FARO Reports Third Quarter 2018 Financial Results
LAKE MARY, Fla., Oct. 31, 2018 /PRNewswire/ -- FARO(®) (NASDAQ: FARO), the world's most trusted source for 3D measurement and imaging solutions for 3D factory, construction BIM, 3D design, public safety forensics, and photonics applications, today announced its financial results for the third quarter and nine months ended September 30, 2018. Highlights from the first nine months of 2018 results included:
-- Continued our double-digit year-over-year sales growth at 14.3%
year-to-date
-- Decreased operating expenses as a percentage of sales by 1.1 pts.
-- Continued our new product drumbeat with 14 new product releases
-- Increased ending sales headcount by 11.3% with improved salesforce
efficiency
"We continued our new product drumbeat by releasing eight new important products since the start of July, highlighted by the introduction of our 6DoF Vantage Laser Tracker platform with 6Probe to expand the reach of large volume measurement," stated Dr. Simon Raab, President and Chief Executive Officer. "We continued our trend of year-over-year double-digit sales growth for a fifth consecutive quarter and invested in increasing our sales headcount while maintaining our trailing 12 months orders per sales FTE metric from the prior quarter. We added to our vertical footprint with a new Photonics vertical through a combination of acquisitions aimed at being a technology leader in laser steering. We enter our important fourth quarter with the most technically advanced and expansive product portfolio in our history."
Nine months ended September 30, 2018
Total sales increased by $36.3 million, or 14.3%, to $290.8 million for the nine months ended September 30, 2018 from $254.5 million for the nine months ended September 30, 2017. Our sales increase was primarily driven by strong growth of units sold in our construction BIM and emerging verticals segments, higher average selling prices in our 3D factory segment, and service revenue growth. New order bookings increased by $36.7 million, or 13.8%, to $303.1 million for the nine months ended September 30, 2018 from $266.4 million for the nine months ended September 30, 2017.
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.
Gross margin increased to 56.3% for the first nine months of 2018, compared with 56.0% for the same prior year period mostly due to higher average selling prices and improvements in manufacturing efficiencies offset partly by the increase in our inventory reserve during the third quarter. Excluding the $4.7 million increase in the inventory reserve during the third quarter of 2018, gross margin would have been 58.0%, up 2.0 percentage points compared with the same prior year period.
Net loss for the first nine months of 2018 was $0.8 million or a loss of $0.05 per share, compared with a net loss of $3.5 million or loss of $0.21 per share for the first nine months of 2017. Excluding the $4.7 million increase in the inventory reserve during the third quarter of 2018, net income would have been $3.2 million or $0.19 per share, up $0.40 per share compared with the same prior year period.
Third Quarter 2018
Total sales increased by $9.4 million, or 10.5%, to $99.7 million for the quarter ended September 30, 2018 from $90.3 million for the quarter ended September 30, 2017. Our third quarter sales increase was primarily driven by higher units sold and average selling prices across all segments, highlighted by a 17.4% year-over-year sales growth for our Asia Pacific region. We entered the third quarter last year with additional order backlog of approximately $5 million between construction BIM and public safety forensics, as demand for our new Focus laser scanner models exceeded our production capacity at that time. We shipped this additional backlog in the third quarter last year which shifted the timing of our quarterly sales with the third quarter in 2017 driven higher than our typical seasonality.
New order bookings increased by $10.0 million, or 11.0%, to $100.5 million for the quarter ended September 30, 2018 from $90.5 million for the quarter ended September 30, 2017. With our trailing 12 months new order bookings of $413.7 million and sales FTE headcount at 586, our trailing 12 months orders per sales FTE metric was approximately $706,000, same as prior quarter.
Gross margin was 52.5% for the third quarter of 2018, compared with 57.7% for the same prior year period, primarily driven by the increase in the inventory reserve, the product mix of used demo sales, and lower service margin. Excluding the $4.7 million increase in the inventory reserve, gross margin would have been 57.2%, down 0.5 percentage points compared with the same prior year period.
