Core Insights - FARO Technologies has launched a new 3D reality capture solution called FARO Blink, aimed at streamlining and democratizing the 3D reality capture process [1][2] - The solution combines advanced visualization with automated workflows through the FARO Sphere XG Digital Reality Platform, enhancing operational efficiency and insight generation [1][2] Product Features - Blink is designed to simplify 3D data access, enabling users of all expertise levels to achieve professional-quality data insights [2] - The solution is recognized for its modern design, having won awards such as the Red Dot Design Award and a silver at the New York Design Awards [2] - It facilitates easier data capture, viewing, and sharing for professionals in design, construction, surveying, and operations [2][3] Market Impact - The introduction of Blink expands FARO's product offerings and addressable market, targeting construction, real estate, and geospatial sectors [3] - The solution aims to streamline data processing and analysis for a wide range of users, including project managers and 3D scanning service providers [3] Availability - FARO Blink is now available in all regions, enhancing accessibility for users globally [4] Company Background - FARO Technologies has over 40 years of experience in providing technology solutions that enable customers to measure and analyze their environments for better decision-making [5] - The company continues to innovate in bridging digital and physical worlds through reliable and precise data solutions [5]

Financial Data and Key Metrics Changes - Revenue for Q4 2024 was $93.5 million, down 5% year-over-year, but above the midpoint of guidance [30] - Non-GAAP gross margin increased to 57.4%, up 650 basis points year-over-year [32] - Non-GAAP EPS for Q4 was $0.50, a $0.25 improvement from Q4 2023 [33] - Annual non-GAAP EPS improved to $0.97, a $1.49 increase year-over-year [36] Business Line Data and Key Metrics Changes - Hardware revenue decreased by 7% year-over-year to $62.3 million [31] - Software revenue was down 5% to $11.6 million, while service revenue decreased by 2% to $19.7 million [31] - Recurring revenue represented 18% of sales, declining by 2% year-over-year [31] Market Data and Key Metrics Changes - The Americas and European regions saw revenue declines of 5% and 2% respectively, while Asia Pacific experienced a decline of over 11% primarily due to weakness in China [30] - The company noted stable demand in sectors like 3D metrology but faced challenges in commercial construction in regions like China and Germany [10] Company Strategy and Development Direction - The company is in a multi-year strategy divided into three phases, focusing first on operational excellence, then on organic growth initiatives, and finally on strategic investments [12][13] - Key initiatives include refreshing core solutions, expanding addressable opportunities, and forming strategic partnerships [16][20] - The company aims to increase its addressable opportunity by 40% through new solutions aligned with its core business [22] Management's Comments on Operating Environment and Future Outlook - Management expressed caution regarding the market outlook beyond the next quarter, citing ongoing economic uncertainties and customer hesitance due to tariff-related issues [11][38] - Despite challenges, management remains optimistic about growth initiatives and believes they will help offset industry softness [38][39] Other Important Information - The company achieved a record year in 2024, with significant improvements in cash flow and operational metrics [11][36] - The company signed two significant global partnership agreements, one with Topcon and another in the 3D metrology space, expected to enhance market reach [24][25] Q&A Session Summary Question: Differences in OEM distribution agreements with Topcon - Management highlighted a comprehensive growth plan with Topcon, expecting significant revenue contributions as the partnership ramps up [44][45] Question: Timeline for the digital metrology agreement - Management indicated that the unnamed partnership would likely launch in the fourth quarter of 2025, focusing on global scalability [50][52] Question: Market conditions and growth initiatives - Management noted that current market conditions are similar to Q4, with expectations for growth initiatives to help the company outpace market growth [60][62] Question: Impact of tariffs on customer behavior - Management observed that customers are being cautious due to tariff uncertainties, particularly in regions like Canada and Latin America [80][84] Question: Pricing strategy and competitive landscape - Management confirmed recent price increases and noted that competitors are also raising prices, allowing for flexibility in competitive situations [86][88]

