NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2019, 2018 and 2017
(in thousands, except share and per share data or as otherwise noted)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Business—FARO Technologies, Inc. and its subsidiaries (collectively “FARO,” the “Company,” “us,” “we” or “our”) design, develop, manufacture, market and support software driven, three-dimensional (“3D”) measurement and imaging solutions. This technology permits high-precision 3D measurement, imaging and comparison of parts and complex structures within production and quality assurance processes. Our devices are used for inspection of components and assemblies, rapid prototyping, reverse engineering, documenting large volume or structures in 3D, surveying and construction, as well as for investigation and reconstruction of accident sites or crime scenes. We sell the majority of our products through a direct sales force across a broad number of customers in a range of manufacturing, industrial, architecture, surveying, building information modeling, construction, public safety forensics, cultural heritage, and other applications. Our FaroArm®, FARO ScanArm®, FARO Laser TrackerTM, FARO Laser Projector, and their companion CAM2®, BuildIT, and BuildIT Projector software solutions, provide for Computer-Aided Design (“CAD”) based inspection, factory-level statistical process control, high-density surveying, and laser-guided assembly and production. Together, these products integrate the measurement, quality inspection, and reverse engineering functions with CAD and 3D software to improve productivity, enhance product quality, and decrease rework and scrap in the manufacturing process, mainly supporting applications in the automotive, aerospace, metal and machine fabrication and other industrial manufacturing markets. Our FARO Focus and FARO ScanPlan, and their companion FARO SCENE, BuildIT, FARO As-BuiltTM, and FARO Zone public safety forensics software offerings, are utilized for a wide variety of 3D modeling, documentation and high-density surveying applications primarily in the architecture, engineering and construction and public safety markets. Our FARO ScanArm® and its companion SCENE software also enable a fully digital workflow used to capture real world geometry for the purpose of empowering design, enabling innovation, and speeding up the design cycle.
Since the fourth quarter of 2016, we had operated in five verticals—3D Manufacturing, Construction Building Information Modeling (“Construction BIM”), Public Safety Forensics, 3D Design and Photonics—and had three reporting segments—3D Manufacturing, Construction BIM and Emerging Verticals. As discussed in our Quarterly Report on Form 10-Q for the third quarter of 2019, our new management team, led by our new Chief Executive Officer (“CEO”), formulated and began to implement a new comprehensive strategic plan for our business. As part of our strategic planning process, we identified areas of our business that needed enhanced focus or change in order to improve our efficiency and cost structure. In the fourth quarter of 2019, we reassessed and redefined our go-to-market strategy, refocused our marketing engagement with our customers and re-evaluated our hardware product portfolio.
As part of our new strategic plan, and based on the recommendation of our CEO, who is also our Chief Operating Decision Maker (“CODM”), in the fourth quarter of 2019, we eliminated our vertical structure and began reorganizing the Company into a functional structure. Our executive leadership team is now comprised of functional leaders in areas such as sales, marketing, operations, research and development and general and administrative, and resources are allocated to each function at a consolidated unit level. We no longer have separate business units, or segment managers or vertical leaders who report to the CODM with respect to operations, operating results or planning for levels or components below the total Company level. Instead, our CODM now allocates resources and evaluates performance on a Company-wide basis. Based on these changes, commencing with the fourth quarter of 2019, we are now reporting as one reporting segment that develops, manufactures, markets, supports and sells CAD-based quality assurance products integrated with CAD-based inspection and statistical process control software and 3D documentation systems. Our reporting segment sells into a variety of end markets, including automotive, aerospace, metal and machine fabrication, architecture, engineering, construction and public safety.
Principles of Consolidation—Our consolidated financial statements include the accounts of FARO Technologies, Inc. and its subsidiaries, all of which are wholly owned. All intercompany transactions and balances have been eliminated. The financial statements of our foreign subsidiaries are translated into U.S. dollars using exchange rates in effect at period-end for assets and liabilities and average exchange rates during each reporting period for results of operations. Adjustments resulting from financial statement translations are reflected as a separate component of accumulated other comprehensive loss. Foreign currency transaction gains and losses are included in net income (loss).
Revenue Recognition, Product Warranty and Extended Warranty Contracts—Revenue is recognized as performance obligations within a contract are satisfied in an amount that reflects the consideration we expect to receive in exchange for satisfaction of those performance obligations, or standalone selling price. Our contracts with customers may include multiple performance obligations. For such arrangements, we allocate revenues to each performance obligation based on its relative standalone selling price. We make this allocation estimate utilizing data from the sale of our applicable products and services to customers separately in similar circumstances, with the exception of software licenses. With respect to software licenses, we use the residual method for allocating the contract price to performance obligations relating to software licenses. Revenue related to our measurement and imaging equipment and related software is generally recognized upon shipment from our facilities or when delivered to the customer's location, as determined by the agreed upon shipping terms, at which time we are entitled to payment and title and control has passed to the customer. Fees billed to customers associated with the distribution of products are classified as revenue. We warrant our products against defects in design, materials and workmanship for one year. A provision for estimated future costs relating to warranty expense is recorded when products are shipped. We separately sell extended warranties. Extended warranty revenues are recognized on a straight-line basis over the term of the warranty. Costs relating to extended warranties are recognized as incurred. Revenue from sales of software only is recognized when no further significant production, modification or customization of the software is required and when the risks and rewards of ownership have passed to the customer. These software arrangements generally include short-term maintenance that is considered post-contract support (“PCS”), which is considered to be a separate performance obligation. We generally establish a standalone sales price for this PCS component based on our maintenance renewal rate. Maintenance renewals, when sold, are recognized on a straight-line basis over the term of the maintenance agreement. Revenues resulting from sales of comprehensive support, training and technology consulting services are recognized as such services are performed and are deferred when billed in advance of the performance of services. Payment for products and services is collected within a short period of time following transfer of control or commencement of delivery of services, as applicable. Revenues are presented net of sales-related taxes.
