U.S. Markets closed

FARO Reports Third Quarter 2019 Financial Results

LAKE MARY, Fla., Oct. 30, 2019 /PRNewswire/ -- FARO® (FARO), the world's most trusted source for 3D measurement and imaging solutions for 3D manufacturing, construction BIM, 3D design, public safety forensics, and photonics applications, today announced its financial results for the third quarter ended September 30, 2019.

FARO logo. (PRNewsFoto/FARO Technologies, Inc.)

"Having been at FARO for a full quarter now, I believe we can deliver long-term sales and profit growth. FARO's product roadmap, broad customer base and market position create the foundation for a much more customer focused and scalable sales model. With those goals in mind, we have augmented our management team and made significant progress on our strategic and tactical plans," stated Michael Burger, President and Chief Executive Officer.  "I am not satisfied with our current financial performance, notwithstanding the soft macro environment.  However, I am confident we will be successful in the implementation of our plans to enhance shareholder value."

Third Quarter 2019 Financial Summary
Total sales were $90.5 million for third quarter 2019, as compared with $99.7 million for third quarter 2018. The decrease was a result of continuing demand softness in the Asian market due primarily to the uncertainty surrounding ongoing trade disputes and the outlook for the industrial manufacturing sector.

Product sales were $63.6 million, down 16% when compared to $75.8 million in the third quarter 2018. Service sales were $26.9 million, up 13% when compared to $23.9 million in the third quarter 2018. New order bookings were $94.8 million for the third quarter 2019, down 6% as compared to $100.5 million for the third quarter 2018.

Gross margin was 56.1% for the third quarter 2019, as compared to 50.8% for the same prior year period. Non-GAAP gross margin was 56.4% for the third quarter 2019 compared to 55.8% for the third quarter 2018.

Loss from operations was $5.9 million for the third quarter 2019, as compared to loss from operations of $2.7 million for the third quarter 2018, driven by the lower demand environment. Non-GAAP loss from operations was $0.1 million for the third quarter 2019.

Net loss was $6.2 million, or $0.36 per share, for the third quarter 2019, as compared to a net loss of $2.5 million, or $0.15 per share, for the third quarter 2018. Non-GAAP net loss was $0.2 million, or $0.01 per share, for the third quarter 2019.

* A reconciliation of the non-GAAP financial measures to the most directly comparable GAAP financial measures is provided in the financial schedules portion at the end of this press release. An additional explanation of these measures is included below under the heading "Non-GAAP Financial Measures". 

The Company's cash and short-term investments decreased modestly to $144.0 million as of the end of the third quarter of 2019, and the Company remained debt-free.

Conference Call
The Company will host a conference call to discuss these results on Thursday, October 31, 2019 at 8:00 a.m. ET. Interested parties can access the conference call by dialing (800) 894-5910 (U.S.) or +1 (785) 424-1052 (International) and using the passcode FARO. A live webcast will be available in the Investor Relations section of FARO's website at: https://www.faro.com/about-faro/investor-relations/conference-calls/

A replay webcast will be available in the Investor Relations section of the company's web site approximately two hours after the conclusion of the call and will remain available for approximately 30 calendar days.

About FARO
FARO is the world's most trusted source for 3D measurement and imaging solutions. The Company develops and markets computer-aided measurement and imaging devices and software for the following vertical markets:

  • 3D Manufacturing - High-precision 3D measurement, imaging and comparison of parts and complex structures within production and quality assurance processes
  • Construction BIM - 3D capture of as-built construction projects and factories to document complex structures and perform quality control, planning and preservation
  • Public Safety Forensics - Capture and analysis of on-site real world data to investigate crash, crime and fire events, plan security activities and provide virtual reality training for public safety personnel
  • 3D Design - Capture and edit 3D shapes of products, people, and/or environments for design purposes in product development, computer graphics and dental and medical applications
  • Photonics - Develop and market galvanometer-based laser measurement products and solutions

FARO's global headquarters is located in Lake Mary, Florida.  The Company's European regional headquarters is located in Stuttgart, Germany and its Asia-Pacific regional headquarters is located in Singapore. FARO has other offices in the United States, Canada, Mexico, Brazil, Germany, the United Kingdom, France, Spain, Italy, Poland, Turkey, the Netherlands, Switzerland, India, China, Malaysia, Thailand, South Korea, Japan, and Australia.

