|
|
|
x
|
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|
¨
|
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|
|
|
Florida
|
59-3157093
|
(State or other Jurisdiction of Incorporation or Organization)
|
(I.R.S. Employer Identification No.)
|
|
|
250 Technology Park, Lake Mary, Florida
|
32746
|
(Address of Principal Executive Offices)
|
(Zip Code)
|
|
Large accelerated filer
|
x
|
|
Accelerated filer
|
o
|
|
|
|
|
|
Non-accelerated filer
|
o
|
|
Smaller reporting company
|
o
|
Emerging growth company
|
o
|
|
|
|
Title of each class
|
Trading Symbol(s)
|
Name of each exchange on which registered
|
Common Stock, par value $.001
|
FARO
|
Nasdaq Global Select Market
|
|
|
|
PAGE
|
PART I.
|
|
|
|
|
|
Item 1.
|
|
|
|
|
|
a)
|
||
|
|
|
b)
|
||
|
|
|
c)
|
||
|
|
|
d)
|
||
|
|
|
e)
|
|
|
|
|
|
f)
|
||
|
|
|
Item 2.
|
||
|
|
|
Item 3.
|
||
|
|
|
Item 4.
|
||
|
|
|
PART II.
|
|
|
|
|
|
Item 1.
|
||
|
|
|
Item 1A.
|
||
|
|
|
Item 2.
|
||
|
|
|
Item 6.
|
||
|
|
|
(in thousands, except share and per share data)
|
March 31,
2019 (unaudited) |
|
December 31,
2018 |
||||
ASSETS
|
|
|
|
||||
Current assets:
|
|
|
|
||||
Cash and cash equivalents
|
$
|
110,696
|
|
|
$
|
108,783
|
|
Short-term investments
|
24,831
|
|
|
24,793
|
|
||
Accounts receivable, net
|
76,237
|
|
|
88,927
|
|
||
Inventories, net
|
74,586
|
|
|
65,444
|
|
||
Prepaid expenses and other current assets
|
24,210
|
|
|
28,795
|
|
||
Total current assets
|
310,560
|
|
|
316,742
|
|
||
Property and equipment:
|
|
|
|
||||
Machinery and equipment
|
80,586
|
|
|
76,048
|
|
||
Furniture and fixtures
|
6,141
|
|
|
6,749
|
|
||
Leasehold improvements
|
20,311
|
|
|
20,304
|
|
||
Property and equipment at cost
|
107,038
|
|
|
103,101
|
|
||
Less: accumulated depreciation and amortization
|
(76,188
|
)
|
|
(72,684
|
)
|
||
Property and equipment, net
|
30,850
|
|
|
30,417
|
|
||
Operating lease right-of-use asset
|
18,876
|
|
|
—
|
|
||
Goodwill
|
71,097
|
|
|
67,274
|
|
||
Intangible assets, net
|
29,507
|
|
|
33,054
|
|
||
Service and sales demonstration inventory, net
|
38,351
|
|
|
39,563
|
|
||
Deferred income tax assets, net
|
14,696
|
|
|
14,719
|
|
||
Other long-term assets
|
4,416
|
|
|
4,475
|
|
||
Total assets
|
$
|
518,353
|
|
|
$
|
506,244
|
|
LIABILITIES AND SHAREHOLDERS’ EQUITY
|
|
|
|
||||
Current liabilities:
|
|
|
|
||||
Accounts payable
|
$
|
14,351
|
|
|
$
|
20,093
|
|
Accrued liabilities
|
31,389
|
|
|
36,327
|
|
||
Income taxes payable
|
3,747
|
|
|
5,081
|
|
||
Current portion of unearned service revenues
|
34,189
|
|
|
32,878
|
|
||
Customer deposits
|
2,847
|
|
|
3,144
|
|
||
Lease liability
|
6,446
|
|
|
—
|
|
||
Total current liabilities
|
92,969
|
|
|
97,523
|
|
||
Unearned service revenues - less current portion
|
16,319
|
|
|
15,505
|
|
||
Lease liability - less current portion
|
14,363
|
|
|
—
|
|
||
Deferred income tax liabilities
|
2,541
|
|
|
736
|
|
||
Income taxes payable - less current portion
|
12,247
|
|
|
12,247
|
|
||
Other long-term liabilities
|
3,326
|
|
|
3,624
|
|
||
Total liabilities
|
141,765
|
|
|
129,635
|
|
||
Commitments and contingencies - See Note 16
|
|
|
|
||||
Shareholders’ equity:
|
|
|
|
||||
Common stock - par value $.001, 50,000,000 shares authorized; 18,731,586 and 18,676,059 issued, respectively; 17,317,875 and 17,253,011 outstanding, respectively
|
19
|
|
|
19
|
|
||
Additional paid-in capital
|
252,840
|
|
|
251,329
|
|
||
Retained earnings
|
175,178
|
|
|
175,353
|
|
||
Accumulated other comprehensive loss
|
(20,047
|
)
|
|
(18,483
|
)
|
||
Common stock in treasury, at cost; 1,413,711 and 1,423,048 shares, respectively
|
(31,402
|
)
|
|
(31,609
|
)
|
||
Total shareholders’ equity
|
376,588
|
|
|
376,609
|
|
||
Total liabilities and shareholders’ equity
|
$
|
518,353
|
|
|
$
|
506,244
|
|
|
Three Months Ended
|
||||||
(in thousands, except share and per share data)
|
March 31, 2019
|
|
March 31, 2018
|
||||
Sales
|
|
|
|
||||
Product
|
$
|
68,800
|
|
|
$
|
70,581
|
|
Service
|
24,817
|
|
|
22,253
|
|
||
Total sales
|
93,617
|
|
|
92,834
|
|
||
Cost of Sales
|
|
|
|
||||
Product
|
26,128
|
|
|
26,884
|
|
||
Service
|
12,470
|
|
|
12,164
|
|
||
Total cost of sales (exclusive of depreciation and amortization, shown separately below)
|
38,598
|
|
|
39,048
|
|
||
Gross Profit
|
55,019
|
