PR Newswire | Jul 28, 2021 04:21PM EDT

07/28 15:20 CDT

FARO Announces Second Quarter 2021 Financial Results LAKE MARY, Fla., July 28, 2021

LAKE MARY, Fla., July 28, 2021 /PRNewswire/ -- FARO(r) (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 second quarter ended June 30, 2021.

"Second quarter demand reflected a return to seasonal growth, with broad based improvement across our served markets," stated Michael Burger, President and Chief Executive Officer. "While demand recovers, we remain focused on creating opportunities to drive topline growth such as the expansion of our Digital Twin offering through the addition of Holobuilder's photogrammetry capabilities and our recently announced next generation Quantum Max ScanArm family of products, as well as further streamlining our operational cost structure with the recently announced shift to outsourced manufacturing."

Mr. Burger continued, "Through the combination of strategic initiatives implemented over the last two years and the investments we continue to make in our hardware, software and solution offerings to directly address our customer's workflow needs, we believe we are well positioned to drive strong operating leverage and long-term differentiation as the market grows."

Second Quarter 2021 Financial SummaryTotal sales were $82.1 million for second quarter 2021 representing an 8% sequential quarterly increase when compared to $76.3 million in the first quarter 2021, and a 36% increase when compared with total sales of $60.6 million for second quarter 2020. The sequential sales increase represents typical market seasonality while the year over year growth was primarily a result of pandemic related softness in the prior year period. Similarly, new order bookings of $88.2 million increased 9% sequentially compared to $80.6 million in the first quarter 2021 and increased 44% when compared to $61.4 million for the second quarter 2020.

Gross margin was 55.4% for the second quarter 2021, as compared to 47.7% for the same prior year period. Non-GAAP gross margin was 55.7% for the second quarter 2021 compared to 48.4% for the second quarter 2020. The annual increase in gross margin was primarily a result of higher volume compared to the prior year period.

Operating expenses were $46.1 million for the second quarter 2021, compared to $40.9 million for the same prior year period. Non-GAAP operating expenses were $41.8 million for the second quarter 2021 compared to $37.7 million for the second quarter 2020.

Net loss was $1.2 million, or $0.06 per share, for the second quarter 2021, as compared to a net loss of $8.9 million, or $0.50 per share, for the second quarter 2020. Non-GAAP net income was $2.2 million, or $0.12 per share, for the second quarter 2021 compared to Non-GAAP net loss of $6.3 million, or $0.36 per share, for the second quarter 2020.

Adjusted EBITDA was $6.5 million, or 7.9% of Non-GAAP total sales, for the second quarter of 2021 compared to Adjusted EBITDA of negative $5.0 million, or 8.2% of Non-GAAP total sales, for the second quarter of 2020.

The Company's cash and short-term investments decreased $36.6 million to $133.3 million as of the end of the second quarter of 2021, primarily due to the $34 million acquisition of HoloBuilder which closed in the quarter. 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 CallThe Company will host a conference call to discuss these results on Thursday, July 29, 2021 at 8:00 a.m. ET. Interested parties can access the conference call by dialing (877) 876-9176 (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 FAROFor 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 MeasuresThis 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 1995This 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 June 30, June 30, June 30, June 30, share and per share data) 2021 2020 2021 2020

Sales

Product $60,275 $42,259 $114,910 $98,784

Service 21,835 18,305 43,531 41,295

Total sales 82,110 60,564 158,441 140,079

Cost of Sales

Product 25,455 21,333 50,259 44,399

Service 11,173 10,335 22,293 22,911

Total cost of sales 36,628 31,668 72,552 67,310

Gross Profit 45,482 28,896 85,889 72,769

Operating Expenses

Selling, general and 33,594 30,036 66,942 66,360 administrative

Research and development 11,760 10,186 23,733 20,601

Restructuring costs 779 636 2,303 14,324

Total operating expenses 46,133 40,858 92,978 101,285

Loss from operations (651) (11,962) (7,089) (28,516)