Net loss was $2.5 million or loss of $0.15 per share for the third quarter of 2018, compared with net income of $1.6 million or $0.10 per share for the third quarter last year. Excluding the $4.7 million increase in the inventory reserve, net income would have been $1.5 million or $0.09 per share, down $0.01 per share compared with the same prior year period.
As of September 30, 2018, cash and short-term investments totaled $135.0 million, of which $71.4 million was held by foreign subsidiaries.
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 adjusted gross profit, adjusted gross margin, adjusted net income (loss) and adjusted net income (loss) per share, exclude the impact of the increase in our inventory reserve resulting from the analysis of our inventory reserves performed in the third quarter of 2018 in connection with our recent new product introductions and acquisitions. These non-GAAP financial measures are provided to enhance investors' overall understanding of our historical operations and financial performance. Management believes that these non-GAAP financial measures provide investors with relevant period-to-period comparisons of our core operations. 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.
About FARO
FARO is the world's most trusted source for 3D measurement, imaging and realization technology. The Company develops and markets computer-aided measurement and imaging devices and software for the following vertical markets:
-- 3D Factory - 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, plan security activities and
provide virtual reality training for public safety personnel
-- 3D Design - Capture and edit part geometries 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 also has a technology center and manufacturing facility consisting of approximately 90,400 square feet located in Exton, Pennsylvania containing research and development, manufacturing and service operations of our FARO Laser Tracker and FARO Cobalt Array Imager product lines. 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.
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, and FARO's product development and product launches. 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:
-- 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; 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, 2017 and in
Part II, Item 1A. Risk Factors in the Company's Quarterly Report on Form
10-Q for the quarter ended March 31, 2018.
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.
More information is available at http://www.faro.com
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, September 30, September 30, September 30,
2018 2017 2018 2017
---
Sales
Product $
75,817 $
68,563 $
222,118 $
193,476
Service 23,888 21,687 68,665 61,018
Total sales 99,705 90,250 290,783 254,494
Cost of Sales
Product 34,004 26,673 88,766 78,186
Service 13,384 11,543 38,223 33,765
Total cost of sales (exclusive of depreciation and 47,388 38,216 126,989 111,951
amortization, shown separately below)
Gross Profit 52,317 52,034 163,794 142,543
Operating Expenses
Selling and marketing 27,811 25,990 86,166 74,884
General and administrative 12,496 10,307 34,889 32,883
Depreciation and amortization 4,747 4,368 13,467 12,075
Research and development 9,975 9,019 29,364 26,530
Total operating expenses 55,029 49,684 163,886 146,372
(Loss) income from operations (2,712) 2,350 (92) (3,829)
Other expense (income)
Interest income, net (96) (78) (205) (249)
Other expense (income), net 226 (147) 868 320
(Loss) income before income tax (benefit) expense (2,842) 2,575 (755) (3,900)
Income tax (benefit) expense (354) 947 73 (442)
Net (loss) income $
(2,488) $
1,628 $
(828) $
(3,458)
Net (loss) income per share - Basic $
(0.15) $
0.10 $
(0.05) $
(0.21)
Net (loss) income per share - Diluted $
(0.15) $
0.10 $
(0.05) $
(0.21)
Weighted average shares - Basic 17,122,705 16,708,446 16,976,459 16,697,729
Weighted average shares - Diluted 17,122,705 16,796,518 16,976,459 16,697,729
FARO TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share
data) September 30, December 31, 2017
2018
(unaudited)
---
ASSETS
Current assets:
Cash and cash equivalents $
115,098 $
140,960
Short-term investments 19,871 10,997
Accounts receivable, net 75,361 72,105
Inventories, net 62,471 53,786
Prepaid expenses and other current assets 22,024 16,311
Total current assets 294,825 294,159
Property and equipment:
