December 31, 2020 December 31, 2019
Property, plant and equipment:
     Machinery and equipment $ 91,984 $ 83,900
     Furniture and fixtures 6,620 6,377
     Leasehold improvements 21,414 21,397
          Property, plant and equipment at cost 120,018 111,674
     Less: accumulated depreciation and amortization (96,927) (84,720)
          Property, plant and equipment, net $ 23,091 $ 26,954

Business Combinations—We allocate the fair value of purchase consideration to the assets acquired and liabilities assumed based generally on their fair values at the acquisition date. The excess of the fair value of purchase consideration over the fair value of these 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. Critical estimates are also made in valuing ~~earn-outs,~~contingent considerations, which represent arrangements to pay former owners based on the satisfaction of performance criteria. 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.

Goodwill and Intangible Assets—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 each year, or more frequently if indicators of potential impairment exist (i.e., that it is more likely than not that the fair value of the reporting unit is less than the carrying value), to determine if the carrying value of the recorded goodwill or indefinite lived intangible assets is impaired.

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Each period, and for our single reporting unit, we can elect to perform a qualitative assessment to determine whether it is necessary to perform a quantitative goodwill impairment test. If we believe, as a result of our qualitative assessment, that it is not more likely than not that the fair value of our reporting unit containing goodwill is less than its carrying amount, then the quantitative goodwill impairment test is unnecessary. If we elect to bypass the qualitative assessment option, or if the qualitative assessment was performed and resulted in the Company 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 its carrying amount, we will perform the quantitative goodwill impairment test. We calculate the fair value of the reporting unit using a discounted cash flow method and market approach method, and then comparing the respective fair value with the carrying amount of the reporting unit. If the carrying amount of the reporting unit exceeds its fair value, we record the amount of the impairment loss, if any.

Management concluded there was 0no goodwill impairment for the year ended December 31, 2021, no goodwill impairment for the year ended December 31, 2020 and $21.2 million impairment loss for the year ended December 31, ~~2019 and 0 goodwill impairment for the year ended December 31, 2018.~~2019. We test goodwill for impairment annually on December 31 of each reporting year or more frequently if an event occurs or circumstances would indicate that it is more likely than not the fair value of the reporting unit is less than the carrying value. We performed our annual quantitative test of goodwill during ~~2020~~2021 and ~~2018~~2020 as of December 31. We changed the timing of our annual test of goodwill during 2019 to align with our updated strategic plan and annual budgetary process. Accordingly, we performed our annual quantitative test for impairment of our recorded goodwill as of December 10, 2019. As a result of this test, the estimated fair value of each of the Photonics reporting unit, which included goodwill recognized with the Instrument Associates, LLC d/b/a Nutfield Technology (“Nutfield”), Laser Control Systems Limited (“Laser Control Systems”) and Lanmark Controls, Inc. (“Lanmark”) acquisitions, and the 3D Design reporting unit, which included goodwill recognized with the acquisition of Opto-Tech SRL and its subsidiary Open Technologies SRL (collectively, “Open Technologies”), were determined to be significantly less than the carrying value of such reporting unit, indicating a full impairment. This $21.2 million impairment loss was driven primarily by historical and projected financial performance lower than our expectations and changes in our go-forward strategy in connection with our new strategic plan. See Note 7,6, “Goodwill” for further information regarding goodwill.

Other intangible assets principally include patents, existing product technology and customer relationships that arose in connection with our acquisitions. Other intangible assets are recorded at fair value at the date of acquisition and are amortized over their estimated useful lives of 3 to 20 years. As of December 31, ~~2020~~2021 and ~~2019,~~2020, there were 0no indefinite-lived intangible assets.

Product technology and patents are recorded at cost. Amortization expense is computed using the straight-line method over the estimated useful lives of the product technology and patents of 7 to 20 years.

Internally developed software exceeding 1000 dollars are capitalized and recorded at cost. Amortization expense is computed using the straight-line method over the estimated useful lives of the internally developed software ranging between 1 to 5 years.

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The remaining weighted-average amortization period for all our intangible assets is 59 years.

As a result of historical and projected financial performance being lower than our expectations and changes in our go-forward strategy in connection with our new strategic plan, the estimated fair value of acquired intangibles recognized with the Nutfield, Laser Control Systems, Lanmark and Open Technologies acquisitions were determined to be less than the net carrying value for such assets. We recognized an impairment charge related to such acquired intangibles of $10.5 million in 2019. We recognized no impairment charges related to intangibles in ~~2020~~2021 or ~~2018.~~2020. See Note 8,7, “Intangible Assets” for further information regarding intangible assets.

Research and Development—Research and development costs incurred in the discovery of new knowledge and the resulting translation of this new knowledge into plans and designs for new products prior to the attainment of the related products’ technological feasibility are recorded as expenses in the period incurred. To date, the time incurred between the attainment of the related products' technological feasibility and general release to customers has been short. Research and development costs incurred relating to the 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 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. Any costs related to preliminary project activities and post implementation activities of internal-use software are expensed as incurred. The amount of costs capitalized during 2021 relating to internally developed computer software to be sold as a service was $2.0 million and no costs were capitalized in 2020. No amounts were charged to expense during 2021, 2020 or 2019. These capitalized costs, which total $2.0 million as of December 31, 2021 and zero as of December 31, 2020 are primarily included in net intangible assets in our consolidated balance sheet.

Reserve for Warranties—We establish at the time of sale a liability for the ~~one-year~~one-year warranty included with the initial purchase price of our products, 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 in the accompanying 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.

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Income Taxes—We account for income taxes using the asset and liability method in accordance with ASC Topic 740, Income Taxes. The objectives of accounting for income taxes under ASC Topic 740 are to recognize the amount of taxes payable or refundable for the current year and to recognize the deferred tax assets and liabilities that relate to tax consequences in future years, which result from differences between the respective tax basis of assets and liabilities and their financial reporting amounts and tax attribute carryforwards. Deferred tax assets and liabilities are measured using the enacted tax rates in effect for the year in which the respective temporary differences or tax credit carryforwards are expected to be recovered or settled. We review our deferred tax assets on a regular basis to evaluate their recoverability based upon expected future reversals of deferred tax assets and liabilities, projections of future taxable income, and tax planning strategies that we might employ to utilize such assets, including net operating loss carryforwards. The realization of deferred tax assets is contingent upon the generation of future taxable income and other restrictions that may exist under the tax laws of the jurisdiction in which a deferred tax asset exists. We assess the available positive and negative evidence to estimate whether sufficient future taxable income will be generated to permit the use of existing deferred tax assets. Management's evaluation begins with a jurisdictional review of cumulative gains or losses incurred over recent years. A significant piece of objective negative evidence exists when a jurisdiction has incurred cumulative losses over recent years. Such objective evidence limits the ability to consider other subjective evidence, such as our projections for future growth. Based on the positive and negative evidence for recoverability, we establish a valuation allowance against the net deferred tax 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. ~~Our evaluation of the need for the valuation allowance is significantly influenced by our ability to maintain profitability and our ability to predict and achieve future projections of taxable income.~~

We recognize tax benefits related to uncertain tax positions only if it is more likely than not that the tax position will be sustained upon examination by taxing authorities. For those positions where it is not more likely than not that a tax benefit will be sustained, no tax benefit has been recognized in the financial statements. In the ordinary course of business, we are examined by various federal, state, and foreign tax authorities. We regularly assess the potential outcomes of these examinations and any future examinations for the current or prior years in determining the adequacy of our provision for income taxes. See Note ~~12,~~11, “Income Taxes” for further information regarding income taxes.

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Earnings (Loss) Per Share (“EPS”)—Basic (loss) earnings per share is computed by dividing net ~~(income)~~(loss) income by the weighted average number of shares outstanding. Diluted earnings per share is computed by also considering the impact of potential common stock on both net income and the weighted average number of shares outstanding. Our potential common stock consists of employee stock options, restricted stock, restricted stock units and ~~performance-based~~market-based awards. Our potential common stock is excluded from the basic earnings per share calculation and is included in the diluted earnings per share calculation when doing so 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 loss for the period presented, the diluted loss per share calculation does not include our potential common stock, as the inclusion of these shares in the calculation would have an anti-dilutive effect. A reconciliation of the number of common shares used in the calculation of basic and diluted EPS is presented in Note ~~15,~~14, “(Loss) Earnings Per Share.”

Accounting for Stock-Based Compensation—We have 2 stock-based employee and director compensation plans, which are described more fully in Note ~~14,~~13, “Stock Compensation Plans.”

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~~market-based awards granted to our directors and employees. The fair value of stock options, including performance awards, without a market condition is estimated, at the date of grant, using the Black-Scholes option-valuation model. The fair value of restricted stock unit awards 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 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.

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We expense stock-based compensation for stock options, restricted stock, ~~awards,~~ restricted stock units and performance awards over the requisite service period. For awards with only a service condition, we expense stock-based compensation using the straight-line method over the requisite service period for the entire award. For awards with both performance and service conditions, we expense the stock-based compensation on a straight-line basis over the requisite service period for each separately vesting portion of the award, taking into account the probability that we will satisfy the performance conditions. Furthermore, we expense awards with a market condition over the three-year vesting period regardless of the value that the award recipients ultimately receive. All income tax-related cash flows resulting from share-based payments are reported as operating activities in the statement of cash flows in the deferred income tax benefit line item. We elect to account for forfeitures related to the service condition-based awards as they occur.

Concentration of Credit Risk—Financial instruments that expose us to concentrations of credit risk consist principally of ~~short-term investments and~~ operating demand deposit accounts. Our policy is to place our operating demand deposit accounts with high credit quality financial institutions, the balances of which at times may exceed federally insured limits. We continually monitor our banking relationships and believe we are not exposed to any significant credit risk on our operating demand deposit accounts.

Estimates—The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America 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 from those estimates.

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Impact of Recently Adopted Accounting Standards—In February 2016, the FASB issued Accounting Standards Update (“ASU”) No. 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 users of financial statements to assess the amount, timing and uncertainty of cash flows arising from leases. ASU No. 2018-11, Leases (Topic 842): Targeted Improvements, was issued by the FASB in July 2018 and allows for a cumulative-effect adjustment transition method of adoption. We adopted ASU 2016-02 effective as of January 1, 2019 utilizing the cumulative-effect adjustment transition method of adoption, which resulted in the recognition on our consolidated balance sheet as of December 31, 2019 of $18.4 million of right-of-use assets for operating leases, $19.6 million of lease liability for operating leases, $0.8 million of property and equipment, net for finance leases and $0.8 million of lease liability for finance leases under which we function as a lessee. We elected certain practical expedients available under the transition provisions to (i) allow aggregation of non-lease components with the related lease components when evaluating accounting treatment, (ii) apply the modified retrospective adoption method, utilizing the simplified transition option, which allows us to continue to apply the legacy guidance in FASB ASC Topic 840, including its disclosure requirements, in the comparative periods presented in the year of adoption, and (iii) use hindsight in determining the lease term (that is, when considering our options to extend or terminate the lease and to purchase the underlying asset) and in assessing impairment of our right-of-use assets. The adoption of ASU 2016-02 also required us to include any initial direct costs, which are incremental costs that would not have been incurred had the lease not been obtained, in the right-of-use assets. The recognition of these costs in connection with our adoption of this guidance did not have a material impact on our consolidated financial statements.

In January 2017, the FASB issued ASU No. 2017-04, Intangible - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment (“ASU 2017-04”), which is intended to simplify the subsequent measurement of goodwill by eliminating Step 2 from the goodwill impairment test. Under the new guidance, we perform our goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An impairment charge is 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. We adopted this guidance in connection with our annual impairment test for the fiscal year ended December 31, 2019. The adoption of this guidance did not have a material impact on our consolidated financial statements.

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In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”), which requires the measurement and recognition of expected credit losses for financial assets held at amortized cost. ASU 2016-13, and subsequent related amendments to ASU 2016-13, replace the existing incurred loss impairment model with an expected loss model that requires the use of forward-looking information to calculate credit loss estimates. It also eliminates the concept of other-than-temporary impairment and requires credit losses related to available-for-sale debt securities to be recorded through an allowance for credit losses rather than as a reduction in the amortized cost basis of the securities. These changes will result in earlier recognition of credit losses. We adopted ASU 2016-13 effective as of January 1, 2020, and the adoption of the new guidance did not have a material impact on our consolidated financial statements.

~~Reclassifications—Certain prior year amounts~~In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes which 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 application of effective rate changes during interim periods, amongst other improvements. We adopted ASU 2019-12 effective as of January 1, 2021, and the adoption of the new guidance did not have ~~been reclassified~~a material impact on our consolidated financial statements.

