FARO Reports Fourth Quarter and Fiscal Year 2018 Financial Results
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FARO Reports Fourth Quarter and Fiscal Year 2018 Financial Results

LAKE MARY, Fla., Feb. 19, 2019 — (PRNewswire) —  FARO® (NASDAQ: FARO), the world's most trusted source for 3D measurement and imaging solutions for 3D manufacturing, construction BIM, 3D design, public safety forensics, and photonics applications, today announced its financial results for the fourth quarter and fiscal year ended December 31, 2018.

"In 2018, we achieved $425 million in new order bookings, up 12.8 percent year-over-year, and crossed the $400 million milestone in annual sales for the first time in the Company's history," stated Dr. Simon Raab, President and Chief Executive Officer.  "We executed on our strategic sales growth initiative to increase our sales headcount by mid-teens for a second consecutive year. We continued our new product drumbeat with 14 new product releases. We accelerated our M&A pace with four acquisitions plus our first strategic investment and, in the process, created a new Photonics vertical. Our new product drumbeat and acquisitions expanded our product portfolio to the most technologically advanced and expansive in our history. Our platform for growth is stronger than ever."

We sell products and related services to the U.S. Government (the "Government") under General Services Administration ("GSA") Federal Supply Schedule contracts (the "Contracts") and have done so since 2002.  Late in fourth quarter 2018, during an internal review we preliminarily determined that we may have overcharged the Government under the Contracts (the "GSA Matter").  "GSA sales represented approximately 3.5 percent of our total sales in 2018," continued Dr. Raab.  "Nevertheless, we take our Government contract compliance very seriously and have begun remediation efforts with the assistance of outside legal counsel including, but not limited to, the identification of additional controls and procedures to ensure future compliance with the pricing and other requirements of the Contracts. On February 14, 2019, we reported the GSA Matter to the GSA and its Office of Inspector General."

Fourth Quarter 2018

As a result of the GSA Matter, for fourth quarter 2018 we reduced our total sales by a $4.8 million estimated cumulative sales adjustment (the "GSA cumulative sales adjustment"), representative of the last six years of estimated overcharges to the Government under the Contracts. In addition, for fourth quarter 2018 we recorded $0.5 million of imputed interest related to the GSA cumulative sales adjustment, which increased other expense and resulted in an estimated total liability of $5.3 million for the GSA Matter. This estimate is based on our preliminary review as of the date of this press release and is subject to change based on the results of a review being conducted by our outside legal counsel and discussions with the Government.

Total sales were $112.8 million for fourth quarter 2018, up 6.0% as compared with $106.4 million for fourth quarter 2017. Our sales increase was mainly driven by higher unit sales across all segments, higher average selling prices in our 3D Manufacturing reporting segment and total service revenue growth, partially offset by the GSA cumulative sales adjustment.  Our new order bookings were $122.2 million for fourth quarter 2018, up 10.5% as compared with $110.6 million for fourth quarter 2017.

Gross margin was 57.2% for the quarter, down 1.1 percentage points as compared with 58.3% in the same prior year period, reflecting higher average selling prices in our 3D Manufacturing reporting segment and an improved service margin which were more than offset by the effects of the GSA cumulative sales adjustment.

Operating income was $5.8 million for the quarter, as compared with $9.2 million in the same prior year period, primarily reflecting our sales increase which was more than offset by the effects of the GSA cumulative sales adjustment.  Operating margin was 5.2% for fourth quarter 2018, as compared with operating margin of 8.6% for the same prior year period.

Our net income of $5.8 million, or $0.33 per share, for fourth quarter 2018 included a $1.0 million benefit related to finalizing our transition tax under the U.S. Tax Cuts and Jobs Act of 2017 ("U.S. Tax Reform") and a $3.9 million unfavorable after-tax impact of the GSA Matter.  Our net loss of $11.1 million, or $0.66 per share, for fourth quarter 2017 included a provisional charge of $19.4 million recorded in income tax expense related to the enactment of U.S. Tax Reform.

As of December 31, 2018, our balance sheet remained debt-free with cash and short-term investments totaling $133.6 million, of which $77.5 million was held by foreign subsidiaries.

Fiscal Year 2018

Total sales were $403.6 million for fiscal year 2018, up 11.8% as compared with $360.9 million for fiscal year 2017. Our sales increase was mainly driven by an increase in unit sales within our Construction BIM and Emerging Verticals reporting segments, and higher average selling prices in our 3D Manufacturing reporting segment, partially offset by the GSA cumulative sales adjustment.

New order bookings were $425.3 million for fiscal year 2018, up 12.8% as compared with $377.0 million for fiscal year 2017.  With our trailing 12 months new order bookings of $425.3 million and our trailing 12 months sales full-time experienced ("FTE") headcount of 599, our trailing 12 months orders per sales FTE metric was approximately $710,000, up $4,000 from third quarter 2018.

