FARO Announces Second Quarter Financial Results

 

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

 
 

Three Months Ended June 30,

 

Six Months Ended June 30,

(dollars in thousands, except per share data)

2020

 

2019

 

2020

 

2019

Total sales, as reported

$

60,564

   

$

93,491

   

$

140,079

   

$

187,108

 

GSA sales adjustment (1)

608

   

5,805

   

608

   

5,840

 

Non-GAAP total sales

$

61,172

   

$

99,296

   

$

140,687

   

$

192,948

 
               

Gross profit, as reported

$

28,896

   

$

50,740

   

$

72,769

   

$

103,759

 

GSA sales adjustment (1)

608

   

5,805

   

608

   

5,840

 

Stock-based compensation (2)

93

   

268

   

364

   

501

 

Non-GAAP adjustments to gross profit

701

   

6,073

   

972

   

6,341

 

Non-GAAP gross profit

$

29,597

   

$

56,813

   

$

73,741

   

$

110,100

 

Gross margin, as reported

47.7

%

 

54.3

%

 

51.9

%

 

55.5

%

Non-GAAP gross margin

48.4

%

 

57.2

%

 

52.4

%

 

57.1

%

               

Operating expenses, as reported

$

40,858

   

$

55,633

   

$

101,285

   

$

108,294

 

Advisory fees for GSA Matter (3)

   

(653)

   

   

(1,244)

 

Stock-based compensation (2)

(2,076)

   

(2,484)

   

(3,981)

   

(4,815)

 

Restructuring costs (4)

(636)

   

   

(14,324)

   

 

Executive sign-on bonuses & relocation costs

   

(575)

   

   

(575)

 

Purchase accounting intangible amortization

(447)

   

(889)

   

(972)

   

(1,741)

 

Non-GAAP adjustments to operating expenses

(3,159)

   

(4,601)

   

(19,277)

   

(8,375)

 

Non-GAAP operating expenses

$

37,699

   

$

51,032

   

$

82,008

   

$

99,919

 
               

Loss from operations, as reported

$

(11,962)

   

$

(4,893)

   

$

(28,516)

   

$

(4,535)

 

Non-GAAP adjustments to gross profit

701

   

6,073

   

972

   

6,341

 

Non-GAAP adjustments to operating expenses

3,159

   

4,601

   

19,277

   

8,375

 

Non-GAAP (loss) income from operations

$

(8,102)

   

$

5,781

   

$

(8,267)

   

$

10,181

 
               

Other expense, net, as reported

$

329

   

$

1,929

   

$

836

   

$

1,980

 

Interest expense increase due to GSA sales adjustment (1)

(249)

   

(442)

   

(398)

   

(487)

 

Present4D impairment (5)

   

(1,535)

   

   

(1,535)

 

Non-GAAP adjustments to other expense, net

(249)

   

(1,977)

   

(398)

   

(2,022)

 

Non-GAAP other expense (income), net

$

80

   

$

(48)

   

$

438

   

$

(42)

 
               

Net loss, as reported

$

(8,932)

   

$

(6,405)

   

$

(23,755)

   

$

(6,253)

 

Non-GAAP adjustments to gross profit

701

   

6,073

   

972

   

6,341

 

Non-GAAP adjustments to operating expenses

3,159

   

4,601

   

19,277

   

8,375

 

Non-GAAP adjustments to other expense, net

249

   

1,977

   

398

   

2,022

 

Income tax effect of non-GAAP adjustments

(1,505)

   

(2,360)

   

(3,638)

   

(3,032)

 

Other tax adjustments (6)

   

864

   

   

864

 

Non-GAAP net (loss) income

$

(6,328)

   

$

4,750

   

$

(6,746)

   

$

8,317

 
               

Net loss per share - Diluted, as reported

$

(0.50)

   

$

(0.37)

   

$

(1.34)

   

$

(0.36)

 

GSA sales adjustment (1)

0.03

   

0.33

   

0.03

   

0.33

 

Stock-based compensation (2)

0.12

   

0.16

   

0.24

   

0.30

 

Advisory fees for GSA Matter (3)

   

0.04

   

   

0.08

 

Restructuring costs (4)

0.04

   

   

0.82

   

 

Executive sign-on bonuses & relocation costs

   

0.03

   

   

0.03

 

Purchase accounting intangible amortization

0.03

   

0.05

   

0.06

   

0.10

 

Interest expense increase due to GSA sales adjustment (1)

0.01

   

0.03

   

0.02

   

0.03

 

Present4D impairment (5)

   

0.09

   

   

0.09

 

Income tax effect of non-GAAP adjustments

(0.09)

   

(0.14)

   

(0.21)

   

(0.18)

 

Other tax adjustments (6)

   

0.05

   

   

0.05

 

Non-GAAP net (loss) income per share - Diluted

$

(0.36)

   

$

0.27

   

$

(0.38)

   

$

0.47

 
   

(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"). We retained outside legal counsel
and forensic accountants to conduct a comprehensive review of our pricing and other practices under the Contracts
(the "Review"). During the six months ended June 30, 2020 and June 30, 2019, we reduced our total sales by $0.6
million and $5.8 million, respectively, (the "GSA sales adjustment") and recorded imputed interest expense of $0.2
million and $0.5 million, respectively, 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)

In connection with the GSA Matter, we retained outside legal counsel and forensic accountants to conduct the Review,
which resulted in $1.2 million in advisory fees incurred during the six months ended June 30, 2019.

   

(4) 

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, we recorded a pre-tax charge of approximately $14.3 million during the first half of 2020
primarily consisting of severance and related benefits.

   

(5)

On April 27, 2018, we invested $1.8 million in present4D GmbH ("present4D"), a software solutions provider for professional
virtual reality presentations and training environments, in the form of an equity capital contribution. During the second quarter
of 2019, we determined it is more likely than not that we will not recover our cost basis in present4D and recorded an
impairment charge of $1.5 million, which is included in Other expense, net.

   

(6)

Driven primarily by return-to-provision adjustments identified in the preparation of our 2018 U.S. tax return and changes in
our reserve for uncertain tax positions due to a change in our judgment on the recognition of a tax position.


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