In October 2021, the FASB issued ASU No. 2021-08, Business Combinations (Topic 805): Accounting for Contract Asset and Contract Liabilities from Contracts with Customers which intends to simplify the accounting for acquired revenue contracts with customers in a business combination and to also remove inconsistencies in this topic related to recognition of an acquired contract liability and payment terms and their effect on subsequent revenue recognized by the acquirer. ASU No. 2021-08 allows an acquirer to recognize and measure contract assets and contract liabilities acquired in a business combination in a similar manner to how they are recorded on the acquiree's financial statements at book value. Early adoption is permitted and we early adopted ASU No. 2021-08 in the ~~accompanying consolidated financial statements to conform to~~fourth quarter of 2021. As a result of the ~~current period presentation:~~

•~~Depreciation and amortization expenses are being reported in~~early adoption of ASU No.2021-08 we recorded the ~~accompanying statements~~deferred revenue associated with the acquisition 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 year ended December 31, 2018 has been restated throughout this Annual Report on Form 10-K to reflect this reclassificationHolobuilder at its book value of ~~depreciation and amortization expenses and to conform to the current period presentation, as set forth in the following tables;~~

•Selling and marketing expenses and general and administrative expenses are now being reported in the accompanying statements of operations together in one line as Selling, general and administrative. Previously, those expenses were reported as two separate line items under operating expenses. Amounts related to selling, general and administrative expenses for the year ended December 31, 2018 have been reclassified throughout this Annual Report on Form 10-K to reflect this reclassification of selling, general and administrative expenses and to conform to the current period presentation, as set forth in the following tables;

•Software maintenance revenue is now being reported in the accompanying statements of operations as a component of product sales. Previously, these revenues were reported in service sales. Amounts related to software maintenance sales for the year ended December 31, 2018 have been reclassified throughout this Annual Report on Form 10-K to reflect this reclassification of software maintenance sales and to conform to the current period presentation, as set forth in the following tables; and

•Software maintenance cost of sales is now being reported in the accompanying statements of operations as a component of product cost of sales. Previously, these cost of sales was reported in service cost of sales. Amounts related to software maintenance cost of sales for the year ended December 31, 2018 have been reclassified throughout this Annual Report on Form 10-K to reflect this reclassification of software maintenance cost of sales and to conform to the current period presentation, as set forth in the following tables.

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For the twelve months ended December 31, 2018:
As Reported Depreciation and Amortization Adjustment Selling, General and Administrative Adjustment Software Maintenance Adjustment As Adjusted
Sales
Product $ 311,102 $ — $ — $ 9,482 $ 320,584
Service 92,525 — — (9,482) 83,043
Total sales $ 403,627 $ — $ — $ 0 $ 403,627
Cost of Sales
Product $ 124,802 $ 3,406 $ — $ 2,668 $ 130,876
Service 50,480 3,386 — (2,668) 51,198
Total cost of sales $ 175,282 $ 6,792 $ — $ 0 $ 182,074
Operating Expenses
Selling, general and administrative $ 0 $ 5,145 $ 164,572 $ — $ 169,717
Selling and marketing 116,920 0 (116,920) — 0
General and administrative 47,652 0 (47,652) — 0
Depreciation and amortization 18,313 (18,313) 0 — 0
Research and development 39,706 6,376 0 — 46,082
Total operating expenses $ 222,591 $ (6,792) $ 0 $ — $ 215,799

approximately $4.0 million.

2. SUPPLEMENTAL CASH FLOW INFORMATION

Selected cash payments and non-cash activities were as follows:

Years ended December 31,
2020 2019 2018
Supplemental cash flow information:
Cash paid for interest $ 21 $ 6 $ 4
Cash paid for income taxes $ 3,409 $ 5,498 $ 5,813
Supplemental noncash investing and financing activities:
Transfer of service and sales demonstration inventory to fixed assets $ 1,688 $ 3,044 $ 964
Assumption of contingent consideration from acquisition $ 980 $ 0 $ 6,751


	Years ended December 31,
	2021		2020		2019
Supplemental cash flow information:
Cash paid for interest	$	1,186	$	21	$	6
Cash paid for income taxes	$	4,365	$	3,409	$	5,498
Supplemental noncash investing and financing activities:
Transfer of service and sales demonstration inventory to fixed assets	$	2,226	$	1,688	$	3,044
Assumption of contingent consideration from acquisition	$	—	$	980	$	—
Purchases of Property, plant, equipment and Intangibles accrued but not paid	$	754	$	—	$	—

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3. REVENUES

The following tables present our revenues by sales type as presented in our consolidated statements of operations disaggregated by the timing of transfer of goods or services (in thousands):


	Years ended December 31,
	2021		2020		2019
Product Sales
Products transferred to a customer at a point in time	$	234,188	$	205,849	$	277,841
Products transferred to a customer over time	16,915		12,738		11,838
	$	251,103	$	218,587	$	289,679

Years ended December 31,
2020 2019 2018
Product Sales
Products transferred to a customer at a point in time $ 205,849 $ 277,841 $ 311,102
Products transferred to a customer over time 12,738 11,838 9,482
$ 218,587 $ 289,679 $ 320,584


	Years ended December 31,
	2021		2020		2019
Service Sales
Service transferred to a customer at a point in time	$	39,559	$	36,732	$	48,593
Service transferred to a customer over time	47,152		48,449		43,493
	$	86,711	$	85,181	$	92,086

Years ended December 31,
2020 2019 2018
Service Sales
Service transferred to a customer at a point in time $ 36,732 $ 48,593 $ 42,932
Service transferred to a customer over time 48,449 43,493 40,111
$ 85,181 $ 92,086 $ 83,043

The following table presents our revenues disaggregated by geography, based on the billing addresses of our customers (in thousands):

Years ended December 31,
2020 2019 2018
Total Sales to External Customers
     United States and Canada $ 119,769 $ 151,646 $ 156,242
     EMEA (1)
91,390 122,279 127,261
     Other APAC (1)
51,804 60,796 68,908
     China 31,748 32,934 36,130
     Other Americas (1)
9,057 14,110 15,086
$ 303,768 $ 381,765 $ 403,627


	Years ended December 31,
	2021		2020		2019
Total Sales to External Customers
Americas (1)	$	140,633	$	128,826	$	165,756
EMEA (1)	104,350		91,390		122,279
APAC (1)	92,831		83,552		93,730
	$	337,814	$	303,768	$	381,765

(1) Regions represent North America and South America (Americas); Europe, the Middle East, and Africa (EMEA); and the Asia-Pacific ~~excluding China (Other APAC); and Mexico and Brazil (Other Americas)~~(APAC).

We capitalize commission expenses related to deliverables transferred to a customer over time and amortize such costs ratably over the term of the contract. As of December 31, 2021, the deferred cost asset related to deferred commissions was approximately $3.5 million. For classification purposes, $2.3 million and $1.2 million are comprised within the Prepaid expenses and other current assets and Other long-term assets, respectively, on our consolidated balance sheet as of December 31, 2021. As of December 31, 2020, the deferred cost asset related to deferred commissions was approximately $4.1 million. For classification purposes, $2.6 million and $1.5 million are comprised within the Prepaid expenses and other current assets and Other long-term assets, respectively, on our consolidated balance sheet as of December 31, 2020. As of December 31, 2019, the deferred cost asset related to deferred 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 consolidated balance sheet as of December 31, 2019.

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The unearned service revenue liabilities reported on our consolidated balance sheets reflect the contract liabilities to satisfy the remaining performance obligations for extended warranties, subscription based software and software maintenance. The current portion of unearned service revenues on our consolidated balance sheets is what we expect to recognize to revenue within twelve months after the applicable balance sheet date relating to extended warranty, subscription based software and software maintenance contract liabilities. The Unearned service revenues - less current portion on our consolidated balance sheets is what we expect to recognize to revenue extending beyond twelve months after the applicable balance sheet date relating to extended warranty, subscription based software and software maintenance contract liabilities. Customer deposits on our consolidated balance sheets represent customer prepayments on contracts for performance obligations that we must satisfy in the future to recognize the related contract revenue. These amounts are generally related to performance obligations which are delivered in less than 12 months. During the year ended December 31, 2021, we recognized $34.4 million of revenue that was deferred on our consolidated balance sheet as of December 31, 2020. During the year ended December 31, 2020, we recognized $35.2 million of revenue that was deferred on our consolidated balance sheet as of December 31, 2019. ~~During the year ended December 31, 2019, we recognized $30.2 million of revenue that was deferred on our consolidated balance sheet as of December 31, 2018.~~

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 December 31, ~~2020~~2021 and December 31, ~~2019~~2020 was approximately ~~$0.3~~$0.2 million and ~~$0.1~~$0.3 million, respectively.

Shipping and handling fees billed to customers in a sales transaction are recorded in Product Sales and 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.

4. ALLOWANCE FOR CREDIT LOSSES

Activity in the allowance for credit losses was as follows:

Years ended December 31,
2020 2019 2018
Balance, beginning of year $ 3,449 $ 1,748 $ 1,957
Provision (net of recovery) 440 2,090 907
Amounts written off, net of recoveries (1) (389) (1,116)
Balance, end of year $ 3,888 $ 3,449 $ 1,748


	Years ended December 31,
	2021		2020		2019
Balance, beginning of year	$	3,888	$	3,449	$	1,748
Provision (net of recovery)	176		440		2,090
Amounts written off, net of recoveries	(1,833)		(1)		(389)
Balance, end of year	$	2,231	$	3,888	$	3,449

5. ~~SHORT-TERM INVESTMENTS~~

We had 0 short-term investments at December 31, 2020. Short-term investments at December 31, 2019 were comprised of U.S. Treasury Bills totaling $24.8 million, consisting of $8.9 million that matured on March 12, 2020 and $15.9 million that matured on June 11, 2020. The interest rates on the U.S. Treasury Bills held on December 31, 2019 that matured on March 12, 2020 and June 11, 2020 were 1.8% and 1.4%, respectively. The investments are classified as held-to-maturity and recorded at cost plus accrued interest, which approximates fair value.

6. INVENTORIES

Inventories are stated at the lower of cost or net realizable value using the first-in first-out method. We have ~~three~~3 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 held for sale; and 3) service inventory - completed product and parts used to support our service department and held for sale. Shipping and handling costs are classified as a component of cost of sales in our consolidated statements of operations. Sales demonstration inventory is held by our sales representatives for up to three years, at which time it is refurbished and transferred to finished goods as used equipment, stated at the lower of cost or net realizable value. We expect these refurbished units to remain in finished goods inventory and to be sold within 12 months at prices that 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.

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Inventories consist of the following:

December 31, 2020 December 31, 2019
Raw materials $ 29,955 $ 36,956
Finished goods 17,436 21,598
Inventories, net $ 47,391 $ 58,554
Service and sales demonstration inventory, net $ 31,831 $ 33,349


	December 31, 2021		December 31, 2020
Raw materials	$	34,617	$	29,955
Finished goods	18,528		17,436
Inventories, net	$	53,145	$	47,391
Service and sales demonstration inventory, net	$	30,554	$	31,831

7.6. GOODWILL

We had approximately ~~$57.5~~$82.1 million and ~~$49.7~~$57.5 million of goodwill as of December 31, 2021 and 2020, net of accumulated impairments of $35.2 million as of December 31, 2021 and ~~2019,~~2020, respectively. Changes in these balances are shown below:

(in thousands) December 31, 2020 December 31, 2019
Goodwill, beginning $ 49,704 $ 67,274
Recognized goodwill 5,467 4,443
Impairment of goodwill 0 (21,233)
Foreign currency translation 2,370 (780)
Goodwill, ending $ 57,541 $ 49,704


(in thousands)	December 31, 2021		December 31, 2020
Goodwill, beginning	$	57,541	$	49,704
Recognized goodwill	26,723		5,467
Foreign currency translation	(2,168)		2,370
Goodwill, ending	$	82,096	$	57,541

We test goodwill for impairment annually on December 31 of each reporting year or more frequently if an event occurs or circumstances would indicate that it is more likely than not the fair value of the reporting unit is less than the carrying value. We performed our annual qualitative test of goodwill during 2021 as of December 31, 2021, and recorded no impairment expense for the year ended December 31, 2021 and we performed an annual quantitative test of goodwill during 2020 as of December 31, 2020, and recorded 0no impairment expense for the year ended December 31, 2020. During 2019, we changed the timing of our annual test of goodwill to align with our updated strategic plan and annual budgetary process. Accordingly, in connection with the preparation of our financial statements for the year ended December 31, 2019, we performed our annual quantitative test for impairment of our recorded goodwill

We report as ~~of December 10, 2019. As~~ a result of this test, the estimated fair value of each of the Photonics reporting unit, which included goodwill recognized with the Nutfield, Laser Control Systems and Lanmark acquisitions, and the 3D Design reporting unit, which included goodwill recognized with the Open Technologies acquisition, were determined to be less than the carrying value of such reporting unit, indicating a full impairment. This impairment was driven primarily by historical and projected financial performance lower than our expectations and changes in our go-forward strategy in connection with our new strategic plan.