More information is available at http://www.faro.com

Non-GAAP Financial Measures
This press release contains information about our financial results that are not presented in accordance with U.S. generally accepted accounting principles ("GAAP"). These non-GAAP financial measures, including non-GAAP total sales, non-GAAP total sales by reporting segment, non-GAAP gross profit, non-GAAP gross margin, non-GAAP operating expenses, non-GAAP (loss) income from operations, non-GAAP other expense, net, non-GAAP net (loss) income and non-GAAP net (loss) income per share, exclude the GSA sales adjustment (as defined in the tables below), the impact of purchase accounting intangible amortization expense, stock-based compensation, advisory fees incurred related to the GSA Matter (as defined in the tables below), imputed interest expense recorded related to the GSA Matter, costs incurred in connection with our executive officer transitions, including severance costs, sign-on bonuses and relocation costs, the charge increasing our reserve for excess and obsolete inventory, the impairment charge related to our equity investment in present4D GmbH, changes in our reserve for uncertain tax positions due to a change in our judgment on the recognition of a tax position and return-to-provision adjustments identified in the preparation of our 2018 U.S. tax return and are provided to enhance investors' overall understanding of our historical operations and financial performance. In addition, we present EBITDA, which is calculated as net income (loss) before interest (income) expense, net, income tax expense (benefit) and depreciation and amortization, and Adjusted EBITDA, which is calculated as EBITDA, excluding loss on foreign currency transactions, the GSA sales adjustment, stock-based compensation, advisory fees incurred related to the GSA Matter, costs incurred in connection with our executive officer transitions, including severance costs, sign-on bonuses and relocation costs, the charge increasing our reserve for excess and obsolete inventory and the impairment charge related to our equity investment in present4D GmbH, as a measure of our operating profitability.  The most directly comparable GAAP measure to EBITDA and Adjusted EBITDA is net income (loss). Management believes that these non-GAAP financial measures provide investors with relevant period-to-period comparisons of our core operations using the same methodology that management employs in its review of the Company's operating results. These financial measures are not recognized terms under GAAP and should not be considered in isolation or as a substitute for a measure of financial performance prepared in accordance with GAAP. These non-GAAP financial measures have limitations that should be considered before using these measures to evaluate a company's financial performance. These non-GAAP financial measures, as presented, may not be comparable to similarly titled measures of other companies due to varying methods of calculation. The financial statement tables that accompany this press release include a reconciliation of these non-GAAP financial measures to the most directly comparable GAAP financial measures.

Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995
This press release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 that are subject to risks and uncertainties, such as statements about demand for and customer acceptance of FARO's products, FARO's product development and product launches, FARO's growth, strategic and continuous improvement plans and initiatives and FARO's growth potential and profitability. Statements that are not historical facts or that describe the Company's plans, objectives, projections, expectations, assumptions, strategies, or goals are forward-looking statements.  In addition, words such as "is," "will" and similar expressions or discussions of FARO's plans or other intentions identify forward-looking statements. Forward-looking statements are not guarantees of future performance and are subject to various known and unknown risks, uncertainties, and other factors that may cause actual results, performances, or achievements to differ materially from future results, performances, or achievements expressed or implied by such forward-looking statements. Consequently, undue reliance should not be placed on these forward-looking statements.

Factors that could cause actual results to differ materially from what is expressed or forecasted in such forward-looking statements include, but are not limited to:

  • the outcome of the U.S. Government's review of, or investigation into, the GSA Matter; any resulting penalties, damages, or sanctions imposed on the Company and the outcome of any resulting litigation to which the Company may become a party; loss of future government sales; and potential impacts on customer and supplier relationships and the Company's reputation;
  • development by others of new or improved products, processes or technologies that make the Company's products less competitive or obsolete;
  • the Company's inability to maintain its technological advantage by developing new products and enhancing its existing products;
  • declines or other adverse changes, or lack of improvement, in industries that the Company serves or the domestic and international economies in the regions of the world where the Company operates and other general economic, business, and financial conditions;
  • the impact of fluctuations in foreign exchange rates; and
  • other risks detailed in Part I, Item 1A. Risk Factors in the Company's Annual Report on Form 10-K for the year ended December 31, 2018 and in Part II, Item 1A. Risk Factors in the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 2019.

Forward-looking statements in this release represent the Company's judgment as of the date of this release. The Company undertakes no obligation to update publicly any forward-looking statements, whether as a result of new information, future events, or otherwise, unless otherwise required by law.

 

FARO TECHNOLOGIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)



Three Months Ended


Nine Months Ended

(in thousands, except share and per share data)

September 30,
2019


September 30,
2018


September 30,
2019


September 30,
2018

Sales








Product

$

63,641


$

75,817


$

200,434


$

222,118

Service

26,875


23,888


77,190


68,665

Total sales

90,516


99,705


277,624


290,783

Cost of Sales








Product

26,495


34,864


83,632


91,321

Service

13,249


14,229


39,461


40,750

Total cost of sales

39,744


49,093


123,093


132,071

Gross Profit

50,772


50,612


154,531


158,712

Operating Expenses








Selling and marketing

30,218


28,482


87,438


87,877

General and administrative

15,662


13,102


44,471


36,789

Research and development

10,783


11,740


33,048


34,138

Total operating expenses

56,663


53,324


164,957


158,804

Loss from operations

(5,891)