Cash and Cash Equivalents—We consider cash on hand and amounts on deposit with financial institutions with maturities of three months or less when purchased to be cash and cash equivalents. We had deposits with foreign banks totaling $89.3 million and $77.5 million as of December 31, 2019 and 2018, respectively.
Accounts Receivable and Related Allowance for Doubtful Accounts—Credit is extended to customers based on an evaluation of a customer’s financial condition and, generally, collateral is not required. Accounts receivable are generally due within 30 to 90 days and are stated at amounts due from customers, net of an allowance for doubtful accounts. Accounts outstanding longer than the contractual payment terms are considered past due. We make judgments as to the collectability of accounts receivable based on historical trends and future expectations. Management estimates an allowance for doubtful accounts, which adjusts gross trade accounts receivable to their net realizable value. The allowance for doubtful accounts is based on an analysis of all receivables for possible impairment issues and historical write-off percentages. We write off accounts receivable when they become uncollectible, and payments subsequently received on such receivables are credited to the allowance for doubtful accounts. We do not generally charge interest on past due receivables.
Inventories—Inventories are stated at the lower of cost or net realizable value using the first-in first-out (“FIFO”) method. Shipping and handling costs are classified as a component of cost of sales in the consolidated statements of operations. Sales demonstration inventory is comprised of measuring and imaging devices utilized by sales representatives to present our products to customers. Management expects sales demonstration inventory to be held by our sales representatives for up to three years, at which time it is refurbished and transferred to finished goods as used equipment, stated at the lower of cost or net realizable value. Management expects these refurbished units to remain in finished goods inventory and be sold within 12 months at prices that produce reduced gross margins. Sales demonstration inventory remains classified as inventory, as it is available for sale and any required refurbishment prior to sale is minimal.
Service inventory is typically used to provide a temporary replacement product to a customer covered by a premium warranty when the customer’s unit requires service or repair and as training equipment. Service inventory is available for sale; however, management does not expect service inventory to be sold within 12 months and, as such, classifies this inventory as a long-term asset. Service inventory that we utilize for training or repairs which we deem as no longer available for sale is transferred to fixed assets at the lower of cost or net realizable value and depreciated over its remaining useful life, typically three years. See Note 6, “Inventories” for further information regarding inventories.
Reserve for Excess and Obsolete Inventory—Because the value of inventory that will ultimately be realized cannot be known with exact certainty, we rely upon both past sales history and future sales forecasts to provide a basis for the determination of the reserve. Inventory is considered potentially obsolete if we have withdrawn those products from the market or had no sales of the product for the past 12 months and have no sales forecasted for the next 12 months. Inventory is considered potentially excess if the quantity on hand exceeds 12 months of expected remaining usage. The resulting potentially obsolete and excess parts are then reviewed to determine if a substitute usage or a future need exists. Items without an identified current or future usage are reserved in an amount equal to 100% of the FIFO cost of such inventory. Our products are subject to changes in technologies that may make certain of our products or their components obsolete or less competitive, which may increase our historical provisions to the reserve.
Property and Equipment—Property and equipment purchases exceeding one thousand dollars are capitalized and recorded at cost. Depreciation is computed beginning on the date that the asset is placed into service using the straight-line method over the estimated useful lives of the various classes of assets as follows:
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|
|
|
|
|
Machinery, equipment and software
|
2 to 5 years
|
Furniture and fixtures
|
3 to 10 years
|
Leasehold improvements are amortized on a straight-line basis over the lesser of the life of the asset or the remaining term of the lease.
Depreciation expense was $13.0 million, $12.9 million and $12.3 million in 2019, 2018 and 2017, respectively. Accelerated methods of depreciation are used for income tax purposes in contrast to book purposes, and as a result, appropriate provisions are made for the related deferred income taxes. Balances of major classes of depreciable assets and total accumulated depreciation as of December 31, 2019 and 2018 are as follows:
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|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
|
December 31, 2018
|
Property and equipment:
|
|
|
|
|
Machinery and equipment
|
|
83,900
|
|
|
|
76,048
|
|
Furniture and fixtures
|
|
6,377
|
|
|
|
6,749
|
|
Leasehold improvements
|
|
21,397
|
|
|
|
20,304
|
|
Property and equipment at cost
|
|
111,674
|
|
|
|
103,101
|
|
Less: accumulated depreciation and amortization
|
|
(84,720)
|
|
|
|
(72,684)
|
|
Property and equipment, net
|
|
26,954
|
|
|
|
30,417
|
|
Business Combinations—We allocate the fair value of purchase consideration to the assets acquired and liabilities assumed based on their fair values at the acquisition date. The excess of the fair value of purchase consideration over the fair value of these assets acquired and liabilities assumed is recorded as goodwill. When determining the fair values of assets acquired and liabilities assumed, management makes significant estimates and assumptions, especially with respect to intangible assets. Critical estimates in valuing intangible assets include, but are not limited to, expected future cash flows, which include consideration of future growth rates and margins, customer attrition rates, future changes in technology and brand awareness, loyalty and position, and discount rates. Critical estimates are also made in valuing earn-outs, which represent arrangements to pay former owners based on the satisfaction of performance criteria. Fair value estimates are based on the assumptions management believes a market participant would use in pricing the asset or liability. Amounts recorded in a business combination may change during the measurement period, which is a period not to exceed one year from the date of acquisition, as additional information about conditions existing at the acquisition date becomes available.
