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FARO Announces Second Quarter Financial Results

LAKE MARY, Fla., Aug. 4, 2020 — (PRNewswire) — FARO® (Nasdaq: FARO), a global leader for 3D measurement, imaging and realization solutions for 3D metrology, architecture, construction and engineering, and public safety analytics applications, today announced its financial results for the second quarter ended June 30, 2020.

"I remain pleased with the progress we've made executing our strategic initiatives, despite the soft market environment.  Our efforts combined with additional prudent cost control measures have enabled us to beat our non-GAAP operating expense objective a full six months earlier than expected.  Further, the revitalized sales organization has embraced the new reality of a virtual sales model that I expect will continue to enable sales efficiencies when world conditions normalize," stated Michael Burger, President and Chief Executive Officer. "While the discretionary capital nature of our markets limits our visibility towards the timing of a recovery, we remain confident the actions we are taking will drive a meaningful increase in growth and profitability in the years ahead."

Second Quarter 2020 Financial Summary

Total sales were $60.6 million for second quarter 2020, as compared with $93.5 million for second quarter 2019, and included the unfavorable impact of an additional $0.6 million GSA sales adjustment identified through further review. Excluding the impact of the GSA sales adjustment in the second quarter 2020 and 2019, Non-GAAP total sales were $61.2 million and $99.3 million, respectively.  The decrease in sales was primarily a result of end market demand softness related to the COVID-19 pandemic.  New order bookings were $61.4 million for the second quarter 2020, down compared to $106.0 million for the second quarter 2019.

Gross margin was 47.7% for the second quarter 2020, as compared to 54.3% for the same prior year period. Non-GAAP gross margin was 48.4% for the second quarter 2020 compared to 57.2% for the second quarter 2019.  The decrease in gross margin was primarily a result of the impact of lower sales resulting from the COVID-19 pandemic.

Operating expense, which includes $0.6 million of non-recurring charges, was $40.9 million for the second quarter 2020, as compared to $55.6 million for the same prior year period.  Non-GAAP operating expense was $37.7 million for the second quarter 2020 compared to $51.0 million for the second quarter 2019.

Net loss was $8.9 million, or $0.50 per share, for the second quarter 2020, as compared to a net loss of $6.4 million, or $0.37 per share, for the second quarter 2019. Non-GAAP net loss was $6.3 million, or $0.36 per share, for the second quarter 2020 compared to Non-GAAP net income of $4.8 million, or $0.27 per share, for the second quarter 2019.

Adjusted EBITDA was negative $5.0 million, or 8% of Non-GAAP total sales, for the second quarter of 2020 compared to positive Adjusted EBITDA of $9.5 million, or 10% of Non-GAAP total sales, for the second 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 $0.5 million to $173.7 million as of the end of the second quarter of 2020, and the Company remained debt-free. 

Conference Call

The Company will host a conference call to discuss these results on Wednesday, August 5, 2020 at 8:00 a.m. ET. Interested parties can access the conference call by dialing (800) 347-7407 (U.S.) or +1 (203) 518-9704 (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 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 loss on foreign currency transactions, the GSA sales adjustment, stock-based compensation, advisory fees incurred related to the GSA Matter, 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 our 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, 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:

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


Six Months Ended

(in thousands, except share and per share data)

June 30, 2020


June 30, 2019


June 30, 2020


June 30, 2019

Sales








Product

$

42,259



$

71,045



$

98,784



$

142,622


Service

18,305



22,446



41,295



$

44,486


Total sales

60,564



93,491



140,079



187,108


Cost of Sales








Product

21,333



30,505



44,399



$

58,456


Service

10,335



12,246



22,911



$

24,893


Total cost of sales

31,668



42,751



67,310



83,349


Gross Profit

28,896



50,740



72,769



103,759


Operating Expenses








Selling, general and administrative

30,036



45,007



$

66,360



$

86,027


Research and development

10,186



10,626



$

20,601



$

22,267


Restructuring costs

636





14,324




Total operating expenses

40,858



55,633



101,285



108,294


Loss from operations

(11,962)



(4,893)



(28,516)



(4,535)


Other expense








Interest expense, net

212



240



$

246



$

96


Other expense, net

117



1,689



$

590



1,884


Loss before income tax benefit

(12,291)



(6,822)



(29,352)



(6,515)


Income tax benefit

(3,359)



(417)



(5,597)



(262)


Net loss

$

(8,932)



$

(6,405)



$

(23,755)



$

(6,253)


Net loss per share - Basic

$

(0.50)



$

(0.37)



$

(1.34)



$

(0.36)


Net loss per share - Diluted

$

(0.50)



$

(0.37)



$

(1.34)



$

(0.36)


Weighted average shares - Basic

17,747,739



17,333,996



17,710,014



17,323,479


Weighted average shares - Diluted

17,747,739



17,333,996



17,710,014



17,323,479


 