(2,712)


(10,426)


(92)

Other (income) expense








Interest (income) expense, net

(24)


(96)


72


(205)

Other expense, net

514


226


2,398


868

Loss before income tax (benefit) expense

(6,381)


(2,842)


(12,896)


(755)

Income tax (benefit) expense

(182)


(354)


(444)


73

Net loss

$

(6,199)


$

(2,488)


$

(12,452)


$

(828)

Net loss per share - Basic

$

(0.36)


$

(0.15)


$

(0.72)


$

(0.05)

Net loss per share - Diluted

$

(0.36)


$

(0.15)


$

(0.72)


$

(0.05)

Weighted average shares - Basic

17,367,228


17,122,705


17,352,386


16,976,459

Weighted average shares - Diluted

17,367,228


17,122,705


17,352,386


16,976,459

 

 

FARO TECHNOLOGIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS


(in thousands, except share and per share data)

September 30,
2019 (unaudited)


December 31,
2018

ASSETS




Current assets:




Cash and cash equivalents

$

119,083


$

108,783

Short-term investments

24,868


24,793

Accounts receivable, net

64,708


88,927

Inventories, net

69,779


65,444

Prepaid expenses and other current assets

28,084


28,795

Total current assets

306,522


316,742

Property and equipment:




Machinery and equipment

82,578


76,048

Furniture and fixtures

6,172


6,749

Leasehold improvements

21,066


20,304

Property and equipment at cost

109,816


103,101

Less: accumulated depreciation and amortization

(81,411)


(72,684)

Property and equipment, net

28,405


30,417

Operating lease right-of-use asset

18,672


Goodwill

69,712


67,274

Intangible assets, net

27,530


33,054

Service and sales demonstration inventory, net

39,509


39,563

Deferred income tax assets, net

14,693


14,719

Other long-term assets

2,987


4,475

Total assets

$

508,030


$

506,244

LIABILITIES AND SHAREHOLDERS' EQUITY




Current liabilities:




Accounts payable

$

11,705


$

20,093

Accrued liabilities

35,255


36,327

Income taxes payable

1,081


5,081

Current portion of unearned service revenues

35,273


32,878

Customer deposits

2,419


3,144

Lease liability

6,615


Total current liabilities

92,348


97,523

Unearned service revenues - less current portion

18,171


15,505

Lease liability - less current portion

13,922


Deferred income tax liabilities

2,466


736

Income taxes payable - less current portion

12,567


12,247

Other long-term liabilities

1,031


3,624

Total liabilities

140,505


129,635

Shareholders' equity:




Common stock - par value $.001, 50,000,000 shares authorized; 18,816,598 and
18,676,059 issued, respectively; 17,404,087 and 17,253,011 outstanding, respectively

19


19

Additional paid-in capital

260,737


251,329

Retained earnings

162,574


175,353

Accumulated other comprehensive loss

(24,430)


(18,483)

Common stock in treasury, at cost; 1,412,511 and 1,423,048 shares, respectively

(31,375)


(31,609)

Total shareholders' equity

367,525


376,609

Total liabilities and shareholders' equity

$

508,030


$

506,244

 

 

FARO TECHNOLOGIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)



Nine Months Ended

(in thousands)

September 30,
2019


September 30,
2018

Cash flows from:




Operating activities:




Net loss

$

(12,452)


$

(828)

Adjustments to reconcile net loss to net cash provided by operating activities:




Depreciation and amortization

14,203


13,467

Stock-based compensation

8,703


5,717

Provisions for bad debts, net of recoveries

1,000


360

Loss on disposal of assets

552


401

Provision for excess and obsolete inventory

2,431


5,357

Deferred income tax benefit

(69)


(161)

Impairment charge on equity method investment

1,535


Change in operating assets and liabilities:




Decrease (Increase) in:




Accounts receivable

21,883


(1,882)

Inventories

(9,471)


(12,104)

Prepaid expenses and other current assets

640


(4,257)

(Decrease) Increase in:




Accounts payable and accrued liabilities

(13,404)


569

General Services Administration liability

6,470


Income taxes payable

(3,679)


(5,082)

Customer deposits

(685)


(107)

Unearned service revenues

5,809


3,415

Net cash provided by operating activities

23,466


4,865

Investing activities:




Proceeds from sale of investments

33,700


22,000

Purchases of investments

(33,700)


(31,000)

Purchases of property and equipment

(5,922)


(6,895)

Payments for intangible assets

(2,035)


(1,716)

Acquisition of businesses


(27,638)

Loan originated to affiliate

(549)


Equity investments and advances to affiliates


(1,786)

Net cash used in investing activities

(8,506)


(47,035)

Financing activities:




Payments on finance leases

(273)


(84)

Payments of contingent consideration for acquisitions

(3,101)


(638)

Payments for taxes related to net share settlement of equity awards

(1,389)


