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FARO Announces Third Quarter 2021 Financial Results

October 27, 2021 GMT
FARO logo. (PRNewsFoto/FARO Technologies, Inc.)
FARO logo. (PRNewsFoto/FARO Technologies, Inc.)
FARO logo. (PRNewsFoto/FARO Technologies, Inc.)

LAKE MARY, Fla., Oct. 27, 2021 /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, 2021.

“Demand remained strong in the third quarter, while customer COVID-related logistical challenges shifted some orders into the fourth quarter,” stated Michael Burger, President and Chief Executive Officer. “As we focus on the growth drivers ahead, we are encouraged by the customer response to our new products, namely our next generation Quantum Max ScanArm and our Holobuilder photogrammetry products which are on track to double over the next year.”

Mr. Burger continued, “Looking ahead, we continue to see strong fourth quarter demand indicators and as revenue returns to pre-pandemic levels, we look forward to demonstrating the operating leverage we have built into the business over the past two years.”

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Third Quarter 2021 Financial Summary
Total sales were $79.2 million for third quarter 2021 representing a 4% sequential quarterly decrease when compared to $82.1 million in the second quarter 2021, and a 12% increase when compared with total sales of $70.7 million for third quarter 2020. The sequential sales decrease was driven both by typical seasonal softness in European markets as well as pandemic related logistical constraints on behalf of our customers while the year over year growth was primarily a result of pandemic related softness in the prior year period. Similarly, new order bookings of $80.4 million decreased 9% sequentially compared to $88.2 million in the second quarter 2021 and increased 12% when compared to $72.0 million for the third quarter 2020.

Gross margin was 53.5% for the third quarter 2021, as compared to 51.3% for the same prior year period. Non-GAAP gross margin was 53.7% for the third quarter 2021 compared to 51.5% for the third quarter 2020. The annual increase in gross margin was primarily a result of higher volume compared to the prior year period.

Operating expenses were $47.5 million for the third quarter 2021, compared to $41.2 million for the same prior year period. Non-GAAP operating expenses were $42.4 million for the third quarter 2021 compared to $38.5 million for the third quarter 2020.

Net loss was $3.9 million, or $0.21 per share, for the third quarter 2021, as compared to a net loss of $3.0 million, or $0.17 per share, for the third quarter 2020. Non-GAAP net loss was approximately $100 thousand, or $0.01 per share, for the third quarter 2021 compared to Non-GAAP net loss of $1.3 million, or $0.08 per share, for the third quarter 2020.

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Adjusted EBITDA was $2.7 million, or 3.4% of Non-GAAP total sales, for the third quarter of 2021 compared to Adjusted EBITDA of approximately $820 thousand, or 1.2% of Non-GAAP total sales, for the third quarter of 2020.

The Company’s cash and short-term investments decreased $7.5 million to $125.8 million as of the end of the third quarter of 2021 due primarily to inventory purchases to increase inventory safety stock levels. The Company remained debt-free.

* 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”.

Conference Call
The Company will host a conference call to discuss these results on Wednesday, October 27, 2021 at 5:00 p.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 (income), 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, imputed interest expense recorded related to the GSA Matter, 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 other expense (income), net, stock-based compensation, the GSA sales adjustment, and restructuring charges, as measures of our operating profitability. The most directly comparable GAAP measure to Adjusted EBITDA is net loss. 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, the anticipated benefits of FARO’s acquisition of Holobuilder, 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 ability to successfully integrate the acquired Holobuilder business, operations, assets and personnel;
  • 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 anticipated benefits of its partnership with Sanmina and to successfully transition its manufacturing operations to Sanmina’s production facility;
  • the Company’s potential loss of future government sales and potential impacts on customer and supplier relationships and on the Company’s reputation that may result from the GSA matter;
  • 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 was filed on February 17, 2021.