|
|
53,786
|
|
||
Operating Expenses
|
|
|
|
||||
Selling and marketing
|
26,753
|
|
|
28,271
|
|
||
General and administrative
|
13,224
|
|
|
11,073
|
|
||
Depreciation and amortization
|
4,749
|
|
|
4,343
|
|
||
Research and development
|
9,935
|
|
|
9,406
|
|
||
Total operating expenses
|
54,661
|
|
|
53,093
|
|
||
Income from operations
|
358
|
|
|
693
|
|
||
Other expense (income)
|
|
|
|
||||
Interest income, net
|
(144
|
)
|
|
(73
|
)
|
||
Other expense, net
|
195
|
|
|
184
|
|
||
Income before income tax expense
|
307
|
|
|
582
|
|
||
Income tax expense
|
155
|
|
|
127
|
|
||
Net income
|
$
|
152
|
|
|
$
|
455
|
|
Net income per share - Basic
|
$
|
0.01
|
|
|
$
|
0.03
|
|
Net income per share - Diluted
|
$
|
0.01
|
|
|
$
|
0.03
|
|
Weighted average shares - Basic
|
17,280,365
|
|
|
16,837,754
|
|
||
Weighted average shares - Diluted
|
17,868,816
|
|
|
17,142,770
|
|
|
Three Months Ended
|
||||||
(in thousands)
|
March 31, 2019
|
|
March 31, 2018
|
||||
Net income
|
$
|
152
|
|
|
$
|
455
|
|
Currency translation adjustments
|
(1,564
|
)
|
|
5,214
|
|
||
Comprehensive (loss) income
|
$
|
(1,412
|
)
|
|
$
|
5,669
|
|
|
Three Months Ended
|
||||||
(in thousands)
|
March 31, 2019
|
|
March 31, 2018
|
||||
Cash flows from:
|
|
|
|
||||
Operating activities:
|
|
|
|
||||
Net income
|
$
|
152
|
|
|
$
|
455
|
|
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
|
|
|
|
||||
Depreciation and amortization
|
4,749
|
|
|
4,343
|
|
||
Stock-based compensation
|
2,564
|
|
|
1,553
|
|
||
(Recoveries) provisions for bad debts, net
|
(100
|
)
|
|
24
|
|
||
Loss on disposal of assets
|
57
|
|
|
127
|
|
||
Provision for excess and obsolete inventory
|
896
|
|
|
312
|
|
||
Deferred income tax expense (benefit)
|
8
|
|
|
(128
|
)
|
||
Change in operating assets and liabilities:
|
|
|
|
||||
Decrease (Increase) in:
|
|
|
|
||||
Accounts receivable
|
12,410
|
|
|
1,808
|
|
||
Inventories
|
(10,908
|
)
|
|
(5,208
|
)
|
||
Prepaid expenses and other current assets
|
4,463
|
|
|
(936
|
)
|
||
(Decrease) Increase in:
|
|
|
|
||||
Accounts payable, accrued liabilities, and lease liability
|
(9,172
|
)
|
|
(4,846
|
)
|
||
Income taxes payable
|
(1,323
|
)
|
|
(2,571
|
)
|
||
Customer deposits
|
(310
|
)
|
|
(213
|
)
|
||
Unearned service revenues
|
2,324
|
|
|
1,231
|
|
||
Net cash provided by (used in) operating activities
|
5,810
|
|
|
(4,049
|
)
|
||
Investing activities:
|
|
|
|
||||
Purchases of property and equipment
|
(1,543
|
)
|
|
(2,243
|
)
|
||
Payments for intangible assets
|
(529
|
)
|
|
(650
|
)
|
||
Acquisition of businesses
|
—
|
|
|
(3,966
|
)
|
||
Net cash used in investing activities
|
(2,072
|
)
|
|
(6,859
|
)
|
||
Financing activities:
|
|
|
|
||||
Payments on finance leases
|
(90
|
)
|
|
(46
|
)
|
||
Payments of contingent consideration for acquisitions
|
(250
|
)
|
|
—
|
|
||
Payments for taxes related to net share settlement of equity awards
|
(1,138
|
)
|
|
—
|
|
||
Proceeds from issuance of stock related to stock option exercises
|
292
|
|
|
6,785
|
|
||
Net cash (used in) provided by financing activities
|
(1,186
|
)
|
|
6,739
|
|
||
Effect of exchange rate changes on cash and cash equivalents
|
(639
|
)
|
|
2,035
|
|
||
Increase (decrease) in cash and cash equivalents
|
1,913
|
|
|
(2,134
|
)
|
||
Cash and cash equivalents, beginning of period
|
108,783
|
|
|
140,960
|
|
||
Cash and cash equivalents, end of period
|
$
|
110,696
|
|
|
$
|
138,826
|
|
|
|
|
|
|
|
Accumulated
Other Comprehensive (Loss) Income |
|
Common
Stock in Treasury |
|
Total
|
|||||||||||||||||
|
|
|
|
Additional
Paid-in Capital |
|
Retained Earnings
|
|
||||||||||||||||||||
|
|
Common Stock
|
|
|
|
||||||||||||||||||||||
(in thousands, except share data)
|
|
Shares
|
|
Amounts
|
|
|
|
||||||||||||||||||||
BALANCE DECEMBER 31, 2018
|
|
17,253,011
|
|
|
$
|
19
|
|
|
$
|
251,329
|
|
|
$
|
175,353
|
|
|
$
|
(18,483
|
)
|
|
$
|
(31,609
|
)
|
|
$
|
376,609
|
|
Net income
|
|
|
|
|
|
|
|
152
|
|
|
|
|
|
|
152
|
|
|||||||||||
Currency translation adjustment, net of income tax
|
|
|
|
|
|
|
|
|
|
(1,564
|
)
|
|
|
|
(1,564
|
)
|
|||||||||||
Stock-based compensation
|
|
|
|
|
|
|
2,564
|
|
|
|
|
|
|
|
|
2,564
|
|
||||||||||
Common stock issued, net of shares withheld for employee taxes
|
|
64,864
|
|
|
—
|
|
|
(1,053
|
)
|
|
|
|
|