Other (income) expense

Interest expense, net 39 212 49 246

Other expense (income), 883 117 (732) 590 net

Loss before income tax (1,573) (12,291) (6,406) (29,352) benefit

Income tax benefit (397) (3,359) (2,009) (5,597)

Net loss $(1,176) $(8,932) $(4,397) $(23,755)

Net loss per share - Basic$(0.06) $(0.50) $(0.24) $(1.34)

Net loss per share - $(0.06) $(0.50) $(0.24) $(1.34) Diluted

Weighted average shares - 18,161,11017,747,73918,133,36817,710,014Basic

Weighted average shares - 18,161,11017,747,73918,133,36817,710,014Diluted

FARO TECHNOLOGIES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS



June 30, December (in thousands, except share and per share data) 2021 31, (unaudited)2020

ASSETS

Current assets:

Cash and cash equivalents $133,337 $185,633

Accounts receivable, net 59,966 64,616

Inventories, net 51,433 47,391

Prepaid expenses and other current assets 26,978 26,295

Total current assets 271,714 323,935

Non-current assets:

Property, plant and equipment, net 21,578 23,091

Operating lease right-of-use assets 23,356 26,107

Goodwill 81,702 57,541

Intangible assets, net 24,252 13,301

Service and sales demonstration inventory, net 31,477 31,831

Deferred income tax assets, net 47,251 47,450

Other long-term assets 2,251 2,336

Total assets $503,581 $525,592

LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:

Accounts payable $14,115 $14,121

Accrued liabilities 28,255 42,593

Income taxes payable 1,166 3,442

Current portion of unearned service revenues 40,098 39,149

Customer deposits 4,496 2,807

Lease liabilities 5,235 5,835

Total current liabilities 93,365 107,947

Unearned service revenues - less current portion 21,885 21,757

Lease liabilities - less current portion 19,962 22,131

Deferred income tax liabilities 674 787

Income taxes payable - less current portion 9,250 11,583

Other long-term liabilities 1,083 1,084

Total liabilities 146,219 165,289

Shareholders' equity:

Common stock - par value $.001, 50,000,000 shares authorized; 19,557,240 and 19,384,350 issued, 20 19 respectively; 18,174,873 and 17,990,707 outstanding, respectively

Additional paid-in capital 294,490 287,979

Retained earnings 109,111 113,508

Accumulated other comprehensive loss (15,467) (10,160)

Common stock in treasury, at cost; 1,382,367 and (30,792) (31,043) 1,393,643 shares, respectively

Total shareholders' equity 357,362 360,303

Total liabilities and shareholders' equity $503,581 $525,592

FARO TECHNOLOGIES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)



Six Months Ended

(in thousands) June 30, June 30, 2021 2020

Cash flows from:

Operating activities:

Net loss $(4,397)$(23,755)

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

Depreciation and amortization 6,289 7,209

Stock-based compensation 5,377 4,345

Provisions for bad debts, net of recoveries (43) 680

Loss on disposal of assets 86 299

Provision for excess and obsolete inventory 1,640 479

Deferred income tax benefit (2,009) (2,404)

Change in operating assets and liabilities:

Decrease (Increase) in:

Accounts receivable 3,964 26,180

Inventories (7,495) 892

Prepaid expenses and other current assets (982) 11,347

(Decrease) Increase in:

Accounts payable and accrued liabilities (13,525) (1,395)

Income taxes payable (2,310) (5,058)

Customer deposits 1,723 384

Unearned service revenues (627) (3,139)

Net cash (used in) provided by operating activities (12,309) 16,064

Investing activities:

Purchases of property and equipment (2,072) (1,533)

Proceeds from asset sales - 643

Proceeds from sale of investments - 25,000

Payments for intangible assets (1,780) (673)

Acquisition of business, net of cash acquired (33,908) -

Net cash (used in) provided by investing activities (37,760) 23,437

Financing activities:

Payments on finance leases (167) (160)

Payments for taxes related to net share settlement of(3,779) (2,409) equity awards

