ 2,584
$ 2,676

NOTE ~~13 – INCOME TAXES~~

For the three months ended September 30, 2017, we recorded income tax expense of $0.9 million compared with an income tax benefit of $0.1 million for the three months ended September 30, 2016. Our effective tax rate was 36.8% for the three months ended September 30, 2017 compared with a 5.9% benefit in the prior year period. The change in our income tax expense (benefit) and the increase in our effective tax rate were primarily due to a shift in the geographic mix of pretax income expected for the full year 2017.

For the nine months ended September 30, 2017, we recorded an income tax benefit of $0.4 million compared with income tax expense of $1.4 million for the nine months ended September 30, 2016. This change of $1.8 million was due to a pretax loss during the nine months ended September 30, 2017 compared to pretax income in the same period of 2016. Our effective tax rate decreased by 4.3 percentage points to 11.3% for the nine months ended September 30, 2017 from 15.6% for the same period of 2016. The change was primarily due to the pretax loss during the nine months ended September 30, 2017 compared with pretax income during the same period of 2016 and a shift in the geographic mix of pretax income expected for the full year 2017. Our effective tax rate continued to be lower than the statutory tax rate in the United States, mainly due to our global footprint in foreign jurisdictions with lower tax rates. However, our effective tax rate could be impacted positively or negatively by geographic changes in the manufacturing or sales of our products and the resulting effect on taxable income in each jurisdiction.

~~NOTE 14~~10 – FAIR VALUE ~~OF FINANCIAL INSTRUMENTS~~MEASUREMENTS

Our financial instruments include cash and cash equivalents, ~~short-term investments,~~ accounts receivable, customer deposits, accounts payable and accrued liabilities. The carrying amounts of such financial instruments approximate their fair value due to the short-term nature of these instruments.

~~Assets and liabilities~~Liabilities measured at fair value on a recurring basis are categorized in the tables below based upon the lowest level of significant input to the valuations:

As of September 30, 2017
Level 1 Level 2 Level 3
Assets:
Short-term investments (1) $ 10,970
$ —
$ —
Total $ 10,970
$ —
$ —
Liabilities:
Contingent consideration (2) $ —
$ —
$ 1,742
Total $ —
$ —
$ 1,742

As of December 31, 2016
Level 1 Level 2 Level 3
Assets:
Short-term investments (1) $ 42,942
$ —
$ —
Total $ 42,942
$ —
$ —
Liabilities:
Contingent consideration (2) $ —
$ —
$ 2,100
Total $ —
$ —
$ 2,100

~~(1)~~

~~Short-term investments in the accompanying consolidated balance sheets are six-month U.S. Treasury Bills. The fair values~~As of ~~these assets are based on~~ September 30, 2022

Level 1 ~~inputs in the fair value hierarchy.~~

Level 2

Level 3

Liabilities:
~~(2)~~	Contingent consideration ~~liability represents arrangements to pay the former owners~~(1)	$	—		$	—		$	881
Total	$	—		$	—		$	881
	As of certain companies we acquired. The remaining undiscounted maximum payment under the arrangements is $5.6 million. We estimated the fair value of the contingent consideration using a Monte Carlo Simulation, which is based on significant inputs, primarily forecasted future results of the acquired businesses not observable in the market, and thus represents a Level 3 measure. During the three and nine months ended September 30, 2017, we paid $0.5 million as part of these arrangements. During the three and nine months ended September 30, 2016, we paid $0.3 million and $0.4 million, respectively, as part of these arrangements. The remaining change in the fair value of the contingent consideration from December 31, ~~2016 to September 30, 2017 is related to changes in foreign currency rates.~~2021
	Level 1			Level 2			Level 3
Liabilities:
Contingent consideration (1)	$	—		$	—		$	1,028
Total	$	—		$	—		$	1,028

(1)Contingent consideration liability represents arrangements to pay the former owners of certain companies we acquired based on the attainment of future product release milestones and is reported in Other long-term liabilities. We use a probability-weighted discounted cash flow model to estimate the fair value of contingent consideration liabilities. These probability weightings are developed internally and assessed on a quarterly basis. The remaining undiscounted maximum payment under these arrangements was $1.0 million as of September 30, 2022. We expect to make payments earned by former owners under these arrangements on August 31, 2023.

Table of Contents

NOTE 1511 – ~~SEGMENT REPORTING~~RESTRUCTURING

~~We have three reportable segments; Factory Metrology, Construction BIM-CIM,~~In the first quarter of 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 ~~Other. These segments~~ensure that we are ~~based~~appropriately structured and resourced to deliver increased and sustainable value to our shareholders and customers. Key activities under the Restructuring Plan include a continued focus on efficiency and cost-saving efforts, which included a planned decrease of total headcount upon the ~~vertical markets that~~completion of the Restructuring Plan.

On July 15, 2021, we entered into a manufacturing services agreement (the “Agreement”) with Sanmina Corporation (Nasdaq: SANM) (“Sanmina”), in connection with the Restructuring Plan. Under the Agreement, Sanmina will provide manufacturing services for the Company’s measurement device products previously manufactured by the Company at the Company’s Lake Mary, Florida, Exton, Pennsylvania, and Stuttgart, Germany manufacturing sites. This phased transition to a Sanmina production facility was completed at the beginning of the third quarter of 2022 as part of our cost reduction initiative. We are currently ~~serve. Business activities that do not meet~~evaluating these manufacturing sites with the ~~criteria~~intention to reduce our leased floor space. However, all of these facilities are mixed-use spaces shared with our service, research and development, or sales teams who continue to use these spaces. The Company, in collaboration with third party lessors and architectural resources, intends to conduct studies over the feasibility of abandoning or demising leased floor space against our current needs. Our current needs continue to include access to existing spaces previously constructed to closely monitor temperature and vibration for our service and research and development teams. The conclusion of this evaluation and any subsequent approval to abandon or reduce these leased spaces would be ~~reportable segments are aggregated~~considered as a change in the ~~Other category.~~

We develop, manufacture, market, support and sell CAD-based quality assurance products integrated with CAD-based inspection and statistical process control software and three-dimensional documentation systems in eachmanner of the use of these ~~reportable segments. These activities represent more than 99%~~corresponding assets, and thereby will be evaluated for impairment. We expect to complete this evaluation before the first half of ~~consolidated sales.~~

~~Our Chief Operating Decision Maker (CODM), our Chief Executive Officer, evaluates segment performance~~fiscal year 2023. As of September 30, 2022, the remaining value of leasehold improvements for these facilities is approximately $3 million and ~~allocates resources based upon profitable growth. We use segment profit~~a portion of this may be impaired, if the Company decides to ~~evaluate~~reduce or abandon the ~~performance of our reportable segments. Segment profit is calculated as gross profit, net of selling and marketing expenses,~~leased space. Separately, we may also incur additional charges for the ~~reporting segment. Our definition~~modification of ~~segment profit may not be comparable to similarly-titled measures reported by other companies.~~leases for these facilities.

~~Our segment structure presented below represents a change from geographic segments due to~~In connection with the ~~reorganization which took place in~~Restructuring Plan, we paid $5.9 million during the ~~year ended December 31, 2016. The amounts for the three and~~ nine months ended September 30, ~~2016~~2022, primarily consisting of severance and related benefits. Since the approval of the Restructuring Plan, we have ~~been restated~~paid $24.8 million, primarily consisting of severance and related benefits. Activity related to ~~reflect~~ the ~~change in reporting segments. Each of our segments employs consistent accounting policies.~~

~~The following tables present information about our reportable segments, including a reconciliation of total segment profit to Income (Loss) from Operations included in~~accrued restructuring charge and cash payments during the ~~condensed consolidated statements of operations for the three and~~ nine months ended September 30, ~~2017~~2022 and ~~2016:~~September 30, 2021 was as follows:


	Severance and other benefits		Professional fees and other related charges		Total
Balance at December 31, 2021	$	3,442	$	477	$	3,919
Additions charged to expense	1,439		1,072		2,511
Cash payments	(4,619)		(1,291)		(5,910)
Balance at September 30, 2022	$	262	$	258	$	520

Balance at December 31, 2020	$	1,481	$	867	$	2,348
Additions charged to expense	2,515		1,164		3,679
Cash payments	(2,784)		(1,750)		(4,534)
Balance at September 30, 2021	$	1,212	$	281	$	1,493

Substantially all of our planned activities under the Restructuring Plan are complete and as part of our final steps, we expect to potentially incur remaining pre-tax charges in the range of $1.5 million to $3.5 million through the first half of fiscal year 2023. We have reduced our total headcount by approximately 390 employees. The Company expects to make concluding cash payments of approximately $1.5 million in the remainder of fiscal year 2022, primarily consisting of remaining severance and related benefits.

Factory Metrology Construction BIM-CIM Other Total
Three Months Ended September 30, 2017

Total sales $ 59,339
$ 22,751
$ 8,160
$ 90,250
Segment profit $ 20,144
$ 5,407
$ 493
$ 26,044
General and administrative 10,307
Depreciation and amortization 4,368
Research and development 9,019
Income from operations $ 2,350

Table of Contents

Factory Metrology Construction BIM-CIM Other Total
Three Months Ended September 30, 2016

Total sales $ 58,310
$ 15,925
$ 5,365
$ 79,600
Segment profit $ 16,305
$ 4,704
$ 1,888
$ 22,897
General and administrative 10,747
Depreciation and amortization 3,381
Research and development 7,928
Income from operations $ 841

Factory Metrology Construction BIM-CIM Other Total
Nine Months Ended September 30, 2017

Total sales $ 173,531
$ 60,550
$ 20,413
$ 254,494
Segment profit $ 53,497
$ 13,799
$ 363
$ 67,659
General and administrative 32,883
Depreciation and amortization 12,075
Research and development 26,530
Loss from operations $ (3,829 )

Factory Metrology Construction BIM-CIM Other Total
Nine Months Ended September 30, 2016

Total sales $ 168,418
$ 47,529
$ 17,939
$ 233,886
Segment profit $ 53,034
$ 12,868
$ 6,982
$ 72,884
General and administrative 31,139
Depreciation and amortization 9,733
Research and development 22,344
Income from operations $ 9,668

NOTE 1612 – COMMITMENTS AND CONTINGENCIES

~~Leases~~ — We lease buildings and equipment in the normal course of business under non-cancellable operating and capital leases that expire in or before 2026. Total obligations under these leases are approximately $7.1 million for 2017.

Purchase Commitments — We enter into purchase commitments for products and services in the ordinary course of business. These purchases generally cover production requirements for 60 to 120 days as well as materials necessary to service customer units through the product lifecycle and for warranty commitments. As of September 30, ~~2017,~~2022, we had approximately ~~$44.6~~$46.2 million in purchase commitments that are expected to be delivered within the next 12 months. To ensure adequate component availability, ~~in preparation for new product introductions,~~ as of September 30, ~~2017,~~2022, we also had ~~$0.6~~$6.6 million in long-term commitments for purchases to be delivered after 12 months.

Legal Proceedings — We are not involved in any legal proceedings, ~~other than~~including routine litigation arising in the normal course of business, ~~none of which~~that we believe will have a material adverse effect on our business, financial condition or results of operations.

U.S. Government Contracting Matter — We have sold our products and related services to the U.S. Government (the “Government”) under General Services Administration (“GSA”) Federal Supply Schedule contracts (the “GSA Contracts”) since 2002 and are currently selling our products and related services to the Government under two such GSA Contracts. Each GSA Contract is subject to extensive legal and regulatory requirements and includes, among other provisions, a price reduction clause (the “Price Reduction Clause”), which generally requires us to reduce the prices billed to the Government under the GSA Contracts to correspond to the lowest prices billed to certain benchmark customers.

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 Government being overcharged under the Price Reduction Clauses of the GSA Contracts (the “GSA Matter”). As a result, we performed remediation efforts, including but not limited to, the identification of additional controls and procedures to ensure future compliance with the pricing and other requirements of the GSA Contracts. We also retained outside legal counsel and forensic accountants to assist with these efforts and to conduct a comprehensive review of our pricing and other practices under the GSA Contracts (the “Review”). On February 14, 2019, we reported the GSA Matter to the GSA and its Office of Inspector General.

Effective as of February 25, 2021, as a result of the review, we entered into a settlement agreement with the GSA. Pursuant to the settlement agreement, we agreed to, among other things, pay to the GSA $12.3 million 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. As of September 30, 2022, we no longer have any outstanding liability related to this matter.

Table of Contents

NOTE 13 – LEASES

We have operating and finance leases for manufacturing facilities, corporate offices, research and development facilities, sales and training facilities, vehicles, and certain equipment under which we assume the role of lessee. We do not lease assets as a lessor. Our leases have remaining lease terms of less than one year to approximately ten years, some of which include options to extend the leases for up to fifteen years, and some of which include options to terminate the leases within three months. We do not participate in any material subleasing.

We determine if an arrangement is a lease at inception. Operating leases are included in Operating lease right-of-use (“ROU”) asset, Lease liability, and Lease liability - less current portion in our condensed consolidated balance sheets. Finance leases are included in Property and equipment, net, Lease liability, and Lease liability - less current portion in our condensed consolidated balance sheets.

ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Operating lease ROU assets and lease liabilities are recognized on the commencement date of the lease based on the present value of lease payments over the lease term. Variable lease payments that depend on an index or rate include the variable portion when calculating ROU assets and lease liabilities. Variable lease payments that do not depend on an index or rate are expensed as incurred. As most of our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available on the commencement date of the lease to determine the present value of lease payments. We use the implicit rate when readily determinable. The operating lease ROU assets also include any lease payments made and lease incentives. Our lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option at the time the lease is commenced. Lease expense for lease payments is recognized on a straight-line basis over the lease term.

While we have lease agreements with lease and non-lease components, we account for the lease and non-lease components as a single lease component.

The components of lease expense were as follows:


	Three Months Ended September 30, 2022		Three Months Ended September 30, 2021		Nine Months Ended September 30, 2022		Nine Months Ended September 30, 2021
Operating lease cost	$	1,805	$	2,010	$	5,453	$	5,901

Finance lease cost:
Amortization of ROU assets	18		60		$	96	$	221
Interest on lease liabilities	4		5		$	15	$	14
Total finance lease cost	$	22	$	65	$	111	$	235

We recognize lease payments made for short-term leases where terms are 12 months or less as the payments are incurred. Our short-term lease costs for the three months ended September 30, 2022 and September 30, 2021 were both less than $0.1 million. Our short-term lease costs for the nine months ended September 30, 2022 and September 30, 2021 were both $0.1 million.