|
207
|
|
|
(846
|
)
|
||||||||
Cumulative effect of the adoption of ASU 2016-02
|
|
|
|
|
|
|
|
|
|
|
(327
|
)
|
|
|
|
|
|
|
|
(327
|
)
|
||||||
BALANCE MARCH 31, 2019
|
|
17,317,875
|
|
|
$
|
19
|
|
|
$
|
252,840
|
|
|
$
|
175,178
|
|
|
$
|
(20,047
|
)
|
|
$
|
(31,402
|
)
|
|
$
|
376,588
|
|
|
|
|
|
|
|
Accumulated
Other Comprehensive (Loss) Income |
|
Common
Stock in Treasury |
|
Total
|
|||||||||||||||||
|
|
|
|
Additional
Paid-in Capital |
|
Retained Earnings
|
|
||||||||||||||||||||
|
|
Common Stock
|
|
|
|
||||||||||||||||||||||
(in thousands, except share data)
|
|
Shares
|
|
Amounts
|
|
|
|
||||||||||||||||||||
BALANCE DECEMBER 31, 2017
|
|
16,796,884
|
|
|
$
|
18
|
|
|
$
|
223,055
|
|
|
$
|
168,624
|
|
|
$
|
(7,822
|
)
|
|
$
|
(31,809
|
)
|
|
$
|
352,066
|
|
Net income
|
|
|
|
|
|
|
|
455
|
|
|
|
|
|
|
455
|
|
|||||||||||
Currency translation adjustment, net of income tax
|
|
|
|
|
|
|
|
|
|
5,214
|
|
|
|
|
5,214
|
|
|||||||||||
Stock-based compensation
|
|
|
|
|
|
|
1,553
|
|
|
|
|
|
|
|
|
1,553
|
|
||||||||||
Common stock issued, net of shares withheld for employee taxes
|
|
158,795
|
|
|
—
|
|
|
6,601
|
|
|
|
|
|
|
75
|
|
|
6,676
|
|
||||||||
Cumulative effect of the adoption of ASU 2014-09
|
|
|
|
|
|
|
|
|
|
|
2,365
|
|
|
|
|
|
|
|
|
2,365
|
|
||||||
BALANCE MARCH 31, 2018
|
|
16,955,679
|
|
|
$
|
18
|
|
|
$
|
231,209
|
|
|
$
|
171,444
|
|
|
$
|
(2,608
|
)
|
|
$
|
(31,734
|
)
|
|
$
|
368,329
|
|
•
|
In the third quarter of 2018, we merged the historical Factory Metrology and 3D Machine Vision verticals into one vertical named “3D Factory” for greater consistency with our realigned reporting segments.
|
•
|
In the third quarter of 2018, we segregated the operations of our acquisitions of Laser Control Systems Limited (“Laser Control Systems”) and Lanmark Controls, Inc. (“Lanmark”), along with the operations resulting from our acquisition of substantially all of the assets of Instrument Associates, LLC d/b/a Nutfield Technology, into a vertical that we named “Photonics.” The creation of this vertical enables us to better focus on our product range directed at laser steering. These operations were historically reported in the 3D Factory reporting segment in the first six months of 2018 and the historical Factory Metrology reporting segment in 2017 and are now included in the Emerging Verticals (formerly known as “Other”) reporting segment.
|
•
|
In the third quarter of 2018, we renamed our Product Design vertical “3D Design.”
|
•
|
In the fourth quarter of 2018, we renamed our 3D Factory vertical and reporting segment “3D Manufacturing.”
|
•
|
The 3D Manufacturing reporting segment contains solely our 3D Manufacturing vertical and provides both standardized and customized solutions for 3D measurement and inspection in an industrial or manufacturing environment. Applications include alignment, part inspection, dimensional analysis, first article inspection, incoming and in-process inspection, machine calibration, non-contact inspection, robot calibration, tool building and set-up, and assembly guidance.
|
•
|
The Construction BIM reporting segment contains solely our Construction BIM vertical and provides solutions for as-built data capturing and 3D visualization in building information modeling applications, allowing our customers in the architecture, engineering and construction markets to quickly and accurately extract two-dimensional (“2D”) and 3D measurement points. Applications include as-built documentation, construction monitoring, surveying, asset and facility management, and heritage preservation.
|
•
|
The Emerging Verticals reporting segment includes our 3D Design, Public Safety Forensics, and Photonics verticals. Our 3D Design vertical provides advanced 3D solutions to capture and edit 3D shapes of products, people and/or environments for design purposes in product development, computer graphics and dental and medical applications. Our Public Safety Forensics vertical provides solutions to public safety officials and professionals to capture environmental or situational scenes in 2D and 3D for crime, crash and fire scene investigations and environmental safety evaluations. Our Photonics vertical develops and markets galvanometer-based laser measurement products and solutions.