Proceeds from issuance of stock related to stock option exercises

2,328


20,901

Net cash (used in) provided by financing activities

(2,435)


20,179

Effect of exchange rate changes on cash and cash equivalents

(2,225)


(3,871)

Increase (decrease) in cash and cash equivalents

10,300


(25,862)

Cash and cash equivalents, beginning of period

108,783


140,960

Cash and cash equivalents, end of period

$

119,083


$

115,098

 

 

FARO TECHNOLOGIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(UNAUDITED)



Three Months Ended


Nine Months Ended

(in thousands)

September 30,
2019


September 30,
2018


September 30,
2019


September 30,
2018

Net loss

$

(6,199)


$

(2,488)


$

(12,452)


$

(828)

Currency translation adjustments

(5,646)


(4,911)


(5,947)


(9,074)

Comprehensive loss

$

(11,845)


$

(7,399)


$

(18,399)


$

(9,902)

 

 

FARO TECHNOLOGIES, INC. AND SUBSIDIARIES

UNAUDITED SUPPLEMENTAL SALES DATA




Three Months Ended


Nine Months Ended

(sales in thousands)


September 30,
2019


September 30,
2018


% Change


September 30,
2019


September 30,
2018


% Change

Reporting Segments













3D Manufacturing (1)


$

56,017


$

64,182


(12.7)

%


$

171,586


$

190,584


(10.0)

%

Construction BIM (2)


23,884


23,710


0.7

%


73,485


69,994


5.0

%

Emerging Verticals (3)


10,615


11,813


(10.1)

%


32,553


30,205


7.8

%

Total


$

90,516


$

99,705


(9.2)

%


$

277,624


$

290,783


(4.5)

%




















(1)

The 3D Manufacturing reporting segment contains our 3D Manufacturing vertical

(2)

The Construction BIM reporting segment contains our Construction BIM vertical

(3)

The Emerging Verticals reporting segment includes our 3D Design, Public Safety Forensics, and Photonics verticals

 

 

FARO TECHNOLOGIES, INC. AND SUBSIDIARIES

DEPRECIATION AND AMORTIZATION EXPENSE RECLASSIFICATION

(UNAUDITED)


Commencing with the third quarter of 2019, depreciation and amortization expenses are being reported in the accompanying statements of operations to reflect departmental costs. Previously, those expenses were reported as a separate line item under operating expenses. Depreciation and amortization expenses were reclassified in prior periods to conform to the current period presentation, as follows:



Three months ended

(in thousands)

March 31,
2018


June 30,
2018


September 30,
2018


December 31,
2018


March 31,
2019


June 30,
2019

Product cost of sales as reported

$

26,884


$

27,878


$

34,004


$

36,036


$

26,128


$

29,037

Depreciation and amortization adjustment

853


842


860


851


1,176


796

Product cost of sales as adjusted

$

27,737


$

28,720


$

34,864


$

36,887


$

27,304


$

29,833













Service cost of sales as reported

$

12,164


$

12,675


$

13,384


$

12,257


$

12,470


$

12,135

Depreciation and amortization adjustment

826


856


845


860


824


783

Service cost of sales as adjusted

$

12,990


$

13,531


$

14,229


$

13,117


$

13,294


$

12,918













Selling and marketing as reported

$

28,271


$

30,084


$

27,811


$

30,754


$

26,753


$

29,124

Depreciation and amortization adjustment

512


528


671


689


466


876

Selling and marketing as adjusted

$

28,783


$

30,612


$

28,482


$

31,443


$

27,219


$

30,000













General and administrative as reported

$

11,073


$

11,320


$

12,496


$

12,763


$

13,224


$

14,424

Depreciation and amortization adjustment

690


604


606


846


578


583

General and administrative as adjusted

$

11,763


$

11,924


$

13,102


$

13,609


$

13,802


$

15,007













Depreciation and amortization as reported

$

4,343


$

4,377


$

4,747


$

4,846


$

4,749


$

4,573

Depreciation and amortization adjustment

(4,343)


(4,377)


(4,747)


(4,846)


(4,749)


(4,573)

Depreciation and amortization as adjusted

$


$


$


$


$


$













Research and development as reported

$

9,406


$

9,983


$

9,975


$

10,342


$

9,935


$

9,091

Depreciation and amortization adjustment

1,462


1,547


1,765


1,600


1,705


1,535

Research and development as adjusted

$

10,868


$

11,530


$

11,740


$

11,942


$

11,640


$

10,626

 

In the reconciliations that follow, the "as reported" amounts for prior periods reflect the above reclassification of depreciation and amortization expenses.