Machinery and equipment 73,748 66,514
Furniture and fixtures 6,817 6,945
Leasehold improvements 20,049 19,872
Property and equipment at cost 100,614 93,331
Less: accumulated depreciation and
amortization (69,919) (61,452)
Property and equipment, net 30,695 31,879
Goodwill 66,201 52,750
Intangible assets, net 36,030 22,540
Service and sales demonstration inventory,
net 35,288 39,614
Deferred income tax assets, net 15,685 15,606
Other long-term assets 4,689 2,030
Total assets $
483,413 $
458,578
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $
16,401 $
11,569
Accrued liabilities 29,186 27,362
Income taxes payable 908 4,676
Current portion of unearned service revenues 30,517 29,674
Customer deposits 2,538 2,604
Total current liabilities 79,550 75,885
Unearned service revenues -less current
portion 13,940 11,815
Deferred income tax liabilities 613 695
Income taxes payable -less current portion 14,579 15,952
Other long-term liabilities 3,772 2,165
Total liabilities 112,454 106,512
Shareholders' equity:
Common stock -par value $.001, 50,000,000
shares authorized; 18,675,208 and 18,277,142
issued, respectively; 17,252,160 and
16,796,884 outstanding, respectively 19 18
Additional paid-in capital 249,284 223,055
Retained earnings 170,161 168,624
Accumulated other comprehensive loss (16,896) (7,822)
Common stock in treasury, at cost; 1,423,048
and 1,480,258 shares, respectively $
(31,609) $
(31,809)
Total shareholders' equity $
370,959 $
352,066
Total liabilities and shareholders' equity $
483,413 $
458,578
FARO TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Nine Months Ended
(in thousands) September 30, September 30,
2018 2017
---
Cash flows from:
Operating activities:
Net loss $
(828) $
(3,458)
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities:
Depreciation and amortization 13,467 12,075
Stock-based compensation 5,717 4,823
Provision for bad debts 360 321
Loss on disposal of assets 401 263
Provision for excess and obsolete
inventory 5,357 1,271
Deferred income tax (benefit) expense (161) 224
Change in operating assets and liabilities:
Decrease (Increase) in:
Accounts receivable (1,882) 3,701
Inventories (12,104) (11,450)
Prepaid expenses and other current assets (4,257) (3,834)
(Decrease) Increase in:
Accounts payable and accrued liabilities 569 (2,774)
Income taxes payable (5,082) (598)
Customer deposits (107) (6)
Unearned service revenues 3,415 (1,326)
Net cash provided by (used in) operating
activities 4,865 (768)
Investing activities:
Proceeds from sale of investments - 32,000
Purchases of investments (9,000)
Purchases of property and equipment (6,895) (6,081)
Payments for intangible assets (1,716) (1,345)
Acquisition of businesses (27,638) (5,496)
Equity investments and advances to
affiliates (1,786)
Net cash (used in) provided by investing
activities (47,035) 19,078
Financing activities:
Payments on capital leases (84) (6)
Payment of contingent consideration for
acquisitions (638) (521)
Proceeds from issuance of stock related to
stock option exercises 20,901 387
Net cash provided by (used in) financing
activities 20,179 (140)
Effect of exchange rate changes on cash
and cash equivalents (3,871) 5,502
(Decrease) increase in cash and cash
equivalents (25,862) 23,672
Cash and cash equivalents, beginning of
period 140,960 106,169
Cash and cash equivalents, end of period $
115,098 $
129,841
FARO TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(UNAUDITED)
Three Months Ended
Nine Months Ended
(in thousands) September 30, September 30, September 30, September 30,
2018 2017 2018 2017
---
Net (loss) income $
(2,488) $
1,628 $
(828) $
(3,458)
Currency translation adjustments, net of income tax (4,911) 3,875 (9,074) 15,174
Comprehensive (loss) income $
(7,399) $
5,503 $
(9,902) $
11,716
FARO TECHNOLOGIES, INC. AND SUBSIDIARIES
UNAUDITED SUPPLEMENTAL DATA
Three Months Ended
Nine Months Ended
(sales in thousands) Q3 2018 Q3 2017 % Change Q3 2018 Q3 2017 % Change
Sales Sales Sales Sales
---
Reporting Segments
3D Factory(1) $
64,182 $
58,529 9.7 $
190,584 $
172,524 10.5
% %
Construction BIM(2) 23,710 22,751 4.2 69,994 60,550 15.6
% %
Emerging Verticals(3) 11,813 8,970 31.7 30,205 21,420 41.0
% %
Total $
99,705 $
90,250 10.5 $
290,783 $
254,494 14.3
% %
(1)
The 3D Factory
reporting segment (formerly
known as Factory Metrology)
contains solely our 3D Factory
vertical (formerly our Factory
Metrology and 3D Machine Vision
verticals).
