FARO Reports Sales Growth of 9.2% for 2008; Orders Grow 6.8%
Sales for the fourth quarter of 2008 were $56.3 million, a decrease of $2.9 million, or 4.9%, from $59.2 million in the fourth quarter of 2007. New order bookings for the fourth quarter were $56.4 million, a decrease of $9.0 million, or 13.8%, compared with $65.4 million in the fourth quarter of 2007. Fiscal 2008 sales were $209.2 million, an increase of 9.2% compared to 2007 sales of $191.6 million. New order bookings for fiscal 2008 were $211.3 million, a 6.8% increase from $197.8 million in fiscal 2007.
"2008 was a difficult year for most companies and that directly impacted FARO," stated Jay Freeland, FARO's President & CEO. "The second half of the year was particularly tough for us across all three regions. There was good customer interest in our products. However, global economic weakness caused significant delays in our customers' decision-making processes as they reviewed their capital equipment needs."
Gross margin for the fourth quarter of 2008 was 57.3%, compared to 60.0% in the fourth quarter of 2007. Gross margin decreased primarily as the result of lower product sales which carry high gross margins. As a result, service costs as a percentage of sales had a larger impact than in previous quarters. The gross margin for fiscal 2008 was 59.8% compared to 60.0% in fiscal 2007.
Selling expenses as a percentage of sales increased to 28.6% in the fourth quarter of 2008 from 27.3% in the fourth quarter of 2007 primarily as a result of the decline in sales. Selling expenses in the fourth quarter of 2008 remained relatively flat, decreasing by $0.1 million to $16.1 million. Selling expenses as a percentage of sales for fiscal 2008 were 30.1% compared to 29.3% in fiscal 2007.
General and administrative expenses increased to 12.2% of sales for the fourth quarter of 2008 from 11.8% in the fourth quarter of 2007. General and administrative expenses in the fourth quarter of 2008 declined by $0.1 million to $6.9 million. General and administrative expenses were 12.5% of sales for fiscal 2008 compared to 13.3% in fiscal 2007.
R&D expenses were $3.5 million in the fourth quarter of 2008, an increase from $3.1 million in the fourth quarter of 2007. R&D expenses for fiscal 2008 were $12.6 million, or 6.0% of sales, an increase of $2.3 million from $10.3 million in fiscal 2007, or 5.4% of sales. The increase in spending was tied to new product development of existing platforms and establishing the R&D Center of Excellence in Cambridge for the Company's new 3D Imaging technology.
Operating margin for the fourth quarter of 2008 decreased to 8.1% from 13.8% in the fourth quarter of 2007. Operating margin for fiscal 2008 was 9.1% compared to 10.0% in fiscal 2007.
Income tax expense increased by $0.3 million to $1.4 million for the fourth quarter of 2008 from $1.1 million for the fourth quarter of 2007. The Company's effective tax rate increased to 24.0% for 2008 from 21.5% in 2007 due to an increase in income in higher tax jurisdictions.
"As previously announced, we do not plan to issue specific guidance in 2009. Based on current economic conditions, we expect 2009 to be extremely challenging. It is possible that we will experience sales declines during this global recession. The Company has taken and will continue taking appropriate actions which reflect the ongoing business climate," Freeland concluded.