FARO TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS


(in thousands, except share and per share data)

June 30, 2020
(unaudited)


December 31,

2019

ASSETS




Current assets:




Cash and cash equivalents

$

173,700



$

133,634


Short-term investments



24,870


Accounts receivable, net

48,113



76,162


Inventories, net

53,425



58,554


Prepaid expenses and other current assets

20,795



28,996


Total current assets

296,033



322,216


Non-current assets:




Property, plant and equipment, net

22,507



26,954


Operating lease right-of-use asset

14,684



18,418


Goodwill

49,184



49,704


Intangible assets, net

12,744



14,471


Service and sales demonstration inventory, net

34,130



33,349


Deferred income tax assets, net

21,153



18,766


Other long-term assets

2,872



2,964


Total assets

$

453,307



$

486,842


LIABILITIES AND SHAREHOLDERS' EQUITY




Current liabilities:




Accounts payable

$

12,067



$

13,718


Accrued liabilities

42,975



38,072


Income taxes payable

1,258



5,182


Current portion of unearned service revenues

36,480



39,211


Customer deposits

3,451



3,108


Lease liability

4,904



6,674


Total current liabilities

101,135



105,965


Unearned service revenues - less current portion

19,582



20,578


Lease liability - less current portion

11,651



13,698


Deferred income tax liabilities

285



357


Income taxes payable - less current portion

12,058



13,177


Other long-term liabilities

35



1,075


Total liabilities

144,746



154,850


Shareholders' equity:




Common stock - par value $.001, 50,000,000 shares authorized; 19,116,870 and
18,988,379 issued, respectively; 17,718,179 and 17,576,618 outstanding, respectively

19



19


Additional paid-in capital

273,325



267,868


Retained earnings

89,124



112,879


Accumulated other comprehensive loss

(22,865)



(17,399)


Common stock in treasury, at cost; 1,398,691 and 1,411,761 shares, respectively

(31,042)



(31,375)


Total shareholders' equity

308,561



331,992


Total liabilities and shareholders' equity

$

453,307



$

486,842


 

FARO TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)



Six Months Ended

(in thousands)

June 30, 2020


June 30, 2019

Cash flows from:




Operating activities:




Net loss

$

(23,755)



$

(6,253)


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




Depreciation and amortization

7,209



9,322


Stock-based compensation

4,345



5,316


Provisions for bad debts, net of recoveries

680



2


Loss on disposal of assets

299



348


Provision for excess and obsolete inventory

479



1,481


Deferred income tax benefit

(2,404)



(11)


Impairment charge on equity method investment



1,535


Change in operating assets and liabilities:




Decrease (Increase) in:




Accounts receivable

26,180



14,442


Inventories

892



(9,687)


Prepaid expenses and other current assets

11,347



2,282


Increase (Decrease) in:




Accounts payable and accrued liabilities

(1,395)



(1,466)


Income taxes payable

(5,058)



(3,119)


Customer deposits

384



(446)


Unearned service revenues

(3,139)



3,998


Net cash provided by operating activities

16,064



17,744


Investing activities:




Proceeds from sale of investments

25,000




Purchases of property and equipment

(1,533)



(3,693)


Proceeds from asset sales

643




Payments for intangible assets

(673)



(1,233)


Net cash provided by (used in) investing activities

23,437



(4,926)


Financing activities:




Payments on finance leases

(160)



(187)


Payments of contingent consideration for acquisitions



(250)


Payments for taxes related to net share settlement of equity awards

(2,409)



(1,440)


Proceeds from issuance of stock related to stock option exercises

3,854



735


Net cash provided by (used in) financing activities

1,285



(1,142)


Effect of exchange rate changes on cash and cash equivalents

(720)



145


Increase in cash and cash equivalents

40,066



11,821


Cash and cash equivalents, beginning of period

133,634



108,783


Cash and cash equivalents, end of period

$

173,700



$

120,604


 

FARO TECHNOLOGIES, INC. AND SUBSIDIARIES
RECONCILIATION OF GAAP TO NON-GAAP
(UNAUDITED)



Three Months Ended June 30,


Six Months Ended June 30,

(dollars in thousands, except per share data)

2020


2019


2020


2019

Total sales, as reported

$

60,564



$

93,491



$

140,079



$

187,108


GSA sales adjustment (1)

608



5,805



608



5,840


Non-GAAP total sales

$

61,172



$

99,296



$

140,687



$

192,948










Gross profit, as reported

$

28,896



$

50,740



$

72,769



$

103,759


GSA sales adjustment (1)

608



5,805



608



5,840


Stock-based compensation (2)