 

 

FARO TECHNOLOGIES, INC. AND SUBSIDIARIES

RECONCILIATION OF GAAP TO NON-GAAP

(UNAUDITED)



Three months ended September 30,


Nine months ended September 30,

(dollars in thousands, except per share data)

2019


2018


2019


2018

Total sales, as reported

$

90,516


$

99,705


$

277,624


$

290,783

GSA sales adjustment (1)



5,840


Non-GAAP total sales

$

90,516


$

99,705


$

283,464


$

290,783









Gross profit, as reported

$

50,772


$

50,612


$

154,531


$

158,712

GSA sales adjustment (1)



5,840


Stock-based compensation (2)

270


241


771


620

Inventory reserve charge (3)


4,734



4,734

Non-GAAP adjustments to gross profit

270


4,975


6,611


5,354

Non-GAAP gross profit

$

51,042


$

55,587


$

161,142


$

164,066

Gross margin, as reported

56.1

%


50.8

%


55.7

%


54.6

%

Non-GAAP gross margin

56.4

%


55.8

%


56.8

%


56.4

%









Operating expenses, as reported

$

56,663


$

53,324


$

164,957


$

158,804

Advisory fees for GSA Matter (4)



(1,244)


Stock-based compensation (2)

(3,117)


(1,925)


(7,932)


(5,097)

Executive severance costs

(1,217)



(1,217)


Executive sign-on bonuses & relocation costs

(270)



(845)


Purchase accounting intangible amortization

(924)


(1,131)


(2,665)


(2,601)

Non-GAAP adjustments to operating expenses

(5,528)


(3,056)


(13,903)


(7,698)

Non-GAAP operating expenses

$

51,135


$

50,268


$

151,054


$

151,106









Loss from operations, as reported

$

(5,891)


$

(2,712)


$

(10,426)


$

(92)

Non-GAAP adjustments to gross profit

270


4,975


6,611


5,354

Non-GAAP adjustments to operating expenses

5,528


3,056


13,903


7,698

Non-GAAP (loss) income from operations

$

(93)


$

5,319


$

10,088


$

12,960









Other expense, net, as reported

$

490


$

130


$

2,470


$

663

Interest expense increase due to GSA sales adjustment (1)

(145)



(632)


Present4D impairment (5)



(1,535)


Non-GAAP adjustments to other expense, net

(145)



(2,167)


Non-GAAP other expense, net

$

345


$

130


$

303


$

663









Net loss, as reported

$

(6,199)


$

(2,488)


$

(12,452)


$

(828)

Non-GAAP adjustments to gross profit

270


4,975


6,611


5,354

Non-GAAP adjustments to operating expenses

5,528


3,056


13,903


7,698

Non-GAAP adjustments to other expense, net

145



2,167


Income tax effect of non-GAAP adjustments

(1,452)


(1,084)


(4,484)


(2,126)

Other tax adjustments (6)

1,555



2,419


Non-GAAP net (loss) income

$

(153)


$

4,459


$

8,164


$

10,098









Net loss per share - Diluted, as reported

$

(0.36)


$

(0.15)


$

(0.72)


$

(0.05)

GSA sales adjustment (1)



0.34


Stock-based compensation (2)

0.19


0.12


0.50


0.34

Inventory reserve charge (3)


0.28



0.28

Advisory fees for GSA Matter (4)



0.07


Executive severance costs

0.07



0.07


Executive sign-on bonuses & relocation costs

0.02



0.05


Purchase accounting intangible amortization

0.05


0.07


0.15


0.15

Interest expense increase due to GSA sales adjustment (1)

0.01



0.04


Present4D impairment (5)



0.09


Income tax effect of non-GAAP adjustments

(0.08)


(0.06)


(0.26)


(0.13)

Other tax adjustments (6)

0.09



0.14


Non-GAAP net (loss) income per share - Diluted

$

(0.01)


$

0.26


$

0.47


$

0.59

















 

(1)

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 U.S. Government being overcharged under our General Services Administration ("GSA") Federal Supply Schedule contracts (the "Contracts") (the "GSA Matter"). In fourth quarter 2018, we reduced our total sales by an estimated cumulative adjustment of $4.8 million. We also retained outside legal counsel and forensic accountants to conduct a comprehensive review of our pricing and other practices under the Contracts (the "Review"). On July 15, 2019, we submitted a report to the GSA and its Office of Inspector General setting forth the findings of the Review. Based on the results of the Review, in second quarter 2019 we reduced our total sales by an incremental $5.8 million (the "GSA sales adjustment") and recorded imputed interest expense of $0.1 million and $0.6 million related to the GSA Matter for the three and nine months ended September 30, 2019, respectively.



(2)

We exclude stock-based compensation, which is non-cash, from the non-GAAP financial measures because the Company believes that such exclusion provides a better comparison of results of ongoing operations for current and future periods with such results from past periods. This adjustment includes accelerated vesting of equity awards in connection with the transition of our prior executives totaling $1.6 million and $3.5 million for the three and nine months ended September 30, 2019, respectively.