Table of Contents

Supplemental balance sheet information related to leases was as follows:


	As of			As of
	September 30, 2022			December 31, 2021
Operating leases:
Operating lease right-of-use assets	$	18,404		$	22,543

Current operating lease liabilities	$	5,363		$	5,601
Operating lease liabilities - less current portion	14,225			18,538
Total operating lease liabilities	$	19,588		$	24,139

Finance leases:
Property and equipment, at cost	$	1,415		$	1,380
Accumulated depreciation	(1,312)			(1,222)
Property and equipment, net	$	103		$	158

Current finance lease liabilities	$	169		$	137
Finance lease liabilities - less current portion	119			110
Total finance lease liabilities	$	288		$	247

Weighted Average Remaining Lease Term (in years):
Operating leases	5.01			5.69
Finance leases	1.97			2.12

Weighted Average Discount Rate:
Operating leases	5.67		%	5.67		%
Finance leases	5.35		%	5.02		%

Supplemental cash flow information related to leases was as follows:


	Nine Months Ended September 30, 2022		Nine Months Ended September 30, 2021
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	5,686	$	5,874
Operating cash flows from finance leases	$	15	$	14
Financing cash flows from finance leases	$	172	$	229

ROU assets obtained in exchange for lease obligations:
Operating leases	$	808	$	1,209

Table of Contents

Maturities of lease liabilities are as follows:


Year Ending December 31,	Operating leases		Finance leases
2022 (excluding the first 6 months)	$	1,673	$	49
2023	6,105		170
2024	4,826		61
2025	3,074		12
2026	2,075		8
Thereafter	4,984		2
Total lease payments	$	22,737	$	302
Less imputed interest	(3,149)		(14)
Total	$	19,588	$	288

NOTE 14 – INCOME TAXES

For the three months ended September 30, 2022, we recorded an income tax expense of $0.6 million compared with an income tax benefit of $1.7 million for the three months ended September 30, 2021. Our effective tax rate was 10.3% for the three months ended September 30, 2022 compared with 30.1% in the prior year period. The tax rate for 2022 reflects a tax expense on a pre-tax loss and the tax rate for 2021 reflects a tax benefit on a pre-tax loss. The change in our income tax expense and our effective tax rate were primarily due to the impact of the capitalization of research and development (“R&D”) expenditures for income tax purposes. The Tax Cuts and Jobs Act (the “Act”) requires the capitalization and amortization of R&D costs incurred after December 31, 2021. We have considered the effects of the Act on the forecasted domestic cash tax payments for the year ending December 31, 2022. Our entity in the United States remains in a full valuation allowance position, hence we were not able to recognize the tax benefits associated with the capitalization of these R&D expenditures.

Our quarterly estimate of our annual effective tax rate, and our quarterly provision for income tax (benefit) expense, are subject to significant variation due to numerous factors, including variability in accurately predicting our pretax and taxable income or loss and the mix of jurisdictions to which they relate, as well as the amount of pretax income or loss recognized during the quarter.

NOTE ~~17 –~~15 - BUSINESS COMBINATIONS

~~In April 2017,~~On September 1, 2022, we completed the acquisition of ~~substantially~~UK-based GeoSLAM, a leading provider of mobile scanning solutions with proprietary high-productivity simultaneous localization and mapping (SLAM) software. We believe this acquisition enables the Company to provide mobile scanning solutions using SLAM software to create 3D models for use in Digital Twin applications. We believe these newly acquired capture technologies integrate into our 4D digital reality-based SaaS offering that will allow customers to access multiple 4D data sources for visualization and analysis through a single user experience. We acquired all voting equity interests of GeoSLAM held by the assets of Instrument Associates, LLC d/b/a Nutfield Technology (“Nutfield”), a component technology business located in Hudson, New Hampshire, which specializes in the design and manufacture of advanced galvanometer-based optical scanners, scan heads and laser kits, for a total purchase price of approximately $5.5 million. This acquisition supports our long-term strategy to expand our presence in key markets and

~~improve our existing product lines with innovative technology.~~previous owners. The results of ~~the acquired business’~~GeoSLAM’s operations as of and after the date of acquisition have been included in our condensed consolidated financial statements as of and for the ~~three and nine months~~period ended September 30, ~~2017.~~

~~In December 2016, we acquired MWF-technology, GmbH (“MWF”) for a~~2022. The total purchase price included $29 million of cash paid, net of cash acquired and a non-cash payment of ~~approximately $6.6~~495,562 shares of FARO stock valued at $15.9 million ~~paid with cash on hand. MWF, an innovator in mobile augmented reality solutions located near Frankfurt, Germany, provides technology~~ that ~~enables large, complex 3D CAD data~~is subject to be transferred to a tablet device for use in mobile visualization and comparison to real world conditions. This enables real time, actionable manufacturing insight for in-process inspection, assembly, guidance and positioning.

~~In August 2016, we acquired Laser Projection Technologies, Inc. (“LPT”)~~customary lock-up provisions for a total purchase price ~~net~~ of cash acquired, of approximately $17.2 million, paid with cash on hand. LPT, located in Londonderry, New Hampshire, specializes in laser projection and measurement systems used throughout manufacturing environments around the globe to maximize productivity and efficiency. $44.9 million.

The acquisition ~~enhances our portfolio~~ of ~~3D measurement solutions and supports our long-term strategy to expand our presence in key markets.~~

~~In July 2016, we acquired BuildIT Software & Solutions Ltd. (“BuildIT”) for~~GeoSLAM constitutes a ~~purchase price, net of cash acquired, of approximately $3.9 million, paid with cash on hand. BuildIT, a software solutions~~ business located in Montreal, Canada, specializes in process-configurable 3D metrology software solutions with hardware agnostic interfaces. The addition of BuildIT enhances our metrology portfolio, providing customers greater software options to use in a variety of applications to reduce inspection and assembly times and increase productivity.

~~The acquisitions of Nutfield, MWF, LPT, and BuildIT constitute business combinations~~combination as defined by ~~FASB~~ ASC Topic 805, Business Combinations. Accordingly, the assets acquired and liabilities assumed were recorded at their fair values on the date of acquisition. The purchase price allocations below represent our preliminary determination of the fair value of the assets acquired and liabilities assumed for the acquisitions.

Table of Contents

Following is a preliminary summary of our ~~final~~ allocations of the purchase price to the fair values of the assets acquired and liabilities assumed as of the date of ~~each~~the acquisition:


	Fair Value (Preliminary)
Tangible assets acquired:
Accounts receivable	2,452
Inventory	6,576
Property, plant and equipment, net	270
Other assets	505
Total assets acquired	9,803

Liabilities assumed:
Accounts payable and accrued liabilities	(2,187)
Deferred revenue	(1,282)
Other current liabilities	(289)
Total liabilities assumed	(3,758)

Intangible assets	18,610
Net assets acquired	24,655

Deferred income tax liability	4,472
Goodwill	24,763
Purchase price paid, net of cash acquired	$	44,946

BuildIT LPT MWF Nutfield
Accounts receivable $ 237
$ 54
$ 150
$ 160
Inventory —
322
—
539
Other assets 36
160
666
96
Deferred income tax assets —
1,112
—
—
Intangible assets 1,015
5,474
1,816
2,329
Goodwill (1) 3,393
11,922
5,364
2,488
Accounts payable and accrued liabilities (95 ) (747 ) (700 ) (12 )
Other liabilities (471 ) (1,086 ) (345 ) (104 )
Deferred income tax liabilities (205 ) —
(364 ) —
Total purchase price, net of cash acquired $ 3,910
$ 17,211
$ 6,587
$ 5,496

⁽¹⁾The goodwill arising from the ~~acquisitions~~acquisition consists largely of the expected synergies from combining operations as well as the value of the workforce. This goodwill is not ~~expected to be~~ tax deductible.

~~Following are the details of the purchase price allocated to the intangible assets acquired for the acquisitions noted above:~~

BuildIT LPT MWF Nutfield
Amount Weighted Average Life (Years) Amount Weighted Average Life (Years) Amount Weighted Average Life (Years) Amount Weighted Average Life (Years)
Trade name $ 346
7 $ 64
1 $ 36
1 $ 29
1
Non-competition agreement 31
5 —
0 3
2 144
5
Technology 361
7 4,260
7 951
5 1,970
10
Customer relationship 277
7 1,150
7 826
5 95
10
Favorable in-place lease —
0 —
0 —
0 91
12
Fair value of intangible assets acquired $ 1,015
7 $ 5,474
7 $ 1,816
5 $ 2,329
10

The goodwill for the Nutfield acquisition has been allocated to the Factory Metrology reporting segment. The goodwill for the BuildIT, LPT and MWF acquisitions was allocated in connection with our organizational structure realignment during 2016 using the relative fair value approach.

Acquisition and integration costs are not included as components of consideration transferred, but are recorded as expense in the period in which such costs are incurred. ~~To date,~~As of September 30, 2022, we have incurred ~~approximately $0.9~~$2.4 million inof acquisition ~~and~~or integration costs for the ~~BuildIT, LPT, MWF and Nutfield acquisitions.~~

GeoSLAM acquisition. Accounts receivable acquired represent a gross contractual amount of $2.6 million of which we expect to collect $2.5 million. We believe that the fair value of these receivables approximates the net book value given their short term nature. Pro forma financial results for ~~BuildIT, LPT, MWF and Nutfield~~GeoSLAM have not been presented because the effects of these transactions, individually and in the aggregate, were not material to our condensed consolidated ~~results~~financial results.

Following are the details of ~~operations.~~the preliminary purchase price allocated to the intangible assets acquired for the GeoSLAM acquisition:


	Amount		Weighted Average Life (Years)
Brand	$	466	3
Technology	3,828		5
Customer relationships	14,316		15
Fair value of intangible assets acquired	$	18,610	13

Table of Contents

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following information should be read in conjunction with the ~~Condensed Consolidated Financial Statements,~~condensed consolidated financial statements, including the notes thereto, included elsewhere in this Quarterly Report on Form 10-Q and Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the year ended December 31, ~~2016.~~2021.

Amounts reported in millions within this Quarterly Report on Form 10-Q are computed based on the amounts in thousands. As a result, the sum of the components reported in millions may not equal the total amount reported in millions due to rounding. Certain columns and rows within the tables that follow may not add due to the use of rounded numbers. Percentages presented are calculated based on the respective amounts in thousands.

FARO Technologies, Inc. (“FARO,” the “Company,” “us,” “we” or “our”) has made “forward-looking statements” in this report ~~(within~~within the meaning of the Private Securities Litigation Reform Act of ~~1995).~~1995. Statements that are not historical facts or that describe our plans, beliefs, goals, intentions, objectives, projections, expectations, assumptions, strategies, or future events are forward-looking statements. In addition, words such as “may,” “might,” “would,” “will,” “will be,” “future,” “strategy,” “believe,” “plan,” “should,” “could,” “seek,” “expect,” “anticipate,” “intend,” “estimate,” “goal,” “objective,” “project,” “forecast,” “target” and similar words identify forward-looking statements.

Forward-looking statements are not guarantees of future performance and are subject to a number of known and unknown risks, uncertainties, assumptions, and other factors that could cause actual results to differ materially from those expressed or implied by such forward-looking statements. Consequently, undue reliance should not be placed on these forward-looking statements. These forward-looking statements speak only as of the date of this Quarterly Report on Form 10-Q. We do not intend to update any forward-looking statements, whether as a result of new information, future events, or otherwise, unless otherwise required by law. Important factors that could cause actual results to differ materially from those contemplated in such forward-looking statements include, among others, the following:

•an economic downturn or other adverse changes in the ~~manufacturing industry~~industries that we serve or the domestic and international economies in the regions of the world where we ~~operate;~~operate and other general economic, business, and financial conditions;

•the effect of the ongoing COVID-19 pandemic, including on our business operations, as well as its impact on general economic and financial market conditions;

•the effect of shipping disruptions caused by COVID-19-related lockdowns and its impact on our ability to deliver our products to customers;

•our inability to realize the intended benefits of reorganizing our business functions to improve the efficiency of our sales organization and to improve operational effectiveness;

•our inability to realize the intended benefits of our undertaking to transition to a subscription-based business model to deliver new and existing software offerings on a cloud-computing-based platform, including but not limited to impairment charges of capitalized expenditures related to the development of Sphere, our cloud-computing-based platform, and our inability to realize the expected benefits;

•our inability to successfully execute our strategic plan and Restructuring Plan, including but not limited to additional impairment charges including existing leasehold improvements and/or higher than expected severance costs and exit costs, and our inability to realize the expected benefits of such plans;

•our inability to realize the anticipated benefits of our partnership with Sanmina and to successfully transition our manufacturing operations to Sanmina’s production facility;

•our inability to reasonably source essential equipment and materials to manufacture our products as a result of global supply shortages;

•the effect of inflationary pressures and its impact on our business operations;

•our inability to successfully realize changes to the pricing of our products and services;

•our inability to achieve and maintain profitability to fully realize the economic benefit of recorded deferred tax assets;

•our inability to further penetrate our customer base and target markets;

•development by others of new or improved products, processes or technologies that make our products less competitive or obsolete;

•our inability to maintain what we believe to be our technological advantage by developing new products and enhancing our existing products;

Table of Contents

•risks associated with expanding international operations, such as ~~fluctuations in currency exchange rates,~~ difficulties in staffing and managing foreign operations, increased political and economic instability, compliance with potentially evolving import and export regulations, and the burdens and potential exposure of complying with a wide variety of U.S. and foreign laws and labor practices;

•changes in trade regulation, which result in rising prices of imported steel, steel byproducts, aluminum and aluminum byproducts and various other raw materials that we use in the production of measurement devices, and our ability to pass those costs on to our customers or require our suppliers to absorb such costs;

•changes in foreign regulation which may result in rising prices of our measurement devices sold as exports to our international customers, our customers’ willingness to absorb incremental import tariffs, and the corresponding impact on our profitability;

•our inability to successfully identify and acquire target companies and achieve expected benefits from, and effectively integrate acquisitions that are consummated;

•our inability to realize the intended benefits of the technology, products, operations, contracts, and personnel of our acquisitions;

•the cyclical nature of the industries of our customers and material adverse changes in our customers’ access to liquidity and capital;

~~change~~•changes in the potential for the computer-aided measurement ~~(“CAM2”)~~ market and the potential adoption rate for our products, which are difficult to quantify and predict;

•our inability to protect our patents and other proprietary rights in the United States and foreign countries;

•our inability to defend against a cyberattack, security or other data breach of our systems may compromise the confidentiality, integrity, or availability of our internal data and the availability of our products and websites designed to support our customers or their data;

