PR Newswire | Oct 27, 2021 04:06PM EDT

10/27 15:05 CDT

FARO Announces Third Quarter 2021 Financial Results LAKE MARY, Fla., Oct. 27, 2021

LAKE MARY, Fla., Oct. 27, 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 third quarter ended September 30, 2021.

"Demand remained strong in the third quarter, while customer COVID-related logistical challenges shifted some orders into the fourth quarter," stated Michael Burger, President and Chief Executive Officer. "As we focus on the growth drivers ahead, we are encouraged by the customer response to our new products, namely our next generation Quantum Max ScanArm and our Holobuilder photogrammetry products which are on track to double over the next year."

Mr. Burger continued, "Looking ahead, we continue to see strong fourth quarter demand indicators and as revenue returns to pre-pandemic levels, we look forward to demonstrating the operating leverage we have built into the business over the past two years."

Third Quarter 2021 Financial SummaryTotal sales were $79.2 million for third quarter 2021 representing a 4% sequential quarterly decrease when compared to $82.1 million in the second quarter 2021, and a 12% increase when compared with total sales of $70.7 million for third quarter 2020. The sequential sales decrease was driven both by typical seasonal softness in European markets as well as pandemic related logistical constraints on behalf of our customers while the year over year growth was primarily a result of pandemic related softness in the prior year period. Similarly, new order bookings of $80.4 million decreased 9% sequentially compared to $88.2 million in the second quarter 2021 and increased 12% when compared to $72.0 million for the third quarter 2020.

Gross margin was 53.5% for the third quarter 2021, as compared to 51.3% for the same prior year period. Non-GAAP gross margin was 53.7% for the third quarter 2021 compared to 51.5% for the third quarter 2020. The annual increase in gross margin was primarily a result of higher volume compared to the prior year period.

Operating expenses were $47.5 million for the third quarter 2021, compared to $41.2 million for the same prior year period. Non-GAAP operating expenses were $42.4 million for the third quarter 2021 compared to $38.5 million for the third quarter 2020.

Net loss was $3.9 million, or $0.21 per share, for the third quarter 2021, as compared to a net loss of $3.0 million, or $0.17 per share, for the third quarter 2020. Non-GAAP net loss was approximately $100 thousand, or $0.01 per share, for the third quarter 2021 compared to Non-GAAP net loss of $1.3 million, or $0.08 per share, for the third quarter 2020.

Adjusted EBITDA was $2.7 million, or 3.4% of Non-GAAP total sales, for the third quarter of 2021 compared to Adjusted EBITDA of approximately $820 thousand, or 1.2% of Non-GAAP total sales, for the third quarter of 2020.

The Company's cash and short-term investments decreased $7.5 million to $125.8 million as of the end of the third quarter of 2021 due primarily to inventory purchases to increase inventory safety stock levels. 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 Wednesday, October 27, 2021 at 5:00 p.m. ET. Interested parties can access the conference call by dialing (877) 876-9174 (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, September 30,September 30,September 30,September 30,except share and 2021 2020 2021 2020 per share data)

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 36,838 34,438 109,390 101,748 sales

Gross Profit 42,331 36,298 128,220 109,067

Operating Expenses

Selling, general 33,433 30,163 100,375 96,523 and administrative

Research and 12,731 10,754 36,464 31,355 development

Restructuring 1,376 239 3,679 14,563 costs

Total operating 47,540 41,156 140,518 142,441 expenses

Loss from (5,209) (4,858) (12,298) (33,374) operations

Other (income) expense

Interest expense, 5 161 54 407 net

Other expense 299 (256) (433) 334 (income), net

Loss before income(5,513) (4,763) (11,919) (34,115) tax benefit

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$(0.21) $(0.17) $(0.45) $(1.51) - Basic

Net loss per share$(0.21) $(0.17) $(0.45) $(1.51) - Diluted

Weighted average 18,194,960 17,797,390 18,166,930 17,757,359 shares - Basic

Weighted average 18,194,960 17,797,390 18,166,930 17,757,359 shares - Diluted

FARO TECHNOLOGIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS



(in thousands, except share and per share September 30, December 31,data) 2021 (unaudited) 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, net31,025 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 21,242 21,757 portion

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 20 19 issued, respectively; 18,202,416 and 17,990,707 outstanding, respectively

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 (30,792) (31,043) and 1,393,643 shares, respectively

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,September 30, 2021 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 (15,571) 10,816 activities

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 (40,686) 16,086 activities

Financing activities:

Payments on finance leases (229) (237)

Payments for taxes related to net share (4,137) (2,568) settlement of equity awards

Proceeds from issuance of stock related to stock5,835 5,384 option exercises

Net cash provided by financing activities 1,469 1,846

Effect of exchange rate changes on cash and cash(5,031) 1,255 equivalents

(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, 2021 2020 2021 2020 except per share data)

Total sales, as$ 79,169 $ 70,736 $ 237,610 $ 210,815 reported

GSA sales - - - 608 adjustment ^(1)