Gross margin was 56.6% for fiscal year 2018, down 0.1 percentage points as compared with the prior year, reflecting the benefit of higher average selling prices in our 3D Manufacturing reporting segment and improved manufacturing efficiencies which were more than offset by the effects of the GSA cumulative sales adjustment and the $4.7 million increase in our inventory reserve recorded in third quarter 2018.

Operating income was $5.8 million for fiscal year 2018, an increase from $5.3 million for fiscal year 2017, primarily driven by our double-digit sales growth partially offset by our investment in increased sales headcount, the effects of the GSA cumulative sales adjustment and the increase in our inventory reserve recorded in third quarter 2018. Operating margin was 1.4% for fiscal year 2018, as compared with operating margin of 1.5% for fiscal year 2017.

Our net income of $4.9 million, or $0.29 per share, for fiscal year 2018 included a $1.0 million benefit related to finalizing our transition tax under U.S. Tax Reform and a $3.9 million unfavorable after-tax impact of the GSA Matter. Our net loss of $14.5 million, or $0.87 per share, for fiscal year 2017 included a provisional charge of $19.4 million recorded in income tax expense related to the enactment of U.S. Tax Reform.

The financial information included in this press release is preliminary as the Company has not yet issued its audited financial statements, and such information may differ from our audited results.

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 regarding FARO's estimated overcharges to the Government under the GSA Contracts, 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, estimates, 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:

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.

About FARO
FARO is the world's most trusted source for 3D measurement and imaging solutions. The Company develops and markets computer-aided measurement and imaging devices and software for the following vertical markets:

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 TrackerTM and FARO Tracer Laser Projector 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.

More information is available at  http://www.faro.com

 

FARO TECHNOLOGIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)




Three Months Ended


Twelve Months Ended

(in thousands, except share and per share data)

December 31,
2018


December 31,
2017


December 31,
2018


December 31,
2017

Sales








Product

$

88,984


$

84,446


$

311,102


$

277,922

Service

23,860


21,977


92,525


82,995

Total sales

112,844


106,423


403,627


360,917

Cost of Sales








Product

36,036


31,957


124,802


110,143

Service

12,257


12,372


50,480


46,137

Total cost of sales (exclusive of depreciation and
amortization, shown separately below)

48,293


44,329


175,282


156,280

Gross Profit

64,551


62,094


228,345


204,637

Operating Expenses








Selling and marketing

30,754


28,660


116,920


103,544

General and administrative

12,763


10,924


47,652


43,807

Depreciation and amortization

4,846


4,513


18,313


16,588

Research and development

10,342


8,846


39,706


35,376

Total operating expenses

58,705


52,943


222,591


199,315

Income from operations

5,846


9,151


5,754


5,322

Other expense (income)








Interest income

(224)


(73)


(429)


(319)

Other expense (income), net

271


(510)


1,139


(190)

Interest expense

486


7


486


4

Income before income tax expense

5,313


9,727


4,558


5,827

Income tax (benefit) expense

(445)


20,785


(372)


20,343

Net income (loss)

$

5,758


$

(11,058)


$

4,930


$

(14,516)

Net income (loss) per share - Basic

$

0.33


$

(0.66)


$

0.29


$

(0.87)

Net income (loss) per share - Diluted

$

0.33


$

(0.66)


$

0.29


$

(0.87)

Weighted average shares - Basic

17,254,011


16,738,400


17,043,167


16,711,534

Weighted average shares - Diluted

17,498,061


16,738,400


17,348,456


16,711,534

 

 

FARO TECHNOLOGIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED)



(in thousands, except share and per share data)

December 31,
2018


December 31,
2017

ASSETS




Current assets:




Cash and cash equivalents

$

108,783


$

140,960

Short-term investments

24,793


10,997

Accounts receivable, net

88,927


72,105

Inventories, net

65,444


53,786

Prepaid expenses and other current assets

28,795


16,311

Total current assets

316,742


294,159

Property and equipment:




Machinery and equipment

76,048


66,514

Furniture and fixtures

6,749


6,945

Leasehold improvements

20,304


19,872

Property and equipment at cost

103,101


93,331

Less: accumulated depreciation and amortization

(72,684)


(61,452)

Property and equipment, net

30,417


31,879

Goodwill

67,274


52,750

Intangible assets, net

33,054


22,540

Service and sales demonstration inventory, net

39,563


39,614

Deferred income tax assets, net

14,719


15,606

Other long-term assets

4,475


2,030

Total assets

$

506,244


$

458,578

LIABILITIES AND SHAREHOLDERS' EQUITY




Current liabilities:




Accounts payable

$

20,093


$

11,569

Accrued liabilities

36,327


27,362

Income taxes payable

5,081


4,676

Current portion of unearned service revenues

32,878


29,674

Customer deposits

3,144


2,604

Total current liabilities

97,523


75,885

Unearned service revenues - less current portion

15,505


11,815

Deferred income tax liabilities

736


695

Income taxes payable - less current portion

12,247


15,952

Other long-term liabilities

3,624


2,165

Total liabilities

129,635


106,512

Shareholders' equity:




