FARO Announces Third Quarter 2021 Financial Results

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