Goodwill and Intangible Assets—Goodwill represents the excess cost of a business acquisition over the fair value of the net assets acquired. We do not amortize goodwill; however, we perform an annual review each year, or more frequently if indicators of potential impairment exist (i.e., that it is more likely than not that the fair value of the reporting unit is less than the carrying value), to determine if the carrying value of the recorded goodwill or indefinite lived intangible assets is impaired.
We changed the timing of our annual test of goodwill during 2019 to align with our updated strategic plan and annual budgetary process. Accordingly, we performed our annual quantitative test for impairment of our recorded goodwill as of December 10, 2019. As a result of this test, the estimated fair value of each of the Photonics reporting unit, which included goodwill recognized with the Instrument Associates, LLC d/b/a Nutfield Technology (“Nutfield”), Laser Control Systems Limited (“Laser Control Systems”) and Lanmark Controls, Inc. (“Lanmark”) acquisitions, and the 3D Design reporting unit, which included goodwill recognized with the acquisition of Opto-Tech SRL and its subsidiary Open Technologies SRL (collectively, “Open Technologies”), were determined to be significantly less than the carrying value of such reporting unit, indicating a full impairment. This $21.2 million impairment loss was driven primarily by historical and projected financial performance lower than our expectations and changes in our go-forward strategy in connection with our new strategic plan. Management has concluded there was no goodwill impairment for the years ended December 31, 2018 and 2017. See Note 7, “Goodwill” for further information regarding goodwill.
Other intangible assets principally include patents, existing product technology and customer relationships that arose in connection with our acquisitions. Other intangible assets are recorded at fair value at the date of acquisition and are amortized over their estimated useful lives of 3 to 20 years. As of December 31, 2019 and 2018, there were no indefinite-lived intangible assets.
Product technology and patents are recorded at cost. Amortization expense is computed using the straight-line method over the lives of the product technology and patents of 7 to 20 years.
The remaining weighted-average amortization period for all our intangible assets is 4 years.
As a result of historical and projected financial performance lower than our expectations and changes in our go-forward strategy in connection with our new strategic plan, the estimated fair value of acquired intangibles recognized with the Nutfield, Laser Control Systems, Lanmark and Open Technologies acquisitions were determined to be less than the carrying value of the net carrying value for such assets. We recognized an impairment charge related to such acquired intangibles of $10.5 million in 2019. See Note 8, “Intangible Assets” for further information regarding intangible assets.
Research and Development—Research and development costs incurred in the discovery of new knowledge and the resulting translation of this new knowledge into plans and designs for new products prior to the attainment of the related products’ technological feasibility are recorded as expenses in the period incurred. To date, the time incurred between the attainment of the related products' technological feasibility and general release to customers has been short.
Reserve for Warranties—We establish at the time of sale a liability for the one-year warranty included with the initial purchase price of our products, based upon an estimate of the repair expenses likely to be incurred for the warranty period. The warranty period is measured in installation-months for each major product group. The warranty reserve is included in accrued liabilities in the accompanying consolidated balance sheets. The warranty expense is estimated by applying the actual total repair expenses for each product group in the prior period and determining a rate of repair expense per installation-month. This repair rate is multiplied by the number of installation-months of warranty for each product group to determine the provision for warranty expenses for the period. We evaluate our exposure to warranty costs at the end of each period using the estimated expense per installation-month for each major product group, the number of units remaining under warranty, and the remaining number of months each unit will be under warranty. We have a history of new product introductions and enhancements to existing products, which may result in unforeseen issues that increase our warranty costs. While such expenses have historically been within expectations, we cannot guarantee this will continue in the future.
Income Taxes—We review our deferred tax assets on a regular basis to evaluate their recoverability based upon expected future reversals of deferred tax assets and liabilities, projections of future taxable income, and tax planning strategies that we might employ to utilize such assets, including net operating loss carryforwards. Based on the positive and negative evidence for recoverability, we establish a valuation allowance against the net deferred tax assets of a taxing jurisdiction in which we operate unless it is “more likely than not” that we will recover such assets through the above means. Our evaluation of the need for the valuation allowance is significantly influenced by our ability to maintain profitability and our ability to predict and achieve future projections of taxable income.
We recognize tax benefits related to uncertain tax positions only if it is more likely than not that the tax position will be sustained upon examination by taxing authorities. For those positions where it is not more likely than not that a tax benefit will be sustained, no tax benefit has been recognized in the financial statements. In the ordinary course of business, we are examined by various federal, state, and foreign tax authorities. We regularly assess the potential outcomes of these examinations and any future examinations for the current or prior years in determining the adequacy of our provision for income taxes. See Note 12, “Income Taxes” for further information regarding income taxes.