As part of our new strategic plan, and based on the recommendation of our CEO, who is also our CODM, in the fourth quarter of 2019, we eliminated our vertical structure and began reorganizing the Company into a functional structure. Our executive leadership team is now comprised of functional leaders in areas such as sales, marketing, operations, research and development and general and administrative, and resources are allocated to each function at a consolidated unit level. We no longer have separate business units, or segment managers or vertical leaders who report to the CODM with respect to operations, operating results or planning for levels or components below the total Company level. Instead, our CODM now allocates resources and evaluates performance on a Company-wide basis. Based on these changes, commencing with the fourth quarter of 2019, we are now reporting as 1single reporting segment that develops, manufactures, markets, supports and sells CAD-based quality assurance products integrated with CAD-based inspection and statistical process control software and 3D documentation systems. Our reporting segment sells into a variety of end markets, including automotive, aerospace, metal and machine fabrication, architecture, engineering, construction and public safety. ~~Accordingly, there are no reporting segment goodwill balances at December 31, 2020 and 2019, respectively.~~

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8.7. INTANGIBLE ASSETS

Intangible assets consist of the following:


	As of December 31, 2021
	Carrying Value		Accumulated Amortization		Net Intangible
Amortizable intangible assets:
Product technology	$	20,944	$	12,337	$	8,607
Patents and trademarks	15,535		8,294		7,241
Customer relationships	9,892		4,811		5,081
Other	10,369		5,682		4,687
Total	$	56,740	$	31,124	$	25,616


	As of December 31, 2020
	Carrying Value		Accumulated Amortization		Net Intangible
Amortizable intangible assets:
Product technology	$	14,625	$	10,785	$	3,840
Patents and trademarks	14,325		7,495		6,830
Customer relationships	6,541		4,002		2,539
Other	5,265		5,173		92
Total	$	40,756	$	27,455	$	13,301

As of December 31, 2019
Carrying Value Accumulated
Amortization Net Intangible
Amortizable intangible assets:
Product technology $ 24,135 $ 19,798 $ 4,337
Patents and trademarks 13,726 6,894 6,832
Customer relationships 5,150 2,509 2,641
Other 8,875 8,214 661
Total $ 51,886 $ 37,415 $ 14,471

For the year ended, December 31, 2019, as a result of historical and projected financial performance lower than our expectations and changes in our go-forward strategy in connection with our new strategic plan, the estimated fair value of acquired intangibles recognized with the Nutfield, Laser Control Systems, Lanmark and Open Technologies acquisitions were determined to be less than the carrying value of the net carrying value for such assets. We recognized an impairment charge related to such acquired intangibles of $10.5 million in the fourth quarter of 2019. This impairment charge was primarily related to customer relationship and technology intangible assets.

Amortization expense was $4.2 million, $3.4 million and $5.6 million in 2021, 2020 and ~~$5.4 million in 2020,~~ 2019, ~~and 2018,~~ respectively. The estimated amortization expense for each of the years ~~2021~~2022 through ~~2025~~2026 and thereafter is as follows:

Years ending December 31, Amount
2021 $ 3,760
2022 2,536
2023 1,903
2024 1,569
2025 1,394
Thereafter 2,139
$ 13,301



Years ending December 31,	Amount
2022	$	3,571
2023	3,175
2024	2,767
2025	2,642
2026	1,590
Thereafter	11,871
	$	25,616

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9.8. ACCRUED LIABILITIES

Accrued liabilities consist of the following:


	As of December 31,
	2021		2020
Accrued compensation and benefits	$	15,723	$	17,457
Accrued restructuring costs	3,919		2,347
Accrued warranties	1,880		1,683
Professional and legal fees	2,053		1,810
Taxes other than income	3,674		5,013
General services administration contract contingent liability (see Note 12)	—		12,325
Other accrued liabilities	959		1,958
	$	28,208	$	42,593

As of December 31,
2020 2019
Accrued compensation and benefits $ 17,457 $ 15,366
Accrued restructuring costs 2,347 0
Accrued warranties 1,683 2,090
Professional and legal fees 1,810 1,793
Taxes other than income 5,013 4,077
General services administration contract contingent liability (see Note 13) 12,325 11,886
Other accrued liabilities 1,958 2,860
$ 42,593 $ 38,072

Activity related to accrued warranties was as follows:

Years ended December 31,
2020 2019 2018
Balance, beginning of year $ 2,090 $ 2,571 $ 2,628
Provision for warranty expense 2,727 3,600 4,096
Fulfillment of warranty obligations (3,134) (4,081) (4,153)
Balance, end of year $ 1,683 $ 2,090 $ 2,571


	Years ended December 31,
	2021		2020		2019
Balance, beginning of year	$	1,683	$	2,090	$	2,571
Provision for warranty expense	2,851		2,727		3,600
Fulfillment of warranty obligations	(2,654)		(3,134)		(4,081)
Balance, end of year	$	1,880	$	1,683	$	2,090

~~10.~~9. FAIR VALUE MEASUREMENTS

The guidance on fair value measurements and disclosures defines fair value, establishes a framework for measuring fair value, and requires enhanced disclosures about assets and liabilities measured at fair value. Fair value is defined as the price at which an asset could be exchanged in a current transaction between knowledgeable, willing parties. A liability’s fair value is defined as the amount that would be paid to transfer the liability to a new obligor, not the amount that would be paid to settle the liability with the creditor. Where available, fair value is based on observable market prices or parameters or derived from such prices or parameters. Where observable prices or inputs are not available, valuation models are used to determine fair value. These models employ valuation techniques that involve some level of management estimation and judgment, the degree of which is dependent on the price transparency for the instruments or market and the instruments’ complexity.

Assets and liabilities recorded at fair value on a recurring basis in our consolidated balance sheets are categorized based upon the level of judgment associated with the inputs used to measure their fair value. Hierarchical levels, defined by the guidance on fair value measurements, are directly related to the amount of subjectivity associated with the inputs to fair valuation of these assets and liabilities and are as follows:

Level 1 - Valuation is based upon quoted market prices for identical instruments traded in active markets.

Level 2 - Valuation is based on quoted market prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques for which all significant assumptions are observable in the market.

Level 3 - Valuation is generated from model-based techniques that use significant assumptions not observable in the market. Valuation techniques include use of discounted cash flow models and similar techniques.

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Fair Value on a Recurring Basis

Assets and 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. Historically, we have presented short-term investments in the fair value table presented below. As our short-term investments in the accompanying consolidated balance sheets are comprised of U.S. Treasury Bills, these investments are classified as held-to-maturity investments and are not recorded at fair value on a recurring basis in our consolidated balance sheets. As such, we have removed short-term investments from the table below.

December 31, 2020
Level 1 Level 2 Level 3
Liabilities:
Contingent consideration (1)
$ 0 $ 0 $ 1,056
Total $ 0 $ 0 $ 1,056
December 31, 2019
Level 1 Level 2 Level 3
Liabilities:
Contingent consideration (1)
$ 0 $ 0 $ 733
Total $ 0 $ 0 $ 733


	December 31, 2021
	Level 1		Level 2		Level 3
Liabilities:
Contingent consideration (1)	$	—	$	—	$	1,028
Total	$	—	$	—	$	1,028

	December 31, 2020
	Level 1		Level 2		Level 3
Liabilities:
Contingent consideration (1)	$	—	$	—	$	1,056
Total	$	—	$	—	$	1,056

(1)Contingent consideration liability represents arrangements to pay the former owners of certain companies we acquired based on the ~~former owners attaining~~attainment of future product release ~~milestones.~~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~~probability weightings are developed internally and assessed on a quarterly basis. The change in the fair value of the contingent consideration from December 31, 2019 to December 31, 2020 were primarily related to the execution of our new strategic plan where we disposed of the acquired company that was related to the arrangement to pay former owners, as well as the consummation of a new arrangement to pay the former owners of our recent acquisition. Theremaining undiscounted maximum payment under these arrangements was $1.1 million as of December 31, ~~2020~~2021. We expect to make payments earned by former owners under ~~the~~these arrangements ~~was $1.2 million, based~~ on ~~certain milestones.~~August 31, 2023.

~~11.~~10. OTHER EXPENSE (INCOME), NET

Other expense (income), net consists of the following:

Years ended December 31,
2020 2019 2018
Foreign exchange transaction losses $ 1,680 $ 1,211 $ 1,386
Present4D impairment 0 2,152 0
Contingent consideration fair value adjustment 0 (1,562) 0
Other (1,249) 512 (247)
Total other expense, net $ 431 $ 2,313 $ 1,139


	Years ended December 31,
	2021		2020		2019
Foreign exchange transaction losses	$	560	$	1,680	$	1,211
Present4D impairment	—		—		2,152
Contingent consideration fair value adjustment	—		—		(1,562)
Other	(490)		(1,249)		512
Total other expense, net	$	70	$	431	$	2,313

~~12.~~11. INCOME TAXES

Income (loss) before income tax (benefit) expense consists of the following:

Years ended December 31,
2020 2019 2018
Domestic $ (33,991) $ (40,963) $ (1,723)
Foreign 3,218 (20,051) 6,281
(Loss) Income before income taxes $ (30,773) $ (61,014) $ 4,558


	Years ended December 31,
	2021		2020		2019
Domestic	$	(13,202)	$	(33,991)	$	(40,963)
Foreign	4,641		3,218		(20,051)
(Loss) Income before income taxes	$	(8,561)	$	(30,773)	$	(61,014)

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The components of the income tax expense (benefit) for income taxes are as follows:

Years ended December 31,
2020 2019 2018
Current:
Federal $ (3,557) $ 3,215 $ (1,694)
State 169 400 120
Foreign (2,032) 3,809 1,394
Current income tax (benefit) expense (5,420) 7,424 (180)
Deferred:
Federal (2,886) (7,630) (486)
State (2,937) (1,667) (153)
Foreign (20,159) 3,006 447
Deferred income tax benefit (25,982) (6,291) (192)
Income tax (benefit) expense $ (31,402) $ 1,133 $ (372)


	Years ended December 31,
	2021		2020		2019
Current:
Federal	$	211	$	(3,557)	$	3,215
State	114		169		400
Foreign	6,372		(2,032)		3,809
Current income tax expense (benefit)	6,697		(5,420)		7,424
Deferred:
Federal	15,464		(2,886)		(7,630)
State	6,418		(2,937)		(1,667)
Foreign	2,824		(20,159)		3,006
Deferred income tax expense (benefit)	24,706		(25,982)		(6,291)
Income tax expense (benefit)	$	31,403	$	(31,402)	$	1,133

During fiscal year 2020, we completed intra-entity transfers of certain intellectual property rights (“IP Rights”) which resulted in the Company establishing deferred tax assets and related tax benefits of $19.2 million, based on fair value of the IP rights transferred in December 2020. The determination of the fair value involves significant judgment on future revenue growth, operating profit and discount rates. Unforeseen events and circumstances may occur that could affect either the accuracy or validity orof such assumptions, estimates or actual results. The sustainability of our future tax benefits may be dependent upon the acceptance of the valuation estimates and assumptions by the taxing authorities in those jurisdictions impacted by the intra-entity transfers of IP rights.results

~~Table of Contents~~

Reconciliations of the income tax expense at the U.S. federal statutory income tax rate compared to our actual income tax expense (benefit) ~~expense~~ are summarized below:


	Years ended December 31,
	2021		2020		2019
Tax expense at statutory rate	$	(1,798)	$	(6,462)	$	(12,812)
State income taxes, net of federal benefit	106		(1,400)		(1,564)
Foreign tax rate difference	303		1,999		(1,954)
Change in valuation allowance	26,475		(3,736)		8,485
Impact of intra-entity IP transfers	231		(19,227)		—
Prepaid tax on intercompany profit	3,390		—		—
Impact of permanent differences of non-deductible cost	1,658		(602)		1,550
Withholding/other foreign taxes	838		—		—
Research and development credit	(737)		(662)		(753)
Global intangible low-taxed income (“GILTI”)	763		—		1,795
Foreign currency gain/loss	594		—		—
Provision to return adjustments & deferred adjustments	313		(572)		356
Change in enacted tax rates	(306)		(1,138)		359
Equity based compensation	(245)		(42)		(25)
Uncertain tax positions	(185)		—		—
Intangible & goodwill impairment	—		—		4,999
Other	3		440		697
Income tax expense (benefit)	$	31,403	$	(31,402)	$	1,133