|
|
|
For the Three Months Ended March 31,
|
||||||
|
|
2019
|
|
2018
|
||||
Product sales
|
|
|
|
|
||||
Product transferred to customers at a point in time
|
|
$
|
68,800
|
|
|
$
|
70,581
|
|
Product transferred to customers over time
|
|
—
|
|
|
—
|
|
||
|
|
$
|
68,800
|
|
|
$
|
70,581
|
|
|
|
For the Three Months Ended March 31,
|
||||||
|
|
2019
|
|
2018
|
||||
Service sales
|
|
|
|
|
||||
Service transferred to customers at a point in time
|
|
$
|
11,854
|
|
|
$
|
9,452
|
|
Service transferred to customers over time
|
|
12,963
|
|
|
12,801
|
|
||
|
|
$
|
24,817
|
|
|
$
|
22,253
|
|
|
|
For the Three Months Ended March 31,
|
||||||
|
|
2019
|
|
2018
|
||||
Total sales to external customers
|
|
|
|
|
||||
United States
|
|
$
|
35,848
|
|
|
$
|
37,302
|
|
EMEA (1)
|
|
31,100
|
|
|
29,680
|
|
||
APAC (1)
|
|
23,337
|
|
|
22,589
|
|
||
Other Americas (1)
|
|
3,332
|
|
|
3,263
|
|
||
|
|
$
|
93,617
|
|
|
$
|
92,834
|
|
|
Three Months Ended
|
|
|
March 31,
2019 |
|
Risk-free interest rate
|
2.48
|
%
|
Expected dividend yield
|
—
|
%
|
Expected volatility
|
45.0
|
%
|
Weighted-average expected volatility
|
45.0
|
%
|
|
Three Months Ended
|
|
|
March 31,
2018 |
|
Risk-free interest rate
|
2.65
|
%
|
Expected dividend yield
|
—
|
%
|
Expected term of option
|
4 years
|
|
Expected volatility
|
45.0
|
%
|
Weighted-average expected volatility
|
45.0
|
%
|
|
Options
|
|
Weighted-
Average
Exercise Price
|
|
Weighted-Average
Remaining
Contractual Term
(Years)
|
|
Aggregate Intrinsic
Value as of March 31, 2019 |
|||||
Outstanding at January 1, 2019
|
792,943
|
|
|
$
|
47.59
|
|
|
|
|
|
||
Granted
|
—
|
|
|
—
|
|
|
|
|
|
|||
Forfeited or expired
|
(65,868
|
)
|
|
54.23
|
|
|
|
|
|
|||
Exercised
|
(8,513
|
)
|
|
34.18
|
|
|
|
|
|
|||
Outstanding at March 31, 2019
|
718,562
|
|
|
$
|
47.38
|
|
|
4.3
|
|
$
|
3,118
|
|
Options exercisable at March 31, 2019
|
540,597
|
|
|
$
|
46.57
|
|
|
2.6
|
|
$
|
2,410
|
|
|
Shares
|
|
Weighted-Average
Grant Date
Fair Value
|
|||
Non-vested at January 1, 2019
|
311,000
|
|
|
$
|
42.66
|
|
Granted
|
172,324
|
|
|
45.32
|
|
|
Forfeited
|
(8,453
|
)
|
|
44.36
|
|
|
Vested
|
(82,930
|
)
|
|
34.47
|
|
|
Non-vested at March 31, 2019
|
391,941
|
|
|
$
|
45.53
|
|
|
As of
March 31, 2019 |
|
As of
December 31, 2018 |
||||
Accounts receivable
|
$
|
77,879
|
|
|
$
|
90,675
|
|
Allowance for doubtful accounts
|
(1,642
|
)
|
|
(1,748
|
)
|
||
Total
|
$
|
76,237
|
|
|
$
|
88,927
|
|
|
As of
March 31, 2019 |
|
As of
December 31, 2018 |
||||
Raw materials
|
$
|
43,406
|
|
|
$
|
39,859
|
|
Finished goods
|
31,180
|
|
|
25,585
|
|
||
Inventories, net
|
$
|
74,586
|
|
|
$
|
65,444
|
|
|
|
|
|
||||
Service and sales demonstration inventory, net
|
$
|
38,351
|
|
|
$
|
39,563
|
|
|
Three Months Ended
|
||||||||||||
|
March 31, 2019
|
|
March 31, 2018
|
||||||||||
|
Shares
|
|
Per-Share
Amount
|
|
Shares
|
|
Per-Share
Amount
|
||||||
Basic earnings per share
|
17,280,365
|
|
|
$
|
0.01
|
|
|
16,837,754
|
|
|
$
|
0.03
|
|
Effect of dilutive securities
|
588,451
|
|
|
—
|
|
|
305,016
|
|
|
—
|
|
||
Diluted earnings per share
|
17,868,816
|
|
|
$
|
0.01
|
|
|
17,142,770
|
|
|
$
|
0.03
|
|
|
As of
March 31, 2019 |
|
As of
December 31, 2018 |
||||
Accrued compensation and benefits
|
$
|
13,902
|
|
|
$
|
17,745
|
|
Accrued warranties
|
2,474
|
|
|
2,571
|
|
||
Professional and legal fees
|
2,304
|
|
|
2,154
|
|
||
Taxes other than income
|
3,344
|
|
|
3,550
|
|
||
General services administration contract contingent liability (see Note 16)
|
5,347
|
|
|
5,267
|
|
||
Other accrued liabilities
|
4,018
|
|
|
5,040
|
|
||
|
$
|
31,389
|
|
|
$
|
36,327
|
|
|
Three Months Ended
|
||||||
|
March 31, 2019
|
|
March 31, 2018
|
||||
Balance, beginning of period
|
$
|
2,571
|
|
|
$
|
2,628
|
|
Provision for warranty expense
|
878
|
|
|
914
|
|
||
Fulfillment of warranty obligations
|
(975
|
)
|
|
(1,067
|
)
|
||
Balance, end of period
|
$
|
2,474
|
|
|
$
|
2,475
|
|
|
As of March 31, 2019
|
||||||||||
|
Level 1
|
|
Level 2
|
|
Level 3
|
||||||
Liabilities:
|
|
|
|
|
|
||||||
Contingent consideration (1)
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
5,205
|
|
Total
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
5,205
|
|
|
As of December 31, 2018 |
||||||||||
|
Level 1
|
|
Level 2
|
|
Level 3
|
||||||
Liabilities:
|
|
|
|
|
|
||||||
Contingent consideration (1)
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
5,531
|
|
Total
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
5,531
|
|
(1)
|
Contingent consideration liability represents arrangements to pay the former owners of certain companies we acquired based on the former owners attaining future product release milestones. We use a probability-weighted discounted cash flow model to estimate the fair value of contingent consideration liabilities. These probability weightings are developed internally and assessed on a quarterly basis. The remaining undiscounted maximum payment under these arrangements was $5.6 million as of March 31, 2019. We paid $0.3 million as part of these arrangements during the three months ended March 31, 2019, which was the primary reason for the change in the fair value of the contingent consideration from December 31, 2018 to March 31, 2019.