(Loss) Earnings Per Share (“EPS”)—Basic (loss) earnings per share is computed by dividing net (income) income by the weighted average number of shares outstanding. Diluted earnings per share is computed by also considering the impact of potential common stock on both net income and the weighted average number of shares outstanding. Our potential common stock consists of employee stock options, restricted stock, restricted stock units and performance-based awards. Our potential common stock is excluded from the basic earnings per share calculation and is included in the diluted earnings per share calculation when doing so would not be anti-dilutive. Performance-based awards are included in the computation of diluted earnings per share only to the extent that the underlying performance conditions (and any applicable market condition) (i) are satisfied as of the end of the reporting period or (ii) would be considered satisfied if the end of the reporting period were the end of the related contingency period and the result would be dilutive under the treasury stock method. When we report a loss for the period presented, the diluted loss per share calculation does not include our potential common stock, as the inclusion of these shares in the calculation would have an anti-dilutive effect. A reconciliation of the number of common shares used in the calculation of basic and diluted EPS is presented in Note 15, “(Loss) Earnings Per Share.”
Accounting for Stock-Based Compensation—We have two stock-based employee and director compensation plans, which are described more fully in Note 14, “Stock Compensation Plans.”
We measure and record compensation expense using the applicable accounting guidance for share-based payments related to stock options, restricted stock, restricted stock units and performance-based awards granted to our directors and employees. The fair value of stock options, including performance awards, without a market condition is estimated, at the date of grant, using the Black-Scholes option-valuation model. The fair value of restricted stock unit awards and stock options with a market condition is estimated, at the date of grant, using the Monte Carlo Simulation valuation model. The Black-Scholes and Monte Carlo Simulation valuation models incorporate assumptions as to stock price volatility, the expected life of options or awards, a risk-free interest rate and dividend yield. In valuing our stock options, significant judgment is required in determining the expected volatility of our common stock and the expected life that individuals will hold their stock options prior to exercising. Expected volatility for stock options is based on the historical and implied volatility of our own common stock while the volatility for our restricted stock units with a market condition is based on the historical volatility of our own stock and the stock of companies within our defined peer group. The expected life of stock options is derived from the historical actual term of option grants and an estimate of future exercises during the remaining contractual period of the option. While volatility and estimated life are assumptions that do not bear the risk of change subsequent to the grant date of stock options, these assumptions may be difficult to measure as they represent future expectations based on historical experience. Further, our expected volatility and expected life may change in the future, which could substantially change the grant-date fair value of future awards of stock options and, ultimately, the expense we record. The fair value of restricted stock and restricted stock units, including performance awards, without a market condition is estimated using the current market price of our common stock on the date of grant.
We expense stock-based compensation for stock options, restricted stock awards, restricted stock units and performance awards over the requisite service period. For awards with only a service condition, we expense stock-based compensation using the straight-line method over the requisite service period for the entire award. For awards with both performance and service conditions, we expense the stock-based compensation on a straight-line basis over the requisite service period for each separately vesting portion of the award, taking into account the probability that we will satisfy the performance conditions. Furthermore, we expense awards with a market condition over the three-year vesting period regardless of the value that the award recipients ultimately receive. All income tax-related cash flows resulting from share-based payments are reported as operating activities in the statement of cash flows in the deferred income tax benefit line item. We elect to account for forfeitures related to the service condition-based awards as they occur.
Concentration of Credit Risk—Financial instruments that expose us to concentrations of credit risk consist principally of short-term investments and operating demand deposit accounts. Our policy is to place our operating demand deposit accounts with high credit quality financial institutions, the balances of which at times may exceed federally insured limits. We continually monitor our banking relationships and believe we are not exposed to any significant credit risk on our operating demand deposit accounts.
Estimates—The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Impact of Recently Adopted Accounting Standards—In February 2016, the FASB issued Accounting Standards Update (“ASU”) No. 2016-02, Leases (Topic 842) (“ASU 2016-02”), which is intended to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements to enable users of financial statements to assess the amount, timing and uncertainty of cash flows arising from leases. ASU No. 2018-11, Leases (Topic 842): Targeted Improvements, was issued by the FASB in July 2018 and allows for a cumulative-effect adjustment transition method of adoption. We adopted ASU 2016-02 effective as of January 1, 2019 utilizing the cumulative-effect adjustment transition method of adoption, which resulted in the recognition on our consolidated balance sheet as of December 31, 2019 of $18.4 million of right-of-use assets for operating leases, $19.6 million of lease liability for operating leases, $0.8 million of property and equipment, net for finance leases and $0.8 million of lease liability for finance leases under which we function as a lessee. We elected certain practical expedients available under the transition provisions to (i) allow aggregation of non-lease components with the related lease components when evaluating accounting treatment, (ii) apply the modified retrospective adoption method, utilizing the simplified transition option, which allows us to continue to apply the legacy guidance in FASB ASC Topic 840, including its disclosure requirements, in the comparative periods presented in the year of adoption, and (iii) use hindsight in determining the lease term (that is, when considering our options to extend or terminate the lease and to purchase the underlying asset) and in assessing impairment of our right-of-use assets. The adoption of ASU 2016-02 also required us to include any initial direct costs, which are incremental costs that would not have been incurred had the lease not been obtained, in the right-of-use assets. The recognition of these costs in connection with our adoption of this guidance did not have a material impact on our consolidated financial statements.