•our inability to adequately ~~establish and~~ maintain effective internal controls over financial reporting;

•fluctuations in our annual and quarterly operating results and the inability to achieve our financial operating targets as a result of a number of factors including, without limitation (i) litigation and regulatory action brought against us, (ii) quality issues with our products, (iii) excess or obsolete inventory, shrinkage or other inventory losses due to product obsolescence, change in demand for our products, scrap or material price changes, (iv) raw material price fluctuations and other inflationary pressures, (v) expansion of our manufacturing capability, (vi) the size and timing of customer orders, (vii) the amount of time that it takes to fulfill orders and ship our products, (viii) the length of our sales cycle to new customers and the time and expense incurred in further penetrating our existing customer base, (ix) ~~increases in operating expenses required for product development and~~manufacturing inefficiencies associated with new product ~~marketing,~~introductions, (x) costs associated with new product introductions, such as product development, marketing, assembly line start-up costs and low introductory period production volumes, (xi) the timing and market acceptance of new products and product enhancements, (xii) customer order deferrals in anticipation of new products and product enhancements, (xiii) the inability of our sales and marketing programs to achieve their sales targets, (xiv) start-up costs associated with opening new sales offices outside of the United States, (xv) fluctuations in revenue without proportionate adjustments in fixed costs, (xvi) inefficiencies in the management of our inventories and fixed assets, (xvii) compliance with government regulations including health, safety, and environmental matters, and (xviii) ~~investment~~ costs associated with the training and ramp-up time for new sales ~~people, and (xix) manufacturing inefficiencies associated with new product introductions;~~people;

~~our ability to achieve profitability;~~

•changes in gross margins due to a changing mix of products sold and the different gross margins on different products and sales channels;

•changes in applicable laws, rules or regulations, or their interpretation or enforcement, or the enactment of new laws, rules or regulations that apply to our business operations or require us to incur significant expenses for compliance;

•our inability to successfully comply with the requirements of the Restriction of Hazardous Substances Directive and the Waste Electrical and Electronic Equipment Directive in the European Union;

•the inability of our products to displace traditional measurement devices and attain broad market acceptance;

•the impact of competitive products and pricing on our current offerings;

•the loss of any of our ~~Chief Executive Officer~~executive officers or other key ~~personnel;~~personnel which may include an inability to competitively address inflationary pressures on employee compensation and flexibility in employee work arrangements;

•difficulties in recruiting research and development engineers, ~~and~~ application ~~engineers;~~engineers, or other key personnel;

Table of Contents

•the failure to effectively manage the effects of ~~our~~any future growth;

•the impact of reductions or projected reductions in government spending, or uncertainty regarding future levels of government expenditures, particularly in the defense sector;

•variations in ~~the~~our effective income tax rate, ~~and the difficulty in predicting the~~which makes it difficult to predict our effective income tax rate on a quarterly and annual ~~basis;~~basis, and the impact of the U.S. Tax Cuts and Jobs Act of 2017 on the global intangible low-taxed income of foreign subsidiaries;

•the loss of key suppliers and the inability to find sufficient alternative suppliers in a reasonable period of time or on commercially reasonable terms;

•the impact of fluctuations in exchange ~~rates;~~rates on non-U.S. dollar-denominated revenues and expenses which could materially effect our reported financial results;

•the effect of estimates and assumptions with respect to critical accounting policies and the impact of the adoption of recently issued accounting pronouncements;

•the ~~impact~~effect of changes in ~~technologies~~political conditions in the U.S. and other countries in which we operate, including the effect of changes in U.S. trade policies or the United Kingdom’s withdrawal from the European Union, on ~~the competitiveness of our products or their components;~~general market conditions, global trade policies and currency exchange rates;

~~the impact of new product introductions;~~

•the magnitude of increased warranty costs from new product introductions and enhancements to existing products;

•the sufficiency of our plants and third-party resources to meet manufacturing requirements;

•the continuation of our share repurchase program;

•the sufficiency of our working capital and cash flow from operations to fund our short- and long-term liquidity requirements;

•the impact of geographic changes in the manufacturing or sales of our products on our effective income tax rate;

•our ability to comply with the requirements for favorable tax rates in foreign ~~jurisdictions;~~jurisdictions

•our ability to effectively integrate the operations from Holobuilder, Inc. and UK-based GeoSLAM, including the intellectual property acquired; and

•other risks and uncertainties discussed in Part I, Item 1A. Risk Factors in our Annual Report on Form 10-K for the year ended December 31, ~~2016, and~~2021, elsewhere in ~~Part II, Item 1A. Risk Factors in the~~this Quarterly ~~Reports~~Report on Form 10-Q, ~~for the quarterly periods ended March 31, 2017~~ and ~~June 30, 2017.~~in other SEC filings.

Moreover, new risks and uncertainties emerge from time to time, and we undertake no obligation to update publicly or review the risks and uncertainties included in this Quarterly Report on Form 10-Q, unless otherwise required by law.

Overview

We are a global technology company that designs, develops, manufactures, markets and supports software driven, three-dimensional (“3D”) measurement, imaging, and realization ~~systems. This~~solutions for the 3D metrology, architecture, engineering and construction (“AEC”), Operations and Maintenance (“O&M”) and public safety analytics markets. We enable our customers to capture, measure, manipulate, interact with and share 3D and 2D data from the physical world in a virtual environment and then translate this information back into the physical domain. Our broad technology ~~permits high-precision~~set equips our customers with a wide range of 3D ~~measurement, imaging~~capture technologies that range from ultra-high accuracy laser-scanner-based technology to lower accuracy, photogrammetry-based technology. Our FARO suite of 3D products and ~~comparison of parts and complex structures within production and quality assurance processes. Our devices~~software solutions are used for inspection of components and assemblies, rapid prototyping, reverse engineering, documenting large volume or structures in 3D, surveying and construction, construction management, assembly layout, machine guidance as well as ~~for~~in investigation and ~~reconstruction~~reconstructions of ~~accident sites or~~crash and crime scenes. We sell the majority of our ~~products~~solutions through a direct sales force, with an increasing volume being sold through an indirect channel across ~~a broad number of customers in~~ a range of ~~manufacturing, industrial,~~industries including automotive, aerospace, metal and machine fabrication, surveying, architecture, ~~surveying, building information modeling,~~engineering and construction, public safety forensics ~~cultural heritage~~ and other ~~applications. Our FaroArm~~^®~~, FARO Laser ScanArm~~^®~~, FARO Gage~~^®~~, FARO Laser Tracker~~^TM~~, FARO Laser Projector, FARO Cobalt Array Imager, and their companion CAM2~~^® and BuildIT software solutions, provide for Computer-Aided Design (“CAD”) based inspection, factory-level statistical process control, high-density surveying and laser-guided assembly and production. Together, these products integrate the measurement, quality inspection, and reverse engineering functions with CAD and 3D software to improve productivity, enhance product quality, and decrease rework and scrap in the manufacturing process, mainly supporting applications in our Factory Metrology vertical. Our FARO Focus and FARO Scanner Freestyle^3DX laser scanners, and their companion SCENE, FARO PointSense, and FARO public safety forensics software offerings, are utilized for a wide variety of 3D modeling, documentation and high-density surveying applications in our Construction Building Information Modeling - Construction Information Management (“Construction BIM-CIM”) and Public

~~Safety Forensics verticals. Our FARO Laser ScanArm~~^®~~, FARO Cobalt Array Imager, FARO Scanner Freestyle~~^3DX laser scanners and their companion SCENE software also enable a fully digital workflow used to capture real world geometry for the purpose of empowering design, enabling innovation, and speeding up the design cycle, supporting our Product Design vertical. FARO Visual Inspect enables large, complex 3D CAD data to be transferred to a tablet device and then used for mobile visualization and comparison to real world conditions, facilitating in-process inspection, assembly, guidance and positioning for applications in our Factory Metrology and Construction BIM-CIM verticals. Our line of galvanometer-based scan heads and laser scan controllers are used in a variety of laser applications and are integrated into larger components and systems.industries.

We derive our revenues primarily from the sale of our measurement equipment and related multi-faceted software programs. Revenue related to these products is generally recognized upon shipment. In addition, we sell extended warranties and training and technology consulting services relating to our products. We recognize the revenue from ~~extended warranties~~hardware service contracts and software maintenance contracts on a straight-line basis over the contractual term, ~~of the warranty,~~ and revenue from training and technology consulting services when the services are provided.

We operate in international markets throughout the world and maintain sales offices in Australia, Brazil, Canada, China, France, Germany, India, Italy, Japan, Malaysia, Mexico, the Netherlands, Poland, Portugal, Singapore, South Korea, Spain, Switzerland, Thailand, Turkey, the United Kingdom, and the United ~~States and Vietnam.~~States.

~~We manufacture~~

Table of Contents

Prior to the end of the second quarter of 2022, we manufactured our ~~FaroArm~~^®, FARO ~~Laser ScanArm~~^®~~, FARO Gage, and FARO Laser Tracker~~^TMQuantum Max Arm products in our manufacturing facility located in ~~Switzerland~~Florida for customer orders from North America and South America (the “Americas”) and Europe, the Middle East and Africa (“EMEA”), and in our manufacturing facility located in Singapore for customer orders from the Asia-Pacific region ~~and in our manufacturing facilities located in Florida and Pennsylvania for customer orders from the Americas.~~(“APAC”). We ~~manufacture~~manufactured our FARO Focus^3D laser scanner in our manufacturing facilities located in Germany ~~and Switzerland~~ for customer orders from ~~Europe, the Middle East, Africa~~EMEA and ~~the Asia-Pacific region,~~APAC, and in our manufacturing facility located in Pennsylvania for customer orders from the Americas. We ~~manufacture~~manufactured our FARO ~~Freestyle~~^3DXLaser Tracker and our FARO Laser Projector products in our ~~facility located in Germany. We manufacture our FARO Laser Projection products in our~~manufacturing facility located in Pennsylvania.

Under the manufacturing services agreement dated July 15, 2021 and in connection with the Restructuring Plan described below, Sanmina now provides manufacturing services for our measurement device products previously manufactured by us at the aforementioned manufacturing facilities. The phased transition to a Sanmina production facility was completed at the beginning of the third quarter of 2022 as part of our cost reduction initiative. The facilities which previously housed our manufacturing function are currently under evaluation for a reduction in occupancy. All of these facilities are mixed-use spaces with our service, research and development, or sales teams, and are in use for those functions. We expect ~~all of~~ our ~~existing plants~~third party manufacturing facilities to have the production capacity necessary to support our volume requirements ~~through~~for the remainder of ~~2017.~~2022.

We account for ~~wholly owned~~wholly-owned foreign subsidiaries in the currency of the respective foreign jurisdiction; therefore, fluctuations in exchange rates may have an impact on the value of the intercompany account balances denominated in different currencies and reflected in our ~~condensed~~ consolidated financial statements. We are aware of the availability of off-balance sheet financial instruments to hedge exposure to foreign currency exchange rates, including cross-currency swaps, forward contracts and foreign currency options. ~~However, we have not used~~No such instruments ~~in the past, and none~~ were utilized by the Company in ~~2016~~2021 or the nine months ended September 30, ~~2017.~~

~~Over~~2022. We have not used hedging instruments in the past ~~decade, we have achieved profitability~~as fluctuations in exchange rate on ~~an annual basis, with the exception of~~our revenue were mostly offset by those same fluctuations in exchange rate on our expenses, providing a ~~loss~~natural hedge in ~~2009 that resulted primarily from the decline of the global economy that year. Historically, our sales have grown~~foreign jurisdictions. Our exchange rate exposure may change as a result of ~~continuing market demand~~our current or future operational strategies and we will continue assessing the appropriateness of hedging for our business.

Restructuring Plan

In the first quarter of 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 ~~acceptance~~ensure that we are appropriately structured and resourced to deliver increased and sustainable value to our shareholders and customers. Key activities under the Restructuring Plan include a continued focus on efficiency and cost-saving efforts, which included a planned decrease of total headcount upon the completion of the Restructuring Plan.

On July 15, 2021, we entered into a manufacturing services agreement (the “Agreement”) with Sanmina Corporation (Nasdaq: SANM) (“Sanmina”), in connection with the Restructuring Plan. Under the Agreement, Sanmina will provide manufacturing services for the Company’s measurement device products previously manufactured by the Company at the Company’s Lake Mary, Florida, Exton, Pennsylvania, and Stuttgart, Germany manufacturing sites. This phased transition to a Sanmina production facility was completed at the beginning of the third quarter of 2022 as part of our ~~products, increased~~cost reduction initiative. We are currently evaluating these manufacturing sites with the intention to reduce our leased floor space. However, all of these facilities are mixed-use spaces shared with our service, research and development, or sales ~~activity~~teams who continue to use these spaces. The Company, in ~~part through~~collaboration with third party lessors and architectural resources, intends to conduct studies over the feasibility of abandoning or demising leased floor space against our current needs. Our current needs continue to include access to existing spaces previously constructed to closely monitor temperature and vibration for our service and research and development teams. The conclusion of this evaluation and any subsequent approval to abandon or reduce these leased spaces would be considered as a change in the manner of the use of these corresponding assets, and thereby will be evaluated for impairment. We expect to complete this evaluation before the first half of fiscal year 2023. As of September 30, 2022, the remaining value of leasehold improvements for these facilities is approximately $3 million and a portion of this may be impaired, if the Company decides to reduce or abandon the leased space. Separately, we may also incur additional ~~sales staff worldwide, new product launches or enhancements, and acquisitions. Our historical financial performance is not indicative~~charges for the modification of leases for these facilities.

Table of Contents

Substantially all of our ~~future financial performance.~~planned activities under the Restructuring Plan are complete and as part of our final steps, we expect to potentially incur remaining pre-tax charges in the range of $1.5 million to $3.5 million through the first half of fiscal year 2023. We have reduced our total headcount by approximately 390 employees. The Company expects to make concluding cash payments of approximately $1.5 million in the remainder of fiscal year 2022, primarily consisting of remaining severance and related benefits.