(2)
The
Construction BIM reporting
segment contains solely our
Construction BIM vertical
(formerly known as Construction
BIM-CIM).
(3)
The
Emerging Verticals reporting
segment (formerly known as
Other) includes our 3D Design
(formerly known as Product
Design), Public Safety
Forensics, and Photonics
verticals.
FARO TECHNOLOGIES, INC. AND SUBSIDIARIES
UNAUDITED SUPPLEMENTAL DATA
New Order
Ending
Sales FTE
Trailing 12 Months
Trailing 12 Months
Bookings Sales Headcount (1) Sales FTE Orders per Sales FTE
(in millions) Headcount Headcount (1) (in thousands) (1)
---
Q2-16 $81.6 468 424 419 $782
Q3-16 $79.8 507 435 424 $790
Q4-16 $95.8 536 454 432 $766
Q1-17 $86.9 593 486 450 $765
Q2-17 $88.9 627 516 473 $743
Q3-17 $90.5 635 548 501 $723
Q4-17 $110.6 631 568 530 $711
Q1-18 $96.1 653 581 553 $698
Q2-18 $106.5 672 591 572 $706
Q3-18 $100.5 707 604 586 $706
(1)
Sales
full-time experienced ("FTE")
is a metric whereby sales
headcount is measured as a
time-weighted average with
the first year contribution of
a new employee discounted by
an experience factor.
FARO TECHNOLOGIES, INC. AND SUBSIDIARIES
RECONCILIATION OF REPORTED TO ADJUSTED
GROSS PROFIT AND GROSS MARGIN
(UNAUDITED)
Three months ended September 30,
Nine months ended September 30,
(dollars in thousands) 2018 % of 2017 % of 2018 % of 2017 % of
Sales Sales Sales Sales
--- ---
Gross profit and gross margin, as reported $
52,317 52.5 $
52,034 57.7 $
163,794 56.3 $
142,543 56.0
% % % %
Inventory reserve charge (1) 4,734 4.7 % 4,734 1.7
% % %
---
Gross profit and gross margin, as adjusted $
57,051 57.2 $
52,034 57.7 $
168,528 58.0 $
142,543 56.0
% % % %
(1)
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.
FARO TECHNOLOGIES, INC. AND SUBSIDIARIES
RECONCILIATION OF REPORTED TO ADJUSTED
NET INCOME (LOSS) AND NET INCOME (LOSS) PER SHARE
(UNAUDITED)
Three Months Ended
Nine Months Ended
(in thousands) September 30, September 30, September 30, September 30,
2018 2017 2018 2017
--- ---
Net (loss) income, as reported $
(2,488) $
1,628 $
(828) $
(3,458)
Inventory reserve charge (1) $
4,734
$ $
4,734
$
Income tax expense on inventory reserve charge (702) (702)
Total inventory reserve charge after tax 4,032 4,032
Net income (loss), as adjusted $
1,544 $
1,628 $
3,204 $
(3,458)
(1) 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
Nine Months Ended
September 30, September 30, September 30, September 30,
2018 2017 2018 2017
Net (loss) income per share - Diluted, as reported $
(0.15) $
0.10 $
(0.05) $
(0.21)
Inventory reserve charge (1) $
0.27
$ $
0.27
$
Income tax expense on inventory reserve charge (0.03) (0.03)
Total inventory reserve charge after tax 0.24 0.24
Net income (loss) per share - Diluted, as adjusted $
0.09 $
0.10 $
0.19 $
(0.21)
(1) 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.
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SOURCE FARO Technologies, Inc.
