FARO Announces Fourth Quarter and Full Year Financial Results
LAKE MARY, Fla., Feb. 17, 2021 /PRNewswire/ -- FARO(®) (Nasdaq: FARO), a leading global source for 3D measurement and imaging solutions for the 3D Metrology, AEC (Architecture, Engineering & Construction), and Public Safety Analytics applications, today announced its financial results for the fourth quarter and full year ended December 31, 2020.
"FARO delivered strong fourth quarter results, closing out a transformational year amid uncertainty caused by the pandemic. Our fourth quarter performance demonstrates the effectiveness of our more efficient sales organization and the profit potential of our lower cost structure. We enter 2021 as a stronger, more efficient business with a highly scalable financial model," stated Michael Burger, President and Chief Executive Officer. "As the business environment returns to normalized levels and we execute on our software and solution development initiatives, we believe we are well positioned to generate significant shareholder returns in the years ahead."
Fourth Quarter 2020 Financial Summary
Total sales were $93.0 million for fourth quarter 2020 representing a 31% sequential quarterly increase when compared to $70.7 million in the third quarter 2020, and an 11% decrease when compared with $104.1 million for fourth quarter 2019. The sales level fluctuations were primarily a result of the COVID-19 impact on customer demand in our served markets. Similarly, new order bookings of $95.1 million increased 32% sequentially compared to $72.0 million in the third quarter 2020, but were down 19% when compared to $116.9 million for the fourth quarter 2019.
Gross margin was 54.6% for the fourth quarter 2020, as compared to 41.9% for the same prior year period. Non-GAAP gross margin was 54.9% for the fourth quarter 2020 compared to 55.7% for the fourth quarter 2019. The annual decrease in non-GAAP gross margin was primarily a result of the impact of lower sales resulting from the COVID-19 pandemic.
Operating expense, which includes $2.9 million of non-recurring charges, was $48.1 million for the fourth quarter 2020, as compared to $91.8 million for the same prior year period. Non-GAAP operating expense was $43.0 million for the fourth quarter 2020 compared to $53.3 million for the fourth quarter 2019.
Net income was $27.4 million, or $1.52 per share, for the fourth quarter 2020, as compared to a net loss of $49.7 million, or $2.85 per share, for the fourth quarter 2019. GAAP Net Income included a $19 million gain that resulted from the booking of a deferred tax asset associated with the completion of a fourth quarter tax structure restructuring. Non-GAAP net income was $6.3 million, or $0.35 per share, for the fourth quarter 2020 compared to Non-GAAP net income of $3.1 million, or $0.18 per share, for the fourth quarter 2019.
Adjusted EBITDA was $11.1 million, or 12% of Non-GAAP total sales, for the fourth quarter of 2020 compared to Adjusted EBITDA of $8.1 million, or 8% of Non-GAAP total sales, for the fourth quarter of 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 increased $22.0 million to $185.6 million as of the end of the fourth quarter of 2020, and the Company remained debt-free.
Full Year 2020 Financial Summary
Total sales were $303.8 million for the full year 2020, as compared with $381.8 million for 2019. Non-GAAP total sales were $304.4 million for 2020 compared to $387.6 million for 2019. New order bookings were $306.4 million for 2020, as compared to $418.4 million for 2019.
Gross margin was 52.6% for 2020, as compared to 51.9% for 2019. Non-GAAP gross margin was 52.9% for 2020 compared to 56.5% for 2019.
Net income was $0.6 million, or $0.04 per share, for 2020, as compared to net loss of $62.1 million, or $3.58 per share, for 2019. Non-GAAP net loss was $1.8 million, or $0.10 per share, for 2020 compared to net income of $11.2 million, or $0.65 per share, for 2019.