~~We began undertaking several important strategic initiatives~~Faro Sphere and the Unified Software Environment

FARO Sphere is our new cloud-based platform that is the foundation to our new software and solution strategy. Our objective is to provide differentiated value by offering workflow enhancements which include data uploads from any location, access to our existing suite of 3D software applications, cloud-based data analysis and global user access as well as ultimately, the ability for our customers to purchase, renew or manage all of their FARO software and hardware assets. FARO Sphere represents the first step in ~~2016~~the expansion of our cloud-based software offerings that we believe will ~~drive~~deliver greater value to our ~~long-term growth and profitability, including:~~

~~reorganizing our business to align our sales, marketing, product management and research and development around specific vertical markets~~customers and to ~~better define~~ our ~~end market applications;~~

~~modernizing our sales process~~shareholders. The FARO Sphere platform can be adopted globally across a wide range of markets, including construction management, facilities, operations and maintenance, robotic simulation and incident preplanning. If FARO Sphere is adopted widely, we would expect this to ~~improve~~lead to an increase in the ~~efficiency~~number of users and thus enable revenue growth of our ~~sales organization by supplementing~~software and a shift toward increased levels of recurring revenue over time. We launched FARO Sphere to the market on April 12, 2022.

Revenue from our current ~~direct sales approach of conducting on-site demonstrations with multimedia, web-based demonstrations~~software products was $10.6 million and ~~cloud-based customer relations development;~~

~~accelerating and maintaining a consistent schedule of new product introductions; and~~

~~reorganizing all functions, processes and people to a harmonized global mindset from our historically regional business structure to improve operational efficiencies.~~

~~We successfully completed these primary initiatives during the first half of 2017, including the reorganization of our business to align around specific vertical markets.~~

As a result of the reorganization discussed above, we realigned our business into three segments: Factory Metrology, Construction BIM-CIM and Other, as further discussed in Note 1 – Description of Business in Part I, Item 1 of this Quarterly Report on Form 10-Q. The presentation throughout this Quarterly Report on Form 10-Q$11.0 million for the three months ended September 30, 2022 and September 30, 2021, respectively, and $31.4 million and $31.4 million for the nine months ended September 30, ~~2016 has been restated~~2022 and September 30, 2021, respectively. Our recurring revenue which is comprised of hardware service contracts, software maintenance contracts, and subscription-based software applications was $16.6 million and $16.3 million for the three months ended September 30, 2022 and September 30, 2021, respectively, and $50.2 million and $47.6 million for the nine months ended September 30, 2022 and September 30, 2021, respectively.

Research and development costs incurred relating to ~~reflect~~ the ~~change~~development of internal-use software and website development, including software used to upgrade and enhance our websites and applications to be sold as a service are capitalized in ~~reporting segments.~~the period incurred and amortized over 1 year to 5 years. These costs include external direct costs of materials and services and internal costs such as payroll and benefits of those employees directly associated with the development of new functionality in internal use software to be sold as a service. The amount of costs capitalized relating to internally developed computer software to be sold as a service was $1.3 million and $1.1 million for the three months ended September 30, 2022 and September 30, 2021, respectively, and $4.5 million and $2.1 million for the nine months ended September 30, 2022 and September 30, 2021, respectively. Cash paid relating to these development costs are included as an investing activity within the Cash paid for technology development, patents and licenses line of our condensed consolidated statement of cash flows.

Acquisitions

~~Amounts reported in millions within this Quarterly Report on Form 10-Q are computed based on the amounts in thousands. As a result, the sum~~On June 4, 2021, we acquired all of the ~~components reported~~outstanding shares of Holobuilder, Inc. (“Holobuilder”), a company focused on 3D photogrammetry-based technology for a purchase price of $33.8 million, net of cash acquired. This acquisition enables us to provide reality-capture photo documentation and added remote access capability for industries such as construction management further expanding our Digital Twin solution portfolio. The results of Holobuilder’s operations as of and after the date of acquisition have been included in ~~millions may not equal~~our condensed consolidated financial statements as of and for the period ended September 30, 2022.

On September 1, 2022, we completed the acquisition of UK-based GeoSLAM, a leading provider of mobile scanning solutions with proprietary high-productivity simultaneous localization and mapping (SLAM) software for a purchase price of $29 million cash paid, net of cash acquired and a non-cash payment of 495,562 shares of FARO stock valued at $15.9 million that is subject to customary lock-up provisions for a total ~~amount reported~~purchase price of $44.9 million. We believe this acquisition enables the Company to provide mobile scanning solutions using SLAM software to create 3D models for use in ~~millions due~~Digital Twin applications. We believe these newly acquired capture technologies integrate into our 4D digital reality-based SaaS offering that will allow customers to ~~rounding. Certain columns~~access multiple 4D data sources for visualization and ~~rows within~~analysis through a single user experience. The results of GeoSLAM’s operations as of and after the ~~tables that follow may not add due to~~date of acquisition have been included in our condensed consolidated financial statements as of and for the ~~use~~period ended September 30, 2022.

Table of ~~rounded numbers. Percentages presented are calculated based on the respective amounts in thousands.~~Contents

Results of Operations

The following table sets forth, for the periods indicated, our unaudited results of operations expressed as dollar amounts and as a percentage of total sales.


	Three months ended September 30,								Nine months ended September 30,
(dollars in thousands)	2022		% of Sales		2021		% of Sales		2022		% of Sales		2021		% of Sales
Sales
Product	$	65,581	76.9	%	$	57,838	73.1	%	$	182,015	75.2	%	$	172,748	72.7	%
Service	19,751		23.1	%	21,331		26.9	%	59,891		24.8	%	64,862		27.3	%
Total sales	85,332		100.0	%	79,169		100.0	%	241,906		100.0	%	237,610		100.0	%
Cost of sales
Product	30,375		35.6	%	25,650		32.4	%	82,879		34.3	%	75,909		31.9	%
Service	11,692		13.7	%	11,188		14.1	%	34,299		14.2	%	33,481		14.1	%
Total cost of sales	42,067		49.3	%	36,838		46.5	%	117,178		48.4	%	109,390		46.0	%
Gross profit	43,265		50.7	%	42,331		53.5	%	124,728		51.6	%	128,220		54.0	%
Operating expenses
Selling, general and administrative	37,226		43.6	%	33,433		42.2	%	108,734		44.9	%	100,375		42.2	%
Research and development	12,586		14.7	%	12,731		16.1	%	36,756		15.2	%	36,464		15.3	%
Restructuring costs	580		0.7	%	1,376		1.7	%	2,512		1.0	%	3,679		1.5	%
Total operating expenses	50,392		59.1	%	47,540		60.0	%	148,002		61.2	%	140,518		59.1	%
Loss from operations	(7,127)		(8.4)	%	(5,209)		(6.6)	%	(23,274)		(9.6)	%	(12,298)		(5.2)	%
Other (income) expense
Interest (income) expense, net	(24)		—	%	5		—	%	(28)		—	%	54		—	%
Other (income) expense, net	(1,428)		(1.7)	%	299		0.4	%	(3,077)		(1.3)	%	(433)		(0.2)	%
Loss before income tax benefit	(5,675)		(6.7)	%	(5,513)		(7.0)	%	(20,169)		(8.3)	%	(11,919)		(5.0)	%
Income tax expense (benefit)	586		0.7	%	(1,658)		(2.1)	%	4,352		1.8	%	(3,667)		(1.5)	%
Net loss	$	(6,261)	(7.3)	%	$	(3,855)	(4.9)	%	$	(24,521)	(10.1)	%	$	(8,252)	(3.5)	%

Three months ended September 30, Nine months ended September 30,
(dollars in thousands) 2017 % of Sales 2016 % of Sales 2017 % of Sales 2016 % of Sales
Sales
Product $ 68,563
76.0 % $ 61,280
77.0 % $ 193,476
76.0 % $ 182,232
77.9 %
Service 21,687
24.0 % 18,320
23.0 % 61,018
24.0 % 51,654
22.1 %
Total sales 90,250
100.0 % 79,600
100.0 % 254,494
100.0 % 233,886
100.0 %
Cost of Sales
Product 26,673
29.6 % 25,880
32.5 % 78,186
30.7 % 74,938
32.0 %
Service 11,543
12.8 % 11,042
13.9 % 33,765
13.3 % 29,665
12.7 %
Total cost of sales 38,216
42.3 % 36,922
46.4 % 111,951
44.0 % 104,603
44.7 %
Gross Profit 52,034
57.7 % 42,678
53.6 % 142,543
56.0 % 129,283
55.3 %
Operating Expenses:
Selling and marketing 25,990
28.8 % 19,781
24.9 % 74,884
29.4 % 56,399
24.1 %
General and administrative 10,307
11.4 % 10,747
13.5 % 32,883
12.9 % 31,139
13.3 %
Depreciation and amortization 4,368
4.8 % 3,381
4.2 % 12,075
4.7 % 9,733
4.2 %
Research and development 9,019
10.0 % 7,928
10.0 % 26,530
10.4 % 22,344
9.6 %
Total operating expenses 49,684
55.1 % 41,837
52.6 % 146,372
57.5 % 119,615
51.1 %
Income (loss) from operations 2,350
2.6 % 841
1.1 % (3,829 ) (1.5 )% 9,668
4.1 %
Other (income) expense
Interest income, net (78 ) (0.1 )% (21 ) — % (249 ) (0.1 )% (119 ) (0.1 )%
Other (income) expense, net (147 ) (0.2 )% (167 ) (0.2 )% 320
0.1 % 824
0.4 %
Income (loss) before income tax expense (benefit) 2,575
2.9 % 1,029
1.3 % (3,900 ) (1.5 )% 8,963
3.8 %
Income tax expense (benefit) 947
1.0 % (61 ) (0.1 )% (442 ) (0.2 )% 1,401
0.6 %
Net income (loss) $ 1,628
1.8 % $ 1,090
1.4 % $ (3,458 ) (1.4 )% $ 7,562
3.2 %

Consolidated Results

Three Months Ended September 30, ~~2017~~2022 Compared to the Three Months Ended September 30, ~~2016~~2021

Sales. Total sales increased ~~$10.7~~by $6.1 million, or ~~13.4%~~7.8%, to ~~$90.3~~$85.3 million for the three months ended September 30, ~~2017~~2022 from ~~$79.6~~$79.2 million for the three months ended September 30, ~~2016.~~2021, after the impact of foreign exchange rates. Foreign exchange rates had a negative impact on total sales of $6.9 million, or 8.4%, primarily due to the weakening of the Euro and the Japanese Yen relative to the U.S. dollar in the current period as compared to the foreign exchange rates applicable in the prior period. Total product sales increased by ~~$7.3~~$7.8 million, or ~~11.9%~~13.4%, to ~~$68.6~~$65.6 million for the three months ended September 30, ~~2017~~2022 from ~~$61.3~~$57.8 million for the three months ended September 30, ~~2016. Our~~2021. Total product sales increased ~~primarily~~ due to an increased ~~unit~~global demand of our new Quantum Max Arm, new Focus Laser Scanner, and Vantage Laser Tracker products which were partially offset by the negative impact on sales ~~in our Construction BIM-CIM vertical~~related to the weakening of the Euro and in our other segment, which includes our Public Safety Forensics and Product Design verticals, and higher average selling prices in our Factory Metrology vertical. Service revenue increased by $3.4 million, or 18.4%,the Japanese Yen relative to ~~$21.7 million for~~the U.S. dollar during the three months ended September 30, ~~2017 from $18.3 million for the three months ended September 30, 2016, primarily due to an increase in warranty and customer service revenue driven~~2022. Service sales decreased by the growth of our installed, serviceable base and focused sales initiatives. Foreign exchange rates had a positive impact on sales of $0.7 million, increasing our overall sales growth rate by approximately 0.9 percentage points, primarily due to the strengthening of the Euro, partially offset by the decline of the Japanese yen, relative to the U.S. dollar.

~~Gross profit.~~ ~~Gross profit increased $9.3~~$1.5 million, or ~~21.9%~~7.4%, to $52.0 million for the three months ended September 30, 2017 from $42.7 million for the three months ended September 30, 2016. Gross margin increased to 57.7% for the three months ended September 30, 2017 from 53.6% in the prior year period. Gross margin from product revenue increased by 3.3 percentage points to 61.1% for the three months ended September 30, 2017 from 57.8% in the prior year period. This increase was primarily due to higher average selling prices in our Factory Metrology vertical as a result of new product introductions. Gross margin from service revenue increased by 7.1 percentage points to 46.8% for the three months ended September 30, 2017 from 39.7% for the prior year period primarily as a result of higher service revenue.

~~Selling and Marketing Expenses. Selling and marketing expenses increased by $6.2 million, or 31.4%, to $26.0 million for the three months ended September 30, 2017 from~~ $19.8 million for the three months ended September 30, 2016. This increase was driven primarily by higher compensation expense, reflecting an increase in selling headcount as part of our strategic initiatives to drive sales growth. Selling and marketing expenses as a percentage of sales were 28.8% for the three months ended September 30, 2017, compared with 24.9% of sales for the three months ended September 30, 2016. Our worldwide period-ending selling headcount increased by 133, or 26.5%, to 635 at September 30, 2017,2022 from ~~502 at September 30, 2016.~~

~~General and administrative expenses. General and administrative expenses decreased by $0.4 million, or 4.1%, to $10.3~~$21.3 million for the three months ended September 30, ~~2017 from $10.7~~2021.

Gross profit. Gross profit increased by $1.0 million, or 2.2%, to $43.3 million for the three months ended September 30, 2016. This decrease was driven primarily by a decrease in compensation and travel expenses. General and administrative expenses decreased to 11.4% of sales for the three months ended September 30, 20172022 from ~~13.5% of sales for the three months ended September 30, 2016.~~

~~Depreciation and amortization expenses. Depreciation and amortization expenses increased by $1.0 million, or 29.2%, to $4.4~~$42.3 million for the three months ended September 30, ~~2017~~2021, and gross margin decreased by 2.8 percentage points to 50.7% for the three months ended September 30, 2022 from ~~$3.4~~53.5% for the three months ended September 30, 2021. Gross margin from product revenue decreased by 2.0 percentage points to 53.7% for the three months ended September 30, 2022 from 55.7% for the prior year period primarily due to changes in product mix and unfavorable price variances due to global supply shortages. We expect continued unfavorable price variances until global supply and cost conditions normalize. Gross margin from service revenue decreased by 6.8 percentage pointsto 40.8% for the three months ended September 30, 2022 from 47.6% for the prior year period, primarily due to the aforementioned decrease in service sales with relatively consistent fixed costs.

Table of Contents

Selling, general and administrative expenses. Selling, general and administrative expenses increased by $3.8 million, or 11.3%, to $37.2 million for the three months ended September 30, ~~2016. This increase was driven primarily by higher amortization of intangible assets related to acquisitions and new production tooling for the manufacture of new products.~~

~~Research and development expenses. Research and development expenses increased by $1.1 million, or 13.8%, to $9.0~~2022 from $33.4 million for the three months ended September 30, ~~2017~~2021. This increase was primarily driven by higher personnel costs resulting from ~~$7.9~~additional headcount obtained primarily from both of our recent acquisitions, base compensation increases and transaction costs for the GeoSLAM acquisition. Selling, general and administrative expenses as a percentage of sales increased by 1.4 percentage points to 43.6% for the three months ended September 30, 2022 from 42.2% for the three months ended September 30, 2021. Our worldwide period-ending selling, general and administrative headcount increased by 42, or 5.6%, to 795 at September 30, 2022, from 753 at September 30, 2021.