In January 2017, the FASB issued ASU No. 2017-04, Intangible - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment (“ASU 2017-04”), which is intended to simplify the subsequent measurement of goodwill by eliminating Step 2 from the goodwill impairment test. Under the new guidance, we perform our goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An impairment charge is recognized for the amount by which the carrying amount exceeds the reporting unit’s fair value up to the amount of the goodwill allocated to the reporting unit. The new guidance also eliminates the requirements for any reporting unit with a zero or negative carrying amount to perform Step 2 of the goodwill impairment test if it fails the qualitative assessment. We adopted this guidance in connection with our annual impairment test for the fiscal year ended December 31, 2019. The adoption of this guidance did not have a material impact on our consolidated financial statements.
Impact of Recently Issued Accounting Standards—In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”), which requires the measurement and recognition of expected credit losses for financial assets held at amortized cost. ASU 2016-13, and subsequent related amendments to ASU 2016-13, replace the existing incurred loss impairment model with an expected loss model that requires the use of forward-looking information to calculate credit loss estimates. It also eliminates the concept of other-than-temporary impairment and requires credit losses related to available-for-sale debt securities to be recorded through an allowance for credit losses rather than as a reduction in the amortized cost basis of the securities. These changes will result in earlier recognition of credit losses. We adopted ASU 2016-13 effective as of January 1, 2020, and the adoption of the new guidance did not have a material impact on our consolidated financial statements.
Reclassifications—Certain prior year amounts have been reclassified in the accompanying consolidated financial statements to conform to the current period presentation:
•Depreciation and amortization expenses are being reported in the accompanying statements of operations to reflect departmental costs. Previously, those expenses were reported as a separate line item under operating expenses. Amounts related to depreciation and amortization expenses for the years ended December 31, 2018 and 2017 have been restated throughout this Annual Report on Form 10-K to reflect this reclassification of depreciation and amortization expenses and to conform to the current period presentation, as set forth in the following tables;
•Selling and marketing expenses and general and administrative expenses are now being reported in the accompanying statements of operations together in one line as Selling, general and administrative. Previously, those expenses were reported as two separate line items under operating expenses. Amounts related to selling, general and administrative expenses for the years ended December 31, 2018 and 2017 have been restated throughout this Annual Report on Form 10-K to reflect this reclassification of selling, general and administrative expenses and to conform to the current period presentation, as set forth in the following tables;
•Software maintenance revenue is now being reported in the accompanying statements of operations as a component of product sales. Previously, these revenues were reported in service sales. Amounts related to software maintenance sales for the years ended December 31, 2018 and 2017 have been restated throughout this Annual Report on Form 10-K to reflect this reclassification of software maintenance sales and to conform to the current period presentation, as set forth in the following tables; and
•Software maintenance cost of sales is now being reported in the accompanying statements of operations as a component of product cost of sales. Previously, these cost of sales was reported in service cost of sales. Amounts related to software maintenance cost of sales for the years ended December 31, 2018 and 2017 have been restated throughout this Annual Report on Form 10-K to reflect this reclassification of software maintenance cost of sales and to conform to the current period presentation, as set forth in the following tables.
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|
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|
|
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|
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|
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|
For the twelve months ended December 31, 2018:
|
|
|
|
|
|
|
|
|
|
|
As Reported
|
|
Depreciation and Amortization Adjustment
|
|
Selling, General and Administrative Adjustment
|
|
Software Maintenance Adjustment
|
|
As Adjusted
|
Sales
|
|
|
|
|
|
|
|
|
|
Product
|
$
|
311,102
|
|
|
|
$
|
—
|
|
|
|
$
|
—
|
|
|
|
$
|
9,482
|
|
|
|
$
|
320,584
|
|
Service
|
92,525
