Part I [Business](index=7&type=section&id=Item%201.%20Business) FARO Technologies, Inc. is a global technology company specializing in 3D measurement, imaging, and realization solutions for various markets - FARO designs, develops, and markets 3D measurement, imaging, and realization solutions for manufacturing, AEC, O&M, and public safety analytics markets[23](index=23&type=chunk) - The company's strategy focuses on growth and profitability through strategic acquisitions, software development investment, and restructuring to lower operating expenses[25](index=25&type=chunk) - FARO has a diversified base of over **12,000 customers worldwide**, with the ten largest customers accounting for only **2.3% of total sales in 2023**[49](index=49&type=chunk) - As of December 31, 2023, the company employed **1,243 full-time employees globally**, with **38% in the Americas**, **41% in EMEA**, and **21% in APAC**[72](index=72&type=chunk) [Strategy, Acquisitions, and Restructuring](index=7&type=section&id=Item%201.%20Business%23Strategy%2C%20Acquisitions%2C%20and%20Restructuring) FARO's strategy focuses on software development and profitability through key acquisitions and cost-saving restructuring initiatives - Acquired Holobuilder in June 2021 for its 360° photo software platform, enhancing capabilities for the Construction and Digital Twin markets[26](index=26&type=chunk) - Acquired GeoSLAM in September 2022, a provider of mobile scanning solutions with proprietary SLAM software, primarily for geospatial, mining, and construction markets[27](index=27&type=chunk) - Acquired SiteScape in December 2022, an innovator in LiDAR 3D scanning software for mobile devices, targeting AEC and O&M markets[28](index=28&type=chunk) - The 2020 Restructuring Plan achieved approximately **$40 million in annualized savings**. The 2023 Integration Plan targeted an additional **$20 million to $30 million in annualized savings**, with total incurred charges of **$26.1 million** as of year-end 2023[29](index=29&type=chunk)[32](index=32&type=chunk) - Outsourced manufacturing of key products to Sanmina Corporation, a transition completed in Q3 2022 as part of cost reduction initiatives[31](index=31&type=chunk) [FARO Products and Software](index=9&type=section&id=Item%201.%20Business%23FARO%20Products%20and%20Software) FARO offers a comprehensive portfolio of 3D hardware and software solutions, increasingly available via subscription - The FaroArm® portfolio offers portable, articulated measurement arms for probing and scanning, primarily for automotive, aerospace, and fabrication industries[42](index=42&type=chunk) - The FARO Laser Tracker portfolio provides ultra-precise, large-volume measurement tools for industries like aerospace and automotive[42](index=42&type=chunk)[43](index=43&type=chunk) - The Laser Scanning portfolio, including the Focus and Freestyle 2 scanners, captures detailed 3D data for factory planning, quality control, and forensic analysis[43](index=43&type=chunk)[46](index=46&type=chunk) - The Mobile Laser Portfolio, from the GeoSLAM acquisition, features the Orbis™ hybrid scanner and Zeb series, using SLAM technology for fast, portable 3D scanning[44](index=44&type=chunk)[46](index=46&type=chunk) - FARO offers a suite of software solutions, including the cloud-based FARO Sphere® XG, CAM2®, BuildIT®, SCENE, and others, increasingly available via subscription[45](index=45&type=chunk)[46](index=46&type=chunk)[51](index=51&type=chunk) [Sales, Marketing, and Competition](index=11&type=section&id=Item%201.%20Business%23Sales%2C%20Marketing%2C%20and%20Competition) FARO sells its products globally through direct and indirect channels, competing in a broad and highly competitive market - The company sells products worldwide through direct sales offices and third-party distributors, employing **576 sales and marketing staff** as of year-end 2023[50](index=50&type=chunk)[52](index=52&type=chunk) - Key competitors include Hexagon Manufacturing Intelligence (and its division Leica Geosystems), Automated Precision, Inc., Artec, Creaform (a division of Ametek), and Trimble Inc[64](index=64&type=chunk) - In the cloud-based software space (Holobuilder), key competitors are OpenSpace and StructionSite[64](index=64&type=chunk) [Backlog and Seasonality](index=14&type=section&id=Item%201.%20Business%23Backlog%20and%20Seasonality) The company's sales order backlog slightly decreased in 2023, with higher order volumes typically occurring in the fourth quarter Year-End Sales Order Backlog | Year | Backlog (in millions) | | :--- | :--- | | 2023 | $28.2 | | 2022 | $29.9 | | 2021 | $26.1 | - The company typically experiences greater order volume during the fourth quarter due to customer capital expenditure budget cycles[70](index=70&type=chunk) [Risk Factors](index=17&type=section&id=Item%201A.