Proceeds from issuance of stock related to stock 5,165 3,854 option exercises

Net cash provided by financing activities 1,219 1,285

Effect of exchange rate changes on cash and cash (3,446) (720) equivalents

(Decrease) Increase in cash and cash equivalents (52,296) 40,066

Cash and cash equivalents, beginning of period 185,633 133,634

Cash and cash equivalents, end of period $133,337$173,700

FARO TECHNOLOGIES, INC. AND SUBSIDIARIES RECONCILIATION OF GAAP TO NON-GAAP (UNAUDITED)



Three Months Ended June Six Months Ended June 30, 30,

(dollars in thousands, 2021 2020 2021 2020 except per share data)

Total sales, as reported$82,110 $60,564 $158,441 $140,079

GSA sales adjustment ^ - 608 - 608 (1)

Non-GAAP total sales $82,110 $61,172 $158,441 $140,687



Gross profit, as $45,482 $28,896 $85,889 $72,769 reported

GSA sales adjustment ^ - 608 - 608 (1)

Stock-based compensation214 93 280 364 ^(2)

Non-GAAP adjustments to 214 701 280 972 gross profit

Non-GAAP gross profit $45,696 $29,597 $86,169 $73,741

Gross margin, as 55.4 %47.7 %54.2 %51.9 %reported

Non-GAAP gross margin 55.7 %48.4 %54.4 %52.4 %



Selling, general and administrative, as $33,594 $30,036 $66,942 $66,360 reported

Stock-based compensation(2,526) (1,617) (4,208) (3,140) ^(2)

Purchase accounting (188) (120) (373) (244) intangible amortization

Non-GAAP selling, general and $30,880 $28,299 $62,361 $62,976 administrative



Research and $11,760 $10,186 $23,733 $20,601 development, as reported

Stock-based compensation(543) (459) (889) (841) ^(2)

Purchase accounting (313) (327) (641) (728) intangible amortization

Non-GAAP research and $10,904 $9,400 $22,203 $19,032 development



Operating expenses, as $46,133 $40,858 $92,978 $101,285 reported

Stock-based compensation(3,069) (2,076) (5,097) (3,981) ^(2)

Restructuring costs ^(3)(779) (636) (2,303) (14,324)

Purchase accounting (501) (447) (1,014) (972) intangible amortization

Non-GAAP adjustments to (4,349) (3,159) (8,414) (19,277) operating expenses

Non-GAAP operating $41,784 $37,699 $84,564 $82,008 expenses



Loss from operations, as$(651) $(11,962) $(7,089) $(28,516) reported

Non-GAAP adjustments to 214 701 280 972 gross profit

Non-GAAP adjustments to 4,349 3,159 8,414 19,277 operating expenses

Non-GAAP income (loss) $3,912 $(8,102) $1,605 $(8,267) from operations



Other expense (income), $922 $329 $(683) $836 net, as reported

Interest expense increase due to GSA - (249) - (398) sales adjustment^ (1)

Non-GAAP adjustments to other expense (income), - (249) - (398) net

Non-GAAP other expense $922 $80 $(683) $438 (income), net



Net loss, as reported $(1,176) $(8,932) $(4,397) $(23,755)

Non-GAAP adjustments to 214 701 280 972 gross profit

Non-GAAP adjustments to 4,349 3,159 8,414 19,277 operating expenses

Non-GAAP adjustments to other (income) expense, - 249 - 398 net

Income tax effect of (1,144) (1,505) (2,622) (3,638) non-GAAP adjustments

Non-GAAP net income $2,243 $(6,328) $1,675 $(6,746) (loss)



Net loss per share - $(0.06) $(0.50) $(0.24) $(1.34) Diluted, as reported

GSA sales adjustment ^ - 0.03 - 0.03 (1)

Stock-based compensation0.18 0.12 0.30 0.24 ^(2)

Restructuring costs ^(3)0.04 0.04 0.13 0.82

Purchase accounting 0.02 0.03 0.05 0.06 intangible amortization

Interest expense increase due to GSA - 0.01 - 0.02 sales adjustment ^(1)