Financial Data and Key Metrics Changes - Revenue for the fourth quarter was $93.5 million, exceeding the midpoint of guidance and down 5% year-over-year [7][23] - Non-GAAP gross margin was 57.4%, an increase of over 600 basis points year-over-year [7][24] - Non-GAAP operating expenses were $39.9 million, below the targeted range and down $1.4 million from the previous year [8][24] - Non-GAAP EPS was $0.5, representing a $0.25 improvement year-over-year [8][26] - Adjusted EBITDA was $16.8 million, approximately 18% of sales, compared to $11.9 million in the same quarter last year [25] Business Line Data and Key Metrics Changes - Hardware revenue was $62.3 million, down 7% year-over-year [23] - Software revenue was $11.6 million, down 5% [23] - Service revenue decreased by 2% to $19.7 million [23] - Recurring revenue was $17.1 million, representing 18% of sales, and declined by 2% year-over-year [23] Market Data and Key Metrics Changes - The Americas and European regions saw a decline of 5% and 52% respectively, while Asia Pacific experienced a decline of over 11% primarily due to weakness in China [23] - Stable demand was noted in sectors like 3D metrology, while challenges persisted in commercial construction and specific regions [10] Company Strategy and Development Direction - The company is focused on a multi-year strategy categorized into three phases: operational excellence, organic growth initiatives, and strategic investments [11][12] - The first phase has been successful in improving cash flow generation and gross margins, while the second phase will focus on organic growth initiatives [12][13] - New product launches and strategic partnerships are key components of the growth strategy, including the introduction of the FARO LEAP ST handheld scanner and partnerships with Topcon [17][20] Management's Comments on Operating Environment and Future Outlook - Management expressed caution regarding the market outlook beyond the next quarter, citing ongoing economic challenges and FX headwinds [10][28] - The company anticipates continued headwinds in Q1 2025, with revenue guidance between $77 million and $85 million [28] - Despite challenges, management remains optimistic about the potential of growth initiatives to offset market softness [28][22] Other Important Information - The company achieved a record year in 2024, with significant improvements in gross margin and cash flow [10][27] - The updated long-term aspirational goals include a gross margin of 59% and an EBITDA margin of 20% [27] Q&A Session Summary Question: Differences in the OEM distribution agreement with Topcon compared to previous agreements - Management highlighted a comprehensive growth plan with Topcon, expecting significant contributions to revenue [31][32] Question: Timeline for the full ramp of the Topcon agreement - Management indicated a cautious approach, focusing on delivering growth for both companies [34] Question: Impact of the digital metrology agreement - The agreement is expected to enhance global reach and customer base, with initial focus on one metrology product [35][36] Question: Market conditions and growth initiatives - Management noted that Q1 conditions are similar to Q4, with expectations for growth initiatives to help outpace market trends [43][44] Question: Competitive landscape and tariff impacts - Management discussed the potential for tariff impacts but emphasized the ability to adapt production strategies [49][50] Question: Customer caution regarding tariff impacts - Management acknowledged that uncertainty leads to cautious spending among customers, particularly in certain regions [56][57] Question: Pricing strategy and competitor actions - Management confirmed recent price increases were well received, with no significant pushback noted from customers [61][62]