%20Risk%20Factors) FARO faces significant risks including management transitions, intense competition, market acceptance challenges, and financial volatility - Significant transitions in the executive management team, including a new CEO and CFO in 2023-2024, pose a risk to stability and execution[87](index=87&type=chunk) - The business is exposed to foreign exchange rate risk, as **over half of its revenues** are derived from international operations[105](index=105&type=chunk)[121](index=121&type=chunk) - The company may not realize the full benefits of its Restructuring and Integration plans, which could negatively impact future strategies and financial results[122](index=122&type=chunk) - A material weakness in internal control over financial reporting related to IT general controls was identified, which could lead to a material misstatement in financial statements[136](index=136&type=chunk)[137](index=137&type=chunk) - The company's **$75 million in convertible senior notes** create indebtedness risk, potentially limiting cash flow and exposing the company to conversion and repurchase obligations it may not be able to meet[141](index=141&type=chunk)[144](index=144&type=chunk) - Dependence on outside vendors for key components like electronic components and semiconductors creates a risk of manufacturing disruption if supply is interrupted[182](index=182&type=chunk) [Cybersecurity](index=31&type=section&id=Item%201C.%20Cybersecurity) FARO's Board oversees a comprehensive cybersecurity risk management program, with no material incidents to date - The Board of Directors and Audit Committee oversee cybersecurity risk, with management providing regular updates[186](index=186&type=chunk)[195](index=195&type=chunk) - The company employs a comprehensive strategy including technical safeguards, an incident response plan, third-party risk management, and mandatory employee training[188](index=188&type=chunk)[189](index=189&type=chunk)[190](index=190&type=chunk)[191](index=191&type=chunk)[192](index=192&type=chunk) - FARO utilizes a managed security provider to identify, assess, and monitor vulnerabilities and threats to its network[189](index=189&type=chunk) - Although the company experiences cybersecurity incidents, they have not had, and are not reasonably likely to have, a material impact on business operations or financial condition[196](index=196&type=chunk) [Properties](index=32&type=section&id=Item%202.%20Properties) FARO primarily leases its global facilities, aligning with a hybrid work strategy to reduce its real estate footprint - The company's facility strategy is to lease properties in key global regions, with a hybrid work model reducing the need for square footage[197](index=197&type=chunk) Key Leased Facilities | Region | Location | Approx. Square Feet | | :--- | :--- | :--- | | Americas | Lake Mary, FL | 35,000 | | Americas | Exton, PA | 90,400 | | EMEA | Stuttgart, Germany | 105,300 | | APAC | Singapore | 22,000 | - As part of the Integration Plan, the company has abandoned several office buildings under operating leases[202](index=202&type=chunk) Part II [Market For Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](index=34&type=section&id=Item%205.%20Market%20For%20Registrant%27s%20Common%20Equity%2C%20Related%20Stockholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities) FARO's common stock trades on Nasdaq, with no cash dividends paid and a share repurchase program in place - Common stock is traded on the Nasdaq Global Select Market under the symbol '**FARO**'[205](index=205&type=chunk) - The company has never paid cash dividends and does not plan to in the foreseeable future[207](index=207&type=chunk) - A share repurchase program is authorized at **$50.0 million**, with **$18.3 million remaining available** as of December 31, 2023. No shares were repurchased in 2023, 2022, or 2021[209](index=209&type=chunk) Stock Performance Comparison (2018-2023) | Year | FARO Technologies, Inc. | Nasdaq Composite | Russell 2000 | | :--- | :--- | :--- | :--- | | 2018 | $100.00 | $100.00 | $100.00 | | 2019 | $123.89 | $136.69 | $125.52 | | 2020 | $173.79 | $198.10 | $150.58 | | 2021 | $172.29 | $242.03 | $172.90 | | 2022 | $72.36 | $163.28 | $137.56 | | 2023 | $55.42 | $236.17 | $160.85 | [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=36&type=section&id=Item%207.