Research and development expenses. Research and development expenses decreased by $0.1 million, or 0.8%, to $12.6 million for the three months ended September 30, ~~2016. This increase was mainly due to higher compensation expense resulting~~2022 from ~~increased headcount in connection with our acquisitions.~~$12.7 million for the three months ended September 30, 2021. Research and development expenses as a percentage of sales ~~was 10.0%~~decreased to 14.7% for the three months ended September 30, ~~2017 and September 30, 2016.~~

~~Other (income) expense, net. For~~2022 from 16.1% for the three months ended September 30, ~~2017, other income, net, which is largely driven~~2021.

Restructuring costs. In February 2020, we initiated the Restructuring Plan to improve business effectiveness, streamline operations and achieve a stated target cost level for the Company as a whole. Restructuring costs included in operating expenses decreased by ~~the effect of foreign exchange rates, remained unchanged when compared~~$0.8 million to ~~the three months ended September 30, 2016.~~

~~Income tax expense (benefit). Income tax expense was $0.9~~$0.6 million for the three months ended September 30, ~~2017, compared with an~~2022 from $1.4 million for the three months ended September 30, 2021 primarily consisting of reduced severance and related benefits charges and professional fees as we conclude the Restructuring Plan and completed our transition to our third party contract manufacturer, Sanmina.

Interest (income) expense, net. We recorded net interest income ~~tax benefit~~ of less than $0.1 million for the three months ended September 30, ~~2016. Our effective tax rate was 36.8%~~2022 and net interest expense of less than $0.1 million for the three months ended September 30, ~~2017~~2021.

Other (income) expense, net. For the three months ended September 30, 2022, other income was $1.4 million compared with ~~a 5.9%~~other expense of $0.3 million for the three months ended September 30, 2021. This change was primarily driven by the effect of foreign exchange rates on our non-U.S. dollar-denominated balance sheet.

Income tax expense (benefit). For the three months ended September 30, 2022 we recorded an income tax expense of $0.6 million compared with an income tax benefit of $1.7 million for the three months ended September 30, 2021. Our effective tax rate was 10.3% for the three months ended September 30, 2022 compared with 30.1% in the prior year period. The tax rate for 2022 reflects a tax expense on a pre-tax loss and the tax rate for 2021 reflects a tax benefit on a pre-tax loss. The change in our income tax expense ~~(benefit)~~ and ~~the increase in~~ our effective tax rate were primarily due to ~~a shift~~the impact of the capitalization of research and development (“R&D”) expenditures for income tax purposes. The Tax Cuts and Jobs Act (the “Act”) requires the capitalization and amortization of R&D costs incurred after December 31, 2021. We have considered the effects of the Act on the forecasted domestic cash tax payments for the year ending December 31, 2022. Our entity in the ~~geographic~~United States remains in a full valuation allowance position, hence we were not able to recognize the tax benefits associated with the capitalization of these R&D expenditures.

Our quarterly estimate of our annual effective tax rate and our quarterly provision for income tax expense (benefit) are subject to significant variation due to numerous factors, including variability in accurately predicting our pretax and taxable income or loss and the mix of jurisdictions to which they relate, as well as the amount of pretax income ~~expected for~~or loss recognized during the full year 2017. Our effective tax rate could be impacted positively or negatively by geographic changes in the manufacturing or sales of our products and the resulting effect on taxable income in each jurisdiction, as well as by any change in statutory tax rates in a jurisdiction.quarter.

Net ~~income~~loss. Our net ~~income~~loss was ~~$1.6~~$6.3 million for the three months ended September 30, ~~2017~~2022 compared ~~to $1.1~~with net loss of $3.9 million for the prior year period, reflecting the impact of the factors described above.

Nine Months Ended September 30, ~~2017~~2022 Compared to the Nine Months Ended September 30, ~~2016~~2021

Sales. Total sales increased ~~$20.6~~by $4.3 million, or ~~8.8%~~1.8%, t~~o $254.5~~to $241.9 million for the nine months ended September 30, ~~2017~~2022 from ~~$233.9~~$237.6 million for the nine months ended September 30, ~~2016.~~2021, after the impact of foreign exchange rates. Foreign exchange rates had a negative impact on total sales of $13.8 million, or 8.7%, primarily due to the weakening of the Euro and the Japanese Yen relative to the U.S. dollar in the current period as compared to the foreign exchange rates applicable in the prior period. Total product sales increased by ~~$11.3~~$9.3 million, or ~~6.2%~~5.4%, to ~~$193.5~~$182.0 million for the nine months ended September 30, ~~2017~~2022 from ~~$182.2~~$172.7 million for the nine months ended September 30, ~~2016. Our product~~2021 due to global demand of our new Quantum Max Arm products. Service sales ~~increase reflected higher unit sales, especially in the Construction BIM-CIM vertical. Service revenue increased~~decreased by ~~$9.3~~$5.0 million, or ~~18.1%~~7.7%, to ~~$61.0~~$59.9 million for the nine months ended September 30, ~~2017~~2022 from ~~$51.7~~$64.9 million for the nine months ended September 30, ~~2016, primarily due to an increase in warranty and customer service revenue driven by the growth~~2021.

Table of our installed, serviceable base and focused sales initiatives. Foreign exchange rates had a negative impact on sales of $2.0 million, decreasing our overall sales growth rate by approximately 0.9 percentage points, primarily due to the decline of the Japanese yen, Chinese yuan renminbi, and British pound sterling relative to the U.S. dollar.Contents

Gross profit. Gross profit ~~increased $13.2~~decreased by $3.5 million, or ~~10.3%~~2.7%, to ~~$142.5~~$124.7 million for the nine months ended September 30, ~~2017~~2022 from ~~$129.3~~$128.2 million for the nine months ended September 30, ~~2016. Gross~~2021 and gross margin ~~increased~~decreased by 2.4 percentage points to ~~56.0%~~51.6% for the nine months ended September 30, ~~2017~~2022 from ~~55.3% in the prior year period. Gross margin from product revenue increased by 0.7 percentage points to 59.6%~~54.0% for the nine months ended September 30, 2017 from 58.9% in the prior year period. This increase was primarily due to slightly higher average selling prices and an improvement in our manufacturing costs, particularly in our Factory Metrology vertical.2021. Gross margin from ~~service~~product revenue ~~increased~~decreased by ~~2.1~~1.6 percentage points to ~~44.7%~~54.5% for the nine months ended September 30, ~~2017~~2022 from ~~42.6%~~56.1% for the prior year period, primarily due to unfavorable cost variances as a result of ~~higher~~global supply shortages. We expect continued unfavorable price variances until global supply and cost conditions normalize. Gross margin from service revenue ~~partially offset~~decreased by ~~increased costs~~5.7percentage pointsto 42.7% for the nine months ended September 30, 2022 from 48.4% for the prior year period, primarily due to ~~higher service-related headcount.~~the aforementioned decrease in service sales with relatively consistent fixed costs.

Selling, general and ~~Marketing Expenses~~administrative expenses. Selling, general and ~~marketing~~administrative expenses increased by ~~$18.5~~$8.3 million, or ~~32.8%~~8.3%, to ~~$74.9~~$108.7 million for the nine months ended September 30, ~~2017~~2022 from ~~$56.4~~$100.4 million for the nine months ended September 30, ~~2016.~~2021. This

increase was primarily driven ~~primarily~~ by higher ~~compensation expense, reflecting an increase in selling~~personnel costs resulting from additional headcount ~~as part~~obtained primarily from both of our ~~strategic initiatives to drive sales growth.~~recent acquisitions, base compensation increases and transaction costs for the GeoSLAM acquisition. Selling, general and ~~marketing~~administrative expenses as a percentage of sales ~~were 29.4%~~increased by 2.7 percentage points to 44.9% for the nine months ended September 30, ~~2017,~~2022, compared with ~~24.1%~~42.2% of sales for the nine months ended September 30, ~~2016.~~ 2021. Our worldwide period-ending selling headcount increased by ~~133,~~42, or ~~26.5%~~5.6%, to ~~635~~795 at September 30, ~~2017,~~2022, from ~~502~~753 at September 30, ~~2016.~~2021.

~~General~~Research and ~~administrative~~development expenses. ~~General~~Research and ~~administrative~~development expenses increased by ~~$1.8~~$0.3 million, or ~~5.6%~~0.8%, to ~~$32.9~~$36.8 million for the nine months ended September 30, ~~2017~~2022 from ~~$31.1~~$36.5 million for the nine months ended September 30, ~~2016.~~2021. This increase was primarily driven ~~primarily~~ by higher compensation, advisory services, and global system expenses. General and administrative expenses decreased to 12.9% of sales for the nine months ended September 30, 2017 from 13.3% of sales for the nine months ended September 30, 2016, primarily due to the higher sales in the nine months ended September 30, 2017.

~~Depreciation and amortization expenses~~. Depreciation and amortization expenses increased by $2.4 million, or 24.1%, to $12.1 million for the nine months ended September 30, 2017 from $9.7 million for the nine months ended September 30, 2016. This increase was driven primarily by higher amortization of intangible assets related to acquisitions and new production tooling for the manufacture of new products.

~~Research and development expenses~~. Research and development expenses increased by $4.2 million, or 18.7%, to $26.5 million for the nine months ended September 30, 2017 from $22.3 million for the nine months ended September 30, 2016. This increase was mainly due to higher compensation expense resulting from increased engineering headcount ~~in connection with~~and costs to accelerate new product development and from our ~~acquisitions.~~acquisition of Holobuilder. Research and development expenses as a percentage of sales ~~increased~~decreased to ~~10.4%~~15.2% for the nine months ended September 30, ~~2017~~2022 from ~~9.6%~~15.3% for the nine months ended September 30, ~~2016.~~2021.

~~Other~~Restructuring costs. In February 2020, we initiated the Restructuring Plan to improve business effectiveness, streamline operations and achieve a stated target cost level for the Company as a whole. Restructuring costs included in operating expenses decreased by $1.2 million to $2.5 million for the nine months ended September 30, 2022 from $3.7 million for the nine months ended September 30, 2021 primarily consisting of reduced severance and related benefits charges and professional fees as we conclude the Restructuring Plan and completed our transition to our third party contract manufacturer, Sanmina.

Interest (income) expense, net. For the nine months ended September 30, ~~2017, other~~2022, we recorded interest income of less than $0.1 million compared with interest expense ~~net decreased by $0.5 million to $0.3 million from $0.8~~of less than $0.1 million for the nine months ended September 30, ~~2016.~~2021.

Other (income) expense, net. For the nine months ended September 30, 2022, other income was $3.1 million compared to other income of $0.4 million for the nine months ended September 30, 2021. This change was primarily driven by the effect of foreign exchange rates on ~~the value of intercompany account balances of~~ our ~~subsidiaries denominated in other currencies.~~non-U.S. dollar-denominated balance sheet.

Income tax expense (benefit). ~~Income~~For the nine months ended September 30, 2022, we recorded an income tax expense of $4.4 million compared with income tax benefit ~~was $0.4~~of $3.7 million for the nine months ended September 30, ~~2017,~~2021. Our effective tax rate was 21.6% for the nine months ended September 30, 2022 compared with 30.8% in the prior year period. The tax rate for 2022 reflects a tax expense on a pre-tax loss and the tax rate for 2021 reflects a tax benefit on a pre-tax loss. The change in our income tax expense and our effective tax rate were primarily due to the impact of ~~$1.4~~the capitalization of research and development (“R&D”) expenditures for income tax purposes. The Tax Cuts and Jobs Act (the “Act”) requires the capitalization and amortization of R&D costs incurred after December 31, 2021. We have considered the effects of the Act on the forecasted domestic cash tax payments for the year ending December 31, 2022. Our entity in the United States remains in a full valuation allowance position, hence we were not able to recognize the tax benefits associated with the capitalization of these R&D expenditures.

Our quarterly estimate of our annual effective tax rate and our quarterly provision for income tax expense are subject to significant variation due to numerous factors, including variability in accurately predicting our pretax and taxable income or loss and the mix of jurisdictions to which they relate, as well as the amount of pretax income or loss recognized during the quarter.

Net loss. Our net loss was $24.5 million for the nine months ended September 30, ~~2016. This change of $1.8 million was due to a pretax loss during the nine months ended September 30, 2017~~2022 compared to pretax income in the same period of 2016. Our effective tax rate was 11.3% for the nine months ended September 30, 2017 compared with 15.6% in the prior year period. The change in our effective rate was primarily due to the pretax loss during the nine months ended September 30, 2017 compared with pretax income during the same period of 2016 and a shift in the geographical mix of pretax income or loss expected for the full year 2017. Our effective tax rate continued to be lower than the statutory tax rate in the United States, mainly due to our global footprint in foreign jurisdictions with lower tax rates. Our effective tax rate could be impacted positively or negatively by geographic changes in the manufacturing or sales of our products and the resulting effect on taxable income in each jurisdiction, as well as by any change in statutory tax rates in a jurisdiction.

~~Net (loss) income. Our net loss was $3.5 million for the nine months ended September 30, 2017 compared to net income of $7.6~~$8.3 million for the prior year period, reflecting the impact of the factors described above.

~~Segment Results~~

~~Three Months Ended September 30, 2017 Compared to the Three Months Ended September 30, 2016~~

~~Total sales by segment for the three months ended September 30, 2017 and September 30, 2016 were as follows (in thousands):~~

Three Months Ended
September 30, 2017
% of
Total
September 30, 2016
% of
Total
Factory Metrology $ 59,339
65.8 % $ 58,310
73.3 %
Construction BIM-CIM 22,751
25.2 % 15,925
20.0 %
Other 8,160
9.0 % 5,365
6.7 %
Total sales $ 90,250
$ 79,600

~~We use segment profit to evaluate the performance~~Table of our reportable segments, which are Factory Metrology, Construction BIM-CIM and Other. Segment profit is calculated as gross profit, net of selling and marketing expenses, for the reporting segment. The discussion of segment results for the three months ended September 30, 2017 and 2016 presented below is based on segment profit, as described above, and segment profit as a percent of sales, which is calculated as segment profit divided by net sales for such reporting segment, which we believe will aid investors in understanding and analyzing our operating results. Our definition of segment profit may not be comparable to similarly-titled measures reported by other companies. For additional information, including a reconciliation of total segment profit to income (loss) from operations, see Note 15 – Segment Reporting, in Part I, Item 1 of this Quarterly Report on Form 10-Q.Contents

Factory Metrology
(dollars in thousands) Three Months Ended
September 30, 2017 September 30, 2016
Total sales $ 59,339
$ 58,310
Segment profit $ 20,144
$ 16,305
Segment profit as a % of Factory Metrology segment sales 33.9 % 28.0 %

~~Sales.~~Total sales in our Factory Metrology segment increased $1.0 million, or 1.8%, to $59.3 million for the three months ended September 30, 2017 from $58.3 million in the prior year period. The increase was driven by higher average selling prices and growth in service revenue, partially offset by a reduction in product unit sales.