|
|
|
3D Manufacturing
|
|
Construction BIM
|
|
Emerging Verticals
|
|
Total
|
||||||||
Three Months Ended March 31, 2019
|
|
|
|
|
|
|
|
|
||||||||
|
|
|
|
|
|
|
|
|
||||||||
Total sales
|
|
$
|
56,567
|
|
|
$
|
25,440
|
|
|
$
|
11,610
|
|
|
$
|
93,617
|
|
Segment profit
|
|
$
|
19,170
|
|
|
$
|
8,427
|
|
|
$
|
669
|
|
|
$
|
28,266
|
|
General and administrative
|
|
|
|
|
|
|
|
13,224
|
|
|||||||
Depreciation and amortization
|
|
|
|
|
|
|
|
4,749
|
|
|||||||
Research and development
|
|
|
|
|
|
|
|
9,935
|
|
|||||||
Income from operations
|
|
|
|
|
|
|
|
$
|
358
|
|
|
|
3D Manufacturing
|
|
Construction BIM
|
|
Emerging Verticals
|
|
Total
|
||||||||
Three Months Ended March 31, 2018
|
|
|
|
|
|
|
|
|
||||||||
|
|
|
|
|
|
|
|
|
||||||||
Total sales
|
|
$
|
60,657
|
|
|
$
|
22,682
|
|
|
$
|
9,495
|
|
|
$
|
92,834
|
|
Segment profit
|
|
$
|
18,425
|
|
|
$
|
6,451
|
|
|
$
|
639
|
|
|
$
|
25,515
|
|
General and administrative
|
|
|
|
|
|
|
|
11,073
|
|
|||||||
Depreciation and amortization
|
|
|
|
|
|
|
|
4,343
|
|
|||||||
Research and development
|
|
|
|
|
|
|
|
9,406
|
|
|||||||
Income from operations
|
|
|
|
|
|
|
|
$
|
693
|
|
|
Three Months Ended
|
||
|
March 31, 2019
|
||
Operating lease cost
|
$
|
1,969
|
|
|
|
||
Finance lease cost:
|
|
||
Amortization of ROU assets
|
92
|
|
|
Interest on lease liabilities
|
$
|
12
|
|
Total finance lease cost
|
$
|
104
|
|
|
As of
|
||
|
March 31, 2019
|
|
|
Operating leases:
|
|
||
Operating lease right-of-use asset
|
$
|
18,876
|
|
|
|
||
Current operating lease liability
|
$
|
6,139
|
|
Operating lease liability - less current portion
|
13,782
|
|
|
Total operating lease liability
|
$
|
19,921
|
|
|
|
||
Finance leases:
|
|
||
Property and equipment, at cost
|
$
|
1,692
|
|
Accumulated depreciation
|
(839
|
)
|
|
Property and equipment, net
|
$
|
853
|
|
|
|
||
Current finance lease liability
|
$
|
307
|
|
Finance lease liability - less current portion
|
581
|
|
|
Total finance lease liability
|
$
|
888
|
|
|
|
||
Weighted Average Remaining Lease Term:
|
|
||
Operating leases
|
4.8 years
|
|
|
Finance leases
|
3 years
|
|
|
|
|
||
Weighted Average Discount Rate:
|
|
||
Operating leases
|
5.18
|
%
|
|
Finance leases
|
5.06
|
%
|
|
Three Months Ended
|
|
|
March 31, 2019
|
|
Cash paid for amounts included in the measurement of lease liabilities:
|
|
|
Operating cash flows from operating leases
|
2,029
|
|
Operating cash flows from finance leases
|
12
|
|
Financing cash flows from finance leases
|
90
|
|
|
|
|
ROU assets obtained in exchange for lease obligations:
|
|
|
Operating leases
|
5,400
|
|
Finance leases
|
—
|
|
Year Ending December 31,
|
Operating leases
|
|
Finance leases
|
||||
2019 (excluding the first 3 months)
|
$
|
5,347
|
|
|
$
|
263
|
|
2020
|
5,592
|
|
|
319
|
|
||
2021
|
2,659
|
|
|
280
|
|
||
2022
|
2,314
|
|
|
71
|
|
||
2023
|
2,334
|
|
|
25
|
|
||
Thereafter
|
4,590
|
|
|
—
|
|
||
Total lease payments
|
$
|
22,836
|
|
|
$
|
958
|
|
Less imputed interest
|
(2,915
|
)
|
|
(70
|
)
|
||
Total
|
$
|
19,921
|
|
|
$
|
888
|
|
|
|
Laser Control Systems
|
Photocore AG
|
Lanmark
|
Open Technologies (2)
|
||||||||
Accounts receivable
|
|
$
|
—
|
|
$
|
—
|
|
$
|
610
|
|
$
|
2,735
|
|
Inventory
|
|
—
|
|
—
|
|
299
|
|
1,852
|
|
||||
Other assets
|
|
—
|
|
—
|
|
76
|
|
634
|
|
||||
Intangible assets
|
|
1,400
|
|
1,435
|
|
1,366
|
|
7,821
|
|
||||
Goodwill
|
|
928
|
|
1,010
|
|
5,355
|
|
13,573
|
|
||||
Accounts payable and accrued liabilities
|
|
—
|
|
—
|
|
(159
|
)
|
(2,926
|
)
|
||||
Other liabilities (1)
|
|
(579
|
)
|
—
|
|
(971
|
)
|
(5,201
|
)
|
||||
Deferred income tax liabilities
|
|
—
|
|
—
|
|
(325
|
)
|
(1,876
|
)
|
||||
Total purchase price, net of cash acquired
|
|
$
|
1,749
|
|
$
|
2,445
|
|
$
|
6,251
|
|
$
|
16,612
|
|
|
|
Laser Control Systems
|
Photocore AG
|
Lanmark
|
Open Technologies
|
||||||||||||
|
|
Amount
|
Weighted Average Life (Years)
|
Amount
|
Weighted Average Life (Years)
|
Amount
|
Weighted Average Life (Years)
|
Amount
|
Weighted Average Life (Years)
|
||||||||
Trade name
|
|
$
|
—
|
|
0
|
$
|
—
|
|
0
|
$
|
—
|
|
0
|
$
|
—
|
|
0
|
Brand
|
|
26
|
|
1
|
22
|
|
1
|
26
|
|
1
|
103
|
|
1
|
||||
Non-competition agreement