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(9,482)
|
|
|
|
83,043
|
|
Total sales
|
$
|
403,627
|
|
|
|
$
|
—
|
|
|
|
$
|
—
|
|
|
|
$
|
—
|
|
|
|
$
|
403,627
|
|
|
|
|
|
|
|
|
|
|
|
Cost of Sales
|
|
|
|
|
|
|
|
|
|
Product
|
$
|
124,802
|
|
|
|
$
|
3,406
|
|
|
|
$
|
—
|
|
|
$
|
2,668
|
|
|
$
|
130,876
|
|
Service
|
50,480
|
|
|
|
3,386
|
|
|
|
—
|
|
|
(2,668)
|
|
|
51,198
|
|
Total cost of sales
|
$
|
175,282
|
|
|
|
$
|
6,792
|
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
182,074
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative
|
$
|
—
|
|
|
$
|
5,145
|
|
|
$
|
164,572
|
|
|
$
|
—
|
|
|
$
|
169,717
|
|
Selling and marketing
|
116,920
|
|
|
|
—
|
|
|
|
(116,920)
|
|
|
|
—
|
|
|
|
—
|
|
General and administrative
|
47,652
|
|
|
|
—
|
|
|
|
(47,652)
|
|
|
|
—
|
|
|
|
—
|
|
Depreciation and amortization
|
18,313
|
|
|
|
(18,313)
|
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Research and development
|
39,706
|
|
|
|
6,376
|
|
|
|
—
|
|
|
—
|
|
|
46,082
|
|
Total operating expenses
|
$
|
222,591
|
|
|
|
$
|
(6,792)
|
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
215,799
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the twelve months ended December 31, 2017:
|
|
|
|
|
|
|
|
|
|
|
As Reported
|
|
Depreciation and Amortization Adjustment
|
|
Selling, General and Administrative Adjustment
|
|
Software Maintenance Adjustment
|
|
As Adjusted
|
Sales
|
|
|
|
|
|
|
|
|
|
Product
|
$
|
277,922
|
|
|
|
$
|
—
|
|
|
|
$
|
—
|
|
|
|
$
|
9,326
|
|
|
|
$
|
287,248
|
|
Service
|
82,995
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(9,326)
|
|
|
|
73,669
|
|
Total sales
|
$
|
360,917
|
|
|
|
$
|
—
|
|
|
|
$
|
—
|
|
|
|
$
|
—
|
|
|
|
$
|
360,917
|
|
|
|
|
|
|
|
|
|
|
|
Cost of Sales
|
|
|
|
|
|
|
|
|
|
Product
|
$
|
110,143
|
|
|
|
$
|
3,254
|
|
|
|
$
|
—
|
|
|
|
$
|
2,364
|
|
|
|
$
|
115,761
|
|
Service
|
46,137
|
|
|
|
2,701
|
|
|
|
—
|
|
|
|
(2,364)
|
|
|
|
46,474
|
|
Total cost of sales
|
$
|
156,280
|
|
|
|
$
|
5,955
|
|
|
|
$
|
—
|
|
|
|
$
|
—
|
|
|
|
$
|
162,235
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative
|
$
|
—
|
|
|
|
$
|
4,948
|
|
|
|
$
|
147,351
|
|
|
|
$
|
—
|
|
|
|
$
|
152,299
|
|
Selling and marketing
|
103,544
|
|
|
|
—
|
|
|
|
(103,544)
|
|
|
|
—
|
|
|
|
—
|
|
General and administrative
|
43,807
|
|
|
|
—
|
|
|
|
(43,807)
|
|
|
|
—
|
|
|
|
—
|
|
Depreciation and amortization
|
16,588
|
|
|
|
(16,588)
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Research and development
|
35,376
|
|
|
|
5,685
|
|
|
|
—
|
|
|
|
—
|
|
|
|
41,061
|
|
Total operating expenses
|
$
|
199,315
|
|
|
|
$
|
(5,955)
|
|
|
|
$
|
—
|
|
|
|
$
|
—
|
|
|
|
$
|
193,360
|
|
2. SUPPLEMENTAL CASH FLOW INFORMATION
Selected cash payments and non-cash activities were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended December 31,
|
|
|
|
|
|
|
2019
|
|
2018
|
|
2017
|
Supplemental cash flow information:
|
|
|
|
|
|
|
Cash paid for interest
|
|
$
|
6
|
|
|
$
|
4
|
|
|
$
|
9
|
|
Cash paid for income taxes
|
|
$
|
5,498
|
|
|
$
|
5,813
|
|
|
$
|
2,488
|
|
Supplemental noncash investing and financing activities:
|
|
|
|
|
|
|
Transfer of service and sales demonstration inventory to fixed assets
|
|
$
|
3,044
|
|
|
$
|
964
|
|
|
$
|
2,844
|
|
3. REVENUES
The following tables present our revenues by sales type as presented in our consolidated statements of operations disaggregated by the timing of transfer of goods or services (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended December 31,
|
|
|
|
|
|
|
2019
|
|
2018
|
|
2017
|
Product Sales
|
|
|
|
|
|
|
Products transferred to a customer at a point in time
|
|
$
|
277,841
|
|
|
$
|
311,102
|
|
|
$
|
277,922
|
|
Products transferred to a customer over time
|
|
11,838
|
|
|
9,482
|
|
|
9,326
|
|
|
|
$
|
289,679
|
|
|
$
|
320,584
|
|
|
$
|
287,248
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended December 31,
|
|
|
|
|
|
|
2019
|
|
2018
|
|
2017
|
Service Sales
|
|
|
|
|
|
|
Service transferred to a customer at a point in time
|
|
$
|
48,593
|
|
|
$
|
42,932
|
|
|
$
|
36,164
|
|
Service transferred to a customer over time
|
|
43,493
|
|
|
40,111
|
|
|
37,505
|
|
|
|
$
|
92,086
|
|
|
$
|
83,043
|
|
|
$
|
73,669
|
|
The following table presents our revenues disaggregated by geography, based on the billing addresses of our customers (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended December 31,
|
|
|
|
|
|
|
2019
|
|
2018
|
|
2017
|
Total Sales to External Customers
|
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
151,646
|
|
|
$
|
156,242
|
|
|
$
|
141,595
|
|
EMEA (1)
|
|
122,279
|
|
|
127,261
|
|
|
115,061
|
|
Other APAC (1)
|
|
60,796
|
|
|
68,908
|
|
|
60,325
|
|
China
|
|
32,934
|
|
|
36,130
|
|
|
30,405
|
|
Other Americas (1)
|
|
14,110
|
|
|
15,086
|
|
|
13,531
|
|
|
|
$
|
381,765
|
|
|
$
|
403,627
|
|
|
$
|
360,917
|
|
(1) Regions represent Europe, the Middle East, and Africa (EMEA); Asia-Pacific, excluding China (Other APAC); and Canada, Mexico, and Brazil (Other Americas).