Conference Call
The Company will host a conference call to discuss these results on Thursday, February 18, 2021 at 8:00 a.m. ET. Interested parties can access the conference call by dialing (877) 876-9174 (U.S.) or +1 (785) 424-1669 (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/events
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
For 40 years, FARO has provided industry-leading technology solutions that enable customers to quickly and easily measure their world, and then use that data to make smarter decisions faster. FARO continues to be a pioneer in bridging the digital and physical worlds through data-driven reliable accuracy, precision and immediacy. For more information, visit 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 gross profit, non-GAAP gross margin, non-GAAP operating expenses, non-GAAP income (loss) from operations, non-GAAP other expense, net, non-GAAP net income (loss) and non-GAAP net income (loss) 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, charges increasing our reserve for excess and obsolete inventory, product recall charges, restructuring charges, strategic impairment charges and write-offs, the impairment charge related to our equity investment in present4D GmbH, contingent consideration fair value adjustment, and other tax adjustments, 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 (loss) income 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, charges increasing our reserve for excess and obsolete inventory, product recall charges, restructuring charges, strategic impairment charges and write-offs, the impairment charge related to our equity investment in present4D GmbH, and contingent consideration fair value adjustment, as measures of our operating profitability. The most directly comparable GAAP measure to EBITDA and Adjusted EBITDA is net (loss) income. We also present Adjusted EBITDA margin, which is calculated as Adjusted EBITDA as a percent of Non-GAAP total sales.
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 restructuring plans and initiatives, including but not limited to the additional restructuring charges expected to be incurred in connection with our restructuring plan and the timing and amount of cost savings and other benefits expected to be realized from the restructuring plan and other strategic 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 Company's ability to realize the intended benefits of its
undertaking to transition to a company that is reorganized around
functions to improve the efficiency of its sales organization and to
improve operational effectiveness;
-- the Company's inability to successfully execute its new strategic plan
and restructuring plan, including but not limited to additional
impairment charges and/or higher than expected severance costs and exit
costs, and its inability to realize the expected benefits of such plans;
-- 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 effect of the COVID-19 pandemic, including on our business
operations, as well as its impact on general economic and financial
market 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, 2020 that
will be filed with the SEC following this earnings release.
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
Twelve Months Ended
(in thousands, except share and per share data) December 31, December 31, December 31, December 31,
2020 2019 2020 2019
--- ---
Sales
Product $
71,721 $
80,267 $
218,587 $
289,679
Service 21,232 23,874 85,181 92,086
Total sales 92,953 104,141 303,768 381,765
Cost of Sales
Product 32,052 47,706 98,864 133,246
Service 10,121 12,834 45,057 50,387
Total cost of sales 42,173 60,540 143,921 183,633
Gross Profit 50,780 43,601 159,847 198,132
Operating Expenses
Selling, general and administrative 35,304 45,469 131,827 177,378
Research and development 11,541 11,127 42,896 44,175
Restructuring costs 1,243 15,806
Impairment loss - 35,213 35,213
Total operating expenses 48,088 91,809 190,529 256,766
Income (loss) from operations 2,692 (48,208) (30,682) (58,634)
Other (income) expense
Interest income (747) (155) (340) (714)
Other expense (income), net 97 (85) 431 2,313
Interest expense - 150 781
Income (loss) before income tax expense (benefit) 3,342 (48,118) (30,773) (61,014)
Income tax (benefit) expense (24,066) 1,577 (31,402) 1,133
Net income (loss) $
27,408 $
(49,695) $
629 $
(62,147)
Net income (loss) per share - Basic $
1.53 $
(2.85) $
0.04 $
(3.58)
Net income (loss) per share - Diluted $
1.52 $
(2.85) $
0.04 $
(3.58)
Weighted average shares - Basic 17,872,307 17,427,143 17,769,958 17,383,415
Weighted average shares - Diluted 18,064,754 17,427,143 17,926,324 17,383,415
FARO TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(in thousands, except share and per share data) December 31, December 31,