~~Segment profit.~~ Segment profit in our Factory Metrology segment increased $3.8 million, or 23.5%, to $20.1 million for the three months ended September 30, 2017 from $16.3 million in the prior year period. This increase was primarily due to higher average selling prices, growth in service revenue and an improvement in manufacturing costs, partially offset by a reduction in product unit sales and higher selling and marketing expenses resulting from an increase in selling headcount as part of our strategic initiatives to drive sales growth.

Construction BIM-CIM
(dollars in thousands) Three Months Ended
September 30, 2017 September 30, 2016
Total sales $ 22,751
$ 15,925
Segment profit $ 5,407
$ 4,704
Segment profit as a % of Construction BIM-CIM segment sales 23.8 % 29.5 %

~~Sales.~~ Total sales in our Construction BIM-CIM segment increased $6.9 million, or 42.9%, to $22.8 million for the three months ended September 30, 2017 from $15.9 million in the prior year period, primarily reflecting an increase in product unit sales and service revenue.

~~Segment profit~~. Segment profit in our Construction BIM-CIM segment increased $0.7 million, or 14.9%, to $5.4 million for the three months ended September 30, 2017 from $4.7 million in the prior year period, primarily driven by an increase in product unit sales and service revenue, partially offset by an increase in selling headcount as part of our strategic initiatives to drive sales growth.

Other
(dollars in thousands) Three Months Ended
September 30, 2017 September 30, 2016
Total sales $ 8,160
$ 5,365
Segment profit $ 493
$ 1,888
Segment profit as a % of Other segment sales 6.0 % 35.2 %

~~Sales.~~ Total sales in our Other segment increased $2.8 million, or 52.1%, to $8.2 million for the three months ended September 30, 2017 from $5.4 million in the prior year period, primarily due to higher product unit sales in our Public Safety Forensics and Product Design verticals as we continue to strategically invest in new markets.

~~Segment profit.~~ Segment profit in our Other segment was $0.5 million for the three months ended September 30, 2017 compared to $1.9 million in the prior year period. This decrease of $1.4 million was primarily due to higher selling and

~~marketing expense resulting from an increase in selling headcount as part of our strategic initiatives to staff emerging verticals with a dedicated sales force to drive sales growth.~~

~~Nine Months Ended September 30, 2017 Compared to the Nine Months Ended September 30, 2016~~

~~Total sales by segment for the nine months ended September 30, 2017 and September 30, 2016 were as follows (in thousands):~~

Nine Months Ended
September 30, 2017
% of
Total
September 30, 2016
% of
Total
Factory Metrology $ 173,531
68.2 % $ 168,418
72.0 %
Construction BIM-CIM 60,550
23.8 % 47,529
20.3 %
Other 20,413
8.0 % 17,939
7.7 %
Total sales $ 254,494
$ 233,886

Factory Metrology
(dollars in thousands) Nine Months Ended
September 30, 2017 September 30, 2016
Total sales $ 173,531
$ 168,418
Segment profit $ 53,497
$ 53,034
Segment profit as a % of Factory Metrology segment sales 30.8 % 31.5 %

~~Sales.~~Total sales in our Factory Metrology segment increased $5.1 million, or 3.0%, to $173.5 million for the nine months ended September 30, 2017 from $168.4 million in the same prior year period, mostly driven by higher product unit sales and growth in service revenue.

~~Segment profit.~~ Segment profit in our Factory Metrology segment increased $0.5 million, or 0.9%, to $53.5 million for the nine months ended September 30, 2017 from $53.0 million in the same prior year period. This increase was primarily due to the higher product unit sales and growth in service revenue, partially offset by higher selling and marketing expenses resulting from an increase in selling headcount as part of our strategic initiatives to drive sales growth.

Construction BIM-CIM
(dollars in thousands) Nine Months Ended
September 30, 2017 September 30, 2016
Total sales $ 60,550
$ 47,529
Segment profit $ 13,799
$ 12,868
Segment profit as a % of Construction BIM-CIM segment sales 22.8 % 27.1 %

~~Sales.~~ Total sales in our Construction BIM-CIM segment increased $13.1 million, or 27.4%, to $60.6 million for the nine months ended September 30, 2017 from $47.5 million in the prior year period, primarily reflecting an increase in product unit sales and higher service revenue.

~~Segment profit~~. Segment profit in our Construction BIM-CIM segment increased $0.9 million to $13.8 million for the nine months ended September 30, 2017 from $12.9 million in the prior year period, primarily driven by the increase in sales, partially offset by higher selling and marketing expenses resulting from an increase in selling headcount as part of our strategic initiatives to drive sales growth.

Other
(dollars in thousands) Nine Months Ended
September 30, 2017 September 30, 2016
Total sales $ 20,413
$ 17,939
Segment profit $ 363
$ 6,982
Segment profit as a % of Other segment sales 1.8 % 38.9 %

~~Sales.~~ Total sales in our Other segment increased $2.5 million, or 13.8%, to $20.4 million for the nine months ended September 30, 2017 from $17.9 million in the prior year period, primarily due to higher product unit sales in our Public Safety Forensics and 3D Machine Vision verticals.

~~Segment profit.~~ Segment profit in our Other segment decreased $6.6 million to $0.4 million for the nine months ended September 30, 2017 from $7.0 million in the prior year period. This decrease of $6.6 million was primarily due to higher selling and marketing expense resulting from an increase in selling headcount as part of our strategic initiatives to staff emerging verticals with a dedicated sales force to accelerate the pace of sales growth.

Liquidity and Capital Resources

Cash and cash equivalents ~~increased~~decreased by ~~$23.6~~$73.5 million to ~~$129.8~~$48.5 million at September 30, ~~2017~~2022 from ~~$106.2~~$122.0 million at December 31, ~~2016.~~2021. The ~~increase~~decrease was primarily driven by net cash used in investing activities.

Cash used in operating activities was $18.2 million during the ~~maturity of U.S. Treasury Bills that were not re-invested, partially offset by cash paid for acquisitions of $5.5 million, property and equipment purchases of $6.1 million and $0.8~~nine months ended September 30, 2022, compared to $15.6 million of cash used in operating activities during the nine months ended September 30, ~~2017.~~

~~Cash flows from operating activities provide our primary sources of liquidity. Cash used in operations~~2021. The increase was ~~$0.8 million during the nine months ended September 30, 2017, compared to cash provided by operations of $28.5 million during the nine months ended September 30, 2016. The change was mainly~~ due to ~~our~~a larger current year net loss and changes in ~~the nine months ended September 30, 2017,~~working capital accounts, primarily consisting of an increase in inventory to support new product introductions and a lower reduction in accounts receivable primarily due to higher sales during the three months ended September 30, 2017 compared to the same period in the prior year.other current assets originating from our relationship with our third party contract manufacturer, Sanmina.

Cash ~~provided by investing activities during the nine months ended September 30, 2017 was $19.1 million compared to $16.6 million of cash~~ used in investing activities during the nine months ended September 30, ~~2016. The change~~2022 was ~~primarily due to the maturity of U.S. Treasury Bills in 2017 that were not re-invested, partially offset by $5.5~~$43.2 million ~~in cash paid for the acquisition of Instruments Associates, LLC d/b/a Nutfield Technology in April 2017~~ compared to ~~$20.9 million in~~ cash ~~paid for acquisitions during the nine months ended September 30, 2016.~~

~~Cash flows~~ used in ~~financing~~investing activities ~~was $0.1~~of $40.7 million during the nine months ended September 30, ~~2017,~~2021. The increase was primarily due to the acquisition of GeoSLAM and higher cash paid for technology development, patents, and licenses during the nine months ended September 30, 2022, compared to the acquisition of Holobuilder and lower cash paid for technology development, patents, and licenses during the nine months ended September 30, 2021.

Cash used in financing activities was $1.8 million during the nine months ended September 30, 2022 compared to cash provided by financing activities of ~~$0.4~~$1.5 million for the nine months ended September 30, ~~2016.~~2021. The ~~change~~decrease was primarily due to ~~no income tax benefit~~lower proceeds from the ~~exercise~~issuance of stock ~~options recognized~~related to stock option exercises during the nine months ended September 30, ~~2017 as a result of our prospective adoption of ASU 2016-09 and a decrease in the proceeds from issuances of stock~~2022, compared to during the nine months ended September 30, ~~2017 compared to the prior year period.~~2021.

Of our cash and cash equivalents, ~~$99.8~~$41.3 million was held by foreign ~~subsidiaries. Our intent is~~subsidiaries as of September 30, 2022. On December 22, 2017, the United States enacted the U.S. Tax Cuts and Jobs Act, resulting in significant modifications to ~~indefinitely reinvest these funds in our~~existing tax law, which included a transition tax on the mandatory deemed repatriation of foreign ~~operations, as~~earnings. As a result of the ~~cash is needed to fund on-going operations. In~~U.S. Tax Cuts and Jobs Act, the ~~event circumstances change, leading~~Company can repatriate foreign earnings and profits to the ~~conclusion that these funds~~U.S. with minimal U.S. income tax consequences, other than the transition tax and global intangible low-taxed income (“GILTI”) tax. We have reinvested a large portion of our undistributed foreign earnings and profits in acquisitions and other investments and intends to bring back a portion of foreign cash in certain jurisdictions where we will not be ~~indefinitely reinvested, we would need~~subject to ~~accrue at the time of such determination for the income~~local withholding taxes ~~that would be triggered upon their repatriation.~~and which were subject already to transition tax and GILTI tax.

On November 24, 2008, our Board of Directors approved a $30.0 million share repurchase program. Acquisitions for the share repurchase program may be made from time to time at prevailing prices, as permitted by securities laws and other legal requirements, and subject to market conditions and other factors. The share repurchase program may be discontinued at any time. There is no expiration date or other restriction governing the period over which we can repurchase shares under the program. In October 2015, our Board of Directors authorized an increase to the existing share repurchase program from $30.0 million to $50.0 million. We made no stock repurchases during the ~~nine month~~nine-month period ended September 30, ~~2017~~2022 under this program. As of September 30, ~~2017,~~2022, we had ~~remaining~~ authorization to repurchase $18.3 million remaining under the repurchase program.

We believe that our working capital and anticipated cash flow from operations will be sufficient to fund our short- and long-term liquidity operating requirements for at least the ~~foreseeable future.~~next 12 months.

We have no ~~off balance~~off-balance sheet arrangements.

Contractual Obligations and Commercial Commitments

We enter into purchase commitments for products and services in the ordinary course of business. These purchases generally cover production requirements for 60 to 120 days as well as materials necessary to service customer units through the product lifecycle and for warranty commitments. As of September 30, ~~2017,~~2022, we had ~~$44.6~~$46.2 million in purchase commitments that are expected to be delivered within the next 12 months. ~~To ensure adequate component availability in preparation for new product introductions, as of September 30, 2017, we~~We also had ~~$0.6~~$6.6 million in long-term commitments for purchases to be delivered after 12 months. Other than as described in the preceding sentences, there have been no material changes to the contractual obligations and commercial commitments table included in Part II, Item 7 of our Annual Report on Form 10-K for the year ended December 31, ~~2016.~~2021.

Table of Contents

Critical Accounting Policies

The preparation of our condensed consolidated financial statements requires our management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, and expenses, as well as disclosure of contingent assets and liabilities. We base our estimates on historical experience, along with various other factors believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Some of these judgments can be subjective and complex and, consequently, actual results may differ from these estimates under different assumptions or conditions. While for any given estimate or assumption made by our management there may be other estimates or assumptions that are reasonable, we believe that, given the current facts and circumstances, it is unlikely that applying any such other reasonable estimate or assumption would materially impact our condensed consolidated financial statements.

In response to the Securities and Exchange Commission’s (“SEC”) financial reporting release, FR-60, “Cautionary Advice Regarding Disclosure About Critical Accounting Policies,” we have selectedA discussion of our critical accounting policies for purposes of explaining the methodology used in our calculation, in addition to any inherent uncertainties pertaining to the possible effects on our financial condition. The critical policies discussed below are our processes of recognizing revenue, the reserve for excess and obsolete inventory, income taxes, the reserve for warranties, goodwill impairment, business combinations, and stock-based compensation. These policies affect current assets and operating results and are therefore critical in assessing our financial and operating status. These policies involve certain assumptions that, if incorrect, could have an adverse impact on our operations and financial position.

~~Revenue Recognition~~

Revenue is recognized when the price is fixed, collectability is reasonably assured, the title and risks and rewards of ownership have passed to the customer, and the earnings process is complete. Revenue related to our measurement, imaging, and realization equipment and related software is generally recognized upon shipment, as we consider the earnings process complete as of the shipping date. Fees billed to customers associated with the distribution of products are classified as revenue. We warrant our products against defects in design, materials and workmanship for one year. A provision for estimated future costs relating to warranty expense is recorded when products are shipped. We separately sell extended warranties. Extended warranty revenues are recognized on a straight-line basis over the term of the warranty. Costs relating to extended warranties are recognized as incurred. Revenue from sales of software only is recognized when no further significant production, modification or customization of the software is required and when the following criteria are met: persuasive evidence of a sales agreement exists, delivery has occurred, and the sales price is fixed or determinable and deemed collectible. These software arrangements generally include short-term maintenance that is considered post-contract support (“PCS”). We generally establish vendor-specific objective evidence of fair value for this PCS component based on our maintenance renewal rate. Maintenance renewals, when sold, are recognized on a straight-line basis over the term of the maintenance agreement. Revenues resulting from sales of comprehensive support, training and technology consulting services are recognized as such services are performed and are deferred when billed in advance of the performance of services. Revenues are presented net of sales-related taxes.

