FARO Announces Third Quarter Financial Results
LAKE MARY, Fla., Oct. 28, 2020 /PRNewswire/ -- FARO® (Nasdaq: FARO), a global leader of 3D measurement, imaging and realization solutions for the 3D Metrology, AEC (Architecture, Engineering & Construction), and Public Safety Analytics markets, today announced its financial results for the third quarter ended September 30, 2020.
"In the third quarter we saw improving sequential performance as global economies began to reopen and our customers resumed their capital investment plans. Additionally, we continued to progress on our strategic initiatives both organically with positive customer response to our recently announced new products and inorganically with our Digital Twin initiative enabled through the August acquisition of Advanced Technical Solutions ("ATS")," stated Michael Burger, President and Chief Executive Officer. "While near-term demand remains below the 2019 level, we have gained confidence that our second quarter represents the trough in demand, as we continue to experience increased customer activity levels. As importantly, as evidenced by our third quarter results, we expect the cost reduction actions taken earlier this year will drive strong operating leverage and profit growth as demand returns to normalized levels."
Third Quarter 2020 Financial Summary
Total sales were $70.7 million for third quarter 2020 representing a 17% sequential quarterly increase when compared to $60.6 million in the second quarter 2020, and a 22% decrease when compared with $90.5 million for third 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 $72.0 million increased 17% sequentially compared to $61.4 million in the second quarter 2020, but were down 24% when compared to $94.9 million for the third quarter 2019.
Gross margin was 51.3% for the third quarter 2020, as compared to 56.1% for the same prior year period. Non-GAAP gross margin was 51.5% for the third quarter 2020 compared to 56.4% for the third quarter 2019. The annual decrease in gross margin was primarily a result of the impact of lower sales resulting from the COVID-19 pandemic.
Operating expense, which includes $0.2 million of non-recurring charges, was $41.2 million for the third quarter 2020, as compared to $56.7 million for the same prior year period. Non-GAAP operating expense was $38.5 million for the third quarter 2020 compared to $51.1 million for the third quarter 2019.
Net loss was $3.0 million, or $0.17 per share, for the third quarter 2020, as compared to a net loss of $6.2 million, or $0.36 per share, for the third quarter 2019. Non-GAAP net loss was $1.3 million, or $0.08 per share, for the third quarter 2020 compared to Non-GAAP net loss of $0.2 million, or $0.01 per share, for the third quarter 2019.
Adjusted EBITDA was $0.8 million, or 1% of Non-GAAP total sales, for the third quarter of 2020 compared to Adjusted EBITDA of $3.8 million, or 4% of Non-GAAP total sales, for the third 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 decreased $10.3 million to $163.6 million as of the end of the third quarter of 2020, and the Company remained debt-free.
Conference Call
The Company will host a conference call to discuss these results on Wednesday, October 29, 2020 at 8:00 a.m. ET. Interested parties can access the conference call by dialing (800) 459-5346 (U.S.) or +1 (203) 518-9544 (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 margin, non-GAAP operating expenses, 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, executive severance costs, executive sign-on bonuses and relocation costs, Present4D impairment charges, restructuring charges, and other tax adjustments, and are provided to enhance investors' overall understanding of our historical operations and financial performance.
In addition, we present Adjusted EBITDA, which is calculated as net loss before interest expense, net, income tax benefit and depreciation and amortization, excluding (gain) loss on foreign currency transactions, the GSA sales adjustment, stock-based compensation, advisory fees incurred related to the GSA Matter, executive severance costs, executive sign-on bonuses and relocation costs, Present4D impairment charges, and restructuring costs, as measures of our operating profitability. The most directly comparable GAAP measure to Adjusted EBITDA is net 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 strategic and restructuring plans and initiatives, including but not limited to the additional restructuring charges expected to be incurred in connection with FARO's restructuring plan and the timing and amount of cost savings and other benefits expected to be realized from the restructuring plan and go-to-market strategy, FARO's ability to achieve strategic objectives and other benefits expected to be realized from the Company's acquisition of the ATS business, and FARO's growth and profitability potential. 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 "expects," "anticipates," "intends," "plans," "believes," "seeks," "estimates" or words of similar meaning 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 inability 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 Company's inability to realize the intended benefits of the
technology, products, operations, contracts and personnel of the ATS
business;
-- 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, 2019 and in
Part II, Item 1A. Risk Factors in the Company's Quarterly Report on Form
10-Q for the quarters ended March 31, 2020, June 30, 2020 and September
30, 2020.