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)

September 30,
2021


September 30,
2020


September 30,
2021


September 30,
2020

Sales








Product

$

57,838



$

48,082



$

172,748



$

146,866


Service

21,331



22,654



64,862



63,949


Total sales

79,169



70,736



237,610



210,815


Cost of Sales








Product

25,650



22,413



75,909



66,812


Service

11,188



12,025



33,481



34,936


Total cost of sales

36,838



34,438



109,390



101,748


Gross Profit

42,331



36,298



128,220



109,067


Operating Expenses








Selling, general and administrative

33,433



30,163



100,375



96,523


Research and development

12,731



10,754



36,464



31,355


Restructuring costs

1,376



239



3,679



14,563


Total operating expenses

47,540



41,156



140,518



142,441


Loss from operations

(5,209)



(4,858)



(12,298)



(33,374)


Other (income) expense








Interest expense, net

5



161



54



407


Other expense (income), net

299



(256)



(433)



334


Loss before income tax benefit

(5,513)



(4,763)



(11,919)



(34,115)


Income tax benefit

(1,658)



(1,739)



(3,667)



(7,336)


Net loss

$

(3,855)



$

(3,024)



$

(8,252)



$

(26,779)


Net loss per share - Basic

$

(0.21)



$

(0.17)



$

(0.45)



$

(1.51)


Net loss per share - Diluted

$

(0.21)



$

(0.17)



$

(0.45)



$

(1.51)


Weighted average shares - Basic

18,194,960



17,797,390



18,166,930



17,757,359


Weighted average shares - Diluted

18,194,960



17,797,390



18,166,930



17,757,359


FARO TECHNOLOGIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS


(in thousands, except share and per share data)

September 30,
2021 (unaudited)


December 31,

2020

ASSETS




Current assets:




Cash and cash equivalents

$

125,814



$

185,633


Accounts receivable, net

58,875



64,616


Inventories, net

55,507



47,391


Prepaid expenses and other current assets

28,776



26,295


Total current assets

268,972



323,935


Non-current assets:




Property, plant and equipment, net

22,576



23,091


Operating lease right-of-use assets

23,586



26,107


Goodwill

80,873



57,541


Intangible assets, net

24,714



13,301


Service and sales demonstration inventory, net

31,025



31,831


Deferred income tax assets, net

46,700



47,450


Other long-term assets

2,141



2,336


Total assets

$

500,587



$

525,592


LIABILITIES AND SHAREHOLDERS' EQUITY




Current liabilities:




Accounts payable

$

16,415



$

14,121


Accrued liabilities

26,625



42,593


Income taxes payable



3,442


Current portion of unearned service revenues

38,555



39,149


Customer deposits

4,709



2,807


Lease liabilities

5,630



5,835


Total current liabilities

91,934



107,947


Unearned service revenues - less current portion

21,242



21,757


Lease liabilities - less current portion

19,724



22,131


Deferred income tax liabilities

595



787


Income taxes payable - less current portion

9,250



11,583


Other long-term liabilities

1,071



1,084


Total liabilities

143,816



165,289


Shareholders' equity:




Common stock - par value $.001, 50,000,000 shares authorized; 19,584,783 and 19,384,350 issued, respectively; 18,202,416 and 17,990,707 outstanding, respectively

20



19


Additional paid-in capital

298,082



287,979


Retained earnings

105,256



113,508


Accumulated other comprehensive loss

(15,795)



(10,160)


Common stock in treasury, at cost; 1,382,367 and 1,393,643 shares, respectively

(30,792)



(31,043)


Total shareholders' equity

356,771



360,303


Total liabilities and shareholders' equity

$

500,587



$

525,592


FARO TECHNOLOGIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)



Nine Months Ended

(in thousands)

September 30,
2021


September 30,
2020

Cash flows from:




Operating activities:




Net loss

$

(8,252)



$

(26,779)


Adjustments to reconcile net loss to net cash (used in) provided by operating activities:




Depreciation and amortization

9,560



10,631


Stock-based compensation

8,657



6,428


Provisions for bad debts, net of recoveries

33



435


Loss on disposal of assets

130



351


Provision for excess and obsolete inventory

1,955



778


Deferred income tax benefit

(3,667)



(4,961)


Change in operating assets and liabilities:




Decrease (Increase) in:




Accounts receivable

4,311



28,132


Inventories

(9,106)



5,101


Prepaid expenses and other current assets

(2,935)



