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Description of Business
 9 Months Ended
Sep. 30, 2019
Organization, Consolidation and Presentation of Financial Statements [Abstract]  
Description of Business DESCRIPTION OF BUSINESS
FARO Technologies, Inc. and its subsidiaries (collectively “FARO,” the “Company,” “us,” “we” or “our”) design, develop, manufacture, market and support software driven, three-dimensional (“3D”) measurement and imaging solutions. This technology permits high-precision 3D measurement, imaging and comparison of parts and complex structures within production and quality assurance processes. Our devices are used for inspection of components and assemblies, rapid prototyping, reverse engineering, documenting large volume or structures in 3D, surveying and construction, as well as for investigation and reconstruction of accident sites or crime scenes. We sell the majority of our products through a direct sales force across a broad number of customers in a range of manufacturing, industrial, architecture, surveying, building information modeling, construction, public safety forensics, cultural heritage, dental, and other applications. Our FaroArm®, FARO ScanArm®, FARO Laser TrackerTM, FARO Laser Projector, and their companion CAM2®, BuildIT, and BuildIT Projector 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 3D Manufacturing vertical. Our FARO Focus, FARO ScanPlan and FARO Scanner Freestyle3D X laser scanners, and their companion FARO SCENE, BuildIT, FARO As-BuiltTM, and FARO Zone 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 BIM”) and Public Safety Forensics verticals. Our FARO ScanArm®, FARO Scanner Freestyle3D X laser scanners and their companion SCENE software, and other 3D-structured light scanning solutions specific to the dental industry, 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 3D Design vertical. 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, supporting our Photonics vertical.
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”). We evaluate business performance based upon several metrics, using revenue growth and segment profit as the primary financial measures. In the fourth quarter of 2018, we renamed our 3D Factory vertical and reporting segment “3D Manufacturing.” There was no change in our total consolidated financial condition or results of operations previously reported as a result of this change.
We report our activities in the following three reportable segments:
•The 3D Manufacturing reporting segment contains our 3D Manufacturing vertical and provides both standardized and customized solutions for 3D 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 reporting segment contains our Construction BIM vertical and provides solutions for as-built data capturing and 3D visualization in building information modeling applications, allowing our customers in the architecture, engineering and construction 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 Emerging Verticals reporting segment includes our 3D Design, Public Safety Forensics, and Photonics verticals. Our 3D Design vertical provides advanced 3D solutions to capture and edit 3D shapes of products, people and/or environments for design purposes in product development, computer graphics and dental and medical applications. Our Public Safety Forensics vertical 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 Photonics vertical develops and markets galvanometer-based laser measurement products and solutions.
All operating segments that do not meet the criteria to be reportable segments are aggregated in the Emerging Verticals reporting segment and have been combined based on the aggregation criteria and quantitative thresholds in accordance with the provisions of FASB ASC Topic 280. Our reporting segments have been determined in accordance with our internal management structure, which is based on operating activities. Each segment is responsible for its own product management, sales, strategy and profitability. Each reporting segment employs consistent accounting policies. See Note 14 – Segment Reporting for further information.
Reclassification and Related Changes to Presentation
Commencing with the third quarter of 2019, depreciation and amortization expenses are being reported in the accompanying statements of operations to reflect departmental costs. Previously, those expenses were reported as a separate line item under operating expenses. Amounts related to depreciation and amortization expenses for the three and nine months ended September 30, 2018 have been restated throughout this Quarterly Report on Form 10-Q to reflect this reclassification of depreciation and amortization expenses and to conform to the current period presentation, as follows:
For the three months ended, September 30, 2018
As ReportedAdjustmentAs Adjusted
Cost of Sales
Product$34,004  $860  $34,864  
Service13,384  845  14,229  
Total cost of sales$47,388  $1,705  $49,093  
Operating Expenses
Selling and marketing$27,811  $671  $28,482  
General and administrative12,496  606  13,102  
Depreciation and amortization4,747  (4,747) —  
Research and development9,975  1,765  11,740  
Total operating expenses$55,029  $(1,705) $53,324  

For the nine months ended, September 30, 2018
As ReportedAdjustmentAs Adjusted
Cost of Sales
Product$88,766  $2,555  $91,321  
Service38,223  2,527  $40,750  
Total cost of sales$126,989  $5,082  $132,071  
Operating Expenses
Selling and marketing$86,166  $1,711  $87,877  
General and administrative34,889  1,900  $36,789  
Depreciation and amortization13,467  (13,467) $—  
Research and development29,364  4,774  $34,138  
Total operating expenses$163,886  $(5,082) $158,804  
Schedule of Error Corrections and Prior Period Adjustments epreciation and amortization expenses are being reported in the accompanying statements of operations to reflect departmental costs. Previously, those expenses were reported as a separate line item under operating expenses. Amounts related to depreciation and amortization expenses for the three and nine months ended September 30, 2018 have been restated throughout this Quarterly Report on Form 10-Q to reflect this reclassification of depreciation and amortization expenses and to conform to the current period presentation, as follows:
For the three months ended, September 30, 2018
As ReportedAdjustmentAs Adjusted
Cost of Sales
Product$34,004  $860  $34,864  
Service13,384  845  14,229  
Total cost of sales$47,388  $1,705  $49,093  
Operating Expenses
Selling and marketing$27,811  $671  $28,482  
General and administrative12,496  606  13,102  
Depreciation and amortization4,747  (4,747) —  
Research and development9,975  1,765  11,740  
Total operating expenses$55,029  $(1,705) $53,324  

For the nine months ended, September 30, 2018
As ReportedAdjustmentAs Adjusted
Cost of Sales
Product$88,766  $2,555  $91,321  
Service38,223  2,527  $40,750  
Total cost of sales$126,989  $5,082  $132,071  
Operating Expenses
Selling and marketing$86,166  $1,711  $87,877  
General and administrative34,889  1,900  $36,789  
Depreciation and amortization13,467  (13,467) $—  
Research and development29,364  4,774  $34,138  
Total operating expenses$163,886  $(5,082) $158,804