93



268



364



501


Non-GAAP adjustments to gross profit

701



6,073



972



6,341


Non-GAAP gross profit

$

29,597



$

56,813



$

73,741



$

110,100


Gross margin, as reported

47.7

%


54.3

%


51.9

%


55.5

%

Non-GAAP gross margin

48.4

%


57.2

%


52.4

%


57.1

%









Operating expenses, as reported

$

40,858



$

55,633



$

101,285



$

108,294


Advisory fees for GSA Matter (3)



(653)





(1,244)


Stock-based compensation (2)

(2,076)



(2,484)



(3,981)



(4,815)


Restructuring costs (4)

(636)





(14,324)




Executive sign-on bonuses & relocation costs



(575)





(575)


Purchase accounting intangible amortization

(447)



(889)



(972)



(1,741)


Non-GAAP adjustments to operating expenses

(3,159)



(4,601)



(19,277)



(8,375)


Non-GAAP operating expenses

$

37,699



$

51,032



$

82,008



$

99,919










Loss from operations, as reported

$

(11,962)



$

(4,893)



$

(28,516)



$

(4,535)


Non-GAAP adjustments to gross profit

701



6,073



972



6,341


Non-GAAP adjustments to operating expenses

3,159



4,601



19,277



8,375


Non-GAAP (loss) income from operations

$

(8,102)



$

5,781



$

(8,267)



$

10,181










Other expense, net, as reported

$

329



$

1,929



$

836



$

1,980


Interest expense increase due to GSA sales adjustment (1)

(249)



(442)



(398)



(487)


Present4D impairment (5)



(1,535)





(1,535)


Non-GAAP adjustments to other expense, net

(249)



(1,977)



(398)



(2,022)


Non-GAAP other expense (income), net

$

80



$

(48)



$

438



$

(42)










Net loss, as reported

$

(8,932)



$

(6,405)



$

(23,755)



$

(6,253)


Non-GAAP adjustments to gross profit

701



6,073



972



6,341


Non-GAAP adjustments to operating expenses

3,159



4,601



19,277



8,375


Non-GAAP adjustments to other expense, net

249



1,977



398



2,022


Income tax effect of non-GAAP adjustments

(1,505)



(2,360)



(3,638)



(3,032)


Other tax adjustments (6)



864





864


Non-GAAP net (loss) income

$

(6,328)



$

4,750



$

(6,746)



$

8,317










Net loss per share - Diluted, as reported

$

(0.50)



$

(0.37)



$

(1.34)



$

(0.36)


GSA sales adjustment (1)

0.03



0.33



0.03



0.33


Stock-based compensation (2)

0.12



0.16



0.24



0.30


Advisory fees for GSA Matter (3)



0.04





0.08


Restructuring costs (4)

0.04





0.82




Executive sign-on bonuses & relocation costs



0.03





0.03


Purchase accounting intangible amortization

0.03



0.05



0.06



0.10


Interest expense increase due to GSA sales adjustment (1)

0.01



0.03



0.02



0.03


Present4D impairment (5)



0.09





0.09


Income tax effect of non-GAAP adjustments

(0.09)



(0.14)



(0.21)



(0.18)


Other tax adjustments (6)



0.05





0.05


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

$

(0.36)



$

0.27



$

(0.38)



$

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 six months ended June 30, 2020 and June 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 $0.2
million and $0.5 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 six months ended June 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 $14.3 million during the first half 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 June 30,


Six Months Ended June 30,

(in thousands)

2020


2019


2020


2019

Net loss

$

(8,932)



$

(6,405)



$

(23,755)



$

(6,253)


Interest expense, net

212



240



246



96


Income tax benefit

(3,359)



(417)



(5,597)



(262)


Depreciation and amortization

3,520



4,573



7,279



9,322


EBITDA

(8,559)



(2,009)



(21,827)



2,903


Loss on foreign currency transactions

117



154



590



349


Stock-based compensation

2,169



2,752



4,345



5,316


GSA sales adjustment (1)

608



5,805



608



5,840


Advisory fees for GSA Matter (2)



653





1,244


Executive sign-on bonuses & relocation costs



575





575


Present4D impairment (3)



1,535





1,535


Restructuring costs (4)

636





14,324




Adjusted EBITDA

$

(5,029)



$

9,465



$

(1,960)



$

17,762


Adjusted EBITDA margin (5)

(8.2)

%


9.5

%


(1.4)

%


9.2

%



(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 six months ended June 30, 2020 and June 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 $0.2 million and $0.5 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 six months ended June 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 $14.3 million
during the first half 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

Contact:
Company Name: FARO
FARO Technologies, Inc., Allen Muhich, Chief Financial Officer
Phone: +1 407-562-5005
Email Contact Sapphire Investor Relations, LLC, Michael Funari or Erica Mannion
Phone: +1 617-542-6180
Email Contact
Web: http://www.faro.com
Financial data for FARO