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FARO Reports Third Quarter 2017 Financial Results

LAKE MARY, Fla., Oct. 26, 2017 /PRNewswire/ -- FARO® (NASDAQ: FARO), the world's most trusted source for 3D measurement and imaging solutions for factory metrology, construction BIM-CIM, product design, public safety forensics and 3D machine vision, today announced its financial results for the third quarter and nine months ended September 30, 2017. The third quarter of 2017 was the first quarter following the completion of FARO's Going Vertical in Harmony (GVH) initiative; and the improvement in new order bookings, sales, gross margin and profitability reinforces FARO's commitment to its strategic objectives.

Third Quarter 2017
New order bookings for third quarter 2017 were $90.5 million, an increase of 13.4%, compared with $79.8 million for third quarter 2016. Sales increased to $90.3 million, an increase of 13.4%, for the three months ended September 30, 2017 from $79.6 million for the three months ended September 30, 2016. The sales increase was driven by a strong increase in product unit sales in our Construction BIM-CIM and Other segment which includes the Public Safety Forensics and Product Design verticals, higher average selling prices, and continued service revenue growth.

Gross margin for third quarter 2017 increased to 57.7%, compared with 53.6% for the third quarter last year. The increase was related primarily to the introduction of our technically advanced, next-generation products resulting in higher average selling prices and our growing service revenue.

Operating income for third quarter 2017 was $2.4 million, compared with operating income of $0.8 million in the third quarter last year. This increase is primarily due to the execution of our strategic initiatives to drive sales growth and improve gross margin.

Net income for third quarter 2017 was $1.6 million or $0.10 per share, compared with net income of $1.1 million or $0.07 per share in the third quarter last year.

As of September 30, 2017, cash and short-term investments was $140.8 million, of which $99.8 million was held by foreign subsidiaries.

Nine months ended September 30, 2017
New order bookings for the nine months ended September 30, 2017 were $266.4 million, an increase of 13.4%, compared with $234.9 million for the nine months ended September 30, 2016. Sales increased to $254.5 million, an increase of 8.8%, for the nine months ended September 30, 2017 from $233.9 million for the nine months ended September 30, 2016. Similar to our third quarter results, the sales increase was primarily driven by a strong increase in product unit sales within the Construction BIM-CIM vertical, higher average selling prices, and continued growth in service revenue.

Gross margin for the first nine months of 2017 increased to 56.0%, compared with 55.3% for the same prior year period. Similar to our third quarter results, the increase was related primarily to the introduction of our technically advanced, next-generation products resulting in higher average selling prices and our growing service revenue.

Operating loss for the first nine months of 2017 was $3.8 million, compared with an operating income of $9.7 million for the first nine months last year. This decrease was primarily due to our strategic decision to grow our global sales headcount to drive sales growth, which included $7.4 million in start-up sales headcount costs, and an additional $3.8 million in acquisition-related R&D costs.

Net loss for the first nine months of 2017 was $3.5 million or $0.21 per share, compared with net income of $7.6 million or $0.45 per share in the first nine months of 2016.

"We are selectively continuing to grow the salesforce to drive the top line. Consistent with our strategy, we grew our trailing 12-month average sales full time experienced (FTE) headcount by 18.2% over the same prior year period. As previously discussed, start-up sales headcount requires approximately 12 months to become FTE headcount. Hence, our costs reflected the onboarding of this personnel, but our sales do not yet reflect the full benefits. Our third quarter performance demonstrated continued progress towards our long-term financial objectives. The increase in sales, the gross margin increases, and the two percent of sales decline in G&A expense underscore our commitment to drive operating margin and resulted in our return to quarterly profit," stated Simon Raab, Ph.D., FARO's President and CEO. "We continued our aggressive new product drumbeat and in the past 12 months we have launched next generation products across all our core platforms, including our next generation Quantum Arm product line in August 2017. The Construction BIM-CIM vertical team has capitalized on its market-leading laser scanner technology to deliver strong 2017 performance with year-to-date sales growth exceeding 27%. Our vertical market approach coupled with our investment in sales headcount, release of new products, and expense controls has re-energized the growth of the company and represent important steps towards our long-term financial objectives."

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 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, 2016 and Form 10-Q for the quarters ended March 31, 2017 and June 30, 2017.

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, imaging and realization technology. The Company develops and markets computer-aided measurement and imaging devices and software for the following vertical markets:

  • Factory Metrology - High-precision 3D measurement, imaging and comparison of parts and complex structures within production and quality assurance processes
  • Construction BIM-CIM - 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
  • Product Design - Capture detailed and precise 3D data from existing products permitting CAD analysis and redesign, after market design and legacy part replication
  • 3D Machine Vision - 3D vision for both control and measurement to the manufacturing floor through 3D sensors and custom solution

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.