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) In 2023, FARO's sales increased, but gross profit and margin declined due to impairment charges and higher costs, leading to a wider net loss [Results of Operations (2023 vs 2022)](index=40&type=section&id=Item%207.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations%23Results%20of%20Operations%20%282023%20vs%202022%29) Total sales grew in 2023, but gross profit and margin decreased significantly due to inventory impairment and higher operating expenses, resulting in a larger net loss Financial Performance (2023 vs 2022) | Metric (in thousands) | 2023 | 2022 | Change ($) | | :--- | :--- | :--- | :--- | | **Total Sales** | **$358,831** | **$345,765** | **$13,066** | | Product Sales | $278,572 | $265,280 | $13,292 | | Service Sales | $80,259 | $80,485 | ($226) | | **Gross Profit** | **$164,999** | **$175,763** | **($10,764)** | | *Gross Margin* | *46.0%* | *50.8%* | *-4.8 pts* | | **Total Operating Expenses** | **$214,535** | **$200,686** | **$13,849** | | Selling, general and administrative | $157,336 | $146,657 | $10,679 | | Research and development | $41,806 | $49,415 | ($7,609) | | Restructuring costs | $15,393 | $4,614 | $10,779 | | **Loss from Operations** | **($49,536)** | **($24,923)** | **($24,613)** | | **Net Loss** | **($56,577)** | **($26,756)** | **($29,821)** | - Product sales increased by **5.0%** due to demand for Quantum Max Arms, Laser Scanner, and Tracker products, plus a full year of GeoSLAM sales[244](index=244&type=chunk) - Gross margin from product revenue decreased by **7.3 percentage points**, primarily due to **$9.3 million in inventory impairment charges** related to the Integration Plan and higher material costs[245](index=245&type=chunk) - Restructuring costs increased significantly to **$15.4 million in 2023** from **$4.6 million in 2022**, driven by severance, professional fees, and asset impairments under the Integration Plan[248](index=248&type=chunk) [Liquidity and Capital Resources](index=42&type=section&id=Item%207.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations%23Liquidity%20and%20Capital%20Resources) FARO's cash position improved in 2023 due to convertible notes issuance, with sufficient liquidity expected for the next 12 months Cash and Liquidity Position | Metric (in millions) | Dec 31, 2023 | Dec 31, 2022 | | :--- | :--- | :--- | | Cash and cash equivalents | $76.8 | $37.8 | | Short-term investments | $19.5 | $0.0 | - Cash from financing activities was **$71.3 million**, driven by the issuance of **$75 million in 5.50% Convertible Senior Notes due 2028**[256](index=256&type=chunk)[259](index=259&type=chunk) - Cash used in operating activities decreased to **$1.1 million in 2023** from **$24.9 million in 2022**, due to better working capital management[254](index=254&type=chunk) - Material cash requirements include lease obligations of **$18.8 million** (with **$6.3 million due within 12 months**) and interest on convertible notes of **$20.7 million** (with **$4.1 million due within 12 months**)[259](index=259&type=chunk)[260](index=260&type=chunk) [Critical Accounting Policies](index=44&type=section&id=Item%207.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations%23Critical%20Accounting%20Policies) FARO's critical accounting policies involve significant estimates for revenue recognition, inventory, income taxes, goodwill, and stock-based compensation - **Revenue Recognition:** Revenue is allocated to distinct performance obligations based on relative standalone selling prices (SSP), using observable prices or management estimates[265](index=265&type=chunk) - **Inventory Reserve:** A reserve is established for inventory considered excess (on hand > 12 months of expected use) or obsolete (no sales in 12 months and none forecasted)[267](index=267&type=chunk) - **Income Taxes:** The company regularly assesses the recoverability of deferred tax assets and establishes a valuation allowance unless it is 'more likely than not' that the assets will be realized[268](index=268&type=chunk) - **Goodwill Impairment:** Goodwill is not amortized but tested for impairment annually (or more frequently if needed) by comparing the reporting unit's fair value to its carrying amount[271](index=271&type=chunk)[272](index=272&type=chunk) - **Stock-Based Compensation:** Fair value is determined using Black-Scholes for stock options and Monte Carlo Simulation for market-based awards, requiring significant judgment on assumptions like volatility and expected term[275](index=275&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=48&type=section&id=Item%207A.