FARO Reports Third Quarter 2018 Financial Results
- 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.
Nine months ended
Total sales increased by
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
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
Net loss for the first nine months of 2018 was
Third Quarter 2018
Total sales increased by
New order bookings increased by
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
Net loss was
As of
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
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 endedMarch 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, |
September 30, |
September 30, |
September 30, |
|||||||||||
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 |
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, |
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, |
September 30, |
|||||
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, |
September 30, |
September 30, |
September 30, |
|||||||||||
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 |
Q3 2017 |
% Change |
Q3 2018 |
Q3 2017 |
% 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 |
Ending |
Sales FTE |
Trailing 12 Months |
Trailing 12 Months |
||||||||||||||
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 |
2017 |
% of |
2018 |
% of |
2017 |
% of |
|||||||||||||||||||
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, |
September 30, |
September 30, |
September 30, |
|||||||||||
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, |
September 30, |
September 30, |
September 30, |
||||||||||||
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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