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, September 30, 2 September 30, September 30,
2020 019 2020 2019
--- ---
Sales
Product $
48,082 $
66,788 $
146,866 $
209,411
Service 22,654 23,728 63,949 68,213
Total sales 70,736 90,516 210,815 277,624
Cost of Sales
Product 22,413 27,086 66,812 85,542
Service 12,025 12,658 34,936 37,551
Total cost of sales 34,438 39,744 101,748 123,093
Gross Profit 36,298 50,772 109,067 154,531
Operating Expenses
Selling, general and
administrative 30,163 45,880 96,523 131,909
Research and development 10,754 10,783 31,355 33,048
Restructuring costs 239 14,563
Total operating expenses 41,156 56,663 142,441 164,957
Loss from operations (4,858) (5,891) (33,374) (10,426)
Other (income) expense
Interest expense (income), net 161 (24) 407 72
Other (income) expense, net (256) 514 334 2398
Loss before income tax benefit (4,763) (6,381) (34,115) (12,896)
Income tax benefit (1,739) (182) (7,336) (444)
Net loss $
(3,024) $
(6,199) $
(26,779) $
(12,452)
Net loss per share -Basic $
(0.17) $
(0.36) $
(1.51) $
(0.72)
Net loss per share -Diluted $
(0.17) $
(0.36) $
(1.51) $
(0.72)
Weighted average shares -
Basic 17,797,390 17,367,228 17,757,359 17,352,386
Weighted average shares -
Diluted 17,797,390 17,367,228 17,757,359 17,352,386
FARO TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share and
per share data) September 30, December 31,
2020 (unaudited) 2019
--- ---
ASSETS
Current assets:
Cash and cash equivalents $
163,637 $
133,634
Short-term investments - 24,870
Accounts receivable, net 47,533 76,162
Inventories, net 50,004 58,554
Prepaid expenses and other
current assets 23,566 28,996
Total current assets 284,740 322,216
Non-current assets:
Property, plant and equipment,
net 22,962 26,954
Operating lease right-of-use
asset 15,060 18,418
Goodwill 55,640 49,704
Intangible assets, net 13,475 14,471
Service and sales demonstration
inventory, net 33,181 33,349
Deferred income tax assets, net 23,833 18,766
Other long-term assets 2,835 2,964
Total assets $
451,726 $
486,842
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $
9,096 $
13,718
Accrued liabilities 37,622 38,072
Income taxes payable 211 5,182
Current portion of unearned
service revenues 37,523 39,211
Customer deposits 3,912 3,108
Lease liability 5,089 6,674
Total current liabilities 93,453 105,965
Unearned service revenues -less
current portion 19,354 20,578
Lease liability -less current
portion 11,781 13,698
Deferred income tax liabilities 734 357
Income taxes payable -less
current portion 12,058 13,177
Other long-term liabilities 1,016 1,075
Total liabilities 138,396 154,850
Shareholders' equity:
Common stock -par value $.001,
50,000,000 shares authorized;
19,231,375 and 18,988,379
issued, respectively;
17,832,934 and 17,576,618
outstanding, respectively 19 19
Additional paid-in capital 276,779 267,868
Retained earnings 86,100 112,879
Accumulated other comprehensive
loss (18,526) (17,399)
Common stock in treasury, at
cost; 1,398,441 and 1,411,761
shares, respectively (31,042) (31,375)
Total shareholders' equity 313,330 331,992
Total liabilities and
shareholders' equity $
451,726 $
486,842
FARO TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Nine Months Ended
(in thousands) September 30, September 30,
2020 2019
--- ---
Cash flows from:
Operating activities:
Net loss $
(26,779) $
(12,452)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Depreciation and amortization 10,631 14,203