Years ended December 31,
2020 2019 2018
Tax expense at statutory rate $ (6,462) $ (12,812) $ 956
State income taxes, net of federal benefit (1,400) (1,564) (13)
Foreign tax rate difference 1,999 (1,954) (1,003)
Research and development credit (662) (753) (919)
Change in valuation allowance (3,736) 8,485 464
Equity based compensation (42) (25) (390)
Impact of permanent differences of non-deductible cost (602) 1,550 727
Provision to return adjustments & deferred adjustments (572) 356 (654)
Change in enacted tax rates (1,138) 359 58
Global intangible low-taxed income (“GILTI”) 0 1,795 402
Intangible & goodwill impairment 0 4,999 0
Other 440 697 0
Impact of intra-entity IP transfers (19,227) 0 0
Income tax (benefit) expense $ (31,402) $ 1,133 $ (372)

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The components of our net deferred income tax assets and liabilities are as follows:

As of December 31,
2020 2019
Net deferred income tax asset - Non-current
Warranty cost $ 310 $ 616
Inventory reserve 5,234 4,820
Unearned service revenue 11,607 11,616
Employee stock options 3,271 4,157
Tax credits 2,828 1,207
Loss carryforwards 8,530 7,481
Depreciation 1,419 345
Other, net 735 1,760
Intangibles & goodwill 19,295 0
Lease liability 6,986 4,591
Total deferred tax assets 60,215 36,593
Valuation allowance (6,916) (10,419)
Total deferred tax assets net of valuation allowance 53,299 26,174
Net deferred income tax liability - Non-current
Intangibles & goodwill 0 (3,174)
Right of use asset (6,636) (4,591)
Total deferred tax liabilities (6,636) (7,765)
Net deferred tax assets $ 46,663 $ 18,409


	As of December 31,
	2021		2020
Net deferred income tax asset - Non-current
Warranty cost	$	305	$	310
Inventory reserve	2,287		5,234
Unearned service revenue	9,913		11,607
Employee stock options	3,282		3,271
Tax credits	3,688		2,828
Loss carryforwards	18,487		8,530
Depreciation	1,295		1,419
Other, net	1,402		735
Intangibles & goodwill	14,400		19,295
Lease liability	4,749		6,986
Total deferred tax assets	59,808		60,215
Valuation allowance	(35,148)		(6,916)
Total deferred tax assets net of valuation allowance	24,660		53,299
Net deferred income tax liability - Non-current
Operating lease right-of-use asset	(4,441)		(6,636)
Total deferred tax liabilities	(4,441)		(6,636)
Net deferred tax assets	$	20,219	$	46,663

~~Table of Contents~~

Our domestic entities had a net deferred ~~income~~tax liability in the amount of $0.4 million, and a deferred tax asset of $21.4 million as of December 31, 2021 and December 31, 2020, respectively. Our foreign entities had net deferred tax assets in the amount of ~~$21.4~~$20.6 million and ~~$15.3~~$25.3 million as of December 31, ~~2020~~2021, and December 31, ~~2019,~~2020, respectively. At December 31, ~~2020~~2021 we had U.S. federal and state net operating loss carryforwards of ~~$1.3~~$34.4 million and ~~$28.4~~$67.6 million, respectively. ~~Federal~~$31.0 million of our federal net operating losses carryforward indefinitely while a portion of our federal and state net operating loss carryforwards will begin to expire in 2035 and 2029, respectively. We also had federal and state R&D ~~credits~~credit carryforwards of ~~$2.3~~$3.2 million and $0.4 million, respectively. The federal credits will begin to expire in 2039 and our state credits carryforward indefinitely. Foreign net operating losses are $40.5 million, the majority of which can be carried forward indefinitely.

At December 31, 2021, our foreign subsidiaries had deferred tax assets primarily relating to Intangibles of $17.3 million and net operating losses of $7.8 million, the majority of which can be carried forward indefinitely. At December 31, 2020, our foreign subsidiaries had deferred tax assets primarily relating to Intangibles of $19.4 million and net operating losses of $7.1 million, the majority of which can be carried forward indefinitely. ~~At December 31, 2019, our foreign subsidiaries had~~

The realization of deferred tax assets ~~primarily relating~~is contingent upon the generation of future taxable income and other restrictions that may exist under the tax laws of the jurisdiction in which a deferred tax asset exists. We assess the available positive and negative evidence to ~~net operating~~estimate whether sufficient future taxable income will be generated to permit the use of existing deferred tax assets. Management's evaluation begins with a jurisdictional review of cumulative gains or losses incurred over recent years. A significant piece of ~~$7.2 million. The~~objective negative evidence exists when a jurisdiction has incurred cumulative losses over recent years. Such objective evidence limits the ability to consider other subjective evidence, such as our projections for future growth. Based on the positive and negative evidence for recoverability, we establish a valuation allowance ~~for~~against the net deferred tax assets as 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. We have valuation allowances of $35.1 million and $6.9 million for the years December 31, ~~2020~~2021 and ~~2019 was $6.9 million and $10.4 million,~~2020, respectively. The net change in the total valuation allowance for each of the years ended December 31, ~~2020, 2019 and 2018 was a $3.7 million decrease, an $8.5 million increase and a $0.5 million increase, respectively.~~

~~The valuation allowance as of December 31,~~2021, 2020 and 2019 was ~~primarily related to foreign net operating loss carryforwards that,~~a $26.5 million increase, $3.7 million decrease and $8.5 million increase, respectively. The increase in the ~~judgment of management, were not more likely than not~~valuation allowance for the year ended December 31, 2021 primarily relates to ~~be realized. In assessing the realizability of~~recording valuation allowance against our net U.S. and Singapore deferred tax ~~assets, management considers whether it is more likely than not that some or all~~assets.

Table of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets depends on the generation of future taxable income during the periods in which those temporary differences are deductible. Management considers the scheduled reversal of deferred tax liabilities (including the impact of available carryback and carryforward periods), projected taxable income, and tax-planning strategies in making this assessment.Contents

On December 22, 2017, the United States enacted the U.S. Tax Cuts and Jobs Act, resulting in significant modifications to existing law, which included a transition tax on the mandatory deemed repatriation of foreign earnings. As a result of the U.S. Tax Cuts and Jobs Act, the Company can repatriate foreign earnings and profits to the U.S. with minimal U.S. income tax consequences, other than the transition tax and GILTI tax. The Company reinvested a large portion of its undistributed foreign earnings and profits in acquisitions and other investments and intends to bring back a portion of foreign cash in certain jurisdictions where the Company will not be subject to local withholding taxes and which were subject already to transition tax and GILTI tax. At December 31, ~~2020,~~2021, we have not provided for approximately ~~$0.4~~$0.9 million of withholding tax on foreign earnings and profits in certain jurisdictions that we intend to invest these earnings indefinitely.

Significant judgment is required in determining our worldwide provision for income taxes. In the ordinary course of a global business, there are many transactions for which the ultimate tax outcome is uncertain. We review our tax contingencies on a regular basis and make appropriate accruals as necessary.

As of December 31, 2021, 2020 ~~2019~~ and ~~2018,~~2019, our unrecognized tax benefits totaled ~~$1.9~~$1.7 million, $1.9 million and ~~$0.3~~$1.9 million, respectively, which are included in Income taxes payable ~~- less current portion in our consolidated balance sheet.~~and offsetting an associated deferred tax asset.

A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:


		Years ended December 31,							Years ended December 31,
		2020		2019		2018			2021		2020		2019
Balance at January 1	Balance at January 1	$	1,924	$	324	$	324	Balance at January 1	$	1,873	$	1,924	$	324
Additions based on tax positions related to the current year	Additions based on tax positions related to the current year	273		314		0		Additions based on tax positions related to the current year	53		273		314
Additions for tax positions of prior years	Additions for tax positions of prior years	0		1,675		0		Additions for tax positions of prior years	—		—		1,675
Lapse of statute of limitations	Lapse of statute of limitations	(324)		(389)		0		Lapse of statute of limitations	(262)		(324)		(389)
Balance at December 31	Balance at December 31	$	1,873	$	1,924	$	324	Balance at December 31	$	1,664	$	1,873	$	1,924

We file income tax returns in the U.S. federal jurisdiction and various state and foreign jurisdictions. The table below summarizes the open tax years and ongoing tax examinations in major jurisdictions as of December 31, ~~2020~~

2021.

Jurisdiction

Open Years

Examination
in Process

United States - Federal Income Tax

~~2016-2020~~2018-2021

~~2016~~N/A

United States - various states

~~2016-2020~~2017-2021

N/A

Germany

~~2013-2020~~2013-2021

2013-2014

Switzerland

~~2018-2020~~2019-2021

N/A

Singapore

~~2016-2020~~2017-2021

N/A

~~Table of Contents~~

We recognize accrued interest and penalties related to unrecognized tax benefits in income tax expense. The total amount of unrecognized tax benefits that, if recognized, would affect the effective tax rate is ~~$1.9~~$1.6 million. We do not currently anticipate that the total amount of unrecognized tax benefits will result in material changes to our financial position. We are subject to income taxes at the federal, state and foreign country level. Our tax returns are subject to examination at the U.S. state level and are subject to a three to four year statute of limitations, depending on the state.

~~13.~~12. COMMITMENTS AND CONTINGENCIES

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 December 31, ~~2020,~~2021, we had approximately ~~$44.2~~$40.0 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 December 31, ~~2020,~~2021, we also had ~~$0.9~~$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 routine litigation arising in the normal course of business, none of which we believe will have a material adverse effect on our business, financial condition or results of operations.

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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.~~2002. 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.

AsEffective as of February 25, 2021, as a result of the ~~GSA Matter, for~~review, we entered into a settlement agreement with the ~~fourth quarter of 2018, we reduced our total sales by a $4.8 million estimated cumulative sales adjustment, representative of the last six years of estimated overcharges~~GSA. Pursuant to the ~~Government under~~settlement agreement, we agreed to, among other things, pay to the GSA ~~Contracts. In addition, for~~$12.3 million in full and final satisfaction of any and all claims, causes of actions, appeals and the ~~fourth quarter of 2018, we recorded $0.5 million of imputed~~like, including damages, costs, attorney's fees and interest arising under or related to the ~~estimated cumulative sales adjustment, which increased Interest expense, net and resulted in an estimated total liability of $5.3 million for the~~ GSA Matter. ~~This estimate was based on our preliminary review as of February 20, 2019, the date of our Annual Report on Form 10-K for the year ended December 31, 2018.~~

On July 15, 2019, we submitted a report to the GSA and its Office of Inspector General setting forth the findings of the Review conducted by our outside legal counsel and forensic accountants. Based on the results of the Review, we reduced our total sales for second quarter 2019 by an incremental $5.8 million sales adjustment, reflecting an estimated aggregate overcharge of $10.6 million under the GSA Contracts for the period from July 2011 to March 2019. In addition, we recorded an incremental $0.7 million of imputed interest related to the estimated cumulative sales adjustment during 2019, which increased Interest expense, net and resulted in a $6.5 million total incremental increase in the estimated total liability for the GSA Matter.

In January 2020, we received requests for additional information from the GSA and its Office of Inspector General to which we corresponded through June 2020. As a result of this continuing investigation, we reduced our total sales for the second quarter 2020 by an incremental $0.6 million sales adjustment, reflecting an estimated aggregate overcharge of $11.2 million under the GSA Contracts for the period from July 2011 to December 2020. We are working with the GSA in responding to any additional inquiries arising from the investigation. We recorded an incremental $0.2 million of imputed interest related to the estimated cumulative sales adjustment for the third quarter of 2020 and determined in the fourth quarter of 2020 that an adjustment to reduce imputed interest by $0.7 million was required. As of March 31, 2021, we settled and paid the ~~date of the filing of this Annual Report on Form 10-K, we~~full $12.3 million and no longer have ~~recorded an aggregate estimated total~~any outstanding liability for the GSA Matter of $12.3 million. This estimate is based on the information we have as of the date of this Annual Report on Form 10-K and is subject to change based on discussions with our outside legal counsel and the Government.

~~Table of Contents~~

We intend to cooperate fully with this and any other Government inquiries. The Government’s review of, or investigation into, this matter could result in civil and criminal penalties, administrative sanctions, and contract remedies being imposed on us, including but not limited to, termination of the GSA Contracts, repayments of amounts already received under the GSA Contracts, forfeiture of profits, damages, suspension of payments, fines, and suspension or debarment from doing business with the Government and possibly U.S. state and local governments. We may also be subject to litigation and recovery under the federal False Claims Act and possibly similar state laws, which could include claims for treble damages, penalties, fees and costs. As a result, we cannot reasonably predict the outcome of the Government’s review of, or investigation into, this matter at this time or the resulting future financial impact on us. Any of these outcomes could have a material adverse effect on our reputation, our sales, results of operations, cash flows and financial condition, and the trading price of our common stock. In addition, we have incurred, and will continue to incur, legal and related ~~costs in connection with the Review and the Government’s response~~ to this matter.

~~14.~~13. STOCK COMPENSATION PLANS

We have 2 compensation ~~plans~~plan that ~~provide~~provides for the granting of stock options and other share-based awards to key employees and non-employee members of the Board of Directors. 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.