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company is exposed to significant foreign exchange risk, interest rate risk on investments, and the impact of global inflation on costs and demand - Significant foreign exchange exposure exists, with **57% of 2023 revenue** invoiced in foreign currencies. The company does not currently hedge this exposure[281](index=281&type=chunk) - Interest rate risk is present for the company's **$19.5 million in short-term investments** and **$9.9 million in cash equivalents**, primarily U.S. Treasury obligations[282](index=282&type=chunk)[283](index=283&type=chunk) - Global inflation negatively impacts the business by increasing the cost of raw materials and operating expenses, and may decrease customer demand[285](index=285&type=chunk) [Financial Statements and Supplementary Data](index=49&type=section&id=Item%208.%20Financial%20Statements%20and%20Supplementary%20Data) This section presents FARO's audited consolidated financial statements and the independent auditor's report, including an adverse opinion on internal controls - The independent auditor, Grant Thornton LLP, issued an unqualified opinion on the financial statements but an adverse opinion on internal control over financial reporting as of December 31, 2023[289](index=289&type=chunk)[454](index=454&type=chunk) Consolidated Balance Sheet Highlights (in thousands) | Account | Dec 31, 2023 | Dec 31, 2022 | | :--- | :--- | :--- | | Total Current Assets | $261,608 | $219,365 | | Goodwill | $109,534 | $107,155 | | Intangible assets, net | $47,891 | $48,978 | | Total Assets | $504,692 | $473,347 | | Loan - 5.50% Convertible Senior Notes | $72,760 | $0 | | Total Liabilities | $236,086 | $162,298 | | Total Shareholders' Equity | $268,606 | $311,049 | Consolidated Statement of Operations (in thousands) | Account | 2023 | 2022 | 2021 | | :--- | :--- | :--- | :--- | | Total Sales | $358,831 | $345,765 | $337,814 | | Gross Profit | $164,999 | $175,763 | $183,927 | | Loss from Operations | $(49,536) | $(24,923) | $(8,436) | | Net Loss | $(56,577) | $(26,756) | $(39,964) | | Net Loss per Share - Diluted | $(2.99) | $(1.46) | $(2.20) | [Controls and Procedures](index=82&type=section&id=Item%209A.%20Controls%20and%20Procedures) Management concluded disclosure controls were ineffective due to a material weakness in IT general controls, with a remediation plan underway - Management concluded that disclosure controls and procedures were not effective as of December 31, 2023[444](index=444&type=chunk) - A material weakness was identified in internal control related to ineffective IT general controls (ITGCs) in the area of user access over certain IT systems[448](index=448&type=chunk) - The weakness stemmed from inadequate design and maintenance of user access controls, insufficient documentation, and inadequate risk-assessment processes for IT systems[448](index=448&type=chunk)[456](index=456&type=chunk) - A remediation plan is underway, including hiring new IT leadership, formalizing roles, revising user access controls, and enhancing monitoring and training. The company expects remediation to be complete before the end of fiscal 2024[451](index=451&type=chunk)[452](index=452&type=chunk) - Grant Thornton LLP issued an adverse opinion on the company's internal control over financial reporting as of December 31, 2023[454](index=454&type=chunk) Part III [Directors, Executive Officers and Corporate Governance](index=87&type=section&id=Item%2010.%20Directors%2C%20Executive%20Officers%20and%20Corporate%20Governance) Information for this item is incorporated by reference from the 2024 proxy statement - Information regarding directors, executive officers, and corporate governance is incorporated by reference from the 2024 proxy statement[466](index=466&type=chunk) [Executive Compensation](index=87&type=section&id=Item%2011.%20Executive%20Compensation) Information for this item is incorporated by reference from the 2024 proxy statement - Information regarding executive compensation is incorporated by reference from the 2024 proxy statement[467](index=467&type=chunk) [Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters](index=87&type=section&id=Item%2012.%20Security%20Ownership%20of%20Certain%20Beneficial%20Owners%20and%20Management%20and%20Related%20Stockholder%20Matters) Information for this item is incorporated by reference from the 2024 proxy statement - Information regarding security ownership is incorporated by reference from the 2024 proxy statement[468](index=468&type=chunk) [Certain Relationships and Related Transactions, and Director Independence](index=87&type=section&id=Item%2013.