|
|
29
|
|
3
|
9
|
|
3
|
—
|
|
0
|
—
|
|
0
|
||||
Technology
|
|
1,319
|
|
7
|
1,343
|
|
7
|
760
|
|
7
|
4,441
|
|
7
|
||||
Customer relationship
|
|
26
|
|
10
|
61
|
|
10
|
580
|
|
10
|
3,277
|
|
10
|
||||
Favorable in-place lease
|
|
—
|
|
0
|
—
|
|
0
|
—
|
|
0
|
—
|
|
0
|
||||
Fair value of intangible assets acquired
|
|
$
|
1,400
|
|
7
|
$
|
1,435
|
|
7
|
$
|
1,366
|
|
8
|
$
|
7,821
|
|
8
|
•
|
Transition to short-term incentive plan - Because Mr. Burger will not be eligible to participate in our short-term incentive plan for 2019, he will be eligible to receive a target bonus of 100% of his base salary, pro-rated for the number of days he is employed by us during 2019, provided that he remains employed by us on December 31, 2019 and conditioned upon his achievement of certain performance goals established by the Compensation Committee of our Board (the “Compensation Committee”) and accepted in writing by Mr. Burger on April 5, 2019.
|
•
|
Short-term incentive plan - Mr. Burger will be eligible to participate in our short-term incentive plan beginning in 2020, with a target payout of at least 100% of his base salary conditioned upon our achievement of the performance goals established by the Compensation Committee.
|
•
|
Long-term incentive plan - Mr. Burger will be eligible to receive annual grants under our long-term incentive plan beginning in 2020, with a target value of at least $2 million. Such grants are expected to be awarded in a combination of performance-based restricted stock units and time-based restricted stock units, in a ratio of 50% and 50%, respectively.
|
•
|
Sign-on equity grant - Mr. Burger will be granted a one-time sign-on restricted stock unit award on June 17, 2019 with a target value of $3 million. This equity grant will be comprised of a combination of performance-based restricted stock units and time-based restricted stock units, in a ratio of 50% and 50%, respectively. One-third of the time-based restricted stock units will vest on each of the first, second and third anniversaries of the grant date. The performance-based restricted stock units will be earned based on how our total shareholder return, or TSR, compares to the TSR of the Russell 2000 Growth Index during the performance period from June 17, 2019 to June 17, 2022 (the “Relative TSR”). If our Relative TSR during the performance period is (i) at the 55% percentile, 100% of the target performance-based restricted stock units awarded will be earned and will vest; (ii) at or above the 80th percentile, 200% of the target performance-based restricted stock units awarded will be earned and will vest, provided that if our TSR for the performance period is negative, the maximum percentage that may be earned is 100%; (iii) at the 25th percentile, 25% of the target performance-based restricted stock units awarded will be earned and will vest; and (iv) below the 25th percentile, no performance-based restricted stock units will be earned. The percentage of performance-based restricted stock units that is earned will be interpolated if Relative TSR is between the 25th and 80th percentiles during the performance period.
|
•
|
Signing bonus - Mr. Burger will receive a one-time signing bonus equal to $500,000 payable in a lump sum in cash within 30 days following June 17, 2019. Mr. Burger will be required to repay the signing bonus if, prior to June 17, 2021: (i) he voluntarily terminates his employment with us other than for “good reason” (as defined in the Employment Agreement), (ii) the Employment Agreement expires as a result of his election not to renew the annual term of the Employment Agreement, or (iii) his employment is terminated by us for “cause” (as defined in the Employment Agreement).
|
•
|
Relocation expenses - Mr. Burger is entitled to receive reimbursement for the reasonable expenses he incurs in relocating to our headquarters location in Lake Mary, Florida. He will also be entitled to receive reimbursement for the reasonable expenses he incurs in returning to the U.S. West Coast if he is terminated by us without cause or we elect not to renew the annual term of the Employment Agreement.