We were authorized to grant awards for up to 1,781,546 shares of common stock under the 2009 Plan, as well as any shares underlying awards outstanding under our 2004 Equity Incentive Plan (the “2004 Plan”) as of the effective date of the 2009 Plan that thereafter terminated or expired unexercised or were canceled, forfeited or lapsed for any reason. There were ~~17,150 options outstanding at December 31, 2020 under the 2009 Plan at an exercise price of $57.54. The~~no options outstanding under the 2009 Plan ~~have a 7-year term.~~at December 31, 2021.

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. In May 2018, our shareholders approved an amendment to the 2014 Plan, which increased the number of shares available for issuance under the 2014 Plan by 1,000,000 shares. A maximum of 2,974,543 shares are available for issuance under the 2014 Plan, as amended, plus the number of shares (not to exceed 891,960) underlying awards outstanding under the 2004 Plan and the 2009 Plan as of May 29, 2014 that thereafter terminate or expire unexercised or are canceled, forfeited or lapse for any reason. There were ~~137,898~~44,524 options outstanding at December 31, ~~2020~~2021 under the 2014 Plan at exercise prices between $33.05 and $61.30. The options outstanding under the 2014 Plan have a 7-year term and generally vest over a 3-year period.

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 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 independent Chairman of the Board is annually granted restricted shares with a value equal to $50,000, and the Lead Director, if one has been appointed, would be annually granted restricted shares with a value equal to $40,000$175,000 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 independent Chairman of the Board ~~and, if applicable, our Lead Director~~ vest on the day prior to the following year’s annual meeting date, subject to a 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. Our non-employee directors also may elect to have their annual cash retainers and annual equity retainers paid in the form of deferred stock units pursuant to the 2014 Plan and the 2018 Non-Employee Director Deferred Compensation Plan. Each deferred stock unit represents the right to receive ~~one~~1 share of our common stock upon the non-employee director's separation of service from the Company. We record compensation cost associated with our deferred stock units over the period of service.

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Annually, upon approval by our Compensation Committee, we grant stock-based awards, which historically have been in the form of stock options and/or restricted stock units, to certain employees. We also grant stock-based awards, which historically have been in the form of stock options and/or restricted stock units, to certain new employees throughout the year. The fair value of these stock-based awards is determined by using (a) the current market price of our common stock on the grant date in the case of restricted stock units without a market condition, (b) the Monte Carlo Simulation valuation model in the case of ~~performance-based~~market-based restricted stock units with a market condition, or (c) the Black-Scholes option valuation model in the case of stock options.

For the stock-based awards granted in ~~2019~~2021 and 2020, the time-based restricted stock units vest in 3 equal annual installments beginning one year after the grant date. The ~~performance-based~~market-based restricted stock unit awards vest at the end of the 3-year performance period if the applicable ~~performance~~market-based measure is achieved. The related stock-based compensation expense will be recognized over the requisite service period, taking into account the probability that we will satisfy the performance measure. The ~~performance-based~~market-based restricted stock units granted in ~~2020~~2021 will be earned and will vest based upon our total shareholder return (“TSR”) relative to the TSR attained by companies within our defined benchmark group, the Russell 2000 Growth Index. Due to the TSR presence in these ~~performance-based~~market-based restricted stock units, the fair value of these awards was 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.

The Monte Carlo Simulation 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 ~~performance-based~~market-based restricted stock units that were granted during ~~2020~~2021 and ~~2019~~2020 valued using the Monte Carlo Simulation valuation model was ~~$80.38~~$145.67 and ~~$66.16,~~$80.38, respectively. For ~~performance-based~~market-based restricted stock units granted during ~~2020~~2021 and ~~2019~~2020 valued using the Monte Carlo Simulation valuation model, we used the following assumptions:

Year ended December 31
2020 2019
Risk-free interest rate 1.2 % 1.8% - 2.48%
Expected dividend yield 0 % 0 %
Term 3 years 3 years
Expected volatility 40.0 % 45.0 %
Weighted-average expected volatility 40.0 % 45.0 %


	Year ended December 31
	2021		2020
Risk-free interest rate	0.2	%	1.2	%
Expected dividend yield	—	%	—	%
Term	3 years		3 years
Expected volatility	45.0	%	40.0	%
Weighted-average expected volatility	45.0	%	40.0	%

Historical information was the primary basis for the selection of the expected dividend yield and expected ~~volatility and the expected lives of the options.~~volatility. 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~~term of the ~~option~~award being valued.

A summary of stock option activity and weighted average exercise prices follows:

Options Weighted-
Average
Exercise Price Weighted-Average
Remaining
Contractual Term
(Years) Aggregate Intrinsic
Value as of
December 31, 2020
Outstanding at January 1, 2020 486,682 $ 52.37
Granted 0 0
Forfeited (34,605) 57.51
Exercised (297,029) 49.60
Outstanding at December 31, 2020 155,048 $ 56.53 2.3 $ 2,187
Options exercisable at December 31, 2020 148,469 $ 56.31 0.8 $ 2,125


	Options	Weighted- Average Exercise Price		Weighted-Average Remaining Contractual Term (Years)	Aggregate Intrinsic Value as of December 31, 2021
Outstanding at January 1, 2021	155,048	$	56.53
Granted	��	—
Forfeited	(6,701)	58.08
Exercised	(103,823)	56.61
Outstanding at December 31, 2021	44,524	$	56.11	1.5	$	667
Options exercisable at December 31, 2021	44,524	$	56.11	0.2	$	667

The aggregate intrinsic value of stock options exercised during the years ended December 31, 2021, 2020, and 2019 ~~and 2018~~ was $3.0 million, $4.2 million ~~$3.4 million~~ and ~~$7.5~~$3.4 million, respectively. The total fair value of stock options vested during the years ended December 31, 2021, 2020, and 2019 ~~and 2018~~ was $0.2 million, $0.8 million ~~$5.1 million~~ and ~~$3.7~~$5.1 million, respectively.

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The following table summarizes the restricted stock and restricted stock unit activity and weighted-average grant date fair values for the year ended December 31, ~~2020:~~

Shares Weighted-Average
Grant Date
Fair Value
Non-vested at January 1, 2020 398,318 $ 49.53
Granted 208,405 65.36
Forfeited (56,850) 56.56
Vested (172,426) 41.46
Non-vested at December 31, 2020 377,447 $ 60.92
2021:


	Shares	Weighted-Average Grant Date Fair Value
Non-vested at January 1, 2021	377,447	$	60.92
Granted	168,573	100.66
Forfeited	(36,288)	80.07
Vested	(159,153)	57.73
Non-vested at December 31, 2021	350,579	$	79.11

We recorded total stock-based compensation expense associated with our stock incentive plans of $11.5 million, $8.3 million and $11.1 million in 2021, 2020 and ~~$7.6 million in 2020,~~ 2019, ~~and 2018,~~ respectively.

As of December 31, ~~2020,~~2021, there was ~~$13.6~~$16.1 million in 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 ~~1.9 years.~~1.83.

The following table summarizes total stock-based compensation expense for each of the line items on our consolidated statement of operations:

Years ended December 31,
2020 2019 2018
Cost of Sales
Product $ 356 $ 628 $ 477
Service 346 373 351
Total cost of sales $ 702 $ 1,001 $ 828
Operating Expenses
Selling, general and administrative $ 6,327 $ 8,786 $ 5,210
Research and development 1,285 1,282 1,583
Total operating expenses $ 7,612 $ 10,068 $ 6,793


	Years ended December 31,
	2021		2020		2019
Cost of Sales
Product	$	566	$	356	$	628
Service	69		346		373
Total cost of sales	$	635	$	702	$	1,001
Operating Expenses
Selling, general and administrative	$	8,985	$	6,327	$	8,786
Research and development	1,836		1,285		1,282
Total operating expenses	$	10,821	$	7,612	$	10,068

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~~15.~~14. (LOSS) EARNINGS PER SHARE

Basic earnings per share is computed by dividing net income by the weighted average number of shares outstanding. Diluted earnings per share is computed by also considering the impact of potential common stock on both net income and the weighted average number of shares outstanding. Our potential common stock consists of employee stock options, restricted stock ~~restricted stock~~ units and ~~performance-based~~market-based awards. Our potential common stock is excluded from the basic earnings per share calculation and is included in the diluted earnings per share calculation when doing so would not be anti-dilutive. ~~Performance-based~~Market-based awards are included in the computation of ~~diluted~~(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 for the period presented, the diluted loss per share calculation does not include our potential common stock, as the inclusion of these shares in the calculation would have an anti-dilutive effect. A reconciliation of the number of common shares used in the calculation of basic and diluted earnings per share is presented below:

Years Ended December 31,
2020 2019 2018
Shares Per-Share
Amount Shares Per-Share
Amount Shares Per-Share
Amount
Basic earnings per share 17,769,958 $ 0.04 17,383,415 $ (3.58) 17,043,167 $ 0.29
Effect of dilutive securities 156,366 0 0 0 305,289 0
Diluted earnings per share 17,926,324 — $ 0.04 17,383,415 $ (3.58) 17,348,456 $ 0.29
Securities excluded from the determination of weighted average shares for the calculation of diluted earnings per share, as they were potentially antidilutive 0 886,274 393,970


	Years Ended December 31,
	2021				2020			2019
	Shares		Per-Share Amount		Shares	Per-Share Amount		Shares	Per-Share Amount
Basic earnings per share	18,187,946		$	(2.20)	17,769,958	$	0.04	17,383,415	$	(3.58)
Effect of dilutive securities	—		—		156,366	—		—	—
Diluted earnings per share	18,187,946	—	$	(2.20)	17,926,324	$	0.04	17,383,415	$	(3.58)
Securities excluded from the determination of weighted average shares for the calculation of diluted earnings per share, as they were potentially antidilutive	395,387				—			886,274

~~16.~~15. EMPLOYEE RETIREMENT BENEFIT PLAN

We maintain a 401(k) defined contribution retirement plan for our eligible U.S. employees. Costs charged to operations in connection with the 401(k) plan during 2021, 2020 ~~2019~~ and ~~2018~~2019 aggregated to $1.8 million, $1.8 million, and $2.2 million, ~~and $2.1 million,~~ respectively.

~~17. VARIABLE INTEREST ENTITY~~

A variable interest entity (“VIE”) is an entity that has one of three characteristics: (1) it is controlled by someone other than its shareowners or partners, (2) its shareowners or partners are not economically exposed to the entity's earnings (for example, they are protected against losses), or (3) it lacks sufficient equity to permit the entity to finance its activities without additional subordinated financial support from other parties.

On April 27, 2018, we invested $1.8 million in present4D GmbH (“present4D”), a software solutions provider for professional virtual reality presentations and training environments, in the form of an equity capital contribution. This contribution represented a minority investment in present4D. This investment's business purpose is to coordinate the design and development of modules supporting compatibility with virtual reality for our existing software offerings.

~~Table of Contents~~

As of our investment date, present4D was thinly capitalized and lacked the sufficient equity to finance its activities without additional subordinated financial support and is classified as a VIE. We do not have power over decisions that significantly affect present4D’s economic performance and do not represent its primary beneficiary. After April 27, 2020, present4D may request additional equity financing of up to $1.8 million from us in exchange for additional share capital, which additional equity financing would be at our discretion. In July 2019, we originated a $0.5 million note with present4D, which we may convert into additional equity in present4D at our discretion in the event of a default. Further, the note is collateralized by the perpetual and royalty-free, non-exclusive, transferable and sublicensable license granted to us to use present4D’s software.

We do not intend to provide future support to present4D or to obtain the aforementioned additional share capital in the future. We do not intend to use the perpetual and royalty-free, non-exclusive, transferable and sublicensable license granted to us to use present4D’s software. During the year ended December 31, 2019, we wrote off our investment in, and our note receivable with, present4D and recognized a total loss of $2.2 million. Our portion of present4D’s net loss for the year ended December 31, 2019 was approximately $0.2 million. We had 0 remaining asset related to present4D at December 31, 2020 and December 31, 2019. We have 0 remaining exposure to loss for our involvement with present4D.

~~18.~~16. GEOGRAPHIC INFORMATION

Historically, we operated in five verticals—3D Manufacturing, Construction Building Information Modeling (“Construction BIM”), Public Safety Forensics, 3D Design and Photonics—and had three reporting segments—3D Manufacturing, Construction BIM and Emerging Verticals. During the second half of 2019, our Chief Executive Officer (“CEO”) and FARO's management team formulated and began to implement a new comprehensive strategic plan for our business. Our strategic planning process included extensive conversations with employees, customers, investors and suppliers to identify both where the Company can provide sustained and differentiated customer value and where opportunities existed to improve operating efficiencies. We identified areas of our business that needed enhanced focus or change in order to improve our efficiency and cost structure. As part of our strategic plan, we reassessed and redefined our go-to-market strategy, refocused our marketing engagement with our customers, re-evaluated our hardware and software product portfolio and examined how key decisions are made throughout our global organization. Additionally, we focused on other organizational optimization efforts, including the simplification of our overly complex management structure.