2020 2019
--- ---
ASSETS
Current assets:
Cash and cash equivalents $
185,633 $
133,634
Short-term investments - 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
Shareholders' equity:
Common stock - par value $0.001, 50,000,000 shares authorized; 19,382,430 and 18,988,379 issued; 17,983,989 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 - 1,411,761 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
FARO TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Years Ended December 31,
(in thousands) 2020 2019
--- ---
CASH FLOWS FROM:
OPERATING ACTIVITIES:
Net income (loss) $
629 $
(62,147)
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
Depreciation and amortization 14,239 18,516
Compensation for stock options and restricted stock units 8,314 11,071
Provision for bad debts (net of recoveries) 440 2,090
Loss on disposal of assets 383 2,639
Provision for excess and obsolete inventory 1,349 16,886
Impairment of goodwill - 21,233
Impairment of acquired intangibles - 10,548
Impairment of loan to affiliate - 549
Deferred income tax benefit (28,444) (6,304)
Change in operating assets and liabilities:
(Increase) decrease in:
Accounts receivable, net 12,346 10,406
Inventories 10,343 (4,136)
Prepaid expenses and other assets 3,862 1,188
Increase (decrease) in:
Accounts payable and accrued liabilities 2,390 (2,518)
Income taxes payable (3,357) 1,041
Customer deposits (374) (30)
Unearned service revenues (726) 11,436
Net cash provided by operating activities 21,394 32,468
INVESTING ACTIVITIES:
Purchases of investments - (50,000)
Proceeds from sale of investments 25,000 50,000
Purchases of property and equipment (4,774) (6,675)
Payments for internally capitalized patents (1,298) (2,118)
Acquisition of business, net of cash received (6,036)
Other 1,015 (549)
Net cash provided by (used in) investing activities 13,907 (9,342)
FINANCING ACTIVITIES:
Payments on capital leases (338) (358)
Payments of contingent consideration for acquisitions (733) (3,101)
Payments for taxes related to net share settlement of equity awards (2,602) (2,199)
Proceeds from issuance of stock related to stock option exercises 14,731 7,901
Net cash provided by financing activities 11,058 2,243
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS 5,640 (518)
INCREASE IN CASH AND CASH EQUIVALENTS 51,999 24,851
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 133,634 108,783
CASH AND CASH EQUIVALENTS, END OF YEAR $
185,633 $
133,634
FARO TECHNOLOGIES, INC. AND SUBSIDIARIES
RECONCILIATION OF GAAP TO NON-GAAP
(UNAUDITED)
Three Months Ended December 31, Twelve Months Ended December 31,
(dollars in thousands, except per share data) 2020 2019 2020 2019
--- ---
Total sales, as reported $
92,953 $
104,141 $
303,768 $
381,765
GSA sales adjustment (1) - 608 5,840
Non-GAAP total sales $
92,953 $
104,141 $
304,376 $
387,605
Gross profit, as reported $
50,780 $
43,601 $
159,847 $
198,132
GSA sales adjustment (1) - 608 5,840
Stock-based compensation (2) 211 231 702 1,001
Inventory reserve charge (3) - 12,800 12,800
Product recall charge (4) - 1,328 1,328
Non-GAAP adjustments to gross profit 211 14,359 1,310 20,969
Non-GAAP gross profit $
50,991 $
57,960 $
161,157 $
219,101
Gross margin, as reported 54.6 41.9
% 52.6
% % 51.9
%
Non-GAAP gross margin 54.9 55.7
% 52.9
% % 56.5
%
Operating expenses, as reported $
48,088 $
91,809 $
190,529 $
256,766
Advisory fees for GSA Matter (5) - (1,244)
Stock-based compensation (2) (1,675) (2,137) (7,612) (10,068)
Restructuring costs (6) (1,243) (15,806)
Other product charge (4) (1,644) (1,644)
Executive severance costs - (1,217)
Executive sign-on bonuses & relocation costs - (215) (1,060)
Strategic impairments and write-offs (7) - (35,213) (35,213)
Purchase accounting intangible amortization (604) (974) (2,069) (3,639)
Non-GAAP adjustments to operating expenses (5,166) (38,539) (27,131) (52,441)
Non-GAAP operating expenses $
42,922 $
53,270 $
163,398 $
204,325
Income (loss) from operations, as reported $
2,692 $
(48,208) $
(30,682) $
(58,634)
Non-GAAP adjustments to gross profit 211 14,359 1,310 20,969
Non-GAAP adjustments to operating expenses 5,166 38,539 27,131 52,441
Non-GAAP income (loss) from operations $
8,069 $
4,690 $
(2,241) $
14,776
Other (income) expense, net, as reported $
(650) $
(90) $
91 $
2,380
Interest adjustment due to GSA sales adjustment (1) 727 (147) 168 (779)
Contingent consideration fair value adjustment - 926 926
Present4D impairment (8) - (617) (2,152)
Non-GAAP adjustments to other (income) expense, net 727 162 168 (2,005)
Non-GAAP other expense, net $
77 $
72 $
259 $
375
Net income (loss), as reported $
27,408 $
(49,695) $
629 $
(62,147)
Non-GAAP adjustments to gross profit 211 14,359 1,310 20,969