~~Reserve for Excess and Obsolete Inventory~~

Because the value of inventory that will ultimately be realized cannot be known with exact certainty, we rely upon both past sales history and future sales forecasts to provide a basis for the determination of the reserve. Inventory is considered potentially obsolete if we have withdrawn those products from the market or had no sales of the product for the past 12 months and have no sales forecasted for the next 12 months. Inventory is considered potentially excess if the quantity on hand exceeds 12 months of expected remaining usage. The resulting obsolete and excess parts are then reviewed to determine if a substitute usage or a future need exists. Items without an identified current or future usage are reserved in an amount equal to 100% of the first-in first-out (“FIFO”) cost of such inventory. Our products are subject to changes in technologies that may make certain of our products or their components obsolete or less competitive, which may increase our historical provisions to the reserve.

~~Income Taxes~~

We review our deferred tax assets on a regular basis to evaluate their recoverability based upon expected future reversals of deferred tax liabilities, projections of future taxable income over a two-year period, and tax planning strategies that we might employ to utilize such assets, including net operating loss carryforwards. Based on the positive and negative evidence of recoverability, we establish a valuation allowance against the net deferred assets of a taxing jurisdiction in which we operate, unless it is “more likely than not” that we will recover such assets through the above means. In the future, our evaluation of the need for the valuation allowance will be significantly influenced by our ability to achieve profitability and our ability to predict and achieve future projections of taxable income over at least a two-year period.

Significant judgment is required in determining our worldwide provision for income taxes. In the ordinary course of operating a global business, there are many transactions for which the ultimate tax outcome is uncertain. We establish provisions for income taxes when, despite the belief that tax positions are fully supportable, there remain certain positions that do not meet the minimum probability threshold as described by FASB Accounting Standards Codification (“ASC”) Topic 740, ~~Income Taxes~~, which is a tax position that is more likely than not to be sustained upon examination by the applicable taxing authority. In the ordinary course of business, we are examined by various federal, state, and foreign tax authorities. We regularly assess the potential outcome of these examinations and any future examinations for the current or prior years in determining the adequacy of our provision for income taxes. We assess the likelihood and amount of potential adjustments and adjust the income tax provision, the current tax liability and deferred taxes in the period in which the facts that gave rise to a revision become known.

~~Reserve for Warranties~~

We establish at the time of sale a liability for the one-year warranty included with the initial purchase price of equipment, based upon an estimate of the repair expenses likely to be incurred for the warranty period. The warranty period is measured in installation-months for each major product group. The warranty reserve is included in ~~accrued liabilities~~Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the accompanying condensed consolidated balance sheets. The warranty expense is estimated by applying the actual total repair expenses for each product group in the prior period and determining a rate of repair expense per installation-month. This repair rate is multiplied by the number of installation-months of warranty for each product group to determine the provision for warranty expenses for the period. We evaluate our exposure to warranty costs at the end of each period using the estimated expense per installation-month for each major product group, the number of units remaining under warranty and the remaining number of months each unit will be under warranty. We have a history of new product introductions and enhancements to existing products, which may result in unforeseen issues that increase our warranty costs. While such expenses have historically been within expectations, we cannot guarantee this will continue in the future.

~~Goodwill Impairment~~

Goodwill represents the excess cost of a business acquisition over the fair value of the net assets acquired. We do not amortize goodwill; however, we perform an annual review in the fourth quarter of each year, or more frequently if indicators of potential impairment exist, to determine if the carrying value of the recorded goodwill or indefinite lived intangible assets is impaired. If an asset is impaired, the difference between the value of the asset reflected in the financial statements and its current fair value is recognized as an expense in the period in which the impairment occurs.

Each period, and for any of our reporting units, we can elect to initially perform a qualitative assessment to determine whether it is necessary to perform the two-step quantitative goodwill impairment test. If we believe, as a result of our qualitative assessment, that it is more likely than not that the fair value of a reporting unit containing goodwill is less than the carrying amount, then the first and second steps of the quantitative goodwill impairment test are unnecessary. If we elect to bypass the qualitative assessment option, or if the qualitative assessment was performed and resulted in us being unable to conclude that it is not more likely than not that the fair value of a reporting unit containing goodwill is greater than the carrying amount, we will perform the two-step quantitative goodwill impairment test. We perform the first step of the two-step quantitative goodwill impairment test by calculating the fair value of the reporting unit using a discounted cash flow method, and then comparing the fair value with the carrying amount of the reporting unit. If the carrying amount of the reporting unit exceeds the fair value, we perform the second step of the quantitative goodwill impairment test to measure the amount of the impairment loss, if any. Management has concluded there were no goodwill impairment indicators for the nine months ended September 30, 2017. There was no goodwill impairmentAnnual Report on Form 10-K for the year ended December 31, ~~2016.~~

~~Business Combinations~~

~~We allocate~~2021, as filed with the ~~fair value~~Securities and Exchange Commission on February 16, 2022. As of ~~purchase consideration to the assets acquired and liabilities assumed based~~September 30, 2022, our critical accounting policies have not changed from those described in our Annual Report on their fair values at the acquisition date. The excess of the fair value of purchase consideration over the fair value of the assets acquired and liabilities assumed is recorded as goodwill. When determining the fair values of assets acquired and liabilities assumed, management makes significant estimates and assumptions, especially with respect to intangible assets. Critical estimates in valuing intangible assets include, but are not limited to, expected future cash flows, which include consideration of future growth rates and margins, customer attrition rates, future changes in technology and brand awareness, loyalty and position, and discount rates. Fair value estimates are based on the assumptions management believes a market participant would use in

pricing the asset or liability. Amounts recorded in a business combination may change during the measurement period, which is a period not to exceed one year from the date of acquisition, as additional information about conditions existing at the acquisition date becomes available.

~~Stock-Based Compensation~~

We measure and record compensation expense using the applicable accounting guidance for share-based payments related to stock options, restricted stock, restricted stock units and performance-based awards granted to our directors and employees. The fair value of stock options, including performance awards, without a market condition is determined by using the Black-Scholes option valuation model. The fair value of restricted stock units and stock options with a market condition is estimated, at the date of grant, using the Monte Carlo Simulation valuation model. The Black-Scholes and Monte Carlo Simulation valuation models incorporate assumptions as to stock price volatility, the expected life of options or awards, a risk-free interest rate and dividend yield. In valuing our stock options, significant judgment is required in determining the expected volatility of our common stock and the expected life that individuals will hold their stock options prior to exercising. Expected volatility for stock options is based on the historical and implied volatility of our own common stock while the volatility for our restricted stock units with a market condition is based on the historical volatility of our own common stock and the stock of companies within our defined peer group. The expected life of stock options is derived from the historical actual term of option grants and an estimate of future exercises during the remaining contractual period of the option. While volatility and estimated life are assumptions that do not bear the risk of change subsequent to the grant date of stock options, these assumptions may be difficult to measure, as they represent future expectations based on historical experience. Further, our expected volatility and expected life may change in the future, which could substantially change the grant-date fair value of future awards of stock options and, ultimately, the expense we record. The fair value of restricted stock and restricted stock units, including performance awards, without a market condition is estimated using the current market price of our common stock on the date of grant.

We expense stock-based compensation for stock options, restricted stock, restricted stock units and performance awards over the requisite service period. For awards with only a service condition, we expense stock-based compensation, adjusted for actual forfeitures, using the straight-line method over the requisite service periodForm 10-K for the entire award. For awards with both performance and service conditions, we expense the stock-based compensation, adjusted for actual forfeitures, on a straight-line basis over the requisite service period for each separately vesting portionyear ended December 31, 2021.

Table of the award, taking into account the probability that we will satisfy the performance condition. Furthermore, we expense awards with a market condition over the three-year vesting period regardless of the value that the award recipients ultimately receive. Excess tax benefits or deficits upon exercise of stock options or vesting of restricted stock or restricted stock units are recorded to income tax benefit or expense, respectively. All tax-related cash flows resulting from stock-based compensation cost are classified as operating activities in the condensed consolidated statements of cash flows.Contents

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Foreign Exchange Exposure

We conduct a significant portion of our business outside the United States. As of and for the nine months ended September 30, ~~2017, 61%~~2022, 59% of our revenue was invoiced, and a significant portion of our operating expenses and manufacturing costs were paid, in foreign currencies, and ~~59%~~30% of our assets were denominated in foreign currencies. Fluctuations in exchange rates between the U.S. dollar and such foreign currencies may have a material effect on our results of operations and financial condition and could specifically result in foreign exchange gains and losses. The impact of future exchange rate fluctuations on the results of our operations cannot be accurately predicted due to our constantly changing exposure to various currencies, and the fact that all foreign currencies do not react in the same manner in relation to the U.S. dollar. Our most significant exposures are to the Euro, ~~British pound sterling,~~Japanese Yen, Swiss ~~franc, Japanese yen,~~Franc, Chinese ~~yuan renminbi, Mexican peso~~Yuan and Brazilian ~~real.~~Real. To the extent that the percentage of our non-U.S. dollar revenues derived from international sales increases in the future, our exposure to risks associated with fluctuations in foreign exchange rates may increase. We are aware of the availability of off-balance sheet financial instruments to hedge exposure to foreign currency exchange rates, including cross-currency swaps, forward contracts and foreign currency options. However, we have not used such instruments

Global Inflation Exposure

General inflation in the ~~past,~~United States, Europe and ~~none were utilized~~other geographies has risen to levels not experienced in ~~2016~~recent decades. General inflation, including rising prices for our raw materials and other inputs as well as rising salaries negatively impact our business by increasing our cost of sales and operating expenses. A period of a rising rate of inflation also negatively impacts our business by decreasing the capital for our customers to deploy to purchase our products and services. Inflation may cause our customers to reduce or delay orders for our goods and services thereby causing a decrease in sales of our products and services. The impact of future inflation fluctuations on the ~~nine months ended September 30, 2017.~~results of our operations cannot be accurately predicted.

Table of Contents

Item 4. ~~Controls and Procedures~~

~~Evaluation of Disclosure~~ Controls and Procedures

We are responsible for establishing and maintaining disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), that are designed to provide reasonable assurance that information required to be disclosed in our reports filed under the Exchange Act, such as this Quarterly Report on Form 10-Q, is recorded, processed, summarized and reported within the time periods specified in the ~~SEC’s~~Securities and Exchange Commission’s (the “SEC”) rules and forms. Disclosure controls and procedures also include, without limitation, controls and procedures that are designed to provide reasonable assurance that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

Any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objective. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that our management is required to apply its judgment in evaluating the benefits of possible controls and procedures relative to their costs.

Evaluation of Disclosure Controls and Procedures

Under the supervision and with the participation of our management, including our Chief Executive Officer and our Chief Financial Officer, we evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) as of September 30, ~~2017.~~2022. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of September 30, ~~2017~~2022 to provide reasonable assurance that information required to be disclosed in this Quarterly Report on Form 10-Q was recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and was accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

Changes in Internal Control Over Financial Reporting

During the quarter ended September 30, ~~2017,~~2022, there was no change in our internal control over financial reporting (as such term is defined in Rule 13a-15(f) under the Exchange Act) that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Table of Contents

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

We are not involved in any legal proceedings, ~~other than~~including routine litigation arising in the normal course of business, ~~none of which~~that we believe will have a material adverse effect on our business, financial condition or results of operations.

Item 1A. Risk Factors

In addition to the other information set forth in this Quarterly Report on Form 10-Q, you should carefully consider the factors discussed under “Risk Factors” in this Item 1A and in our Annual Report on Form 10-K for the year ended December 31, ~~2016,~~2021 as filed with the SEC, ~~our Quarterly Reports on Form 10-Q for the quarterly periods ended March 31, 2017 and June 30, 2017, as filed with the SEC, and in this Item 1A~~ before deciding to invest in, or retain, shares of our common stock. These risks and uncertainties could materially and adversely affect our business, financial condition, and results of operations. The risks described in our Annual Report on Form 10-K for the year ended December 31, ~~2016~~2021 and ~~our Quarterly Reports on Form 10-Q for~~in subsequent periodic reports filed with the ~~quarterly periods ended March 31, 2017 and June 30, 2017~~SEC are not the only risks we face. Our operations could also be affected by additional factors that are not presently known by us or by factors that we currently consider to be immaterial to our business. ~~As of September 30, 2017, there~~There have been no material changes in our risk factors from those set forth in our Annual Report on Form 10-K for the year ended December 31, ~~2016~~2021, other than as set forth below.

The risk factors entitled “Because a significant portion of our revenues and expenses are denominated in foreign currencies, we face significant exposure to foreign exchange rate risk” and “Increases in the cost and constraints in the availability of raw materials or components used in our ~~Quarterly Reports~~products could negatively impact our business and profitability” have been updated to read as follows:

Because a significant portion of our revenues, expenses, and assets are denominated in foreign currencies, we face significant exposure to foreign exchange rate risk.

We conduct a significant portion of our business outside the United States and consequently much of our revenues, expenses and assets are denominated in foreign currencies, most notably the Euro, Japanese Yen, Swiss Franc, Chinese Yuan and Brazilian Real. Our results of operations are affected by fluctuations in exchange rates, which have caused, and may in the future cause, significant fluctuations in our quarterly and annual results of operations. Fluctuations in exchange rates may have a material adverse effect on ~~Form 10-Q~~our results of operations and financial condition and could result in potentially significant foreign exchange gains and losses. The impact of future exchange rate fluctuations on the results of our operations cannot be accurately predicted due to our constantly changing exposure to various currencies, and the fact that all foreign currencies do not react in the same manner in relation to the U.S. dollar. Additionally, currency fluctuations could require us to increase prices to foreign customers, which could result in lower net sales by us to those customers. If we do not adjust the prices for our products in response to unfavorable currency fluctuations, we could be forced to sell our products at a lower margin or at a net loss. To the ~~quarterly periods ended March 31, 2017~~extent that the percentage of our non-U.S. dollar revenues derived from international sales increases in the future, our exposure to risks associated with fluctuations in foreign exchange rates will increase. We are aware of the availability of off-balance sheet financial instruments to hedge exposure to foreign currency exchange rates, including cross-currency swaps, forward contracts and ~~June 30, 2017.~~foreign currency options; however, we have not used such instruments in the past as fluctuations in exchange rate on our revenue were mostly offset by those same fluctuations in exchange rate on our expenses, providing a natural hedge in foreign jurisdictions. Our exchange rate exposure may change as a result of our current or future operational strategies and we will continue assessing the appropriateness of hedging for our business.

Table of Contents

Increases in the cost and constraints in the availability of raw materials or components used in our products could negatively impact our business and profitability.