Income tax effect of (0.06) (0.09) (0.15) (0.21) non-GAAP adjustments

Non-GAAP net income (loss) per share - $0.12 $(0.36) $0.09 $(0.38) Diluted

^(1) Late in the fourth quarter of 2018, during an internal review wepreliminarily determined that certain of our pricing practices may haveresulted in the U.S. Government being overcharged under our General ServicesAdministration ("GSA") Federal Supply Schedule contracts (the "Contracts") (the"GSA Matter"). During the six months ended June 30, 2020, we reduced our totalsales by $0.6 million (the "GSA sales adjustment") and recorded imputedinterest expense of $0.2 million related to the GSA Matter. Effective as ofFebruary 25, 2021, as a result of the review, we entered into a settlementagreement with the GSA and have paid in full and final satisfaction of any andall 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-GAAPfinancial measures because the Company believes that such exclusion provides abetter comparison of results of ongoing operations for current and futureperiods with such results from past periods.

^(3) On February 14, 2020, our Board of Directors approved a globalrestructuring plan (the "Restructuring Plan"), which is intended to support ourstrategic plan in an effort to improve operating performance and ensure that weare appropriately structured and resourced to deliver increased and sustainablevalue to our shareholders and customers. In connection with the RestructuringPlan, during the first half 2020 and 2021 we recorded a pre-tax charge ofapproximately $14.3 million and $2.3 million, respectively, primarilyconsisting of severance and related benefits.

FARO TECHNOLOGIES, INC. AND SUBSIDIARIES RECONCILIATION OF NET LOSS TO EBITDA AND ADJUSTED EBITDA (UNAUDITED)



Three Months Ended June Six Months Ended June 30, 30,

(in thousands) 2021 2020 2021 2020

Net loss $(1,176) $(8,932) $(4,397) $(23,755)

Interest expense, net 39 212 49 246

Income tax benefit (397) (3,359) (2,009) (5,597)

Depreciation and 3,099 3,520 6,289 7,279 amortization

EBITDA 1,565 (8,559) (68) (21,827)

Other expense (income), 883 117 (732) 590 net

Stock-based compensation 3,283 2,169 5,377 4,345

GSA sales adjustment ^(1)- 608 - 608

Restructuring costs ^(2) 779 636 2,303 14,324

Adjusted EBITDA $6,510 $(5,029) $6,880 $(1,960)

Adjusted EBITDA margin ^ 7.9 %(8.2) %4.3 %(1.4) %(3)

^(1) Late in the fourth quarter of 2018, during an internal review wepreliminarily determined that certain of our pricing practices may haveresulted in the U.S. Government being overcharged under our General ServicesAdministration ("GSA") Federal Supply Schedule contracts (the "Contracts") (the"GSA Matter"). During the six months ended June 30, 2020, we reduced our totalsales by $0.6 million (the "GSA sales adjustment") and recorded imputedinterest expense of $0.2 million related to the GSA Matter. Effective as ofFebruary 25, 2021, as a result of the review, we entered into a settlementagreement with the GSA and have paid in full and final satisfaction of any andall 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 globalrestructuring plan (the "Restructuring Plan"), which is intended to support ourstrategic plan in an effort to improve operating performance and ensure that weare appropriately structured and resourced to deliver increased and sustainablevalue to our shareholders and customers. In connection with the RestructuringPlan, during the first half 2020 and 2021 we recorded a pre-tax charge ofapproximately $14.3 million and $2.3 million, respectively, primarilyconsisting 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 EndedFor the Six Months Ended June 30, June 30,

(in thousands) 2021 2020 2021 2020

Total sales to external customers

Americas ^(1) $33,702 $25,777 $66,251 $61,367

EMEA ^(1) 26,474 16,720 51,928 40,410

APAC ^(1) 21,934 18,067 40,262 38,302

$82,110 $60,564 $158,441 $140,079

^(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