Revenue and Sales Performance - Approximately 85% of the company's revenue in 2024 was attributable to sales to existing customers[86] - Total sales for 2024 were $342,427,000, a decrease of 4.3% from $358,831,000 in 2023[292] - Total product sales for 2024 were $260.194 million, a decrease of 6.5% from $278.572 million in 2023[337] - Service sales for 2024 amounted to $82.233 million, reflecting a slight increase from $80.259 million in 2023[337] - Total sales to external customers in the Americas for 2024 were $158.311 million, down from $167.269 million in 2023, representing a decline of 6.4%[337] - The company recognized revenue from invoicing activity of $34.133 million for the year ended December 31, 2024, compared to $33.7 million in 2023[341] Financial Position and Assets - As of December 31, 2024, the company holds $44.1 million in intangible assets and $106.6 million in goodwill, with potential future impairments impacting financial condition[120] - The outstanding principal balance of the company's Convertible Senior Notes was $72 million as of December 31, 2024, indicating a need for additional capital[122] - The company had short-term investments of $10.0 million and cash equivalents of $20.5 million as of December 31, 2024[271] - The company's total assets decreased from $504.7 million in 2023 to $483.0 million in 2024, a decline of approximately 4.3%[290] - The total current assets decreased from $261.6 million in 2023 to $248.2 million in 2024, a decline of approximately 5.2%[290] - The company reported total property, plant, and equipment at cost of $124.4 million as of December 31, 2024, a decrease from $126.2 million in 2023[314] Profitability and Expenses - The net loss for 2024 was $9,066,000, significantly improved from a net loss of $56,577,000 in 2023[295] - Gross profit increased to $187,153,000 in 2024, compared to $164,999,000 in 2023, reflecting a gross margin improvement[292] - Operating expenses decreased to $183,824,000 in 2024, down from $214,535,000 in 2023, primarily due to lower selling, general and administrative expenses[292] - Research and development expenses were $40,056,000 in 2024, slightly down from $41,806,000 in 2023, reflecting ongoing investment in innovation[292] - The company reported a comprehensive loss of $20,838,000 for 2024, compared to $60,493,000 in 2023, indicating a reduction in overall losses[295] Risks and Challenges - The company faces risks related to attracting and retaining qualified personnel, which could negatively impact profitability[80] - The company is vulnerable to the effects of pandemics, which could materially impact its business and financial condition[97] - Reductions in defense spending could adversely affect the company's financial position, results of operations, and cash flows, particularly due to reliance on U.S. government contracts[105] - The company faces significant exposure to foreign exchange rate risk due to a substantial portion of revenues, expenses, and assets being denominated in foreign currencies[114] - The company is exposed to risks related to the availability and cost of raw materials, which could negatively impact profitability and operational efficiency[144] Compliance and Regulatory Issues - The company is subject to various governmental regulations, including the EU's RoHS2 and WEEE directives, which could impact its operations and results if compliance is not maintained[148] - The company must comply with data protection laws, such as the EU GDPR, which could materially impact its business operations and data handling practices[149] - Compliance with anti-corruption laws is critical, as violations could lead to significant penalties and reputational harm[163] - The company faces significant compliance costs due to evolving data protection regulations in the U.S. and internationally, which may require substantial investments in security measures[150] Market and Competitive Landscape - The company competes in a highly competitive market for measurement systems, requiring continued investment in technology and product development to maintain its competitive edge[145] - The company's financial performance is highly dependent on the automotive, aerospace, and heavy equipment industries, which are cyclical and sensitive to economic conditions[112] - The effectiveness of the company's sales promotions and