FARO Technologies, Inc.

Good day, everyone, and welcome to the Faro Technologies third quarter 2022 earnings call. For opening remarks and introductions, I will now turn the call over to Michael Funari at Sapphire Investor Relations. Please go ahead.

Thank you. Good afternoon. With me today from Faro are Michael Berger, Chief Executive Officer, and Alan Mewich, Chief Financial Officer. Today, after market close, the company released its financial results for the third quarter of 2022. The related press release and form 10Q are available on FARO's website at www.faro.com. Please note, certain statements in this conference call, which are not historical facts, may be considered forward-looking statements that involve risks and uncertainties, some of which are beyond our control and include statements regarding future business results, product and technology development, customer demand, inventory levels, our outlook and financial guidance, economic and industry projections, or subsequent events. Various factors cause actual results to differ materially. For a more detailed description of these and other risks and uncertainties, please refer to today's press release and our annual and quarterly SAC filing. Forward-looking statements reflect our views only as of today, and except as required by law, we undertake no obligation to update or revise them. During today's conference call, management will discuss certain financial measures that are not presented in accordance with U.S. generally accepted accounting principles or non-GAAP financial measures. In the press release, you will find additional disclosures regarding these non-GAAP measures, including reconciliations to comparable GAAP measures. While not recognized under GAAP, management believes these non-GAAP financial measures provide investors with relevant period-to-period comparisons of core operations. They should not be considered an isolation or the substitute for a measure of financial performance paired in accordance with GAAP. Now, I'd like to turn the call over to Michael Berger.

Thank you, Mike. Welcome to our call. Third quarter demand across our CERB markets remained healthy with revenues of $85.3 million up approximately 8% year on year. On a constant currency basis, revenue for the quarter was $91.5 million and up 14% year-on-year and 9% sequentially, as continued strengthening of the U.S. dollar adversely impacted our reported revenues. I'm pleased to report that close to 70% of our hardware revenue is now derived from products launched within the last two years, compared to approximately 40% in the same time in 2021. This improved hardware vitality index is a strong endorsement of our customer-driven product roadmap execution. In the third quarter, cadence of new product introductions continued with the announcement of two new hardware products, the Vantage Max laser tracker and the Focus Core scanner. Our Vantage laser tracker product line, historically offered with a probe providing 60 degrees of freedom, has greatly simplified the measurement of complex parts. Our newly released tracker has doubled the probing accuracy of the prior model, dramatically increasing the value offered to our 3D metrology customer base. The entry-level focus core laser scanner expands the range of potential scanning applications by setting a new price performance watermark that is geared toward key markets, including construction, building operations, and public safety. In addition to our internally developed products, in September, we announced the acquisition of GeoSlam, whose business will accelerate our access to both the geospatial and mining markets, primarily through an indirect channel. We expect this channel will ultimately enable meaningful cross-selling opportunities for ferro products. Additionally, their flexible, lower-cost handheld mobile mapping device, which leverages proprietary Simultaneous localization and mapping algorithms closes a gap we have in our mobile mapping portfolio, which is required by both the AECO and public safety market segments. We do not expect meaningful cannibalization of our current scanning hardware products with the addition of the GeoSLAM portfolio. In Q3, we augmented our HoloBuilder product line with VideoWalk. which utilizes the 360-degree camera video mode to simultaneously capture while walking. VideoWalk is significant in that it greatly simplifies and dramatically speeds up the capture project in construction progress management workflow. This feature is currently in customer data. Barrow now offers the broadest set of 3D capture devices and technologies in the market, which allow us to uniquely satisfy customer requirements across the continuum of workflows. These capture technologies compete based on their ease of use, speed to data, and accuracy. This is important as the data generated via these multiple capture technologies provide the foundation for our three-dimensional digital reality-based SaaS offering, which incorporates time as the fourth dimension. Earlier this year, we launched Ferrosphere, our new four-dimensional digital reality platform. Sphere provides a central location for users to store, view, share, and analyze reality capture data, allowing construction and operation professionals to benefit from faster site updates, virtual collaboration, and real-time feedback. As we look to our investment roadmap, we are We are focused on expanding the sphere environment with SaaS applications that unlock the value of the 3D data captured via Ferro's best-in-class capture technologies. An example of such an application is Flatness Check. Flatness, which was launched in Q3, is Ferro's augmented reality application aimed at the concrete industry. With flatness check, concrete finishers can quickly and easily identify out-of-spec areas that can be fixed prior to concrete pour hardening. In this environment, time and the accuracy of information is of the essence. This application will eliminate expensive post-cure rework that is typical in commercial construction. In addition, contractors can now easily validate the flatness specification, which can streamline the payment process. provide documentation of the work performed while removing potential ambiguity that may exist in the finishing process. Flatness check, which is embedded into the Ferrosphere ecosystem, is the first of its kind and marks the beginning of what will be our rollout of additional applications targeted at eliminating waste, simplifying management, and improving the profitability of construction projects and facility management initiatives. Finally, in the third quarter, we announced our Sphere 4D Viewer, which leverages a combination of high-end visual technology, smart navigation, photogrammetry, and artificial intelligence to provide users with a comprehensive virtual visual representation of reality over time. This capability eliminates the reality data capture silos and enables a faster and more complete analysis of the data captured in a virtual reality environment by authorized sphere users. We continue to believe there is a large and growing untapped market for Pharos technology that leverages our broad set of industrial leading capture solutions. The market potential for digitizing the physical world is enormous, and our ability to acquire the best three-dimensional representation of the physical world And to share insights gained from this view across a digitally connected world is the key differentiator for Feral. As a result, over the long term, as we execute our strategy, in addition to growing hardware revenue, we expect to realize new recurring software-as-a-service revenue streams that will be accretive to our corporate gross margins. While increasing the competitive barriers to entry across our entire portfolio, which in turn will make us stickier with our current and future customer base. To physically demonstrate our 4D digital reality vision and our efforts to transform construction workflows, we are excited to announce that we will be hosting an Analyst Day in March of 2023 in New York City. More details will follow in the coming months. I'll now turn the call over to Alan to provide an overview of our third quarter financial results.