FARO Announces Third Quarter Financial Results

 

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, except per share data)

2020


2019


2020


2019

Total sales, as reported

$

70,736



$

90,516



$

210,815



$

277,624


GSA sales adjustment (1)





608



5,840


Non-GAAP total sales

$

70,736



$

90,516



$

211,423



$

283,464










Gross profit, as reported

$

36,298



$

50,772



$

109,067



$

154,531


GSA sales adjustment (1)





608



5,840


Stock-based compensation (2)

127



270



491



770


Non-GAAP adjustments to gross profit

127



270



1,099



6,610


Non-GAAP gross profit

$

36,425



$

51,042



$

110,166



$

161,141


Gross margin, as reported

51.3

%


56.1

%


51.7

%


55.7

%

Non-GAAP gross margin

51.5

%


56.4

%


52.1

%


56.8

%









Operating expenses, as reported

$

41,156



$

56,663



$

142,441



$

164,957


Advisory fees for GSA Matter (3)







(1,244)


Stock-based compensation (2)

(1,957)



(3,117)



(5,937)



(7,933)


Restructuring costs (4)

(239)





(14,563)




Executive severance costs



(1,217)





(1,217)


Executive sign-on bonuses & relocation costs



(270)





(845)


Purchase accounting intangible amortization

(493)



(924)



(1,465)



(2,665)


Non-GAAP adjustments to operating expenses

(2,689)



(5,528)



(21,965)



(13,904)


Non-GAAP operating expenses

$

38,467



$

51,135



$

120,476



$

151,053










Loss from operations, as reported

$

(4,858)



$

(5,891)



$

(33,374)



$

(10,426)


Non-GAAP adjustments to gross profit

127



270



1,099



6,610


Non-GAAP adjustments to operating expenses

2,689



5,528



21,965



13,904


Non-GAAP (loss) income from operations

$

(2,042)



$

(93)



$

(10,310)



$

10,088










Other (income) expense, net, as reported

$

(95)



$

490



$

741



$

2,470


Interest expense increase due to GSA sales adjustment (1)

(161)



(145)



(559)



(632)


Present4D impairment (5)







(1,535)


Non-GAAP adjustments to other expense, net

(161)



(145)



(559)



(2,167)


Non-GAAP other (income) expense, net

$

(256)



$

345



$

182



$

303










Net loss, as reported

$

(3,024)



$

(6,199)



$

(26,779)



$

(12,452)


Non-GAAP adjustments to gross profit

127



270



1,099



6,610


Non-GAAP adjustments to operating expenses

2,689



5,528



21,965



13,904


Non-GAAP adjustments to other expense, net

161



145



559



2,167


Income tax effect of non-GAAP adjustments

(1,292)



(1,452)



(4,930)



(4,484)


Other tax adjustments (6)



1,555





2,419


Non-GAAP net (loss) income

$

(1,339)



$

(153)



$

(8,086)



$

8,164










Net loss per share - Diluted, as reported

$

(0.17)



$

(0.36)



$

(1.51)



$

(0.72)


GSA sales adjustment (1)



0.00



0.03



0.34


Stock-based compensation (2)

0.12



0.19



0.36



0.50


Advisory fees for GSA Matter (3)







0.07


Restructuring costs (4)

0.01





0.82




Executive severance costs



0.07





0.07


Executive sign-on bonuses & relocation costs



0.02





0.05


Purchase accounting intangible amortization

0.03



0.05



0.08



0.15


Interest expense increase due to GSA sales adjustment (1)

0.01



0.01



0.03



0.04


Present4D impairment (5)







0.09


Income tax effect of non-GAAP adjustments

(0.08)



(0.08)



(0.27)



(0.26)


Other tax adjustments (6)



0.09





0.14


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

$

(0.08)



$

(0.01)



$

(0.46)



$

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 nine months ended September 30, 2020 and September 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 $0.6 million and $0.6 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 nine months ended September 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 $14.6 million during the first nine months 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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