As part of our new strategic plan, and based on the recommendation of our CEO, who is also our Chief Operating Decision Maker (“CODM”), in the fourth quarter of 2019, we eliminated our vertical structure and began reorganizing the Company into a functional structure. Our executive leadership team is now comprised of functional leaders in areas such as sales, marketing, operations, research and development and general and administrative, and resources are allocated to each function at a consolidated unit level. We no longer have separate business units, or segment managers or vertical leaders who report to the CODM with respect to operations, operating results or planning for levels or components below the total Company level. Instead, our CODM now allocates resources and evaluates performance on a ~~Company-wide~~company-wide basis. Based on these changes, commencing with the fourth quarter of 2019, we are now reporting as 1 reporting segment that develops, manufactures, markets, supports and sells CAD-based quality assurance products integrated with CAD-based inspection and statistical process control software and 3D documentation systems. Our reporting segment sells into a variety of end markets, including automotive, aerospace, metal and machine fabrication, architecture, engineering, construction and public safety. These activities represent more than 99% of consolidated sales.

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Total sales to external customers is based upon the geographic location of the customer.


	For the Years Ended December 31,
	2021		2020		2019
Total sales to external customers
United States and Canada	$	127,661	$	119,769	$	151,646
Americas-Other	12,973		9,057		14,110
Germany	48,772		46,166		52,083
Europe-Other	55,577		45,224		70,196
Japan	25,997		4,998		33,361
China	40,808		31,748		32,934
Asia-Other	26,026		46,806		27,435
	$	337,814	$	303,768	$	381,765

For the Years Ended December 31,
2020 2019 2018
Total sales to external customers
United States and Canada $ 119,769 $ 151,646 $ 156,242
Americas-Other 9,057 14,110 15,086
Germany 46,166 52,083 53,251
Europe-Other 45,224 70,196 74,010
Japan 4,998 33,361 37,607
China 31,748 32,934 36,130
Asia-Other 46,806 27,435 31,301
$ 303,768 $ 381,765 $ 403,627

Long-lived assets consist primarily of property, plant, and equipment, goodwill, and intangible assets, and are attributed to the geographic area in which they are located or originated, as applicable.

As of December 31,
2020 2019 2018
Long-Lived Assets
United States $ 42,729 $ 45,225 $ 61,557
Americas-Other 10,415 10,889 10,702
Germany 26,671 26,295 30,154
Europe-Other 10,966 4,984 24,935
Japan 1,192 1,423 1,039
Asia-Other 1,960 2,313 2,358
$ 93,933 $ 91,129 $ 130,745


	As of December 31,
	2021		2020		2019
Long-Lived Assets
United States	$	82,845	$	42,729	$	45,225
Americas-Other	9,794		10,415		10,889
Germany	24,415		26,671		26,295
Europe-Other	10,063		10,966		4,984
Japan	1,039		1,192		1,423
Asia-Other	1,750		1,960		2,313
	$	129,906	$	93,933	$	91,129

~~19.~~17. 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 ~~eight~~fifteen years, and some of which include options to terminate the leases within three months. We ~~currently~~ do not ~~sublease~~participate in any ~~of our leased assets.~~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 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.

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The components of lease expense were as follows:

Year Ended
December 31, 2020 Year Ended
December 31, 2019
Operating lease cost $ 8,506 $ 8,114
Finance lease cost:
Amortization of ROU assets $ 307 $ 363
Interest on lease liabilities $ 29 $ 45
Total finance lease cost $ 336 $ 408


	Year Ended December 31, 2021		Year Ended December 31, 2020
Operating lease cost	$	7,805	$	8,506

Finance lease cost:
Amortization of ROU assets	$	295	$	307
Interest on lease liabilities	$	20	$	29
Total finance lease cost	$	315	$	336

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 cost for the year ended December 31, ~~2020~~2021 and December 31, ~~2019~~2020 was $0.1 million and ~~$0.2~~$0.1 million respectively.

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Supplemental balance sheet information related to leases was as follows:


		As of			As of				As of			As of
		December 31, 2020			December 31, 2019				December 31, 2021			December 31, 2020
Operating leases:	Operating leases:							Operating leases:
Operating lease right-of-use asset	Operating lease right-of-use asset	$	26,107		$	18,418		Operating lease right-of-use asset	$	22,543		$	26,107

Current operating lease liability	Current operating lease liability	$	5,557		$	6,349		Current operating lease liability	$	5,601		$	5,557
Operating lease liability - less current portion	Operating lease liability - less current portion	21,985			13,272			Operating lease liability - less current portion	18,538			21,985
Total operating lease liability	Total operating lease liability	$	27,542		$	19,621		Total operating lease liability	$	24,139		$	27,542

Finance leases:	Finance leases:							Finance leases:
Property and equipment, at cost	Property and equipment, at cost	$	1,813		$	1,870		Property and equipment, at cost	$	1,380		$	1,813
Accumulated depreciation	Accumulated depreciation	(1,415)			(1,150)			Accumulated depreciation	(1,222)			(1,415)
Property and equipment, net	Property and equipment, net	$	398		$	720		Property and equipment, net	$	158		$	398

Current finance lease liability	Current finance lease liability	$	278		$	325		Current finance lease liability	$	137		$	278
Finance lease liability - less current portion	Finance lease liability - less current portion	146			426			Finance lease liability - less current portion	110			146
Total finance lease liability	Total finance lease liability	$	424		$	751		Total finance lease liability	$	247		$	424

Weighted Average Remaining Lease Term (in years):	Weighted Average Remaining Lease Term (in years):							Weighted Average Remaining Lease Term (in years):
Operating leases	Operating leases	6.55			4.48			Operating leases	5.69			6.55
Finance leases	Finance leases	1.93			2.48			Finance leases	2.12			1.93

Weighted Average Discount Rate:	Weighted Average Discount Rate:							Weighted Average Discount Rate:
Operating leases	Operating leases	5.66		%	5.10		%	Operating leases	5.67		%	5.66		%
Finance leases	Finance leases	5.07		%	5.09		%	Finance leases	5.02		%	5.07		%


Florida						59-3157093
(State or Other Jurisdiction of Incorporation or Organization)						(I.R.S. Employer Identification Number)


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


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



		Page
PART I		4
Item 1.	Business	4
Item 1A.	Risk Factors	1314
Item 1B.	Unresolved Staff Comments	2526
Item 2.	Properties	2627
Item 3.	Legal Proceedings	2627
Item 4.	Mine Safety Disclosures	2627

PART II		2728
Item 5.	Market For Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	2728
Item 6.	Selected Financial Data	2930
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	3031
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	43
Item 8.	Financial Statements and Supplementary Data	44
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	8076
Item 9A.	Controls and Procedures	8177
Item 9B.	Other Information	8380

PART III		8481
Item 10.	Directors, Executive Officers and Corporate Governance	8481
Item 11.	Executive Compensation	8481
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	8481
Item 13.	Certain Relationships and Related Transactions , and Director Independence	8481
Item 14.	Principal Accountant Fees and Services	8481

PART IV		8582
Item 15.	Exhibits , Financial Statement Schedules	8582
Item 16.	Form 10-K Summary	8986


Company/Market/Peer Group	2015		2016		2017		2018		2019		2020
FARO Technologies, Inc.	$	100.00	$	121.95	$	159.22	$	137.68	$	170.57	$	239.27
Nasdaq Composite-Total Returns	$	100.00	$	108.87	$	141.14	$	137.13	$	185.45	$	271.64
Morningstar Scientific & Technical Instruments Index	$	100.00	$	120.91	$	167.48	$	151.66	$	209.65	$	258.49


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


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


	Year ended December 31,
in thousands, except share and per-share data	2020		2019(2)		2018		2017		2016
Consolidated Statement of Operations Data:
Sales	$	303,768	$	381,765	$	403,627	$	360,917	$	325,584
(Loss) Income from operations	(30,682)		(58,634)		5,754		5,322		13,284
(Loss) Income before income tax (benefit) expense	(30,773)		(61,014)		4,558		5,827		12,626
Net income (loss)	629		(62,147)		4,930		(14,516)		11,107
Net income (loss) per common share:
Basic	$	0.04	$	(3.58)	$	0.29	$	(0.87)	$	0.67
Diluted	$	0.04	$	(3.58)	$	0.29	$	(0.87)	$	0.67
Weighted average shares outstanding:
Basic	17,769,958		17,383,415		17,043,167		16,711,534		16,654,786
Diluted	17,926,324		17,383,415		17,348,456		16,711,534		16,681,710

	As of December 31,
	2020		2019		2018		2017		2016(1)
Consolidated Balance Sheet Data:
Working capital	$	215,988	$	216,251	$	219,219	$	218,274	$	212,055
Total assets	525,592		486,842		506,244		458,578		423,714
Total debt-capital leases	424		751		360		475		21
Total shareholders’ equity	360,303		331,992		376,609		352,066		339,657


	Payments Due by Period
Contractual Obligations	Total		< 1 Year		1-3 Years		3-5 Years		> 5 Years
Operating lease obligations	$	33,322	$	6,914	$	10,193	$	7,611	$	8,604
Capital lease obligations	445		292		134		19		$	—
Purchase obligations	45,138		44,196		942		—		—
Transition tax liability	11,080		1,166		3,353		6,561		—
Other obligations	1,056		—		1,056		—		—
Total	$	91,041	$	52,568	$	15,678	$	14,191	$	8,604


(in thousands, except share and per share data)	December 31, 2020		December 31, 2019
ASSETS
Current assets:
Cash and cash equivalents	$	185,633	$	133,634
Short-term investments	0		24,870
Accounts receivable, net	64,616		76,162
Inventories, net	47,391		58,554
Prepaid expenses and other current assets	26,295		28,996
Total current assets	323,935		322,216
Non-current assets:
Property, plant and equipment, net	23,091		26,954
Operating lease right-of-use asset	26,107		18,418
Goodwill	57,541		49,704
Intangible assets, net	13,301		14,471
Service and sales demonstration inventory, net	31,831		33,349
Deferred income tax assets, net	47,450		18,766
Other long-term assets	2,336		2,964
Total assets	$	525,592	$	486,842
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	14,121	$	13,718
Accrued liabilities	42,593		38,072
Income taxes payable	3,442		5,182
Current portion of unearned service revenues	39,149		39,211
Customer deposits	2,807		3,108
Lease liability	5,835		6,674
Total current liabilities	107,947		105,965
Unearned service revenues - less current portion	21,757		20,578
Lease liability - less current portion	22,131		13,698
Deferred income tax liabilities	787		357
Income taxes payable - less current portion	11,583		13,177
Other long-term liabilities	1,084		1,075
Total liabilities	165,289		154,850
Commitments and contingencies - See Note 13	0		0
Shareholders’ equity:
Preferred stock - par value $0.01, 10,000,000 shares authorized; NaN issued	0		0
Common stock - par value $0.001, 50,000,000 shares authorized; 19,384,350, 18,988,379 issued; 17,990,707 and 17,576,618 outstanding, respectively	19		19
Additional paid-in capital	287,979		267,868
Retained earnings	113,508		112,879
Accumulated other comprehensive loss	(10,160)		(17,399)
Common stock in treasury, at cost - 1,393,643 shares and 1,411,761, respectively	(31,043)		(31,375)
Total shareholders’ equity	360,303		331,992
Total liabilities and shareholders’ equity	$	525,592	$	486,842


								Accumulated Other Comprehensive Loss		Common Stock in Treasury		Total
				Additional Paid-in Capital		Retained Earnings
	Common Stock
(in thousands, except share data)	Shares	Amounts
BALANCE JANUARY 1, 2018	16,796,884	$	18	$	223,055	$	168,624	$	(7,822)	$	(31,809)	$	352,066
Net income						4,930						4,930
Currency translation adjustment, net of income tax								(10,661)				(10,661)
Stock-based compensation	—			7,620								7,620
Common stock issued, net of shares withheld for employee taxes	456,127	1		20,654						200		20,855
Cumulative effect of the adoption of ASU 2014-09						1,799						1,799
BALANCE DECEMBER 31, 2018	17,253,011	$	19	$	251,329	$	175,353	$	(18,483)	$	(31,609)	$	376,609
Net loss						(62,147)						(62,147)
Currency translation adjustment, net of income tax								1,084				1,084
Stock-based compensation				11,071								11,071
Common stock issued, net of shares withheld for employee taxes	323,607			5,468						234		5,702
Cumulative effect of the adoption of ASU 2016-02						(327)						(327)
BALANCE DECEMBER 31, 2019	17,576,618	$	19	$	267,868	$	112,879	$	(17,399)	$	(31,375)	$	331,992
Net income						629						629
Currency translation adjustment, net of income tax								7,239				7,239
Stock-based compensation	—			8,314								8,314
Common stock issued, net of shares withheld for employee taxes	414,089			11,797						332		12,129
BALANCE DECEMBER 31, 2020	17,990,707	$	19	$	287,979	$	113,508	$	(10,160)	$	(31,043)	$	360,303


