FARO Reports Third Quarter 2018 Financial Results

10 December 2018

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,

2018



September 30,

2017



September 30,

2018



September 30,

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

amortization, shown separately below)

47,388





38,216





126,989





111,951



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,

2018

(unaudited)



December 31, 2017

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,

2018



September 30,

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,

2018



September 30,

2017



September 30,

2018



September 30,

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

Sales



Q3 2017

Sales



% Change



Q3 2018

Sales



Q3 2017

Sales



% Change

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

Bookings

(in millions)



Ending

Sales

Headcount



Sales FTE

Headcount (1)



Trailing 12 Months

Sales FTE

Headcount (1)



Trailing 12 Months

Orders per Sales FTE

(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

Sales



2017



% of

Sales



2018



% of

Sales



2017



% of

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,

2018



September 30,

2017



September 30,

2018



September 30,

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,

2018



September 30,

2017



September 30,

2018



September 30,

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.