(3)

During the third quarter of 2018, we performed an analysis of our inventory reserves in connection with our recent new product introductions and acquisitions and recorded a charge of $4.7 million, or approximately 5% of total inventory, increasing our reserve for excess and obsolete inventory based on the determination that quantities on-hand for certain legacy products exceeded our revised sales projections.



(4)

In connection with the GSA Matter, we retained outside legal counsel and forensic accountants to conduct the Review, which resulted in $1.2 million in advisory fees incurred during the first nine months of 2019.



(5)

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. During the second quarter of 2019, we determined it is more likely than not that we will not recover our cost basis in present4D and recorded an impairment charge of $1.5 million, which is included in Other expense, net.



(6) 

Driven primarily by return-to-provision adjustments identified in the preparation of our 2018 U.S. tax return and changes in our reserve for uncertain tax positions due to a change in our judgment on the recognition of a tax position.

 

 

FARO TECHNOLOGIES, INC. AND SUBSIDIARIES

QUARTERLY RECONCILIATION OF GAAP TO NON-GAAP FOR 2018 RESULTS

(UNAUDITED)



Three months ended

(dollars in thousands, except per share data)

March 31,
2018


June 30,
2018


September 30,
2018


December 31,
2018

Total sales, as reported

$

92,834


$

98,244


$

99,705


$

112,844

GSA sales adjustment (1)




4,789

Non-GAAP total sales

$

92,834


$

98,244


$

99,705


$

117,633









Gross profit, as reported

$

52,106


$

55,994


$

50,612


$

62,841

GSA sales adjustment (1)




4,789

Stock-based compensation (2)

169


210


241


208

Inventory reserve charge (3)



4,734


Non-GAAP adjustments to gross profit

169


210


4,975


4,997

Non-GAAP gross profit

$

52,275


$

56,204


$

55,587


$

67,838

Gross margin, as reported

56.1

%


57.0

%


50.8

%


55.7

%

Non-GAAP gross margin

56.3

%


57.2

%


55.8

%


57.7

%









Operating expenses, as reported

$

51,414


$

54,066


$

53,324


$

56,994

Stock-based compensation (2)

(1,382)


(1,790)


(1,925)


(1,696)

Purchase accounting intangible amortization

(698)


(772)


(1,131)


(983)

Non-GAAP adjustments to operating expenses

(2,080)


(2,562)


(3,056)


(2,679)

Non-GAAP operating expenses

$

49,334


$

51,504


$

50,268


$

54,315









Income (loss) from operations, as reported

$

693


$

1,927


$

(2,712)


$

5,846

Non-GAAP adjustments to gross profit

169


210


4,975


4,997

Non-GAAP adjustments to operating expenses

2,080


2,562


3,056


2,679

Non-GAAP income from operations

$

2,942


$

4,699


$

5,319


$

13,522









Other expense, net, as reported

$

111


$

422


$

130


$

533

Interest expense increase due to GSA sales adjustment (1)




(478)

Non-GAAP adjustments to other expense, net




(478)

Non-GAAP other expense, net

$

111


$

422


$

130


$

55









Net income (loss), as reported

$

455


$

1,205


$

(2,488)


$

5,758

Non-GAAP adjustments to gross profit

169


210


4,975


4,997

Non-GAAP adjustments to operating expenses

2,080


2,562


3,056


2,679

Non-GAAP adjustments to other expense, net




478

Income tax effect of non-GAAP adjustments

(490)


(552)


(1,084)


(2,137)

Other tax adjustments (4)




(1,000)

Non-GAAP net income

$

2,214


$

3,425


$

4,459


$

10,775



















(1)

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 U.S. Government being overcharged under our General Services Administration ("GSA") Federal Supply Schedule contracts (the "Contracts") (the "GSA Matter"). In fourth quarter 2018, we reduced our total sales by an estimated cumulative adjustment of $4.8 million and recorded imputed interest expense of $0.5 million related to the GSA Matter.



(2)

We exclude stock-based compensation, which is non-cash, from the non-GAAP financial measures because the Company believes that such exclusion provides a better comparison of results of ongoing operations for current and future periods with such results from past periods.



(3)

During the third quarter of 2018, we performed an analysis of our inventory reserves in connection with our recent new product introductions and acquisitions and recorded a charge of $4.7 million, or approximately 5% of total inventory, increasing our reserve for excess and obsolete inventory based on the determination that quantities on-hand for certain legacy products exceeded our revised sales projections.



(4) 

During the fourth quarter of 2018. we completed our transition tax analysis, which resulted in an income tax benefit of $1.0 million related to adjustments to the transition tax on mandatory deemed repatriation of foreign earnings.