Machinery, equipment and software			2 to 5 years
Furniture and fixtures			3 to 10 years


	December 31, 2021		December 31, 2020
Property, plant and equipment:
Machinery and equipment	$	87,028	$	91,984
Furniture and fixtures	6,377		6,620
Leasehold improvements	22,931		21,414
Property, plant and equipment at cost	116,336		120,018
Less: accumulated depreciation and amortization	(94,142)		(96,927)
Property, plant and equipment, net	$	22,194	$	23,091


For the twelve months ended December 31, 2018:
	As Reported		Depreciation and Amortization Adjustment		Selling, General and Administrative Adjustment		Software Maintenance Adjustment		As Adjusted
Sales
Product	$	311,102	$	—	$	—	$	9,482	$	320,584
Service	92,525		—		—		(9,482)		83,043
Total sales	$	403,627	$	—	$	—	$	0	$	403,627

Cost of Sales
Product	$	124,802	$	3,406	$	—	$	2,668	$	130,876
Service	50,480		3,386		—		(2,668)		51,198
Total cost of sales	$	175,282	$	6,792	$	—	$	0	$	182,074

Operating Expenses
Selling, general and administrative	$	0	$	5,145	$	164,572	$	—	$	169,717
Selling and marketing	116,920		0		(116,920)		—		0
General and administrative	47,652		0		(47,652)		—		0
Depreciation and amortization	18,313		(18,313)		0		—		0
Research and development	39,706		6,376		0		—		46,082
Total operating expenses	$	222,591	$	(6,792)	$	0	$	—	$	215,799


	As of December 31, 2019
	Carrying Value		Accumulated Amortization		Net Intangible
Amortizable intangible assets:
Product technology	$	24,135	$	19,798	$	4,337
Patents and trademarks	13,726		6,894		6,832
Customer relationships	5,150		2,509		2,641
Other	8,875		8,214		661
Total	$	51,886	$	37,415	$	14,471


	Years ended December 31,
	2020				2019				Change ($)
(dollars in millions)			% of Sales				% of Sales		2020 vs 2019

Product	$	218.6	72.0	%	$	289.7	75.9	%	$	(71.1)
Service	85.2		28.0	%	92.1		24.1	%	(6.9)
Total sales	303.8		100.0	%	381.8		100.0	%	(78.0)
Product	98.9		32.5	%	133.2		34.9	%	(34.4)
Service	45.1		14.8	%	50.4		13.2	%	(5.3)
Total cost of sales	143.9		47.4	%	183.6		48.1	%	(39.7)
Gross profit	159.8		52.6	%	198.1		51.9	%	(38.3)

Operating expenses
Selling, general and administrative	131.8		43.4	%	177.4		46.5	%	(45.6)
Research and development	42.9		14.1	%	44.2		11.6	%	(1.3)
Restructuring costs	15.8		5.2	%	—		—	%	15.8
Impairment loss	—		—	%	35.2		9.2	%	(35.2)
Total operating expenses	190.5		62.7	%	256.8		67.3	%	(66.3)

Other expense	0.1		—	%	2.4		0.6	%	(2.3)

Income tax (benefit) expense	(31.4)		(10.3)	%	1.1		0.3	%	(32.5)

Net income (loss)	$	0.6	0.2	%	$	(62.1)	(16.3)	%	$	62.7


	Years ended December 31,
	2021				2020				Change ($)
(dollars in millions)			% of Sales				% of Sales		2021 vs 2020
SALES
Product	$	251.1	74.3	%	$	218.6	72.0	%	$	32.5
Service	86.7		25.7	%	85.2		28.0	%	1.5
Total sales	337.8		100.0	%	303.8		100.0	%	34.0
COST OF SALES
Product	109.0		32.3	%	98.9		32.5	%	10.2
Service	44.9		13.3	%	45.1		14.8	%	(0.2)
Total cost of sales	153.9		45.6	%	143.9		47.4	%	10.0
GROSS PROFIT	183.9		54.4	%	159.8		52.6	%	24.1
OPERATING EXPENSES
Selling, general and administrative	136.2		40.3	%	131.8		43.4	%	4.4
Research and development	48.8		14.4	%	42.9		14.1	%	5.9
Restructuring costs	7.4		2.2	%	15.8		5.2	%	(8.4)
Total operating expenses	192.4		57.0	%	190.5		62.7	%	1.9
LOSS FROM OPERATIONS	(8.5)		(2.5)	%	(30.7)		(10.1)	%	22.2
Other expense	0.1		—	%	0.1		—	%	—
LOSS BEFORE INCOME TAX EXPENSE (BENEFIT)	(8.6)		(2.5)	%	(30.8)		(10.1)	%	22.2
INCOME TAX EXPENSE (BENEFIT)	31.4		9.3	%	(31.4)		(10.3)	%	62.8
NET (LOSS) INCOME	$	(40.0)	(11.8)	%	$	0.6	0.2	%	$	(40.6)


	Years ended December 31,
	2020				2019				Change ($)
(dollars in millions)			% of Sales				% of Sales		2020 vs 2019
SALES
Product	$	218.6	72.0	%	$	289.7	75.9	%	$	(71.1)
Service	85.2		28.0	%	92.1		24.1	%	(6.9)
Total sales	303.8		100.0	%	381.8		100.0	%	(78.0)
COST OF SALES
Product	98.9		32.5	%	133.2		34.9	%	(34.4)
Service	45.1		14.8	%	50.4		13.2	%	(5.3)
Total cost of sales	143.9		47.4	%	183.6		48.1	%	(39.7)
GROSS PROFIT	159.8		52.6	%	198.1		51.9	%	(38.3)
OPERATING EXPENSES
Selling, general and administrative	131.8		43.4	%	177.4		46.5	%	(45.6)
Research and development	42.9		14.1	%	44.2		11.6	%	(1.3)
Restructuring costs	15.8		5.2	%	—		—	%	15.8
Impairment loss	—		—	%	35.2		9.2	%	(35.2)
Total operating expenses	190.5		62.7	%	256.8		67.3	%	(66.3)
LOSS FROM OPERATIONS	(30.7)		(10.1)	%	(58.7)		(15.4)	%	28.0
Other expense	0.1		—	%	2.4		0.6	%	(2.3)
LOSS BEFORE INCOME TAX (BENEFIT) EXPENSE	(30.8)		(10.1)	%	(61.0)		(16.0)	%	30.2
INCOME TAX (BENEFIT) EXPENSE	(31.4)		(10.3)	%	1.1		0.3	%	(32.5)
NET INCOME (LOSS)	$	0.6	0.2	%	$	(62.1)	(16.3)	%	$	62.7


	Years ended December 31,
	2019				2018				Change ($)
(dollars in millions)			% of Sales				% of Sales		2019 vs 2018

Product	$	289.7	75.9	%	$	320.6	79.4	%	$	(30.9)
Service	92.1		24.1	%	83.0		20.6	%	9.0
Total sales	381.8		100.0	%	403.6		100.0	%	(21.9)
Product	133.2		34.9	%	130.9		32.4	%	2.4
Service	50.4		13.2	%	51.2		12.7	%	(0.8)
Total cost of sales	183.6		48.1	%	182.1		45.1	%	1.6
Gross profit	198.1		51.9	%	221.6		54.9	%	(23.4)

Operating expenses
Selling, general and administrative	177.4		46.5	%	169.7		42.0	%	7.7
Research and development	44.2		11.6	%	46.1		11.4	%	(1.9)
Impairment loss	35.2		9.2	%	—		—	%	35.2
Total operating expenses	256.8		67.3	%	215.8		53.5	%	41.0

Other expense	2.4		0.6	%	1.2		0.3	%	1.2

Income tax expense (benefit)	1.1		0.3	%	(0.4)		(0.1)	%	1.5

Net (loss) income	$	(62.1)	(16.3)	%	$	4.9	1.2	%	$	(67.0)


	Shares	Weighted-Average Grant Date Fair Value
Non-vested at January 1, 2020	398,318	$	49.53
Granted	208,405	65.36
Forfeited	(56,850)	56.56
Vested	(172,426)	41.46
Non-vested at December 31, 2020	377,447	$	60.92


	Year Ended December 31, 2020		Year Ended December 31, 2019
Operating lease cost	$	8,506	$	8,114

Finance lease cost:
Amortization of ROU assets	$	307	$	363
Interest on lease liabilities	$	29	$	45
Total finance lease cost	$	336	$	408


Year Ending December 31,	Operating leases		Finance leases
2021	$	6,914	$	292
2022	5,472		89
2023	4,721		45
2024	4,341		17
2025	3,270		2
Thereafter	8,604		0
Total lease payments	$	33,322	$	445
Less imputed interest	(5,780)		(21)
Total	$	27,542	$	424


	Fair Value ~~(2)~~ (Final)
Tangible assets acquired:
Accounts receivable	$	~~185~~375
~~Inventory~~Property, plant and equipment, net	~~312~~46
Other assets	~~389~~7
Total ~~tangible~~ assets acquired	~~886~~428

Liabilities assumed:
Accounts payable and accrued liabilities	~~(355)~~(55)
Deferred revenue	(3,966)
Total liabilities assumed	~~(355)~~(4021)

Intangible assets	~~1,295~~10,670
Net assets acquired	~~1,826~~ 7,077

~~Deferred income tax liability~~	~~(277)~~—
Goodwill	~~5,467~~
~~Contingent consideration(1)~~	~~(980)~~26,723
Purchase price paid, net of cash acquired	$	~~6,036~~
~~Contingent consideration(1)~~	~~980~~
~~Total purchase price~~	$	~~7,016~~33,800


	Amount		Weighted Average Life (Years)
Brand	$	370	3
Technology	6,800		5
Customer relationships	3,500		12
Fair value of intangible assets acquired	$	10,670	7


									Severance and other benefits		Professional fees and other related charges		Total
Balance at December 31, 2020								Balance at December 31, 2020	$	1,481	$	866	$	2,347
Additions charged to expense								Additions charged to expense	5,197		2,171		7,368
Cash payments								Cash payments	(3,236)		(2,560)		(5,796)
Balance at December 31, 2021								Balance at December 31, 2021	$	3,442	$	477	$	3,919

		Severance and other benefits		Professional fees and other related charges		Total
Balance at February 14, 2020	Balance at February 14, 2020	$	0	$	0	$	0	Balance at February 14, 2020	$	—	$	—	$	—
Additions/Reductions charged to expense		12,107		3,349		15,456
Additions charged to expense								Additions charged to expense	12,107		3,349		15,456
Cash payments	Cash payments	(10,626)		(2,483)		(13,109)		Cash payments	(10,626)		(2,483)		(13,109)
Balance at December 31, 2020	Balance at December 31, 2020	1,481		866		2,347		Balance at December 31, 2020	$	1,481	$	866	$	2,347


Quarter ended	March 31, 2021		June 30, 2021		September 30, 2021		December 31, 2021
Sales	$	76,331	$	82,110	$	79,169	$	100,204
Gross profit	40,407		45,482		42,331		55,707
Net (loss) income (1)	(3,221)		(1,176)		(3,855)		(31,712)
Net (loss) income per share:
Basic	$	(0.18)	$	(0.06)	$	(0.21)	$	(1.74)
Diluted	$	(0.18)	$	(0.06)	$	(0.21)	$	(1.74)


Quarter ended	March 31, 2020		June 30, 2020		September 30, 2020		December 31, 2020
Sales (1)	$	79,515	$	60,564	$	70,736	$	92,953
Gross profit	43,873		28,896		36,298		50,780
Net (loss) income (2)	(14,823)		(8,932)		(3,024)		27,408
Net (loss) income per share:
Basic	$	(0.84)	$	(0.50)	$	(0.17)	$	1.53
Diluted	$	(0.84)	$	(0.50)	$	(0.17)	$	1.52


Quarter ended	March 31, 2019		June 30, 2019		September 30, 2019		December 31, 2019
Sales (1)	$	93,617	$	93,491	$	90,516	$	104,141
Gross profit (2)	53,018		50,741		50,772		43,601
Net income (loss) (3)	152		(6,405)		(6,199)		(49,695)
Net income (loss) per share:
Basic	$	0.01	$	(0.37)	$	(0.36)	$	(2.85)
Diluted	$	0.01	$	(0.37)	$	(0.36)	$	(2.85)