%20Certain%20Relationships%20and%20Related%20Transactions%2C%20and%20Director%20Independence) Information for this item is incorporated by reference from the 2024 proxy statement - Information regarding related transactions and director independence is incorporated by reference from the 2024 proxy statement[469](index=469&type=chunk) [Principal Accountant Fees and Services](index=87&type=section&id=Item%2014.%20Principal%20Accountant%20Fees%20and%20Services) Information for this item is incorporated by reference from the 2024 proxy statement - Information regarding principal accountant fees and services is incorporated by reference from the 2024 proxy statement[470](index=470&type=chunk) Part IV [Exhibits and, Financial Statement Schedules](index=88&type=section&id=Item%2015.%20Exhibits%20and%2C%20Financial%20Statement%20Schedules) This item lists filed financial statements and exhibits, with schedules omitted as information is provided elsewhere - The consolidated financial statements required by this item are included in Part II, Item 8 of the Annual Report[472](index=472&type=chunk) - All financial statement schedules have been omitted because they are not required, not applicable, or the information is included in the consolidated financial statements or notes[473](index=473&type=chunk) [Form 10-K Summary](index=92&type=section&id=Item%2016.%20Form%2010-K%20Summary) No Form 10-K summary is provided in this report - None[481](index=481&type=chunk)

Exhibit 99.1 FARO Announces Fourth Quarter and Full Year 2023 Financial Results LAKE MARY, FL, February 27, 2024 - FARO® Technologies, Inc. (Nasdaq: FARO), a global leader in 4D digital reality solutions, today announced its financial results for the fourth quarter and full year ended December 31, 2023. "We are pleased with our improved financial performance and remain excited about the long term prospects of our integrated hardware and software solutions strategy to create customer value in our core market ...

LAKE MARY, Fla., Feb. 13, 2024 /PRNewswire/ -- FARO® Technologies, Inc. (Nasdaq: FARO), a leading provider of 3D measurement, imaging, and realization solutions, today announced that after market close on Tuesday, February 27, 2024, it will release its financial results for the fourth quarter and full year ended December 31, 2023. In conjunction with the release, Peter Lau, President and Chief Executive Officer, and Matthew Horwath, Chief Financial Officer, will host a conference call on Wednesday, February ...

LAKE MARY, Fla., Jan. 16, 2024 /PRNewswire/ -- FARO® (Nasdaq: FARO), a global leader in 4D digital reality solutions, today announced that Matthew Horwath has been promoted to SVP & Chief Financial Officer from his current position as Vice President of Finance at FARO, effective immediately. Matthew succeeds Allen Muhich, the Company's current Chief Financial Officer, who will provide transition services to the Company through April 1, 2024. "After an extensive search of external and internal candidates, it ...

LAKE MARY, Fla., Dec. 29, 2023 /PRNewswire/ -- FARO® Technologies, Inc. (Nasdaq: FARO), a leading provider of 3D measurement, imaging, and realization solutions, today announced the successful completion of its SOC 2 Type II audit for Sphere XG, furthering its commitment to customer security. The audit was conducted by leading compliance assessor, A-LIGN, a technology-enabled security and compliance partner trusted to help mitigate cybersecurity risks around the world. "We are very excited to share that we ...

Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-Q (Mark One) ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2023 OR ☐ 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) (State or other Jurisdic ...

FARO Technologies, Inc. (NASDAQ:FARO) Q2 2023 Earnings Conference Call August 2, 2023 5:00 PM ET Company Participants Michael Funari - Investor Relations Peter Lau - President and Chief Executive Officer Allen Muhich - Chief Financial Officer Yuval Wasserman - Executive Chairman Conference Call Participants Greg Palm - Craig Hallam Andrew DeGasperi - Berenberg Joseph Donahue - Baird Operator Good day, everyone and welcome to the FARO Technologies Second Quarter 2023 Earnings Call. For opening remarks and in ...

Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-Q (Mark One) ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2023 OR ☐ 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) (State or other Jurisdiction ...