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 our plans, objectives, projections, expectations, assumptions, strategies, or future events. 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 "may," "believes," "anticipates," "expects," "intends," "plans," "seeks," "estimates," "will," "should," "could," "projects," "forecast," "target," "goal," and similar expressions or discussions of our strategy or other intentions identify forward-looking statements. Other written or oral statements, which constitute forward-looking statements, also may be made by the Company from time to time. 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 forward-looking statements include, but are not limited to:
-- our inability to further penetrate our customer base;
-- development by others of new or improved products, processes or
technologies that make our products obsolete or less competitive;
-- our inability to maintain our technological advantage by developing new
products and enhancing our existing products;
-- our inability to successfully identify and acquire target companies or
achieve expected benefits from acquisitions that are consummated;
-- the cyclical nature of the industries of our customers and material
adverse changes in our customers' access to liquidity and capital;
-- a slowdown or other adverse changes 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 financing conditions;
-- the fact that the market potential for the CAM2 market and the
potential adoption rate for our products are difficult to quantify and
predict;
-- the inability to protect our patents and other proprietary rights in
the United States and foreign countries;
-- fluctuations in our annual and quarterly operating results and the
inability to achieve our financial operating targets as a result of a
number of factors including, without limitation (i) litigation and
regulatory action brought against us, (ii) quality issues with our
products, (iii) excess or obsolete inventory, (iv) raw material price
fluctuations, (v) expansion of our manufacturing capability and other
inflationary pressures, (vi) the size and timing of customer orders,
(vii) the amount of time that it takes to fulfill orders and ship our
products, (viii) the length of our sales cycle to new customers and the
time and expense incurred in further penetrating our existing customer
base, (ix) increases in operating expenses required for product
development and new product, marketing, (x) costs associated with new
product introductions, such as product development, marketing, assembly
line start-up costs and low introductory period production volumes,
(xi) the timing and market acceptance of new products and product
enhancements, (xii) customer order deferrals in anticipation of new
products and product enhancements, (xiii) our success in expanding our
sales and marketing programs, (xiv) start-up costs associated with
opening new sales offices outside of the United States, (xv)
fluctuations in revenue without proportionate adjustments in fixed
costs, (xvi) the efficiencies achieved in managing inventories and
fixed assets, (xvii) investments in potential acquisitions or strategic
sales, product or other initiatives, (xviii) shrinkage or other
inventory losses due to product obsolescence, scrap or material price
changes, (xix) adverse changes in the manufacturing industry and
general economic conditions, (xx) compliance with government
regulations including health, safety, and environmental matters, (xxi)
the ultimate costs of the Company's monitoring obligations in respect
of the Foreign Corrupt Practices Act ("FCPA") matter; and (xxii) other
factors noted herein;
-- changes in gross margins due to changing product mix of products sold
and the different gross margins on different products;
-- our inability to successfully maintain the requirements of Restriction
of use of Hazardous Substances ("RoHS") and Waste Electrical and
Electronic Equipment ("WEEE") compliance into our products;
-- the inability of our products to displace traditional measurement
devices and attain broad market acceptance;
-- the impact of competitive products and pricing in the CAM2 market and
the broader market for measurement and inspection devices;
-- the effects of increased competition as a result of recent
consolidation in the CAM2 market;
-- risks associated with expanding international operations, such as
fluctuations in currency exchange rates, difficulties in staffing and
managing foreign operations, political and economic instability,
compliance with import and export regulations, and the burdens and
potential exposure of complying with a wide variety of U.S. and foreign
laws and labor practices;
-- the loss of our Chief Executive Officer or other key personnel;
-- difficulties in recruiting research and development engineers, and
application engineers;
-- the failure to effectively manage our growth;
-- variations in the effective income tax rate and the difficulty in
predicting the tax rate on a quarterly and annual basis; and
-- the loss of key suppliers and the inability to find sufficient
alternative suppliers in a reasonable period or on commercially
reasonable terms.
-- the other risks detailed in the Company's Annual Report on Form 10-K
and other filings from time to time with the Securities and Exchange
Commission.
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.
About FARO
With approximately 19,000 installations and 9,000 customers globally, FARO Technologies, Inc. designs, develops, and markets portable, computerized measurement devices and software used to create digital models -- or to perform evaluations against an existing model -- for anything requiring highly detailed 3-D measurements, including part and assembly inspection, factory planning and asset documentation, as well as specialized applications ranging from surveying, recreating accident sites and crime scenes to digitally preserving historical sites.
FARO's technology increases productivity by dramatically reducing the amount of on-site measuring time, and the various industry-specific software packages enable users to process and present their results quickly and more effectively.
Principal products include the world's best-selling portable measurement arm -- the FaroArm; the world's best-selling laser tracker -- the FARO Laser Tracker X and Xi; the FARO Laser ScanArm; FARO Photon Laser Scanners; the FARO Gage, Gage-PLUS and PowerGAGE; and the CAM2 Q family of advanced CAD-based measurement and reporting software. FARO Technologies is ISO-9001 certified and ISO-17025 laboratory registered.