 

 

FARO TECHNOLOGIES, INC. AND SUBSIDIARIES

QUARTERLY RECONCILIATION OF GAAP TO NON-GAAP FOR 2019 RESULTS

(UNAUDITED)



Three months ended

(dollars in thousands, except per share data)

March 31,
2019


June 30,
2019


September 30,
2019

Total sales, as reported

$

93,617


$

93,491


$

90,516

GSA sales adjustment (1)

35


5,805


Non-GAAP total sales

$

93,652


$

99,296


$

90,516







Gross profit, as reported

$

53,018


$

50,741


$

50,772

GSA sales adjustment (1)

35


5,805


Stock-based compensation (2)

233


268


270

Non-GAAP adjustments to gross profit

268


6,073


270

Non-GAAP gross profit

$

53,286


$

56,814


$

51,042

Gross margin, as reported

56.6

%


54.3

%


56.1

%

Non-GAAP gross margin

56.9

%


57.2

%


56.4

%







Operating expenses, as reported

$

52,661


$

55,633


$

56,663

Advisory fees for GSA Matter (3)

(591)


(653)


Stock-based compensation (2)

(2,331)


(2,484)


(3,117)

Executive severance costs



(1,217)

Executive sign-on bonuses & relocation costs


(575)


(270)

Purchase accounting intangible amortization

(852)


(889)


(924)

Non-GAAP adjustments to operating expenses

(3,774)


(4,601)


(5,528)

Non-GAAP operating expenses

$

48,887


$

51,032


$

51,135







Income (loss) from operations, as reported

$

358


$

(4,893)


$

(5,891)

Non-GAAP adjustments to gross profit

268


6,073


270

Non-GAAP adjustments to operating expenses

3,774


4,601


5,528

Non-GAAP income (loss) from operations

$

4,400


$

5,781


$

(93)







Other expense, net, as reported

$

51


$

1,929


$

490

Interest expense increase due to GSA sales adjustment (1)

(45)


(442)


(145)

Present4D impairment (4)


(1,535)


Non-GAAP adjustments to other expense, net

(45)


(1,977)


(145)

Non-GAAP other expense, net

$

6


$

(48)


$

345







Net income (loss), as reported

$

152


$

(6,405)


$

(6,199)

Non-GAAP adjustments to gross profit

268


6,073


270

Non-GAAP adjustments to operating expenses

3,774


4,601


5,528

Non-GAAP adjustments to other expense, net

45


1,977


145

Income tax effect of non-GAAP adjustments

(672)


(2,360)


(1,452)

Other tax adjustments (5)


864


1,555

Non-GAAP net income (loss)

$

3,567


$

4,750


$

(153)













 

(1)

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 U.S. Government being overcharged under our General Services Administration ("GSA") Federal Supply Schedule contracts (the "Contracts") (the "GSA Matter"). In fourth quarter 2018, we reduced our total sales by an estimated cumulative adjustment of $4.8 million. We also retained outside legal counsel and forensic accountants to conduct a comprehensive review of our pricing and other practices under the Contracts (the "Review"). On July 15, 2019, we submitted a report to the GSA and its Office of Inspector General setting forth the findings of the Review. Based on the results of the Review, in second quarter 2019 we reduced our total sales by an incremental $5.8 million (the "GSA sales adjustment") and recorded imputed interest expense of less than $0.1 million during the first quarter of 2019, $0.4 million during the second quarter of 2019, and $0.1 million during the third quarter of 2019 related to the GSA Matter.



(2)

We exclude stock-based compensation, which is non-cash, from the non-GAAP financial measures because the Company believes that such exclusion provides a better comparison of results of ongoing operations for current and future periods with such results from past periods. This adjustment includes accelerated vesting of equity awards in connection with the transition of our prior executives totaling $1.6 million and $3.5 million for the three and nine months ended September 30, 2019, respectively.



(3)

In connection with the GSA Matter, we retained outside legal counsel and forensic accountants to conduct the Review, which resulted in $1.2 million in advisory fees incurred during the first nine months of 2019.



(4)

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. During the second quarter of 2019, we determined it is more likely than not that we will not recover our cost basis in present4D and recorded an impairment charge of $1.5 million, which is included in Other expense, net.



(5) 

Driven primarily by return-to-provision adjustments identified in the preparation of our 2018 U.S. tax return and changes in our reserve for uncertain tax positions due to a change in our judgment on the recognition of a tax position.