Exhibit No.						Description

2.1						Stock Purchase Agreement, dated as of August 26, 2016, by and among FARO Technologies, Inc., Laser Projection Technologies, Inc., each of the shareholders of Laser Projection Technologies, Inc. and Steven P. Kaufman in the capacity of the Seller Representative (Filed as Exhibit 2.1 to Registrant's Current Report on Form 8-K filed August 30, 2016, and incorporated herein by reference)**

2.2						Quota Purchase Agreement, dated as of July 13, 2018, by and among FARO Technologies, Inc., Opto-Tech SRL, each of the shareholders of Opto-Tech SRL, and Mr. Gianfranco Chiapparini, in the capacity as the Seller Representative (Filed as Exhibit 2.1 to Registrant's Current Report on Form 8-K, filed July 19, 2018, and incorporated herein by reference)**
3.1						Amended and Restated Articles of Incorporation, as amended (Filed as Exhibit 3.1 to Registrant’s 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 Registrant’s Current Report on Form 8-K, filed March 31, 2020, and incorporated herein by reference)~~

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

4.2						Description of the Registrant’s Securities Registered under Section 12 of the Securities Exchange Act of 1934 ~~(Filed as Exhibit 4.2 to Registrant’s Annual Report on Form 10-K for the year ended December 31, 2019, filed February 19, 2020, and incorporated herein by reference)~~
10.1						2009 Equity Incentive Plan (Filed as Appendix A to Registrant’s Definitive Proxy Statement on Schedule 14A filed April 15, 2009, and incorporated herein by reference)*

10.2						First Amendment to the 2009 Equity Incentive Plan (Filed as Exhibit 10.1 to Registrant’s Current Report on Form 8-K, filed April 15, 2011, and incorporated herein by referenc e )*

10.3						2014 Incentive Plan (Filed as Exhibit 10.1 to Registrant’s Current Report on Form 8-K, filed June 3, 2014, and incorporated herein by reference)*

10.4						2014 Incentive Plan, as amended May 11, 2018 (Filed as Exhibit 10.1 to Registrant’s Current Report on Form 8-K filed May 15, 2018, and incorporated herein by reference)*
10.5						Summary of Director Compensation Program (Filed as Exhibit 10.7 to Registrant's Annual Report on Form 10-K for the year ended December 31, 2015, and incorporated herein by reference)*

10.6						Form of Intellectual Property and Confidentiality Agreement between FARO Technologies, Inc. and new employees (Filed as Exhibit 10.8 to Registrant's Annual Report on Form 10-K for the year ended December 31, 2015, and incorporated herein by reference)

10.7						Form of Stock Option Award Agreement under the 2009 Equity Incentive Plan (Filed as Exhibit 10.10 to Registrant’s Annual Report on Form 10-K for the year ended December 31, 2015, and incorporated herein by reference)*

10.8						Form of performance-based Stock Option Award Agreement under the 2014 Incentive Plan (Filed as Exhibit 10.12 to Registrant’s Annual Report on Form 10-K for the year ended December 31, 2015, and incorporated herein by reference)*

10.9						Form of performance-based Restricted Stock Unit Award Agreement under the 2014 Incentive Plan (Filed as Exhibit 10.13 to Registrant’s Annual Report on Form 10-K for the year ended December 31, 2015, and incorporated herein by reference)*

10.10						Form of Restricted Stock Unit Award Agreement under the 2014 Incentive Plan (Filed as Exhibit 10.4 to Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 2016, and incorporated herein by reference)*

10.11						Form of time-based Stock Option Award Agreement under the 2014 Incentive Plan (Filed as Exhibit 10.15 to Registrant's Annual Report on Form 10-K for the year ended December 31, 2016, and incorporated herein by reference)*


10.12						Form of Restricted Stock Award Agreement under the 2014 Incentive Plan (Filed as Exhibit 10.14 to Registrant's Annual Report on Form 10-K for the year ended December 31, 2017, and incorporated herein by reference)*

10.13						Form of 2019 Restricted Stock Unit Award Agreement under the 2014 Incentive Plan (Filed as Exhibit 10.5 to Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2019, and incorporated herein by reference)*

10.14						Form of 2019 Restricted Stock Unit Award Agreement (Performance-Based) under the 2014 Incentive Plan (Filed as Exhibit 10.6 to Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2019, and incorporated herein by reference)*

10.15						Form of Amendment to 2019 Performance-Based Restricted Stock Unit Award Agreement (Filed as Exhibit 10.15 to Registrant’s Annual Report on Form 10-K for the year ended December 31, 2019, filed February 19, 2020, and incorporated herein by reference)*

10.16						Employment Agreement between FARO Technologies, Inc. and Joseph Arezone, dated as of April 27, 2016 (Filed as Exhibit 10.2 to Registrant’s Current Report on Form 8-K, filed April 29, 2016, and incorporated herein by reference)*

10.17						Letter Agreement between FARO Technologies, Inc. and Joseph Arezone dated March 5, 2018 (Filed as Exhibit 10.1 to Registrant's Current Report on Form 8-K filed March 5, 2018, and incorporated herein by reference)*
10.18						Transition and Separation Agreement between FARO Technologies, Inc. and Joseph Arezone effective June 5, 2018 (Filed as Exhibit 10.1 to Registrant's Current Report on Form 8-K filed June 8, 2018, and incorporated herein by reference)*
10.19						Amended and Restated Employment Agreement between FARO Technologies, Inc. and Kathleen J. Hall, dated as of April 27, 2016 (Filed as Exhibit 10.1 to Registrant’s Current Report on Form 8-K filed April 29, 2016, and incorporated herein by reference)*

10.20						Addendum to Amended and Restated Employment Agreement between FARO Technologies, Inc. and Kathleen J. Hall dated June 17, 2019 (Filed as Exhibit 10.1 to Registrant’s Current Report on Form 8-K, filed June 18, 2019, and incorporated herein by reference)*
10.21						Confidential Separation Agreement and General Release by and between FARO Technologies, Inc. and Kathleen J. Hall, dated August 26, 2019 (Filed as Exhibit 10.1 to Registrant’s Current Report on Form 8-K, filed August 27, 2019, and incorporated herein by reference)*

10.22						Amended and Restated Employment Agreement between FARO Technologies, Inc. and Jody S. Gale, dated as of April 27, 2016 (Filed as Exhibit 10.3 to Registrant’s Current Report on Form 8-K filed April 29, 2016, and incorporated herein by reference)*

10.23						Employment Agreement between FARO Technologies, Inc. and Robert E. Seidel, dated December 21, 2016 (Filed as Exhibit 10.1 to Registrant's Current Report on Form 8-K filed December 21, 2016, and incorporated herein by reference)*

10.24						Transition and Separation Agreement by and between FARO Technologies, Inc. and Robert E. Seidel, dated July 31, 2019 (Filed as Exhibit 10.1 to Registrant’s Current Report on Form 8-K, filed August 2, 2019, and incorporated herein by reference)*
10.25						Letter Agreement between FARO Technologies, Inc. and Simon Raab dated January 9, 2019 (Filed as Exhibit 10.1 to Registrant's Current Report on Form 8-K filed January 11, 2019, and incorporated herein by reference)*
10.26						Employment Agreement between FARO Technologies, Inc. and Michael Burger dated April 5, 2019 (Filed as Exhibit 10.1 to Registrant’s Current Report on Form 8-K, filed April 9, 2019, and incorporated herein by reference)*
10.27						Offer Letter between FARO Technologies, Inc. and Allen Muhich, dated July 15, 2019 (Filed as Exhibit 10.1 to Registrant’s Current Report on Form 8-K, filed July 16, 2019, and incorporated herein by reference)*
10.28						FARO Technologies, Inc. Amended and Restated Change in Control Severance Policy, dated as of April 9, 2015 (Filed as Exhibit 10.1 to Registrant’s Current Report on Form 8-K, filed April 10, 2015, and incorporated herein by reference)*

10.29						2018 Non-Employee Director Deferred Compensation Plan (Filed as Exhibit 10.24 to Registrant's Annual Report on Form 10-K for the year ended December 31, 2018, and incorporated herein by reference)*


10.30						Form of Deferred Stock Unit Award Agreement under the 2014 Incentive Plan and the 2018 Non-Employee Director Deferred Compensation Plan (Filed as Exhibit 10.25 to Registrant's Annual Report on Form 10-K for the year ended December 31, 2018, and incorporated herein by reference)*

10.31						Form of Restricted Stock Unit Award Agreement under the 2014 Incentive Plan and the 2018 Non-Employee Director Deferred Compensation Plan (Filed as Exhibit 10.26 to Registrant's Annual Report on Form 10-K for the year ended December 31, 2018, and incorporated herein by reference)*

10.32						FARO Technologies, Inc. Executive Severance Plan and Summary Plan Description, dated as of February 14, 2019 (Filed as Exhibit 10.27 to Registrant's Annual Report on Form 10-K for the year ended December 31, 2018, and incorporated herein by reference)*

10.33						Office Flex Lease, dated September 26, 2007, by and between FARO Technologies, Inc. and Sun Life Assurance Company of Canada (Filed as Exhibit 10.15 to Registrant’s Annual Report on Form 10-K for the year ended December 31, 2007, and incorporated herein by reference)

10.34						First Amendment to Lease Agreement, dated October 1, 2009, by and between FARO Technologies, Inc. and Sun Life Assurance Company of Canada (Filed as Exhibit 10.27 to Registrant’s Annual Report on Form 10-K for the year ended December 31, 2009, and incorporated herein by reference)

10.35						Second Amendment to Office Flex Lease between RCS - Tech Park, LLC and FARO Technologies, Inc., dated as of February 27, 2019 (Filed as Exhibit 10.1 to Registrant’s Current Report on Form 8-K, filed March 5, 2019, and incorporated herein by reference)*
10.36						Amended and Restated Lease Agreement, dated October 1, 2009, by and between FARO Technologies, Inc. and Emma Investments, LLC (Filed as Exhibit 10.26 to Registrant’s Annual Report on Form 10-K for the year ended December 31, 2009, and incorporated herein by reference)

10.37						First Amendment to Amended and Restated Lease Agreement between Emma Investments, LLC and FARO Technologies, Inc., dated as of May 14, 2014 (Filed as Exhibit 10.1 to Registrant’s Current Report on Form 8-K filed May 16, 2014, and incorporated herein by reference)

10.38						Second Amendment to Amended and Restated Lease Agreement, dated as of January 29, 2019, by and between FARO Technologies, Inc. and Emma Investments, LLC (Filed as Exhibit 10.1 to Registrant’s Current Report on Form 8-K filed January 31, 2019, and incorporated herein by reference)

10.39						Agreement of Lease (Amendment and Restatement) between 290 National Road Limited Partnership and FARO Technologies, Inc., dated as of September 9, 2014 (Filed as Exhibit 10.1 to Registrant’s Current Report on Form 8-K filed September 12, 2014, and incorporated herein by reference)

10.40						Assignment and Assumption of Lease, dated April 21, 2017, by and between FARO Technologies, Inc., Instrument Associates, LLC and Century Park, L.L.C. (Filed as Exhibit 10.27 to Registrant's Annual Report on Form 10-K for the year ended December 31, 2017, and incorporated herein by reference)

10.41						Non-residential Tenancy Agreement, dated July 1, 2017, by and between Eredi Martinelli Marmi E Graniti S.p.A. and Opto-tech S.R.L. (Filed as Exhibit 10.35 to Registrant's Annual Report on Form 10-K for the year ended December 31, 2018, and incorporated herein by reference)

10.42						Form of Director Indemnification Agreement (Filed as Exhibit 10.1 to Registrant’s Current Report on Form 8-K filed October 28, 2020.

10.43						Form of Officer Indemnification Agreement (Filed as Exhibit 10.2 to Registrant’s Current Report on Form 8-K filed October 28, 2020.

10.44						Settlement Agreement between General Services Administration and FARO Technologies, Inc. executed February 25, 2021 (Filed as Exhibit 10.1 to our Current Report on Form 8-K, filed March 17, 2021 and incorporated herein by reference)

10.45						Transition and Separation Agreement by and Between FARO Technologies, Inc. and Katrona Tyrrell dated June 28, 2021 (Filed as Exhibit 10.1 to our Current Report on Form 8-K, filed July 2, 2021 and incorporated herein by reference)

10.46						Summary of Director Compensation Program (Effective July 1, 2021)


10.47						Manufacturing Services Agreement by and Between FARO Technologies, Inc. and Sanmina corporation dated July 15, 2021

21.1						List of Subsidiaries

23.1						Consent of Grant Thornton LLP

24.1						Power of Attorney relating to subsequent amendments (included on the signature page(s) of this report).

31-A						Certification of the Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002


*			Indicates management contracts or compensatory plans or arrangements
**			Schedules and exhibits are omitted pursuant to Item 601(b)(2) of Regulation S-K. Registrant agrees to furnish supplementally a copy of any omitted schedules or exhibits to the Securities and Exchange Commission upon request.