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FARO Reports Third Quarter 2018 Financial Results

LAKE MARY, Fla. , Oct. 31, 2018 /PRNewswire/ -- FARO ® ( 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 .

T his 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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