For revenue related to our measurement and imaging equipment and related software, we allocate the contract price to performance obligations based on our best estimate of the standalone selling price. We make this allocation estimate utilizing data from the sale of our applicable products and services to customers separately in similar circumstances, with the exception of software licenses. With respect to software licenses, we use the residual method for allocating the contract price to performance obligations relating to software licenses. Revenue related to our measurement and imaging equipment and related software is generally recognized upon shipment from our facilities or when delivered to the customer location, as determined by the agreed upon shipping terms, at which time we are entitled to payment and title and control has passed to the customer. Software arrangements generally include short-term maintenance that is considered PCS, which is considered to be a separate performance obligation. We generally establish a standalone sales price for this PCS component based on our maintenance renewal rate. Maintenance renewals, when sold, are recognized on a straight-line basis over the term of the maintenance agreement. Payment for products and services is collected within a short period of time following transfer of control or commencement of delivery of services, as applicable.
Further, customers frequently purchase extended warranties with the purchase of measurement equipment and related software. Warranties are considered a performance obligation when services are transferred to a customer over time and as such, we recognize revenue on a straight-line basis over the warranty term. Extended warranty sales include contract periods that extend between one month and three years.
We capitalize commission expenses related to deliverables transferred to a customer over time and amortize such costs ratably over the term of the contract. As of December 31, 2019, the deferred cost asset related to deferred commissions was approximately $3.1 million. For classification purposes, $2.1 million and $1.0 million are comprised within the Prepaid expenses and other current assets and Other long-term assets, respectively, on our consolidated balance sheet as of December 31, 2019. As of December 31, 2018, the deferred cost asset related to deferred commissions was approximately $2.7 million. For classification purposes, $1.8 million and $0.9 million are comprised within the Prepaid expenses and other current assets and Other long-term assets, respectively, on our consolidated balance sheet as of December 31, 2018.
The unearned service revenue liabilities reported on our consolidated balance sheets reflect the contract liabilities to satisfy the remaining performance obligations for extended warranties and software maintenance. The current portion of unearned service revenues on our consolidated balance sheets is what we expect to recognize to revenue within twelve months after the applicable balance sheet date relating to extended warranty and software maintenance contract liabilities. The Unearned service revenues - less current portion on our consolidated balance sheets is what we expect to recognize to revenue extending beyond twelve months after the applicable balance sheet date relating to extended warranty and software maintenance contract liabilities. Customer deposits on our consolidated balance sheets represent customer prepayments on contracts for performance obligations that we must satisfy in the future to recognize the related contract revenue. These amounts are generally related to performance obligations which are delivered in less than 12 months. During the year ended December 31, 2019, we recognized $30.2 million of service revenue that was deferred on our consolidated balance sheet as of December 31, 2018. During the year ended December 31, 2018, we recognized $25.0 million of service revenue that was deferred on our consolidated balance sheet as of December 31, 2017.
The nature of certain of our contracts gives rise to variable consideration, primarily related to an allowance for sales returns. We are required to estimate the contract asset related to sales returns and record a corresponding adjustment to Cost of Sales. Our allowance for sales returns was approximately $0.1 million as of both December 31, 2019 and December 31, 2018.
Shipping and handling fees billed to customers in a sales transaction are recorded in Product Sales and shipping and handling costs incurred are recorded in Cost of Sales. We exclude from Sales any value-added, sales and other taxes that we collect concurrently with revenue-producing activities.
4. ALLOWANCE FOR DOUBTFUL ACCOUNTS
Activity in the allowance for doubtful accounts was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended December 31,
|
|
|
|
|
|
|
2019
|
|
2018
|
|
2017
|
Balance, beginning of year
|
|
$
|
1,748
|
|
|
$
|
1,957
|
|
|
$
|
1,829
|
|
Provision (net of recovery)
|
|
2,090
|
|
|
907
|
|
|
370
|
|
Amounts written off, net of recoveries
|
|
(389)
|
|
|
(1,116)
|
|
|
(242)
|
|
Balance, end of year
|
|
$
|
3,449
|
|
|
$
|
1,748
|
|
|
$
|
1,957
|
|
5. SHORT-TERM INVESTMENTS
Short-term investments at December 31, 2019 were comprised of U.S. Treasury Bills totaling $24.8 million, consisting of $8.9 million maturing on March 12, 2020 and $15.9 million maturing on June 11, 2020. The interest rates on the U.S. Treasury Bills held on December 31, 2019 and maturing on March 12, 2020 and June 11, 2020 are 1.8%, and 1.4%, respectively. Short-term investments at December 31, 2018 were comprised of U.S. Treasury Bills totaling $24.8 million, consisting of $9.0 million that matured on March 14, 2019, $10.9 million that matured on June 6, 2019 and $4.9 million that matured on June 20, 2019. The interest rates on the U.S. Treasury Bills held on December 31, 2018 that matured on March 14, 2019, June 6, 2019, and June 20, 2019 were 2.2%, 2.4% and 2.3%, respectively. The investments are classified as held-to-maturity and recorded at cost plus accrued interest, which approximates fair value. We do not intend to sell these investments, and it is not more likely than not that we will be required to sell the investments before we recover their amortized cost bases.