Stock-based compensation 6,428 8,703
Provisions for bad debts, net of recoveries 435 1,000
Loss on disposal of assets 351 552
Provision for excess and obsolete inventory 778 2,431
Deferred income tax benefit (4,961) (69)
Impairment charge on equity method
investment - 1,535
Change in operating assets and liabilities:
Decrease (Increase) in:
Accounts receivable 28,132 21,883
Inventories 5,101 (9,471)
Prepaid expenses and other current assets 9,391 640
Increase (Decrease) in:
Accounts payable and accrued liabilities (10,006) (6,934)
Income taxes payable (6,109) (3,679)
Customer deposits 815 (685)
Unearned service revenues (3,391) 5,809
Net cash provided by operating activities 10,816 23,466
Investing activities:
Purchases of property and equipment (2,833) (5,922)
Proceeds from sale of investments 25,000 33,700
Purchases of investments - (33,700)
Proceeds from asset sales 768
Payments for intangible assets (813) (2,035)
Acquisition of business, net of cash
received (6,036)
Loan originated to affiliate - (549)
Net cash provided by (used in) investing
activities 16,086 (8,506)
Financing activities:
Payments on finance leases (237) (273)
Payments of contingent consideration for
acquisitions (733) (3,101)
Payments for taxes related to net share
settlement of equity awards (2,568) (1,389)
Proceeds from issuance of stock related to
stock option exercises 5,384 2,328
Net cash provided by (used in) financing
activities 1,846 (2,435)
Effect of exchange rate changes on cash and
cash equivalents 1,255 (2,225)
Increase in cash and cash equivalents 30,003 10,300
Cash and cash equivalents, beginning of
period 133,634 108,783
Cash and cash equivalents, end of period $
163,637 $
119,083
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) 2020 2019 2020 2019
--- ---
Total sales, as reported $
70,736 $
90,516 $
210,815 $
277,624
GSA sales adjustment (1) - 608 5,840
Non-GAAP total sales $
70,736 $
90,516 $
211,423 $
283,464
Gross profit, as reported $
36,298 $
50,772 $
109,067 $
154,531
GSA sales adjustment (1) - 608 5,840
Stock-based compensation (2) 127 270 491 770
Non-GAAP adjustments to gross
profit 127 270 1,099 6,610
Non-GAAP gross profit $
36,425 $
51,042 $
110,166 $
161,141
Gross margin, as reported 51.3 56.1
% % 51.7
% 55.7
%
Non-GAAP gross margin 51.5 56.4
% % 52.1
% 56.8
%
Operating expenses, as
reported $
41,156 $
56,663 $
142,441 $
164,957
Advisory fees for GSA Matter
(3) - (1,244)
Stock-based compensation (2) (1,957) (3,117) (5,937) (7,933)
Restructuring costs (4) (239) (14,563)
Executive severance costs - (1,217) (1,217)
Executive sign-on bonuses &
relocation costs - (270) (845)
Purchase accounting intangible
amortization (493) (924) (1,465) (2,665)
Non-GAAP adjustments to
operating expenses (2,689) (5,528) (21,965) (13,904)
Non-GAAP operating expenses $
38,467 $
51,135 $
120,476 $
151,053
Loss from operations, as
reported $
(4,858) $
(5,891) $
(33,374) $
(10,426)
Non-GAAP adjustments to gross
profit 127 270 1,099 6,610
Non-GAAP adjustments to
operating expenses 2,689 5,528 21,965 13,904
Non-GAAP (loss) income from
operations $
(2,042) $
(93) $
(10,310) $
10,088
Other (income) expense, net,
as reported $
(95) $
490 $
741 $
2,470
Interest expense increase due
to GSA sales adjustment (1) (161) (145) (559) (632)
Present4D impairment (5) - (1,535)
Non-GAAP adjustments to other
expense, net (161) (145) (559) (2,167)
Non-GAAP other (income)
expense, net $