Non-GAAP adjustments to operating expenses 5,166 38,539 27,131 52,441
Non-GAAP adjustments to other (income) expense, net (727) (162) (168) 2,005
Income tax effect of non-GAAP adjustments (2,305) (6,180) (7,235) (10,665)
Other tax adjustments (9) (23,501) 6,209 (23,501) 8,628
Non-GAAP net income (loss) $
6,252 $
3,070 $
(1,834) $
11,231
Net income (loss) per share - Diluted, as reported $
1.52 $
(2.85) $
0.04 $
(3.58)
GSA sales adjustment (1) - 0.03 0.34
Stock-based compensation (2) 0.11 0.14 0.46 0.64
Product recall and other product charges (4) 0.09 0.08 0.09 0.08
Inventory reserve charge (3) - 0.73 0.73
Advisory fees for GSA Matter (5) - 0.07
Restructuring costs (6) 0.07 0.88
Executive severance costs - 0.07
Executive sign-on bonuses & relocation costs - 0.01 0.06
Strategic impairments and write-offs (7) - 2.02 2.03
Purchase accounting intangible amortization 0.03 0.06 0.12 0.21
Interest expense increase due to GSA sales adjustment (1) (0.04) 0.01 (0.01) 0.04
Contingent consideration fair value adjustment - (0.05) (0.05)
Present4D impairment (8) - 0.03 0.12
Income tax effect of non-GAAP adjustments (0.13) (0.36) (0.40) (0.61)
Other tax adjustments (9) (1.30) 0.36 (1.31) 0.50
Non-GAAP net income (loss) per share - Diluted $
0.35 $
0.18 $
(0.10) $
0.65
(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").
We retained outside legal counsel and
forensic accountants to conduct a
comprehensive review of our pricing
and other practices under the
Contracts (the "Review"). During the
twelve months ended December 31,
2019, we reduced our total sales $5.8
million (the "GSA sales adjustment")
and recorded imputed interest expense
of $0.1 million and $0.8 million
related to the GSA Matter for the
three and twelve months ended
December 31, 2019, respectively.
During the twelve months ended
December 31, 2020, we reduced our
total sales $0.6 million. During the
first nine months of 2020 we recorded
an incremental $0.6 million of
imputed interest related to the
estimated cumulative sales adjustment
and in the fourth quarter of 2020 we
determined that an adjustment to
reduce imputed interest by $0.7
million was required.
(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 $3.5
million for the twelve months ended
December 31, 2019.
(3) During the fourth quarter of 2019,
we recorded a charge of $12.8
million, increasing our reserve for
excess and obsolete inventory, based
on our analysis of our inventory
reserves in connection with our
strategy to simplify our hardware
product portfolio and cease selling
certain products.
(4) During the fourth quarter of 2019,
we accrued a recall charge for labor
and parts related to a small portion
of previously sold measurement
devices that were outside the
manufacturer's standard warranty due
to safety concerns. During the fourth
quarter of 2020, we recognized a
charge related to the replacement of
a prior generation product that was
exhibiting lower than desired
reliability as part of our ongoing
focus on customer satisfaction.
(5) 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 2019.
(6) On February 14, 2020, our Board of
Directors approved a global
restructuring plan (the
"Restructuring Plan"), which is
intended to support our strategic
plan in an effort to improve
operating performance and ensure that
we are appropriately structured and
resourced to deliver increased and
sustainable value to our shareholders
and customers. In connection with the
Restructuring Plan, we recorded a
pre-tax charge of approximately
$15.8 million during the twelve
months ended December 31, 2020
primarily consisting of severance and
related benefits.
(7) Because the historical and
projected future performance of
certain of our recently acquired
operations were lower than our
expectations, and due to changes in
our go-forward strategy in
connection with our new strategic
plan, we incurred an impairment loss
of $35.2 million during the fourth
quarter of 2019, which included $21.2
million in goodwill, $10.5 million in
intangible assets associated with
recent acquisitions, $1.4 million in
intangible assets related to
capitalized patents and $2.1 million
in other asset write-downs.
(8) 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. 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. As we no longer
intend to provide future support to
present4D or obtain the
aforementioned additional share
capital in the future and no longer
intend to use the perpetual and
royalty-free, non-exclusive,
transferable and sublicensable
license granted to us to use
present4D's software, we wrote off
the investment in, and our note
receivable with, present4D and
recognized a total loss of $2.2
million during the twelve months
ended December 31, 2019, which is
included in Other expense, net.