geographic expansion efforts may significantly influence future operating results[118] Currency and Taxation - In 2024, 59% of the company's revenue was invoiced in foreign currencies, with 41% of its assets also denominated in foreign currencies[270] - The company had U.S. federal net operating loss carryforwards of $13.2 million and state net operating loss carryforwards of $133.5 million as of December 31, 2024[363] - The income tax expense for 2024 was $8,132 million, a significant increase from $2,515 million in 2023[362] - The total deferred tax liabilities increased from $2,583 million in 2023 to $3,120 million in 2024[362] Corporate Governance and Internal Controls - A material weakness in internal controls related to IT general controls was identified, but remediation actions have been implemented and deemed successful as of December 31, 2024[127] - The company has adopted a new sales strategy for government contracts through approved distributors to mitigate compliance risks[161]

Financial Performance - Q4 2024 revenue was $93.5 million, down 5% year-over-year, but at the upper end of guidance range [4] - Q4 2024 net loss was $1.0 million, or $(0.05) per share, compared to net income of $1.6 million, or $0.08 per share in the prior year period [5] - Full year 2024 total sales were $342.4 million, down 5% compared to the prior year period [11] - Full year 2024 net loss was $9.1 million, or $(0.47) per share, compared to a net loss of $56.6 million, or $(2.99) per share in the prior year [11] - The company reported a net loss of $9.1 million for the twelve months ended December 31, 2024, compared to a net loss of $56.6 million in 2023, indicating a positive trend in financial recovery [31] Adjusted Metrics - Adjusted EBITDA for Q4 2024 was $16.7 million, or 17.9% of total sales, compared to $11.9 million, or 12.1% of total sales in the prior year period [10] - Non-GAAP net income for the full year 2024 was $18.5 million, or $0.97 per share, compared to a non-GAAP net loss of $9.9 million, or $(0.52) per share in the prior year [11] - Adjusted EBITDA for the twelve months ended December 31, 2024, was $39.6 million, significantly up from $2.7 million in 2023, reflecting a substantial improvement in operational performance [31] - The company reported a non-GAAP income from operations of $28.2 million for 2024, a significant recovery from a loss of $8.0 million in 2023 [29] Cash and Investments - Cash, cash equivalents, and short-term investments increased to $98.7 million as of December 31, 2024, compared to $88.9 million as of September 30, 2024 [10] - Cash and cash equivalents rose to $88.7 million at the end of 2024, compared to $76.8 million at the end of 2023, an increase of approximately 15.5% [27] Profitability Metrics - The company achieved a decade-high adjusted EBITDA margin of 18% in Q4 2024, marking the first double-digit adjusted EBITDA margin since 2018 [2] - Gross margin improved to 54.7% in 2024 from 46.0% in 2023, reflecting a positive trend in profitability [29] - The company’s GAAP gross margin for the fiscal quarter ending March 31, 2025, is projected to be between 54.5% and 56.0%, with a Non-GAAP gross margin expected between 55.0% and 56.5% [37] Expenses and Liabilities - Operating expenses for Q4 2024 were $48.4 million, a slight decrease from $48.9 million in the prior year period [5] - Total liabilities decreased from $236.1 million in 2023 to $233.4 million in 2024, a reduction of about 1.1% [25] - Research and development expenses for 2024 were $40.1 million, slightly decreased from $41.8 million in 2023 [29] Sales and Revenue Composition - Total recurring revenue for the twelve months ended December 31, 2024, was $68.4 million, representing 20.0% of total sales, an increase from 18.8% in 2023 [33] - Hardware sales for the three months ended December 31, 2024, were $62.3 million, accounting for 66.6% of total sales, compared to 67.4% in the same period of 2023 [33] - The company’s total sales in constant currency for the twelve months ended December 31, 2024, were $349.0 million, a decrease from $361.1 million in 2023 [33] Restructuring and Future Outlook - The company has completed substantially all planned activities under its Restructuring and Integration Plans, with a new restructuring plan approved on November 1, 2024, to address underperforming operations [30] - The company expects Q1 2025 revenue in the range of $77 to $85 million, with a gross margin between 54.5% and 56.0% [11] - The company’s restructuring and other costs for the twelve months ended December 31, 2024, amounted to $8.9 million, down from $19.0 million in 2023, reflecting the completion of planned restructuring activities [31] Shareholder Returns - The company repurchased $10.0 million worth of common stock during the year, indicating a commitment to returning value to shareholders [27]