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,
2017


September 30,
2016


September 30,
2017


September 30,
2016

Sales








Product

$

68,563


$

61,280


$

193,476


$

182,232

Service

21,687


18,320


61,018


51,654

Total sales

90,250


79,600


254,494


233,886

Cost of Sales








Product

26,673


25,880


78,186


74,938

Service

11,543


11,042


33,765


29,665

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

38,216


36,922


111,951


104,603

Gross Profit

52,034


42,678


142,543


129,283

Operating Expenses:








Selling and marketing

25,990


19,781


74,884


56,399

General and administrative

10,307


10,747


32,883


31,139

Depreciation and amortization

4,368


3,381


12,075


9,733

Research and development

9,019


7,928


26,530


22,344

Total operating expenses

49,684


41,837


146,372


119,615

Income (loss) from operations

2,350


841


(3,829)


9,668

Other (income) expense








Interest income, net

(78)


(21)


(249)


(119)

Other (income) expense, net

(147)


(167)


320


824

Income (loss) before income tax expense (benefit)

2,575


1,029


(3,900)


8,963

Income tax expense (benefit)

947


(61)


(442)


1,401

Net income (loss)

$

1,628


$

1,090


$

(3,458)


$

7,562

Net income (loss) per share - Basic

$

0.10


$

0.07


$

(0.21)


$

0.45

Net income (loss) per share - Diluted

$

0.10


$

0.07


$

(0.21)


$

0.45

Weighted average shares - Basic

16,708,446


16,674,176


16,697,729


16,647,662

Weighted average shares - Diluted

16,796,518


16,701,617


16,697,729


16,669,550

FARO TECHNOLOGIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS



(in thousands, except share data)

September 30,
2017
(unaudited)


December 31,
2016

ASSETS




Current assets:




Cash and cash equivalents

$

129,841


$

106,169

Short-term investments

10,970


42,942

Accounts receivable, net

60,449


61,364

Inventories, net

59,044


51,886

Prepaid expenses and other current assets

20,919


16,304

Total current assets

281,223


278,665

Property and equipment:




Machinery and equipment

66,049


57,063

Furniture and fixtures

6,863


6,099

Leasehold improvements

19,588


18,778

Property and equipment, at cost

92,500


81,940

Less: accumulated depreciation and amortization

(60,189)


(50,262)

Property and equipment, net

32,311


31,678

Goodwill

52,567


46,744

Intangible assets, net

22,983


22,279

Service and sales demonstration inventory, net

35,250


29,136

Deferred income tax assets, net

14,498


14,307

Other long-term assets

1,049


905

Total assets

$

439,881


$

423,714

LIABILITIES AND SHAREHOLDERS' EQUITY




Current liabilities:




Accounts payable

$

11,964


$

11,126

Accrued liabilities

22,507


24,572

Income taxes payable


618

Current portion of unearned service revenues

29,080


27,422

Customer deposits

3,065


2,872

Total current liabilities

66,616


66,610

Unearned service revenues - less current portion

12,665


13,813

Deferred income tax liabilities

1,683


1,409

Other long-term liabilities

2,191


2,225

Total liabilities

83,155


84,057

Shareholders' equity:




Common stock - par value $.001, 50,000,000 shares authorized; 18,197,628 and 18,170,267
issued, respectively; 16,711,152 and 16,680,791 outstanding, respectively

18


18

Additional paid-in capital

218,242


212,602

Retained earnings

179,682


183,436

Accumulated other comprehensive loss

(9,387)


(24,561)

Common stock in treasury, at cost; 1,486,476 and 1,489,476 shares, respectively

(31,829)


(31,838)

Total shareholders' equity

356,726


339,657

Total liabilities and shareholders' equity

$

439,881


$

423,714

FARO TECHNOLOGIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)




Nine Months Ended

(in thousands)

September 30,
2017


September 30,
2016

Cash flows from:




Operating activities:




Net (loss) income

$

(3,458)


$

7,562

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




Depreciation and amortization

12,075


9,733

Stock-based compensation

4,823


4,068

Provision for bad debts

321


727

Loss on disposal of assets

263


814

Provision for excess and obsolete inventory

1,271


2,937

Deferred income tax expense (benefit)

224


(734)

Income tax benefit from exercise of stock options


(354)

Change in operating assets and liabilities:




Decrease (increase) in:




Accounts receivable

3,701


12,850

Inventories

(11,450)


(8,689)

Prepaid expenses and other current assets

(3,834)


(995)

(Decrease) increase in:




Accounts payable and accrued liabilities

(2,774)


1,128

Income taxes payable

(598)


Customer deposits

(6)


(1,155)

Unearned service revenues

(1,326)


559

Net cash (used in) provided by operating activities

(768)


28,451

Investing activities:




Proceeds from sale of investments

32,000


11,000

Purchases of property and equipment

(6,081)


(5,272)

Payments for intangible assets

(1,345)


(1,440)

Acquisition of business

(5,496)


(20,911)

Net cash provided by (used in) investing activities

19,078


(16,623)

Financing activities:




Payments on capital leases

(6)


(6)

Payment of contingent consideration for acquisitions

(521)


(434)

Income tax benefit from exercise of stock options


354

Proceeds from issuance of stock

387


519

Net cash (used in) provided by financing activities

(140)


433

Effect of exchange rate changes on cash and cash equivalents

5,502


1,732

Increase in cash and cash equivalents

23,672


13,993

Cash and cash equivalents, beginning of period

106,169


107,356

Cash and cash equivalents, end of period

$

129,841


$

121,349

FARO TECHNOLOGIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(UNAUDITED)




Three Months Ended


Nine Months Ended

(in thousands)

September 30,
2017


September 30,
2016


September 30,
2017


September 30,
2016

Net income (loss)

$

1,628


$

1,090


$

(3,458)


$

7,562

Currency translation adjustments, net of income tax

3,875


1,339


15,174


6,165

Comprehensive income

$

5,503


$

2,429


$

11,716


$

13,727

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SOURCE FARO Technologies, Inc.