Common stock - par value $.001, 50,000,000 shares authorized; 18,676,059 and 18,277,142
issued; 17,253,011 and 16,796,884 outstanding, respectively

19


18

Additional paid-in capital

251,329


223,055

Retained earnings

175,353


168,624

Accumulated other comprehensive loss

(18,483)


(7,822)

Common stock in treasury, at cost - 1,423,048 shares and 1,480,258, respectively

(31,609)


(31,809)

Total shareholders' equity

376,609


352,066

Total liabilities and shareholders' equity

$

506,244


$

458,578

 

 

FARO TECHNOLOGIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)




Years Ended December 31,

(in thousands)

2018


2017


2016

CASH FLOWS FROM:






OPERATING ACTIVITIES:






Net income (loss)

$

4,930


$

(14,516)


$

11,107

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






Depreciation and amortization

18,313


16,588


13,868

Compensation for stock options and restricted stock units

7,620


6,450


5,374

Provision for bad debts

907


370


898

Loss on disposal of assets

192


451


860

Provision for excess and obsolete inventory

5,757


1,734


4,134

Deferred income tax benefit

689


(1,740)


(2,002)

Income tax benefit from exercise of stock options



(357)

Change in operating assets and liabilities:






(Increase) decrease in:






Accounts receivable, net

(15,995)


(6,766)


6,727

Inventories

(20,532)


(10,926)


(6,729)

Prepaid expenses and other assets

(11,310)


(253)


3,588

Increase (decrease) in:






Accounts payable and accrued liabilities

11,774


1,103


534

Income taxes payable

(3,286)


20,011


618

Customer deposits

513


(461)


(1,310)

Unearned service revenues

7,330


(1,690)


273

Net cash provided by operating activities

6,902


10,355


37,583

INVESTING ACTIVITIES:






(Purchases of) Proceeds from sale of investments

(14,000)


32,000


Purchases of property and equipment

(11,021)


(8,970)


(7,720)

Payments for intangible assets

(1,900)


(2,377)


(1,657)

Acquisition of business, net of cash received

(27,646)


(5,596)


(27,708)

Equity investments

(1,786)



Net cash (used in) provided by investing activities

(56,353)


15,057


(37,085)

FINANCING ACTIVITIES:






Payments on capital leases

(157)


(108)


(8)

Payments of contingent consideration for acquisitions

(888)


(521)


(774)

Income tax benefit from exercise of stock options



357

Proceeds from issuance of stock related to stock option exercises

20,855


3,594


674

Net cash provided by financing activities

19,810


2,965


249

EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH
EQUIVALENTS

(2,536)


6,414


(1,934)

(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS

(32,177)


34,791


(1,187)

CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR

140,960


106,169


107,356

CASH AND CASH EQUIVALENTS, END OF YEAR

$

108,783


$

140,960


$

106,169

 

 

FARO TECHNOLOGIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME

 (UNAUDITED)





Years ended December 31,

(in thousands)


2018


2017


2016

Net income (loss)


$

4,930


$

(14,516)


$

11,107

Currency translation adjustments, net of income tax


(10,661)


16,739


(4,700)

Comprehensive (loss) income


$

(5,731)


$

2,223


$

6,407

 

 

FARO TECHNOLOGIES, INC. AND SUBSIDIARIES


UNAUDITED SUPPLEMENTAL DATA






Three Months Ended


Twelve Months Ended


(sales in thousands)


Q4 2018 Sales


Q4 2017 Sales


% Change


Q4 2018 Sales


Q4 2017 Sales


% Change


Reporting Segments














3D Manufacturing (1)


$

75,602


$

70,940


6.6

%


$

264,430


$

243,464


8.6

%


Construction BIM (2)


26,226


25,798


1.7

%


96,185


86,349


11.4

%


Emerging Verticals (3)


11,016


9,685


13.7

%


43,012


31,104


38.3

%


Total sales, as reported


$

112,844


$

106,423


6.0

%


$

403,627


$

360,917


11.8

%



(1) The 3D Manufacturing reporting segment (formerly known as Factory Metrology and 3D Factory) contains solely our 3D Manufacturing vertical (formerly our Factory Metrology/3D Factory 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

$89.0


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


Q4-18

$122.2


733


621


599


$710





(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.

 

 

Cision View original content: http://www.prnewswire.com/news-releases/faro-reports-fourth-quarter-and-fiscal-year-2018-financial-results-300798268.html

SOURCE FARO Technologies, Inc.

Contact:
Company Name: FARO Technologies, Inc.
Nancy L. Setteducati
Email Contact
Web: http://www.faro.com
Financial data for FARO Technologies, Inc.