Our products contain various raw materials, including steel, steel byproducts, aluminum, aluminum byproducts, resin products and various electronic components. We use raw materials directly in manufacturing and in components that we purchase from our suppliers. These raw materials are subject to extensive laws, governmental regulations, policies, including tariffs and other import restrictions, inflationary pressures, exchange rate fluctuations and supply shortages. Some of the raw materials are obtained from suppliers outside the United States, and to the extent that the quantity or proportion of materials derived from such foreign suppliers increases in the future, our exposure to tariffs and other import restrictions, supply chain disruptions and exchange rate fluctuations may increase. The occurrence and impact of future changes in laws, governmental regulations, policies, inflationary pressures, exchange rate fluctuations and supply shortages cannot be accurately predicted. Changes to the laws, governmental regulations and policies governing these raw materials, including tariffs and other import restrictions, have increased and could continue to increase the cost of such raw materials and, correspondingly, the cost of manufacturing our products. Further, interruptions in global supply chains, inflationary pressures and exchange rate fluctuations have increased and could continue to increase the cost of such raw materials, and have constrained and could continue to constrain the availability of such raw materials. If the costs of our raw materials further increase, whether due to changes in laws, governmental regulations, policies, supply shortages or for other reasons, we may not be able to pass on these costs to our customers, which could have a material adverse effect on our business, results of operations and financial condition. Even in the event that increased costs can be substantially passed through to our customers, our gross margin percentages would decline.

The following risk factor has been added:

Inflation in the global economy could negatively impact our business and results of operations.

General inflation in the United States, Europe and other geographies has risen to levels not experienced in recent decades. General inflation, including rising prices for our raw materials and other inputs as well as rising salaries negatively impact our business by increasing our operating expenses. A period of a rising rate of inflation also negatively impacts our business by decreasing the capital for our customers to deploy to purchase our products and services. Inflation may cause our customers to reduce or delay orders for our goods and services thereby causing a decrease in sales of our products and services.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Recent Sales of Unregistered Securities

Rajani Ramanathan was automatically granted restricted stock units equal to an aggregate total of 3,189 shares of the Company’s common stock in connection with her appointment to our Board of Directors on July 25, 2022 pursuant to our 2022 Equity Incentive Plan, which was approved at our 2022 annual meeting of shareholders and our Company’s Non-Employee Director Compensation Policy (the “Initial Director Grant”). The Initial Director Grant shall vest on July 25, 2025, subject to the director’s continued service on our Board of Directors as of such date.

During the quarter ended June 30, 2022, we also issued restricted stock units equal to an aggregate total of 1,986 shares of the Company’s common stock to certain employees (the “Employee Grants”). The Employee Grants shall vest in three equal annual installments on the anniversary dates of each respective grant.

The restricted stock units were granted in accordance with Section 4(a)(2) of the Securities Act of 1933, as amended. The shares underlying these restricted stock units were registered on a Form S-8 registration statement subsequent to the granting of such awards.

Purchases of Equity Securities by the Issuer Under the Share Repurchase Plan

On November 24, 2008, our Board of Directors approved a $30.0 million share repurchase program. Acquisitions for the share repurchase program may be made from time to time at prevailing prices, as permitted by securities laws and other legal requirements, and subject to market conditions and other factors. The share repurchase program may be discontinued at any time. There is no expiration date or other restriction governing the period over which we can repurchase shares under the program. In October 2015, our Board of Directors authorized an increase to the existing share repurchase program from $30.0 million to $50.0 million. We made no stock repurchases during the nine month period ended September 30, ~~2017~~2022 under this program. As of September 30, ~~2017,~~2022, we had authorization to repurchase $18.3 million remaining under the repurchase program.

Item 3. Defaults Upon Senior Securities.

None.

Table of Contents

Item 4. Mine Safety Disclosures.

None.

Item 5. Other Information.

None.

Table of Contents

Item 6. Exhibits

EXHIBIT INDEX

Incorporated by Reference

Provided Herewith

Exhibit Number

Exhibit Description

Form

File No.

Exhibit

Filing Date

3.1

Amended and Restated Articles of Incorporation, as amended

S-1/A

333-32983

3.1

September 10,1997

3.2

Amended and Restated Bylaws

10-K

0-23081

3.2

February 16, 2022

4.1

Specimen Stock Certificate

S-1/A

333-32983

4.1

September 10, 1997

10.1*

Key Executive Change in Control and Severance Plan

31.1

Certification of the President and Chief Executive Officer Pursuant to Rule 13a-14(a)/15d-14(a), as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2

Certification of the Chief Financial Officer Pursuant to Rule 13a-14(a)/15d-14(a), as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.1**

Certification of the President and Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

32.2**

Certification of the Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101.SCH

Inline XBRL Taxonomy Extension Schema Document

101.CAL

Inline XBRL Taxonomy Extension Calculation Linkbase Document

101.LAB

Inline XBRL Taxonomy Extension Label Linkbase Document

101.PRE

Inline XBRL Taxonomy Presentation Linkbase Document

101.DEF

Inline XBRL Taxonomy Extension Definition Linkbase Document

104

Cover Page Interactive Data File (formatted as inline XBRL with applicable taxonomy extension information contained in Exhibits 101.*)

* - Indicates management contracts or compensatory plans or arrangements.

** - The certifications attached as Exhibit 32.1 and 32.2 that accompany this Quarterly Report on Form 10-Q are deemed furnished and not filed with the Securities and Exchange Commission and are not to be incorporated by reference into any filing of the Registrant under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, whether made before or after the date of this Quarterly Report on Form 10-Q, irrespective of any general incorporation language contained in such filing.



~~INDEX TO EXHIBITS~~
~~3.1~~		Amended and Restated Articles of Incorporation, as amended (Filed as Exhibit 3.1 to our Registration Statement on Form S-1/A filed September 10, 1997, No. 333-32983, and incorporated herein by reference)

~~3.2~~		~~Amended and Restated Bylaws (Filed as Exhibit 3.1 to our Current Report on Form 8-K, filed February 3, 2010 and incorporated herein by reference, SEC File No. 000-23081)~~

~~4.1~~		~~Specimen Stock Certificate (Filed as Exhibit 4.1 to our Registration Statement on Form S-1/A filed September 10, 1997, No. 333-32983, and incorporated herein by reference)~~

~~31-A~~		~~Certification of the President and Chief Executive Officer Pursuant to Rule 13a-14(a)/15d-14(a), as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002~~

~~31-B~~		~~Certification of the Chief Financial Officer Pursuant to Rule 13a-14(a)/15d-14(a), as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002~~

~~32-A~~		~~Certification of the President and Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002~~

~~32-B~~		~~Certification of the Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002~~

~~101.INS~~		~~XBRL Instance Document~~

~~101.SCH~~		~~XBRL Taxonomy Extension Schema Document~~

~~101.CAL~~		~~XBRL Calculation Linkbase Document~~

~~101.DEF~~		~~XBRL Taxonomy Extension Definition Linkbase Document~~

~~101.LAB~~		~~XBRL Taxonomy Labels Linkbase Document~~

~~101.PRE~~		~~XBRL Taxonomy Presentation Linkbase Document~~

Table of Contents

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


			FARO Technologies, Inc.
			(Registrant)

Date: November 2, 2022		By:	~~FARO Technologies, Inc.~~/s/ Allen Muhich
			~~(Registrant)~~Name: Allen Muhich

~~Date: October 26, 2017~~	~~By:~~	~~/s/ Robert Seidel~~
		~~Name: Robert Seidel~~
		Title: Chief Financial Officer
			(Duly Authorized Officer and Principal Financial Officer)



(in thousands, except share data)	September 30, 2017 (unaudited)			December 31, 2016
ASSETS
Current assets:
Cash and cash equivalents	$	129,841		$	106,169
Short-term investments	10,970			42,942
Accounts receivable, net	60,449			61,364
Inventories, net	59,044			51,886
Prepaid expenses and other current assets	20,919			16,304
Total current assets	281,223			278,665
Property and equipment:
Machinery and equipment	66,049			57,063
Furniture and fixtures	6,863			6,099
Leasehold improvements	19,588			18,778
Property and equipment, at cost	92,500			81,940
Less: accumulated depreciation and amortization	(60,189		)	(50,262		)
Property and equipment, net	32,311			31,678
Goodwill	52,567			46,744
Intangible assets, net	22,983			22,279
Service and sales demonstration inventory, net	35,250			29,136
Deferred income tax assets, net	14,498			14,307
Other long-term assets	1,049			905
Total assets	$	439,881		$	423,714
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	11,964		$	11,126
Accrued liabilities	22,507			24,572
Income taxes payable	—			618
Current portion of unearned service revenues	29,080			27,422
Customer deposits	3,065			2,872
Total current liabilities	66,616			66,610
Unearned service revenues - less current portion	12,665			13,813
Deferred income tax liabilities	1,683			1,409
Other long-term liabilities	2,191			2,225
Total liabilities	83,155			84,057
Commitments and contingencies - See Note 16
Shareholders’ equity:
Common stock - par value $.001, 50,000,000 shares authorized; 18,197,628 and 18,170,267 issued, respectively; 16,711,152 and 16,680,791 outstanding, respectively	18			18
Additional paid-in capital	218,242			212,602
Retained earnings	179,682			183,436
Accumulated other comprehensive loss	(9,387		)	(24,561		)
Common stock in treasury, at cost; 1,486,476 and 1,489,476 shares, respectively	(31,829		)	(31,838		)
Total shareholders’ equity	356,726			339,657
Total liabilities and shareholders’ equity	$	439,881		$	423,714



	Nine Months Ended
(in thousands)	September 30, 2017			September 30, 2016
Cash flows from:
Operating activities:
Net (loss) income	$	(3,458	)	$	7,562
Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities:
Depreciation and amortization	12,075			9,733
Stock-based compensation	4,823			4,068
Provision for bad debts	321			727
Loss on disposal of assets	263			814
Provision for excess and obsolete inventory	1,271			2,937
Deferred income tax expense (benefit)	224			(734		)
Income tax benefit from exercise of stock options	—			(354		)
Change in operating assets and liabilities:
Decrease (increase) in:
Accounts receivable	3,701			12,850
Inventories	(11,450		)	(8,689		)
Prepaid expenses and other current assets	(3,834		)	(995		)
(Decrease) increase in:
Accounts payable and accrued liabilities	(2,774		)	1,128
Income taxes payable	(598		)	—
Customer deposits	(6		)	(1,155		)
Unearned service revenues	(1,326		)	559
Net cash (used in) provided by operating activities	(768		)	28,451
Investing activities:
Proceeds from sale of investments	32,000			11,000
Purchases of property and equipment	(6,081		)	(5,272		)
Payments for intangible assets	(1,345		)	(1,440		)
Acquisition of business	(5,496		)	(20,911		)
Net cash provided by (used in) investing activities	19,078			(16,623		)
Financing activities:
Payments on capital leases	(6		)	(6		)
Payment of contingent consideration for acquisitions	(521		)	(434		)
Income tax benefit from exercise of stock options	—			354
Proceeds from issuance of stock	387			519
Net cash (used in) provided by financing activities	(140		)	433
Effect of exchange rate changes on cash and cash equivalents	5,502			1,732
Increase in cash and cash equivalents	23,672			13,993
Cash and cash equivalents, beginning of period	106,169			107,356
Cash and cash equivalents, end of period	$	129,841		$	121,349



	Nine Months Ended
	September 30, 2017		September 30, 2016
Risk-free interest rate	1.88% - 2.02%		1.06% - 1.21%
Expected dividend yield	—	%	—	%
Expected term of option	5 years		4 years
Expected volatility	45.2	%	46.7% - 47.0%
Weighted-average expected volatility	45.2	%	46.7	%



	Options		Weighted- Average Exercise Price		Weighted-Average Remaining Contractual Term (Years)	Aggregate Intrinsic Value as of September 30, 2017
Outstanding at January 1, 2017	1,090,160		$	48.02
Granted	267,039		34.79
Forfeited or expired	(72,015	)	44.39
Exercised	(14,520	)	26.68
Unearned performance-based options	(19,362	)	59.97
Outstanding at September 30, 2017	1,251,302		$	45.47	4.2	$	2,235
Options exercisable at September 30, 2017	963,891		$	42.82	3.0	$	612



	Shares		Weighted-Average Grant Date Fair Value
Non-vested at January 1, 2017	150,682		$	33.39
Granted	152,207		35.42
Forfeited	(20,844	)	33.84
Vested	(21,101	)	33.65
Unearned performance-based awards	(604	)	52.83
Non-vested at September 30, 2017	260,340		$	34.60



	As of September 30, 2017			As of December 31, 2016
Accounts receivable	$	62,489		$	63,193
Allowance for doubtful accounts	(2,040		)	(1,829		)
Total	$	60,449		$	61,364



	As of September 30, 2017
	Level 1		Level 2		Level 3
Assets:
Short-term investments (1)	$	10,970	$	—	$	—
Total	$	10,970	$	—	$	—
Liabilities:
Contingent consideration (2)	$	—	$	—	$	1,742
Total	$	—	$	—	$	1,742
	As of December 31, 2016
	Level 1		Level 2		Level 3
Assets:
Short-term investments (1)	$	42,942	$	—	$	—
Total	$	42,942	$	—	$	—
Liabilities:
Contingent consideration (2)	$	—	$	—	$	2,100
Total	$	—	$	—	$	2,100



	Factory Metrology		Construction BIM-CIM		Other		Total
Three Months Ended September 30, 2017

Total sales	$	59,339	$	22,751	$	8,160	$	90,250
Segment profit	$	20,144	$	5,407	$	493	$	26,044
General and administrative							10,307
Depreciation and amortization							4,368
Research and development							9,019
Income from operations							$	2,350



	BuildIT			LPT			MWF			Nutfield
Accounts receivable	$	237		$	54		$	150		$	160
Inventory	—			322			—			539
Other assets	36			160			666			96
Deferred income tax assets	—			1,112			—			—
Intangible assets	1,015			5,474			1,816			2,329
Goodwill (1)	3,393			11,922			5,364			2,488
Accounts payable and accrued liabilities	(95		)	(747		)	(700		)	(12		)
Other liabilities	(471		)	(1,086		)	(345		)	(104		)
Deferred income tax liabilities	(205		)	—			(364		)	—
Total purchase price, net of cash acquired	$	3,910		$	17,211		$	6,587		$	5,496



	Three Months Ended
	September 30, 2017		% of Total		September 30, 2016		% of Total
Factory Metrology	$	59,339	65.8	%	$	58,310	73.3	%
Construction BIM-CIM	22,751		25.2	%	15,925		20.0	%
Other	8,160		9.0	%	5,365		6.7	%
Total sales	$	90,250			$	79,600