|
•
|
an economic downturn in the manufacturing industry or the domestic and international economies in the regions of the world where we operate;
|
•
|
our inability to further penetrate our customer base and target markets;
|
•
|
development by others of new or improved products, processes or technologies that make our products less competitive or obsolete;
|
•
|
our inability to maintain what we believe to be our technological advantage by developing new products and enhancing our existing products;
|
•
|
the results of our internal review and our outside legal counsel’s review of our pricing and other practices under our General Services Administration Federal Supply Schedule contracts, the outcome of the U.S. Government’s review of, or investigation into, our potential overcharging of the U.S. Government under such contracts, any resulting penalties, damages or sanctions imposed on us and the outcome of any resulting litigation to which we may become a party, loss of future government sales and potential impacts on customer and supplier relationships and our reputation;
|
•
|
risks associated with expanding international operations, such as difficulties in staffing and managing foreign operations, increased political and economic instability, compliance with potentially evolving import and export regulations, and the burdens and potential exposure of complying with a wide variety of U.S. and foreign laws and labor practices;
|
•
|
changes in trade regulation, which result in rising prices of imported steel, steel byproducts, aluminum and aluminum byproducts used as raw materials in the production of measurement devices, and our ability to pass those costs on to our customers or require our suppliers to absorb such costs;
|
•
|
changes in foreign regulation which may result in rising prices of our measurement devices sold as exports to our international customers, our customers’ willingness to absorb incremental import tariffs, and the corresponding impact on our profitability;
|
•
|
our inability to successfully identify and acquire target companies and achieve expected benefits from, and effectively integrate, acquisitions that are consummated;
|
•
|
the cyclical nature of the industries of our customers and material adverse changes in our customers’ access to liquidity and capital;
|
•
|
change in the potential for the computer-aided measurement (“CAM2”) market and the potential adoption rate for our products, which are difficult to quantify and predict;
|
•
|
our inability to protect our patents and other proprietary rights in the United States and foreign countries;
|
•
|
our inability to adequately establish and maintain effective internal controls over financial reporting;
|
•
|
fluctuations in our annual and quarterly operating results and the inability to achieve our financial operating targets as a result of a number of factors including, without limitation (i) litigation and regulatory action brought against us, (ii) quality issues with our products, (iii) excess or obsolete inventory, shrinkage or other inventory losses due to product obsolescence, change in demand for our products, scrap or material price changes, (iv) raw material price fluctuations and other inflationary pressures, (v) expansion of our manufacturing capability, (vi) the size and timing of customer orders, (vii) the amount of time that it takes to fulfill orders and ship our products, (viii) the length of our sales cycle to new customers and the time and expense incurred in further penetrating our existing customer base, (ix) manufacturing inefficiencies associated with new product introductions, (x) costs associated with new product introductions, such as product development, marketing, assembly line start-up costs and low introductory period production volumes, (xi) the timing and market acceptance of new products and product enhancements, (xii) customer order deferrals in anticipation of new products and product enhancements, (xiii) the inability of our sales and marketing programs to achieve their sales targets, (xiv) start-up costs associated with opening new sales offices outside of the United States, (xv) fluctuations in revenue without proportionate adjustments in fixed costs, (xvi) inefficiencies in the management of our inventories and fixed assets, (xvii) compliance with government regulations including health, safety, and environmental matters, and (xviii) investment costs associated with the training and ramp-up time for new sales people;
|
•
|
changes in gross margins due to a changing mix of products sold and the different gross margins on different products and sales channels;
|
•
|
changes in applicable laws, rules or regulations, or their interpretation or enforcement, or the enactment of new laws, rules or regulations that apply to our business operations or require us to incur significant expenses for compliance;
|
•
|
our inability to successfully comply with the requirements of the Restriction of Hazardous Substances Directive and the Waste Electrical and Electronic Equipment Directive in the European Union;
|
•
|
the inability of our products to displace traditional measurement devices and attain broad market acceptance;
|
•
|
the impact of competitive products and pricing on our current offerings;
|
•
|
our ability to successfully complete our Chief Executive Officer transition or the loss of other key personnel;
|
•
|
difficulties in recruiting research and development engineers and application engineers;
|
•
|
the failure to effectively manage the effects of any future growth;
|
•
|
the impact of reductions or projected reductions in government spending, or uncertainty regarding future levels of government expenditures, particularly in the defense sector;
|
•
|
variations in our effective income tax rate, which makes it difficult to predict our effective income tax rate on a quarterly and annual basis, and the impact of the U.S. Tax Cuts and Jobs Act of 2017 (the “Tax Cuts Act”) on the global intangible low-taxed income of foreign subsidiaries;
|
•
|
the loss of key suppliers and the inability to find sufficient alternative suppliers in a reasonable period of time or on commercially reasonable terms;
|
•
|
the impact of fluctuations in exchange rates;
|
•
|
the effect of estimates and assumptions with respect to critical accounting policies and the impact of the adoption of recently issued accounting pronouncements;
|
•
|
the magnitude of increased warranty costs from new product introductions and enhancements to existing products;
|
•
|
the sufficiency of our plants to meet manufacturing requirements;
|
•
|
the continuation of our share repurchase program;
|
•
|
the sufficiency of our working capital and cash flow from operations to fund our long-term liquidity requirements;
|
•
|
the impact of geographic changes in the manufacturing or sales of our products on our effective income tax rate;
|
•
|
our ability to comply with the requirements for favorable tax rates in foreign jurisdictions; and
|
•
|
other risks and uncertainties discussed in Part I, Item 1A. Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2018.
|
•
|
In the third quarter of 2018, we merged the historical Factory Metrology and 3D Machine Vision verticals into one vertical named “3D Factory” for greater consistency with our realigned reporting segments.
|
•
|
In the third quarter of 2018, we segregated the operations of our acquisitions of Laser Control Systems Limited and Lanmark Controls, Inc., along with the operations resulting from our acquisition of substantially all of the assets of Instrument Associates, LLC d/b/a Nutfield Technology, into a vertical that we named “Photonics.” The creation of this vertical enables us to better focus on our product range directed at laser steering. These operations were historically reported in the 3D Factory reporting segment in the first six months of 2018 and the historical Factory Metrology reporting segment in 2017 and are now included in the Emerging Verticals (formerly known as “Other”) reporting segment.
|
•
|
In the fourth quarter of 2018, we renamed our 3D Factory vertical and reporting segment “3D Manufacturing.”