FARO TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
Three Months Ended Year Ended
(in thousands, except
share and per share data) Dec 31, Dec 31, Dec 31, Dec 31,
2008 2007 2008 2007
SALES $56,315 $59,228 $209,249 $191,617
COST OF SALES (exclusive
of depreciation and
amortization, shown
separately below) 24,043 23,700 84,023 76,574
GROSS PROFIT 32,272 35,528 125,226 115,043
OPERATING EXPENSES:
Selling 16,130 16,183 63,015 56,134
General and administrative 6,870 7,012 26,144 25,508
Depreciation and
amortization 1,211 1,021 4,505 4,034
Research and development 3,502 3,127 12,625 10,256
Total operating expenses 27,713 27,343 106,289 95,932
INCOME FROM OPERATIONS 4,559 8,185 18,937 19,111
OTHER (INCOME) EXPENSE
Interest income (546) (854) (2,170) (2,036)
Other (income) expense, net 1,460 (471) 2,295 (1,898)
Interest expense 2 2 452 9
INCOME BEFORE INCOME TAX 3,643 9,508 18,360 23,036
INCOME TAX EXPENSE 1,443 1,104 4,408 4,943
NET INCOME $2,200 $8,404 $13,952 $18,093
NET INCOME PER SHARE -
BASIC $0.13 $0.51 $0.84 $1.17
NET INCOME PER SHARE -
DILUTED $0.13 $0.50 $0.83 $1.15
Weighted average shares -
Basic 16,654,910 16,584,477 16,632,608 15,443,259
Weighted average shares -
Diluted 16,702,090 16,777,426 16,734,403 15,722,215
FARO TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
December 31, December 31,
(in thousands, except share data) 2008 2007
ASSETS
Current Assets:
Cash and cash equivalents $23,494 $25,798
Short-term investments 81,965 77,375
Accounts receivable, net 49,713 54,767
Inventories 33,444 29,100
Deferred income taxes, net 6,459 2,841
Prepaid expenses and other current assets 7,879 6,719
Total current assets 202,954 196,600
Property and Equipment:
Machinery and equipment 22,685 12,895
Furniture and fixtures 4,099 5,008
Leasehold improvements 3,956 3,296
Property and equipment at cost 30,740 21,199
Less: accumulated depreciation and
amortization (16,604) (13,672)
Property and equipment, net 14,136 7,527
Goodwill 18,951 19,117
Intangible assets, net 8,580 5,970
Service inventory 12,843 10,865
Deferred income taxes, net 1,850 3,460
Total Assets $259,314 $243,539
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable $10,813 $12,450
Accrued liabilities 14,032 17,989
Income taxes payable 1,988 2,266
Current portion of unearned service revenues 11,501 8,594
Customer deposits 425 337
Current portion of obligations under
capital leases 87 18
Total current liabilities 38,846 41,654
Unearned service revenues - less current portion 6,772 6,091
Deferred tax liability, net 1,107 1,073
Obligations under capital leases -
less current portion 281 222
Total Liabilities 47,006 49,040
Commitments and contingencies
Shareholders' Equity:
Common stock - par value $.001, 50,000,000
shares authorized; 16,741,488 and 16,700,966
issued; 16,654,988 and 16,604,052 outstanding,
respectively 17 17
Additional paid-in-capital 149,298 146,489
Retained earnings 57,497 43,545
Accumulated other comprehensive income 5,742 4,599
Common stock in treasury, at cost -
55,808 shares (246) (151)
Total Shareholders' Equity 212,308 194,499
Total Liabilities and Shareholders' Equity $259,314 $243,539
FARO TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Year Ended December 31,
(in thousands) 2008 2007
CASH FLOWS FROM:
OPERATING ACTIVITIES:
Net income $13,952 $18,093
Adjustments to reconcile net income to net
cash (used in) provided by
operating activities:
Depreciation and amortization 4,505 4,034
Amortization of stock options and
restricted stock units 2,237 1,216
Provision for bad debts 1,092 373
Deferred income tax benefit (1,972) (464)
Change in operating assets and liabilities:
Decrease (increase) in:
Accounts receivable 2,993 (9,121)
Inventories (6,429) (7,265)
Prepaid expenses and other current assets (1,187) (3,208)
Income tax benefit from exercise of stock
options (45) (963)
Increase (decrease) in:
Accounts payable and accrued liabilities (5,317) 9,884
Income taxes payable (355) 1,278
Customer deposits 82 (269)
Unearned service revenues 3,710 8,007
Net cash provided by operating activities 13,266 21,595
INVESTING ACTIVITIES:
Purchases of property and equipment (9,705) (2,930)
Payments for intangible assets (3,766) (359)
Purchases of short-term investments (4,590) (61,585)
Net cash used in investing activities (18,061) (64,874)
FINANCING ACTIVITIES:
Payments of capital leases (11) (92)
Income tax benefit from exercise of
stock options 45 963
Purchases of Stock (95) -
Proceeds from issuance of stock, net 92 58,421
Net cash provided by financing activities 31 59,292
EFFECT OF EXCHANGE RATE CHANGES ON
CASH AND CASH EQUIVALENTS 2,460 (5,904)
(DECREASE) INCREASE IN CASH AND CASH
EQUIVALENTS (2,304) 10,109
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 25,798 15,689
CASH AND CASH EQUIVALENTS, END OF PERIOD $23,494 $25,798
SOURCE FARO Technologies, Inc.
http://www.faro.com