9,391


(Decrease) Increase in:




Accounts payable and accrued liabilities

(14,153)



(10,006)


Income taxes payable

(1,847)



(6,109)


Customer deposits

1,966



815


Unearned service revenues

(2,223)



(3,391)


Net cash (used in) provided by operating activities

(15,571)



10,816


Investing activities:




Purchases of property and equipment

(4,845)



(2,833)


Proceeds from asset sales



768


Proceeds from sale of investments



25,000


Payments for intangible assets

(1,933)



(813)


Acquisition of business, net of cash acquired

(33,908)



(6,036)


Net cash (used in) provided by investing activities

(40,686)



16,086


Financing activities:




Payments on finance leases

(229)



(237)


Payments for taxes related to net share settlement of equity awards

(4,137)



(2,568)


Proceeds from issuance of stock related to stock option exercises

5,835



5,384


Net cash provided by financing activities

1,469



1,846


Effect of exchange rate changes on cash and cash equivalents

(5,031)



1,255


(Decrease) Increase in cash and cash equivalents

(59,819)



30,003


Cash and cash equivalents, beginning of period

185,633



133,634


Cash and cash equivalents, end of period

$

125,814



$

163,637


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)

2021


2020


2021


2020

Total sales, as reported

$

79,169



$

70,736



$

237,610



$

210,815


GSA sales adjustment (1)







608


Non-GAAP total sales

$

79,169



$

70,736



$

237,610



$

211,423










Gross profit, as reported

$

42,331



$

36,298



$

128,220



$

109,067


GSA sales adjustment (1)







608


Stock-based compensation (2)

190



127



470



491


Non-GAAP adjustments to gross profit

190



127



470



1,099


Non-GAAP gross profit

$

42,521



$

36,425



$

128,690



$

110,166


Gross margin, as reported

53.5

%


51.3

%


54.0

%


51.7

%

Non-GAAP gross margin

53.7

%


51.5

%


54.2

%


52.1

%









Selling, general and administrative, as reported

$

33,433



$

30,163



$

100,375



$

96,523


Stock-based compensation (2)

(2,581)



(1,527)



(6,789)



(4,666)


Purchase accounting intangible amortization

(276)



(127)



(649)



(371)


Non-GAAP selling, general and administrative

$

30,576



$

28,509



$

92,937



$

91,486










Research and development, as reported

$

12,731



$

10,754



$

36,464



$

31,355


Stock-based compensation (2)

(509)



(430)



(1,398)



(1,271)


Purchase accounting intangible amortization

(420)



(366)



(1,061)



(1,094)


Non-GAAP research and development

$

11,802



$

9,958



$

34,005



$

28,990










Operating expenses, as reported

$

47,540



$

41,156



$

140,518



$

142,441


Stock-based compensation (2)

(3,090)



(1,957)



(8,187)



(5,937)


Restructuring costs (3)

(1,376)



(239)



(3,679)



(14,563)


Purchase accounting intangible amortization

(696)



(493)



(1,710)



(1,465)


Non-GAAP adjustments to operating expenses

(5,162)



(2,689)



(13,576)



(21,965)


Non-GAAP operating expenses

$

42,378



$

38,467



$

126,942



$

120,476










Loss from operations, as reported

$

(5,209)



$

(4,858)



$

(12,298)



$

(33,374)


Non-GAAP adjustments to gross profit

190



127



470



1,099


Non-GAAP adjustments to operating expenses

5,162



2,689



13,576



21,965


Non-GAAP income (loss) from operations

$

143



$

(2,042)



$

1,748



$

(10,310)










Other expense (income), net, as reported

$

304



$

(95)



$

(379)



$

741


Interest expense increase due to GSA sales adjustment (1)



(161)





(559)


Non-GAAP adjustments to other expense (income), net



(161)





(559)


Non-GAAP other expense (income), net

$

304



$

(256)



$

(379)



$

182










Net loss, as reported

$

(3,855)



$

(3,024)



$

(8,252)



$

(26,779)