|
|
Three months ended March 31,
|
|
||||||||||||
(dollars in thousands)
|
2019
|
|
% of Sales
|
|
2018
|
|
% of Sales
|
|
||||||
Sales
|
|
|
|
|
|
|
|
|
||||||
Product
|
$
|
68,800
|
|
|
73.5
|
%
|
|
$
|
70,581
|
|
|
76.0
|
%
|
|
Service
|
24,817
|
|
|
26.5
|
%
|
|
22,253
|
|
|
24.0
|
%
|
|
||
Total sales
|
93,617
|
|
|
100.0
|
%
|
|
92,834
|
|
|
100.0
|
%
|
|
||
Cost of Sales
|
|
|
|
|
|
|
|
|
||||||
Product
|
26,128
|
|
|
27.9
|
%
|
|
26,884
|
|
|
29.0
|
%
|
|
||
Service
|
12,470
|
|
|
13.3
|
%
|
|
12,164
|
|
|
13.1
|
%
|
|
||
Total cost of sales (exclusive of depreciation and amortization, shown separately below)
|
38,598
|
|
|
41.2
|
%
|
|
39,048
|
|
|
42.1
|
%
|
|
||
Gross Profit
|
55,019
|
|
|
58.8
|
%
|
|
53,786
|
|
|
57.9
|
%
|
|
||
Operating Expenses:
|
|
|
|
|
|
|
|
|
||||||
Selling and marketing
|
26,753
|
|
|
28.6
|
%
|
|
28,271
|
|
|
30.5
|
%
|
|
||
General and administrative
|
13,224
|
|
|
14.1
|
%
|
|
11,073
|
|
|
11.9
|
%
|
|
||
Depreciation and amortization
|
4,749
|
|
|
5.1
|
%
|
|
4,343
|
|
|
4.7
|
%
|
|
||
Research and development
|
9,935
|
|
|
10.6
|
%
|
|
9,406
|
|
|
10.1
|
%
|
|
||
Total operating expenses
|
54,661
|
|
|
58.4
|
%
|
|
53,093
|
|
|
57.2
|
%
|
|
||
Income from operations
|
358
|
|
|
0.4
|
%
|
|
693
|
|
|
0.7
|
%
|
|
||
Other (income) expense
|
|
|
|
|
|
|
|
|
||||||
Interest income, net
|
(144
|
)
|
|
(0.2
|
)%
|
|
(73
|
)
|
|
(0.1
|
)%
|
|
||
Other expense, net
|
195
|
|
|
0.2
|
%
|
|
184
|
|
|
0.2
|
%
|
|
||
Income before income tax expense
|
307
|
|
|
0.3
|
%
|
|
582
|
|
|
0.6
|
%
|
|
||
Income tax expense
|
155
|
|
|
0.2
|
%
|
|
127
|
|
|
0.1
|
%
|
|
||
Net income
|
$
|
152
|
|
|
0.2
|
%
|
|
$
|
455
|
|
|
0.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
||||||||||||
|
March 31, 2019
|
|
% of
Total
|
|
March 31, 2018
|
|
% of
Total
|
||||||
3D Manufacturing
|
$
|
56,567
|
|
|
60.4
|
%
|
|
$
|
60,657
|
|
|
65.4
|
%
|
Construction BIM
|
25,440
|
|
|
27.2
|
%
|
|
22,682
|
|
|
24.4
|
%
|
||
Emerging Verticals
|
11,610
|
|
|
12.4
|
%
|
|
9,495
|
|
|
10.2
|
%
|
||
Total sales
|
$
|
93,617
|
|
|
|
|
$
|
92,834
|
|
|
|
3D Manufacturing
|
|
|
|
|
||||
(dollars in thousands)
|
|
Three Months Ended
|
||||||
|
|
March 31, 2019
|
|
March 31, 2018
|
||||
Total sales
|
|
$
|
56,567
|
|
|
$
|
60,657
|
|
Segment profit
|
|
$
|
19,170
|
|
|
$
|
18,425
|
|
Segment profit as a % of 3D Manufacturing segment sales
|
|
33.9
|
%
|
|
30.4
|
%
|
Construction BIM
|
|
|
|
|
||||
(dollars in thousands)
|
|
Three Months Ended
|
||||||
|
|
March 31, 2019
|
|
March 31, 2018
|
||||
Total sales
|
|
$
|
25,440
|
|
|
$
|
22,682
|
|
Segment profit
|
|
$
|
8,427
|
|
|
$
|
6,451
|
|
Segment profit as a % of Construction BIM segment sales
|
|
33.1
|
%
|
|
28.4
|
%
|
Emerging Verticals
|
|
|
||||||
(dollars in thousands)
|
|
Three Months Ended
|
||||||
|
|
March 31, 2019
|
|
March 31, 2018
|
||||
Total sales
|
|
$
|
11,610
|
|
|
$
|
9,495
|
|
Segment profit
|
|
$
|
669
|
|
|
$
|
639
|
|
Segment profit as a % of Emerging Verticals segment sales
|
|
5.8
|
%
|
|
6.7
|
%
|
|
|
|
|
|
FARO Technologies, Inc.
|
|
|
|
(Registrant)
|
|
|
|
|
Date: May 1, 2019
|
By:
|
|
/s/ Robert Seidel
|
|
|
|
Name: Robert Seidel
|
|
|
|
Title: Chief Financial Officer
|
|
|
|
(Duly Authorized Officer and Principal Financial Officer)
|
|
|
FARO TECHNOLOGIES, INC.
|
|
|
|
By:
|
|
|
|
Name:
|
|
|
|
Title:
|
|
|
|
GRANTEE
|
|
|
|
Name:
|
|
|
FARO TECHNOLOGIES, INC.
|
|
|
|
By:
|
|
|
|
Name:
|
|
|
|
Title:
|
|
|
|
GRANTEE
|
|
|
|
Name:
|
Scheduled Vesting Date:
|
The date, on or before March 30, 2022, on which the Committee certifies (i) the degree to which the applicable performance objectives for the Performance Period have been satisfied, and (ii) the number of Restricted Stock Units that have been earned during the Performance Period and will vest, as determined in accordance with this Exhibit A.
|
Payout Level
|
Relative TSR
|
Relative TSR Percentage
|
Max
|
80th percentile or above
|
200%
|
Target
|
55th percentile
|
100%
|
Threshold
|
25th percentile
|
25%
|
None
|
Less than 25th percentile
|
0%
|
/s/ Simon Raab
|
Name: Simon Raab
Title: President and Chief Executive Officer
(Principal Executive Officer)
|
/s/ Robert Seidel
|
Name: Robert Seidel
Title: Chief Financial Officer
(Principal Financial Officer)
|
/s/ Simon Raab
|
Name: Simon Raab
Title: President and Chief Executive Officer
(Principal Executive Officer)
|
/s/ Robert Seidel
|
Name: Robert Seidel
Title: Chief Financial Officer
(Principal Financial Officer)
|