PART I. FINANCIAL INFORMATION [Financial Statements](index=4&type=section&id=Item%201.%20Financial%20Statements) Unaudited condensed consolidated financial statements for Q1 2023 are presented, detailing balance sheets, operations, cash flows, and equity, with explanatory notes [Condensed Consolidated Balance Sheets](index=4&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) Total assets increased to **$528.7 million** by March 31, 2023, driven by debt issuance, while liabilities grew to **$232.4 million**, and equity decreased Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | March 31, 2023 | December 31, 2022 | | :--- | :--- | :--- | | **Total Assets** | **$528,728** | **$473,347** | | Cash and cash equivalents | $68,564 | $37,812 | | **Total Liabilities** | **$232,415** | **$162,298** | | Loan - 5.50% convertible Senior Notes | $72,379 | $— | | **Total Shareholders' Equity** | **$296,313** | **$311,049** | [Condensed Consolidated Statements of Operations](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) Q1 2023 total sales increased to **$85.0 million**, but gross profit declined, resulting in a wider operating loss of **$18.6 million** and a net loss of **$21.2 million** Condensed Consolidated Statements of Operations (in thousands, except per share data) | Metric | Three Months Ended Mar 31, 2023 | Three Months Ended Mar 31, 2022 | | :--- | :--- | :--- | | Total Sales | $84,967 | $76,656 | | Gross Profit | $39,716 | $41,026 | | Loss from Operations | $(18,616) | $(7,192) | | Net Loss | $(21,164) | $(9,687) | | Net Loss per Share - Diluted | $(1.12) | $(0.53) | [Condensed Consolidated Statements of Cash Flows](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Q1 2023 net cash used in operations was **$18.3 million** and **$23.5 million** in investing, offset by **$72.3 million** from financing, leading to a **$30.8 million** net cash increase Summary of Cash Flows (in thousands) | Cash Flow Activity | Three Months Ended Mar 31, 2023 | Three Months Ended Mar 31, 2022 | | :--- | :--- | :--- | | Net cash used in operating activities | $(18,344) | $(7,037) | | Net cash used in investing activities | $(23,532) | $(5,054) | | Net cash provided by (used in) financing activities | $72,280 | $(974) | | **Increase (Decrease) in cash and cash equivalents** | **$30,752** | **$(14,797)** | [Notes to Condensed Consolidated Financial Statements](index=9&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) Notes detail business, accounting policies, revenue, restructuring plans, acquisitions, **$75 million** convertible senior notes, and subsequent events like CEO transition - Total sales for Q1 2023 were **$85.0 million**, with the Americas region contributing the most at **$42.3 million**[31](index=31&type=chunk) - In February 2023, the Board approved an Integration Plan expected to incur **$10-$16 million** in charges and realize **$10 million** in annualized savings. In Q1 2023, **$4.2 million** in restructuring costs were recognized under this plan[50](index=50&type=chunk) - On January 24, 2023, the company issued **$75 million** in 5.50% Convertible Senior Notes due 2028, with net proceeds of approximately **$72.2 million**[72](index=72&type=chunk)[74](index=74&type=chunk) - Subsequent to the quarter-end, the company announced the retirement of its CEO, effective July 1, 2023, and amended the Integration Plan to increase expected pre-tax charges to **$22-$28 million** and targeted annualized savings to **$20-$30 million**[76](index=76&type=chunk)[77](index=77&type=chunk)[79](index=79&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=22&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses Q1 2023 financial results, noting **$85.0 million** sales, a gross margin decrease, and higher operating expenses, with liquidity improved by **$75 million** convertible notes [Results of Operations](index=27&type=section&id=Results%20of%20Operations) Q1 2023 total sales grew **10.8%** to **$85.0 million**, but gross profit fell to **$39.7 million**, with gross margin contracting to **46.7%**, leading to a wider net loss of **$21.2 million** Q1 2023 vs Q1 2022 Performance (in thousands) | Metric | Q1 2023 | Q1 2022 | | :--- | :--- | :--- | | Total Sales | $84,967 | $76,656 | | Gross Profit | $39,716 | $41,026 | | Gross Margin | 46.7% | 53.5% | | Total Operating Expenses | $58,332 | $48,218 | | Restructuring Costs | $4,238 | $600 | | Net Loss | $(21,164) | $(9,687) | - The decrease in gross margin was primarily due to unfavorable price variances from global supply shortages, particularly for semiconductor components[110](index=110&type=chunk) [Liquidity and Capital Resources](index=29&type=section&id=Liquidity%20and%20Capital%20Resources) Cash and cash equivalents increased by **$30.8 million** to **$68.6 million**, driven by **$72.3 million** from convertible senior notes, offsetting operational and investing cash usage - Cash and cash equivalents increased to **$68.6 million** at