Non-GAAP adjustments to gross profit

190



127



470



1,099


Non-GAAP adjustments to operating expenses

5,162



2,689



13,576



21,965


Non-GAAP adjustments to other expense (income), net



161





559


Income tax effect of non-GAAP adjustments

(1,619)



(1,292)



(4,241)



(4,930)


Non-GAAP net (loss) income

$

(122)



$

(1,339)



$

1,553



$

(8,086)










Net loss per share - Diluted, as reported

$

(0.21)



$

(0.17)



$

(0.45)



$

(1.51)


GSA sales adjustment (1)







0.03


Stock-based compensation (2)

0.18



0.12



0.48



0.36


Restructuring costs (3)

0.07



0.01



0.20



0.82


Purchase accounting intangible amortization

0.04



0.03



0.09



0.08


Interest expense increase due to GSA sales adjustment (1)



0.01





0.03


Income tax effect of non-GAAP adjustments

(0.09)



(0.08)



(0.23)



(0.27)


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

$

(0.01)



$

(0.08)



$

0.09



$

(0.46)



(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"). During the nine months ended September 30, 2020, we reduced our total sales by $0.6 million (the "GSA sales adjustment") and recorded imputed interest expense of $0.6 million related to the GSA Matter. Effective as of February 25, 2021, as a result of the review, we entered into a settlement agreement with the GSA and have paid in full and final satisfaction of any and all claims, causes of actions, appeals and the like, including damages, costs, attorney's fees and interest arising under or 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) 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, during the nine months ended September 30, 2021 and September 30, 2020 we recorded a pre-tax charge of approximately $3.7 million and $14.6 million, respectively, primarily consisting of severance and related benefits.

FARO TECHNOLOGIES, INC. AND SUBSIDIARIES

RECONCILIATION OF NET LOSS TO EBITDA AND ADJUSTED EBITDA

(UNAUDITED)



Three Months Ended September 30,


Nine Months Ended September 30,

(in thousands)

2021


2020


2021


2020

Net loss

$

(3,855)



$

(3,024)



$

(8,252)



$

(26,779)


Interest expense, net

5



161



54



407


Income tax benefit

(1,658)



(1,739)



(3,667)



(7,336)


Depreciation and amortization

3,271



3,352



9,560



10,631


EBITDA

(2,237)



(1,250)



(2,305)



(23,077)


Other expense (income), net

299



(256)



(433)



334


Stock-based compensation

3,280



2,084



8,657



6,428


GSA sales adjustment (1)







608


Restructuring costs (2)

1,376



239



3,679



14,563


Adjusted EBITDA

$

2,718



$

817



$

9,598



$

(1,144)


Adjusted EBITDA margin (3)

3.4

%


1.2

%


4.0

%


(0.5)

%


(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"). During the nine months ended September 30, 2020, we reduced our total sales by $0.6 million (the "GSA sales adjustment") and recorded imputed interest expense of $0.2 million related to the GSA Matter. Effective as of February 25, 2021, as a result of the review, we entered into a settlement agreement with the GSA and have paid in full and final satisfaction of any and all claims, causes of actions, appeals and the like, including damages, costs, attorney's fees and interest arising under or related to the GSA Matter


(2) 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, during the nine months ended September 30, 2021 and September 30, 2020 we recorded a pre-tax charge of approximately $3.7 million and $14.6 million, respectively, primarily consisting of severance and related benefits.


(3) Calculated as Adjusted EBITDA as a percentage of Non-GAAP total sales, which adjusts for the GSA sales adjustment.

TECHNOLOGIES, INC. AND SUBSIDIARIES

SALES DISAGGREGATED BY GEOGRAPHY

(UNAUDITED)



For the Three Months Ended
September 30,


For the Nine Months Ended

September 30,

(in thousands)

2021


2020


2021


2020

Total sales to external customers








Americas (1)

$

33,944



$

30,867



$

100,195



$

92,234


EMEA (1)

23,387



20,648



75,315



61,058


APAC (1)

21,838



19,221



62,100



57,523



$

79,169



$

70,736



$

237,610



$

210,815




(1) Regions represent North America and South America (Americas); Europe, the Middle East, and Africa (EMEA); and the Asia-Pacific (APAC).

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SOURCE FARO