 

 

FARO TECHNOLOGIES, INC. AND SUBSIDIARIES

RECONCILIATION OF GAAP TO NON-GAAP

TOTAL SALES BY REPORTING SEGMENT

(UNAUDITED)



Three Months Ended September 30,


Nine Months Ended September 30,

(dollars in thousands)

2019


2018


2019


2018









3D Manufacturing total sales, as reported

$

56,017


$

64,182


$

171,586


$

190,584

GSA sales adjustment (1)



3,315


Non-GAAP 3D Manufacturing total sales

$

56,017


$

64,182


$

174,901


$

190,584

 


Three Months Ended September 30,


Nine Months Ended September 30,

(dollars in thousands)

2019


2018


2019


2018









Construction BIM total sales, as reported

$

23,884


$

23,710


$

73,485


$

69,994

GSA sales adjustment (1)



463


Non-GAAP Construction BIM total sales

$

23,884


$

23,710


$

73,948


$

69,994

 


Three Months Ended September 30,


Nine Months Ended September 30,

(dollars in thousands)

2019


2018


2019


2018









Emerging Verticals total sales, as reported

$

10,615


$

11,813


$

32,553


$

30,205

GSA sales adjustment (1)



2,062


Non-GAAP Emerging Verticals total sales

$

10,615


$

11,813


$

34,615


$

30,205





(1)

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 U.S. Government being overcharged under our General Services Administration ("GSA") Federal Supply Schedule contracts (the "Contracts"). In fourth quarter 2018, we reduced our total sales by an estimated cumulative adjustment of $4.8 million. We also retained outside legal counsel and forensic accountants to conduct a comprehensive review of our pricing and other practices under the Contracts (the "Review"). On July 15, 2019, we submitted a report to the GSA and its Office of Inspector General setting forth the findings of the Review. Based on the results of the Review, in second quarter 2019 we reduced our total sales by an incremental $5.8 million (the "GSA sales adjustment").

 

 

FARO TECHNOLOGIES, INC. AND SUBSIDIARIES

RECONCILIATION OF NET INCOME (LOSS) TO EBITDA AND ADJUSTED EBITDA

(UNAUDITED)



Three months ended

(in thousands)

March 31,
2018


June 30,
2018


September 30,
2018


December 31,
2018

Net income (loss)

$

455


$

1,205


$

(2,488)


$

5,758

Interest (income) expense, net

(73)


(87)


(96)


313

Income tax expense (benefit)

127


300


(354)


(445)

Depreciation and amortization

4,343


4,377


4,747


4,846

EBITDA

4,852


5,795


1,809


10,472

Loss on foreign currency transactions

184


509


226


220

Stock-based compensation

1,551


2,000


2,166


1,904

GSA sales adjustment (1)




4,789

Inventory reserve charge (2)



4,734


Adjusted EBITDA

$

6,587


$

8,304


$

8,935


$

17,385

 

(1)

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 U.S. Government being overcharged under our General Services Administration ("GSA") Federal Supply Schedule contracts (the "Contracts") (the "GSA Matter"). In fourth quarter 2018, we reduced our total sales by an estimated cumulative adjustment of $4.8 million and recorded imputed interest expense of $0.5 million related to the GSA Matter.



(2)

During the third quarter of 2018, we performed an analysis of our inventory reserves in connection with our recent new product introductions and acquisitions and recorded a charge of $4.7 million, or approximately 5% of total inventory, increasing our reserve for excess and obsolete inventory based on the determination that quantities on-hand for certain legacy products exceeded our revised sales projections.

 


Three months ended

(in thousands)

March 31,
2019


June 30,
2019


September 30,
2019

Net income (loss)

$

152


$

(6,405)


$

(6,199)

Interest (income) expense, net

(144)


240


(24)

Income tax expense (benefit)

155


(417)


(182)

Depreciation and amortization

4,749


4,573


4,798

EBITDA

4,912


(2,009)


(1,607)

Loss on foreign currency transactions

195


154


514

Stock-based compensation

2,564


2,752


3,387

GSA sales adjustment (1)

35


5,805


Advisory fees for GSA Matter (2)

591


653


Executive severance costs



1,217

Executive sign-on bonuses & relocation costs


575


270

Present4D impairment (3)


1,535


Adjusted EBITDA

$

8,297


$

9,465


$

3,781

 

(1)

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 U.S. Government being overcharged under our General Services Administration ("GSA") Federal Supply Schedule contracts (the "Contracts") (the "GSA Matter"). In fourth quarter 2018, we reduced our total sales by an estimated cumulative adjustment of $4.8 million. We also retained outside legal counsel and forensic accountants to conduct a comprehensive review of our pricing and other practices under the Contracts (the "Review"). On July 15, 2019, we submitted a report to the GSA and its Office of Inspector General setting forth the findings of the Review. Based on the results of the Review, in second quarter 2019 we reduced our total sales by an incremental $5.8 million (the "GSA sales adjustment").



(2)

In connection with the GSA Matter, we retained outside legal counsel and forensic accountants to conduct the Review, which resulted in $1.2 million in advisory fees incurred during the first nine months of 2019.



(3)

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. During the second quarter of 2019, we determined it is more likely than not that we will not recover our cost basis in present4D and recorded an impairment charge of $1.5 million, which is included in Other expense, net.

 

Cision

View original content to download multimedia:http://www.prnewswire.com/news-releases/faro-reports-third-quarter-2019-financial-results-300948472.html