(256) $
345 $
182 $
303
Net loss, as reported $
(3,024) $
(6,199) $
(26,779) $
(12,452)
Non-GAAP adjustments to gross
profit 127 270 1,099 6,610
Non-GAAP adjustments to
operating expenses 2,689 5,528 21,965 13,904
Non-GAAP adjustments to other
expense, net 161 145 559 2,167
Income tax effect of non-GAAP
adjustments (1,292) (1,452) (4,930) (4,484)
Other tax adjustments (6) - 1,555 2,419
Non-GAAP net (loss) income $
(1,339) $
(153) $
(8,086) $
8,164
Net loss per share -Diluted,
as reported $
(0.17) $
(0.36) $
(1.51) $
(0.72)
GSA sales adjustment (1) - 0.00 0.03 0.34
Stock-based compensation (2) 0.12 0.19 0.36 0.50
Advisory fees for GSA Matter
(3) - 0.07
Restructuring costs (4) 0.01 0.82
Executive severance costs - 0.07 0.07
Executive sign-on bonuses &
relocation costs - 0.02 0.05
Purchase accounting intangible
amortization 0.03 0.05 0.08 0.15
Interest expense increase due
to GSA sales adjustment (1) 0.01 0.01 0.03 0.04
Present4D impairment (5) - 0.09
Income tax effect of non-GAAP
adjustments (0.08) (0.08) (0.27) (0.26)
Other tax adjustments (6) - 0.09 0.14
Non-GAAP net (loss) income
per share - Diluted $
(0.08) $
(0.01) $
(0.46) $
0.47
(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 nine months ended
September 30, 2020 and September 30,
2019, we reduced our total sales by
$0.6 million and $5.8 million,
respectively, (the "GSA sales
adjustment") and recorded imputed
interest expense of $0.6 million and
$0.6 million, respectively, 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) 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 nine months
ended September 30, 2019.
(4) 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 $14.6 million
during the first nine months of 2020
primarily consisting of severance
and related benefits.
(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
RECONCILIATION OF NET (LOSS) INCOME TO EBITDA AND ADJUSTED EBITDA
(UNAUDITED)
Three Months Ended September 30, Nine Months Ended September 30,
(in thousands) 2020 2019 2020 2019
--- ---
Net loss $
(3,024) $
(6,199) $
(26,779) $
(12,452)
Interest expense (income), net 161 (24) 407 72
Income tax benefit (1,739) (182) (7,336) (444)
Depreciation and amortization 3,352 4,798 10,631 14,120
EBITDA (1,250) (1,607) (23,077) 1,296
(Gain) Loss on foreign
currency transactions (256) 514 334 863
Stock-based compensation 2,084 3,387 6,429 8,703
GSA sales adjustment (1) - 608 5,840
Advisory fees for GSA Matter
(2) - 1,244
Executive severance costs - 1,217 1,217
Executive sign-on bonuses &
relocation costs - 270 845
Present4D impairment (3) - 1,535
Restructuring costs (4) 239 14,563
Adjusted EBITDA $
817 $
3,781 $
(1,143) $
21,543
Adjusted EBITDA margin (5) 1.2 4.2 (0.5)
% % % 7.6
%
(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"). During the
nine months ended September 30, 2020
and September 30, 2019, we reduced
our total sales by $0.6 million and
$5.8 million, respectively, (the
"GSA sales adjustment") and recorded
imputed interest expense of $0.6
million and $0.6 million,
respectively, related to the GSA
Matter.
(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 nine months
ended September 30, 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.
(4) 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 $14.6 million
during the first nine months of 2020
primarily consisting of severance
and related benefits.
(5) 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