Core Insights - FARO Technologies, Inc. reported strong financial results for Q4 and full year 2024, achieving a decade-high adjusted EBITDA margin of 18% and positive operating cash flow for five consecutive quarters [2][5][6] - The company experienced a year-over-year increase in operating cash flow of $29.6 million, marking its first double-digit adjusted EBITDA margin since 2018 [2][5] - FARO's multi-phase strategy focuses on operational excellence, organic growth, and strategic investments, positioning the company for sustained market leadership and long-term value creation [2] Financial Summary - Fourth Quarter 2024 - Total sales for Q4 2024 were $93.5 million, a decrease of 5% year-over-year [6] - Gross margin improved to 56.7%, up from 50.9% in the prior year period, with a non-GAAP gross margin of 57.4% compared to 51.3% [6] - Operating expenses decreased to $48.4 million from $48.9 million in the prior year period, with non-GAAP operating expenses at $39.9 million, down from $41.3 million [6] - The company reported a net loss of $1.0 million, or $(0.05) per share, compared to a net income of $1.6 million, or $0.08 per share in the prior year [6] - Non-GAAP net income for Q4 was $9.5 million, or $0.50 per share, compared to $5.8 million, or $0.31 per share in the prior year [6] Financial Summary - Full Year 2024 - Total sales for the full year 2024 were $342.4 million, down 5% compared to the prior year [6] - The net loss for the full year was $9.1 million, or $(0.47) per share, an improvement from a net loss of $56.6 million, or $(2.99) per share in the prior year [6] - Non-GAAP net income for the full year was $18.5 million, or $0.97 per share, compared to a non-GAAP net loss of $9.9 million, or $(0.52) per share in the prior year [6] Outlook for First Quarter 2025 - FARO expects Q1 2025 revenue in the range of $77 to $85 million, with a gross margin between 54.5% and 56.0% [5][6] - The company anticipates operating expenses between $45.0 million and $47.0 million, with non-GAAP operating expenses in the range of $38.5 million to $40.5 million [5][6] - The projected net loss per share is expected to be between $(0.36) and $(0.16), while non-GAAP earnings per share are anticipated to be in the range of $0.10 to $0.30 [5][6] Key Sales Measures - For Q4 2024, total sales to external customers were $93.5 million, with regional breakdowns showing $40.6 million from the Americas, $32.9 million from EMEA, and $20.1 million from APAC [35] - For the full year 2024, total sales were $342.4 million, with $158.3 million from the Americas, $108.4 million from EMEA, and $75.7 million from APAC [35]

Core Viewpoint - FARO Technologies, Inc. will announce its financial results for Q4 and the full year of 2024 on February 24, 2025, after market close, followed by a conference call with key executives [1]. Group 1: Financial Results Announcement - The financial results for the fourth quarter and full year ended December 31, 2024, will be released on February 24, 2025 [1]. - A conference call will be hosted by Peter Lau, President and CEO, and Matthew Horwath, Senior Vice President and CFO, on the same day at 4:30 PM ET [1]. Group 2: Conference Call Access - Interested parties can join the conference call by dialing +1 800-579-2543 (U.S.) or +1 785-424-1789 (International) with the passcode FARO [2]. - A live webcast will be available on FARO's Investor Relations website, and a replay will be accessible approximately two hours after the call for about 30 days [2]. Group 3: Company Overview - FARO has been a leader in technology solutions for over 40 years, enabling customers to measure their world and make informed decisions [3]. - The company focuses on bridging the digital and physical worlds through reliable accuracy, precision, and immediacy in data [3].

