FARO Announces Fourth Quarter and Full Year Financial Results

 

FARO TECHNOLOGIES, INC. AND SUBSIDIARIES

RECONCILIATION OF NET INCOME (LOSS) TO EBITDA AND ADJUSTED EBITDA

(UNAUDITED)



Three Months Ended December 31,


Twelve Months Ended December 31,

(in thousands)

2020


2019


2020


2019

Net income (loss)

$

27,408



$

(49,695)



$

629



$

(62,147)


Interest (income) expense, net

(747)



(5)



(340)



67


Income tax benefit

(24,066)



1,577



(31,402)



1,133


Depreciation and amortization

3,608



4,428



14,239



18,548


EBITDA

6,203



(43,695)



(16,874)



(42,399)


Loss (Gain) on foreign currency transactions

97



224



431



1,087


Stock-based compensation

1,886



2,368



8,314



11,071


GSA sales adjustment (1)





608



5,840


Advisory fees for GSA Matter (2)







1,244


Inventory reserve charge (3)



12,800





12,800


Product recall and other product charges (4)

1,644



1,328



1,644



1,328


Executive severance costs



215





1,432


Executive sign-on bonuses & relocation costs







845


Present4D impairment (5)



617





2,152


Restructuring costs (6)

1,243





15,806




Strategic impairments and write-offs (7)



35,213





35,213


Contingent consideration fair value adjustment



(926)





(926)


Adjusted EBITDA

$

11,073



$

8,144



$

9,929



$

29,687


Adjusted EBITDA margin (8)

11.9

%


7.8

%


3.3

%


7.7

%


(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 twelve months ended December 31, 2020 and December 31, 2019, we reduced our total sales by $0.6 million and $5.8 million, respectively (the "GSA sales adjustment").


(2) 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 2019.


(3) During the fourth quarter of 2019, we recorded a charge of $12.8, million increasing our reserve for excess and obsolete inventory, based on our analysis of our inventory reserves in connection with our strategy to simplify our hardware product portfolio and cease selling certain products.   


(4) During the fourth quarter of 2019, we accrued a recall charge for labor and parts related to a small portion of previously sold measurement devices that were outside the manufacturer's standard warranty due to safety concerns. During the fourth quarter of 2020, we recognized a charge related to the replacement of a prior generation product that was exhibiting lower than desired reliability as part of our ongoing focus on customer satisfaction. 


(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. In July 2019, we originated a $0.5 million note with present4D, which we may convert into additional equity in present4D at our discretion in the event of a default. As we no longer intend to provide future support to present4D or obtain the aforementioned additional share capital in the future and no longer intend to use the perpetual and royalty-free, non-exclusive, transferable and sublicensable license granted to us to use present4D's software, we wrote off the investment in, and our note receivable with, present4D and recognized a total loss of $2.2 million during the twelve months ended December 31, 2019, which is included in Other expense, net.


(6) 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 $15.8 million during the twelve months ended December 31, 2020 primarily consisting of severance and related benefits.


(7) Because the historical and projected future performance of certain of our recently acquired operations were lower than our expectations, and due to changes in our go forward strategy in connection with our new strategic plan, we incurred an impairment loss of $35.2 million during the fourth quarter of 2019, which included $21.2 million in goodwill, $10.5 million in intangible assets associated with recent acquisitions, $1.4 million in intangible assets related to capitalized patents and $2.1 million in other asset write-downs.


(8) Calculated as Adjusted EBITDA as a percentage of Non-GAAP total sales, which adjusts for the GSA sales adjustment.


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