March 31, 2023, from **$37.8 million** at December 31, 2022[120](index=120&type=chunk) - The increase in cash was primarily driven by the issuance of 5.50% Convertible Senior Notes, which provided net proceeds of approximately **$72.2 million**[123](index=123&type=chunk)[128](index=128&type=chunk) - As of March 31, 2023, the company had authorization to repurchase an additional **$18.3 million** of its stock, though no repurchases were made in the quarter[131](index=131&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=31&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) Primary market risks include foreign exchange exposure, with **54%** of revenue in foreign currencies, and global inflation, impacting costs and demand - The company faces significant foreign exchange risk, as **54%** of its revenue was invoiced in foreign currencies and **56%** of its assets were denominated in foreign currencies in Q1 2023. The most significant exposures are to the Euro, Japanese Yen, Swiss Franc, Chinese Yuan, and Brazilian Real[136](index=136&type=chunk) - Global inflation is identified as a key risk, negatively impacting the business by increasing costs for raw materials and salaries, and potentially decreasing customer demand[137](index=137&type=chunk) [Controls and Procedures](index=32&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded that disclosure controls and procedures were effective as of March 31, 2023, with no material changes to internal control over financial reporting - Based on an evaluation as of March 31, 2023, the Principal Executive Officer and Chief Financial Officer concluded that the company's disclosure controls and procedures were effective[141](index=141&type=chunk) - No changes in internal control over financial reporting occurred during the quarter ended March 31, 2023, that have materially affected, or are reasonably likely to materially affect, internal controls[142](index=142&type=chunk) PART II. OTHER INFORMATION [Legal Proceedings](index=33&type=section&id=Item%201.%20Legal%20Proceedings) The company is not involved in any legal proceedings expected to have a material adverse effect on its business or financial condition - The company is not involved in any legal proceedings expected to have a material adverse effect on its business[144](index=144&type=chunk) [Risk Factors](index=33&type=section&id=Item%201A.%20Risk%20Factors) Updated risk factors include banking sector instability, executive management turnover, stock price volatility, and the risk of not realizing restructuring plan benefits - A new risk factor highlights that market conditions, such as the recent failures of Silicon Valley Bank and First Republic Bank, could impair the company's ability to access its cash and investments[146](index=146&type=chunk)[147](index=147&type=chunk) - The company notes that significant changes in its executive management team, including the announced retirement of the CEO, could adversely affect sales, profitability, and stock price[148](index=148&type=chunk)[149](index=149&type=chunk) - The company warns of potential stock price volatility due to factors like fluctuations in demand, economic uncertainties, and the issuance of shares upon conversion of its outstanding Notes[150](index=150&type=chunk) [Unregistered Sales of Equity Securities and Use of Proceeds](index=34&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) No stock repurchases were made in Q1 2023, with **$18.3 million** remaining authorized under the **$50.0 million** share repurchase program - No stock repurchases were made during the quarter ended March 31, 2023[155](index=155&type=chunk) - As of March 31, 2023, the company had authorization to repurchase **$18.3 million** remaining under its **$50.0 million** share repurchase program[155](index=155&type=chunk) [Other Information](index=34&type=section&id=Item%205.%20Other%20Information) On May 3, 2023, the Integration Plan was amended, increasing expected pre-tax charges to **$22-$28 million** and targeted annualized savings to **$20-$30 million** - On May 3, 2023, the Integration Plan was amended to increase expected pre-tax charges to **$22-$28 million** and targeted annualized savings to **$20-$30 million**[158](index=158&type=chunk) [Exhibits](index=35&type=section&id=Item%206.%20Exhibits) This section indexes exhibits filed with Form 10-Q, including SOX certifications and documents related to convertible senior notes

FARO Technologies, Inc. (NASDAQ:FARO) Q1 2023 Earnings Conference Call May 3, 2023 5:00 PM ET Company Participants Michael Funari - Investor Relations Michael Burger - Chief Executive Officer Allen Muhich - Chief Financial Officer Yuval Wasserman - Chairman Conference Call Participants Danny Eggerichs - Craig-Hallum Capital Group Rob Mason - R. W. Baird Operator Good day, everyone and welcome to the FARO Technologies First Quarter 2023 Earnings Call. For opening remarks and introductions, I'll now turn the ...