Core Insights - FARO Technologies, Inc. has launched the FARO Leap ST, a new handheld scanning solution that enhances its product portfolio and strengthens its position in the manufacturing sector [1][2][7] - The Leap ST features five operating modes designed for various scanning needs, emphasizing speed, accuracy, and versatility in 3D metrology [2] - The updated FARO CAM2 software complements the Leap ST, offering tailored versions for specific manufacturing measurement requirements [3] Company Developments - The launch of Leap ST is part of FARO's strategy to maintain momentum in product innovation, following a series of new product launches in 2024 [2] - FARO has been a pioneer in 3D metrology for over 40 years, focusing on bridging digital and physical worlds through reliable technology solutions [5] Customer Impact - RFK Racing, a long-time customer, has praised the Leap ST for its potential to enhance manufacturing efficiency and streamline processes through integration with CAM2 software [4]

Financial Data and Key Metrics Changes - Non-GAAP gross margin was 56.1%, expanding 730 basis points year-over-year and 110 basis points sequentially [8] - Non-GAAP operating expenses were $40.1 million, remaining at the lower end of the targeted guidance range of $40 million to $43 million per quarter [8] - Non-GAAP EPS was $0.21, above the high end of the guidance range, marking the sixth consecutive quarter of exceeding expectations [9] - Adjusted EBITDA was $8.9 million or 10.7% of sales, bringing year-to-date adjusted EBITDA to $22.9 million [9] - GAAP net loss was $300,000 or $0.02 per share, while non-GAAP net income was $4 million or $0.21 per share [41] Business Line Data and Key Metrics Changes - Hardware revenue was $50.3 million, down 10% year-over-year; software revenue was approximately flat at $11.2 million; service revenue increased by 6% to $21.1 million [37] - Recurring revenue was $17.4 million, representing 21% of sales and growing 2% year-over-year [37] Market Data and Key Metrics Changes - Revenue of $82.6 million was down 5% versus the prior year, with the Americas and European regions down 2% and 1%, respectively; Asia Pacific region experienced a $3.4 million decline or 17% due to weakness in China [36] - Demand in the Americas was consistent with the prior quarter, while demand in EMEA increased sequentially, driven by strength in France and Eastern Europe; demand in Asia declined again due to economic challenges [14] Company Strategy and Development Direction - The company is focused on optimizing operations and has exceeded margin targets set earlier in the year [12][31] - Strategic investments are being made in customer experience, regional diversification, and new products and technologies to improve growth profiles [19] - The company is advancing its product roadmap, including refreshing major product lines to meet evolving customer needs [22][23] Management's Comments on Operating Environment and Future Outlook - Management remains cautious about the outlook beyond the next quarter due to ongoing macroeconomic uncertainties [14][46] - The macro environment is described as choppy, with expected demand challenges, particularly in China [46] - The company anticipates fourth quarter revenue between $88 million and $96 million, with corresponding non-GAAP gross margin between 56% and 57.5% [47] Other Important Information - The company repurchased $10 million of outstanding shares in the third quarter [17] - A restructuring plan has been announced to improve operating performance, particularly in underperforming countries, with expected cash charges of $6 million to $9 million [44] Q&A Session Summary Question: Guidance for Q4 and assumptions behind it - Management indicated that the guidance is based on a cautious outlook due to macroeconomic uncertainties rather than specific observations from October [51] Question: Long-term financial goals and earnings power - Management acknowledged that current gross margin levels are ahead of plan and indicated a potential reset of targets in the future based on revenue growth [54] Question: Restructuring details and revenue offsets - The restructuring plan focuses on reallocating resources to higher growth countries and optimizing operational efficiency [57] Question: Capital allocation and share buyback status - Management confirmed that $10 million was repurchased in Q3, with approximately $8.3 million remaining in the current share repurchase program [59] Question: Trends in the construction end market - Management noted that construction trends vary by region, with healthcare and infrastructure construction performing better than commercial construction [62]