Non-GAAP total $ 79,169 $ 70,736 $ 237,610 $ 211,423 sales



Gross profit, $ 42,331 $ 36,298 $ 128,220 $ 109,067 as reported

GSA sales - - - 608 adjustment ^(1)

Stock-based compensation ^ 190 127 470 491 (2)

Non-GAAP adjustments to 190 127 470 1,099 gross profit

Non-GAAP gross $ 42,521 $ 36,425 $ 128,690 $ 110,166 profit

Gross margin, 53.5 % 51.3 % 54.0 % 51.7 % as reported

Non-GAAP gross 53.7 % 51.5 % 54.2 % 52.1 % margin



Selling, general and $ 33,433 $ 30,163 $ 100,375 $ 96,523 administrative, as reported

Stock-based compensation ^ (2,581) (1,527) (6,789) (4,666) (2)

Purchase accounting (276) (127) (649) (371) intangible amortization

Non-GAAP selling, $ 30,576 $ 28,509 $ 92,937 $ 91,486 general and administrative



Research and development, as$ 12,731 $ 10,754 $ 36,464 $ 31,355 reported

Stock-based compensation ^ (509) (430) (1,398) (1,271) (2)

Purchase accounting (420) (366) (1,061) (1,094) intangible amortization

Non-GAAP research and $ 11,802 $ 9,958 $ 34,005 $ 28,990 development



Operating expenses, as $ 47,540 $ 41,156 $ 140,518 $ 142,441 reported

Stock-based compensation ^ (3,090) (1,957) (8,187) (5,937) (2)

Restructuring (1,376) (239) (3,679) (14,563) costs ^(3)

Purchase accounting (696) (493) (1,710) (1,465) intangible amortization

Non-GAAP adjustments to (5,162) (2,689) (13,576) (21,965) operating expenses

Non-GAAP operating $ 42,378 $ 38,467 $ 126,942 $ 120,476 expenses



Loss from operations, as $ (5,209) $ (4,858) $ (12,298) $ (33,374) reported

Non-GAAP adjustments to 190 127 470 1,099 gross profit

Non-GAAP adjustments to 5,162 2,689 13,576 21,965 operating expenses

Non-GAAP income (loss) from $ 143 $ (2,042) $ 1,748 $ (10,310) operations



Other expense (income), net, $ 304 $ (95) $ (379) $ 741 as reported

Interest expense increase due to- (161) - (559) GSA sales adjustment^ (1)

Non-GAAP adjustments to - (161) - (559) other expense (income), net

Non-GAAP other expense $ 304 $ (256) $ (379) $ 182 (income), net



Net loss, as $ (3,855) $ (3,024) $ (8,252) $ (26,779) reported

Non-GAAP adjustments to 190 127 470 1,099 gross profit

Non-GAAP adjustments to 5,162 2,689 13,576 21,965 operating expenses

Non-GAAP adjustments to - 161 - 559 other expense (income), net

Income tax effect of (1,619) (1,292) (4,241) (4,930) non-GAAP adjustments

Non-GAAP net $ (122) $ (1,339) $ 1,553 $ (8,086) (loss) income



Net loss per share - $ (0.21) $ (0.17) $ (0.45) $ (1.51) Diluted, as reported

GSA sales - - - 0.03 adjustment ^(1)

Stock-based compensation ^ 0.18 0.12 0.48 0.36 (2)

Restructuring 0.07 0.01 0.20 0.82 costs ^(3)

Purchase accounting 0.04 0.03 0.09 0.08 intangible amortization

Interest expense increase due to- 0.01 - 0.03 GSA sales adjustment ^(1)

Income tax effect of (0.09) (0.08) (0.23) (0.27) non-GAAP adjustments

Non-GAAP net (loss) income $ (0.01) $ (0.08) $ 0.09 $ (0.46) per share - Diluted



^(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 Nine Months Ended September September 30, 30,

(in thousands) 2021 2020 2021 2020

Net loss $(3,855) $(3,024) $(8,252) $(26,779)

Interest expense, 5 161 54 407 net

Income tax benefit (1,658) (1,739) (3,667) (7,336)

Depreciation and 3,271 3,352 9,560 10,631 amortization

EBITDA (2,237) (1,250) (2,305) (23,077)

Other expense 299 (256) (433) 334 (income), net

Stock-based 3,280 2,084 8,657 6,428 compensation

GSA sales - - - 608 adjustment ^(1)

Restructuring costs1,376 239 3,679 14,563 ^(2)

Adjusted EBITDA $2,718 $817 $9,598 $(1,144)

Adjusted EBITDA 3.4 %1.2 %4.0 %(0.5) %margin ^(3)



^(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 supportour strategic plan in an effort to improve operating performance and ensurethat we are appropriately structured and resourced to deliver increased andsustainable value to our shareholders and customers. In connection with theRestructuring 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 EndedFor the Nine Months Ended September 30, 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

^(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