(9) The 2019 tax adjustments were
driven primarily by return-to-
provision adjustments identified in
the preparation of our 2018 U.S. tax
return, an increase in our valuation
allowance primarily related to
foreign net operating loss
carryforwards that, in the judgment
of management, were not more likely
than not to be realized, and changes
in our reserve for uncertain tax
positions due to a change in our
judgment on the recognition of a tax
position. The 2020 tax adjustments
were driven primarily by the
establishment of deferred tax assets
in relation to intra-entity
transfers of certain intellectual
property rights in December 2020.
FARO TECHNOLOGIES, INC. AND SUBSIDIARIES
RECONCILIATION OF NET INCOME (LOSS) TO EBITDA AND ADJUSTED EBITDA
(UNAUDITED)
Three Months Ended December 31, Twelve Months Ended December 31,
(in thousands) 2020 2019 2020 2019
--- ---
Net income (loss) $
27,408 $
(49,695) $
629 $
(62,147)
Interest (income) expense, net (747) (5) (340) 67
Income tax benefit (24,066) 1,577 (31,402) 1,133
Depreciation and amortization 3,608 4,428 14,239 18,548
EBITDA 6,203 (43,695) (16,874) (42,399)
Loss (Gain) on foreign currency transactions 97 224 431 1,087
Stock-based compensation 1,886 2,368 8,314 11,071
GSA sales adjustment (1) - 608 5,840
Advisory fees for GSA Matter (2) - 1,244
Inventory reserve charge (3) - 12,800 12,800
Product recall and other product charges (4) 1,644 1,328 1,644 1,328
Executive severance costs - 215 1,432
Executive sign-on bonuses & relocation costs - 845
Present4D impairment (5) - 617 2,152
Restructuring costs (6) 1,243 15,806
Strategic impairments and write-offs (7) - 35,213 35,213
Contingent consideration fair value adjustment - (926) (926)
Adjusted EBITDA $
11,073 $
8,144 $
9,929 $
29,687
Adjusted EBITDA margin (8) 11.9 7.8
% 3.3
% % 7.7
%
(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").
We retained outside legal counsel and
forensic accountants to conduct a
comprehensive review of our pricing
and other practices under the
Contracts (the "Review"). During the
twelve months ended December 31, 2020
and December 31, 2019, we reduced our
total sales by $0.6 million and $5.8
million, respectively (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 2019.
(3) During the fourth quarter of 2019,
we recorded a charge of $12.8,
million increasing our reserve for
excess and obsolete inventory, based
on our analysis of our inventory
reserves in connection with our
strategy to simplify our hardware
product portfolio and cease selling
certain products.
(4) During the fourth quarter of 2019,
we accrued a recall charge for labor
and parts related to a small portion
of previously sold measurement
devices that were outside the
manufacturer's standard warranty due
to safety concerns. During the fourth
quarter of 2020, we recognized a
charge related to the replacement of
a prior generation product that was
exhibiting lower than desired
reliability as part of our ongoing
focus on customer satisfaction.
(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. 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. As we no longer
intend to provide future support to
present4D or obtain the
aforementioned additional share
capital in the future and no longer
intend to use the perpetual and
royalty-free, non-exclusive,
transferable and sublicensable
license granted to us to use
present4D's software, we wrote off
the investment in, and our note
receivable with, present4D and
recognized a total loss of $2.2
million during the twelve months
ended December 31, 2019, which is
included in Other expense, net.
(6) On February 14, 2020, our Board of
Directors approved a global
restructuring plan (the
"Restructuring Plan"), which is
intended to support our strategic
plan in an effort to improve
operating performance and ensure that
we are appropriately structured and
resourced to deliver increased and
sustainable value to our shareholders
and customers. In connection with the
Restructuring Plan, we recorded a
pre-tax charge of approximately
$15.8 million during the twelve
months ended December 31, 2020
primarily consisting of severance and
related benefits.
(7) Because the historical and
projected future performance of
certain of our recently acquired
operations were lower than our
expectations, and due to changes in
our go forward strategy in connection
with our new strategic plan, we
incurred an impairment loss of $35.2
million during the fourth quarter of
2019, which included $21.2 million in
goodwill, $10.5 million in intangible
assets associated with recent
acquisitions, $1.4 million in
intangible assets related to
capitalized patents and $2.1 million
in other asset write-downs.
(8) Calculated as Adjusted EBITDA as a
percentage of Non-GAAP total sales,
which adjusts for the GSA sales
adjustment.
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SOURCE FARO