Restructuring and Integration - FARO Technologies achieved approximately $40 million in annualized savings through its Restructuring Plan[80]. - The Integration Plan has incurred total restructuring charges of $26.7 million, with cash payments of $10.1 million as of September 30, 2024[80]. - FARO's cloud-based offerings are being consolidated from three platforms into a single customer offering as part of the Integration Plan[80]. - FARO has not incurred any costs associated with the Integration and Restructuring plans in Q3 2024, compared to $1.6 million in the same period in 2023[80]. Financial Performance - Total sales for the three months ended September 30, 2024, were $82.6 million, a decrease of $4.3 million or 5.2% compared to $86.8 million for the same period in 2023[90]. - Product sales decreased by $5.4 million, or 8.1%, to $61.5 million for the three months ended September 30, 2024, primarily impacted by a $3.4 million decline in the APAC region, particularly in China[90]. - Gross profit increased by $4.3 million, or 10.3%, to $46.0 million for the three months ended September 30, 2024, with gross margin rising to 55.7% from 48.0% in the prior year[90]. - Selling, general and administrative expenses decreased by $4.0 million, or 10.3%, to $34.0 million for the three months ended September 30, 2024, resulting in a decrease in expenses as a percentage of sales to 41.2%[90]. - Research and development expenses increased by $1.6 million, or 19.5%, to $9.8 million for the three months ended September 30, 2024, representing 11.8% of sales[90]. - Net loss for the three months ended September 30, 2024, was $0.3 million, a significant improvement compared to a net loss of $8.8 million for the same period in 2023[90]. - Total sales decreased by $11.1 million, or 4.3%, to $248.9 million for the nine months ended September 30, 2024, compared to $260.0 million for the same period in 2023[92]. - Product sales decreased by $13.4 million, or 6.7%, to $186.3 million, while service sales increased by $2.3 million, or 3.9%, to $62.6 million[92]. - Gross profit increased by $19.4 million, or 16.9%, to $134.1 million, with gross margin rising by 9.8 percentage points to 53.9%[92]. - Selling, general and administrative expenses decreased by $11.7 million, or 9.9%, to $106.2 million, with expenses as a percentage of sales decreasing to 42.7%[92]. - Research and development expenses decreased by $3.9 million, or 12.3%, to $28.6 million, with expenses as a percentage of sales decreasing to 11.5%[92]. - Net loss was $8.1 million for the nine months ended September 30, 2024, compared to a net loss of $58.2 million for the prior year period[94]. - Cash and cash equivalents increased by $12.1 million to $88.9 million as of September 30, 2024, driven by cash generated from operating activities[94]. - Cash provided by operating activities was $13.4 million during the nine months ended September 30, 2024, compared to $17.6 million used in the same period of 2023[94]. Revenue Recognition - FARO's revenue is primarily derived from measurement equipment and related software, recognized upon shipment[77]. - The company recognizes revenue from hardware service contracts and software maintenance on a straight-line basis over the contractual term[77]. - Recurring revenue from hardware service contracts, software maintenance contracts, and subscription-based software applications was $17.4 million for the three months ended September 30, 2024, compared to $17.1 million in 2023[82]. - Revenue from software products for the three months ended September 30, 2024, was $11.2 million, consistent with the same period in 2023[82]. - The company capitalized $1.2 million in costs related to internally developed software for both the three months ended September 30, 2024, and 2023[82]. Operational Changes - The company transitioned manufacturing to Sanmina, completing the phased transition by the beginning of Q3 2022[80]. - FARO's partnership with Sanmina is expected to support production capacity necessary for 2024[79]. - The company has abandoned 17,000 square feet of unused manufacturing space in Exton, Pennsylvania, as part of its cost reduction initiative[80]. Foreign Currency Exposure - As of September 30, 2024, 58% of the company's revenue was invoiced in foreign currencies, with 43% of assets denominated in foreign currencies, indicating significant exposure to foreign exchange risks[100]. - The company has not utilized off-balance sheet financial instruments to hedge foreign currency exchange rate exposure, relying instead on natural hedges from revenue and expenses[100]. Internal Controls and Compliance - A material weakness was identified in the company's internal controls related to information technology general controls (ITGCs), specifically in user access management, which could lead to material misstatements in financial reporting[105]. - Remediation actions include hiring new IT leadership with public company experience and revising user access controls to ensure appropriate segregation of duties[106]. - The company expects to complete the remediation of the identified material weakness prior to the end of fiscal 2024[106]. - No changes in internal control over financial reporting occurred during the three months ended September 30, 2024, that materially affected the company's internal controls[108]. Legal and Regulatory Matters - The company believes that ongoing legal proceedings will not have a material adverse effect on its financial condition or results of operations[110]. Economic Factors - General inflation has negatively impacted the company's cost of sales and operating expenses, affecting customer capital for purchasing products and services[102]. Shareholder Actions - The company repurchased a total of 588,856 shares for a total cash payment of $10.0 million as part of its share repurchase program[94]. Taxation - The effective tax rate was 93.9% for the nine months ended September 30, 2024, compared to 9.1% in the prior year period[92].