6. INVENTORIES
Inventories are stated at the lower of cost or net realizable value using the first-in first-out method. We have three principal categories of inventory: 1) manufactured product to be sold; 2) sales demonstration inventory - completed product used to support our sales force, for demonstrations and held for sale; and 3) service inventory - completed product and parts used to support our service department and held for sale. Shipping and handling costs are classified as a component of cost of sales in our consolidated statements of operations. Sales demonstration inventory is held by our sales representatives for up to three years, at which time it is refurbished and transferred to finished goods as used equipment, stated at the lower of cost or net realizable value. We expect these refurbished units to remain in finished goods inventory and to be sold within 12 months at prices that produce reduced gross margins. Service inventory is used to provide a temporary replacement product to a customer covered by a premium warranty when the customer’s unit requires service or repair and as training equipment. Service inventory is available for sale; however, management does not expect service inventory to be sold within 12 months and, as such, classifies this inventory as a long-term asset. Service inventory that we utilize for training or repairs and which we deem as no longer available for sale is transferred to fixed assets at the lower of cost or net realizable value and depreciated over the remaining life, typically three years.
Inventories consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
|
December 31, 2018
|
Raw materials
|
|
$
|
36,956
|
|
|
$
|
39,859
|
|
Finished goods
|
|
21,598
|
|
|
25,585
|
|
Inventories, net
|
|
$
|
58,554
|
|
|
$
|
65,444
|
|
Service and sales demonstration inventory, net
|
|
$
|
33,349
|
|
|
$
|
39,563
|
|
7. GOODWILL
We had approximately $49.7 million and $67.3 million of goodwill as of December 31, 2019 and 2018, respectively. Changes in these balances are shown below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
|
December 31, 2019
|
|
December 31, 2018
|
Goodwill, beginning
|
|
|
$
|
67,274
|
|
|
$
|
52,750
|
|
Recognized goodwill
|
|
|
4,443
|
|
|
16,423
|
|
Impairment of goodwill
|
|
|
(21,233)
|
|
|
—
|
|
Foreign currency translation
|
|
|
(780)
|
|
|
(1,899)
|
|
Goodwill, ending
|
|
|
$
|
49,704
|
|
|
$
|
67,274
|
|
We test goodwill for impairment annually or more frequently if an event occurs or circumstances would indicate that it is more likely than not the fair value of the reporting unit is less than the carrying value. We changed the timing of our annual test of goodwill during 2019 to align with our updated strategic plan and annual budgetary process. Accordingly, in connection with the preparation of our financial statements for the quarter and year ended December 31, 2019, we performed our annual quantitative test for impairment of our recorded goodwill as of December 10, 2019. As a result of this test, the estimated fair value of each of the Photonics reporting unit, which included goodwill recognized with the Nutfield, Laser Control Systems and Lanmark acquisitions, and the 3D Design reporting unit, which included goodwill recognized with the Open Technologies acquisition, were determined to be less than the carrying value of such reporting unit, indicating a full impairment. This impairment was driven primarily by historical and projected financial performance lower than our expectations and changes in our go-forward strategy in connection with our new strategic plan.
As part of our new strategic plan, and based on the recommendation of our CEO, who is also our CODM, in the fourth quarter of 2019, we eliminated our vertical structure and began reorganizing the Company into a functional structure. Our executive leadership team is now comprised of functional leaders in areas such as sales, marketing, operations, research and development and general and administrative, and resources are allocated to each function at a consolidated unit level. We no longer have separate business units, or segment managers or vertical leaders who report to the CODM with respect to operations, operating results or planning for levels or components below the total Company level. Instead, our CODM now allocates resources and evaluates performance on a Company-wide basis. Based on these changes, commencing with the fourth quarter of 2019, we are now reporting as one reporting segment that develops, manufactures, markets, supports and sells CAD-based quality assurance products integrated with CAD-based inspection and statistical process control software and 3D documentation systems. Our reporting segment sells into a variety of end markets, including automotive, aerospace, metal and machine fabrication, architecture, engineering, construction and public safety. Accordingly, there are no reporting segment goodwill balances at December 31, 2019 and 2018, respectively.
8. INTANGIBLE ASSETS
Intangible assets consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2019
|
|
|
|
|
|
|
Carrying Value
|
|
Accumulated
Amortization
|
|
Net Intangible
|
Amortizable intangible assets:
|
|
|
|
|
|
|
Product technology
|
|
$
|
24,135
|
|
|
$
|
19,798
|
|
|
$
|
4,337
|
|
Patents and trademarks
|
|
13,726
|
|
|
6,894
|
|
|
6,832
|
|
Customer relationships
|
|
5,150
|
|
|
2,509
|
|
|
2,641
|
|
Other
|
|
8,875
|
|
|
8,214
|
|
|
661
|
|
Total
|
|
$
|
51,886
|
|
|
$
|
37,415
|
|
|
$
|
14,471
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2018
|
|
|
|
|
|
|
Carrying Value
|
|
Accumulated
Amortization
|
|
Net Intangible
|
Amortizable intangible assets:
|
|
|
|
|
|
|
Product technology
|
|
$
|
26,588
|
|
|
$
|
12,332
|
|
|
$
|
14,256
|
|
Patents and trademarks
|
|
14,647
|
|
|
6,601
|
|
|
8,046
|
|
Customer relationships
|
|
12,027
|
|
|
2,588
|
|
|
9,439
|
|
Other
|
|
8,693
|
|
|
7,380
|
|
|
1,313
|
|
Total
|
|
$
|
61,955
|
|
|
$
|
28,901
|
|
|
$
|
33,054
|
|
As a result of historical and projected financial performance lower than our expectations and changes in our go-forward strategy in connection with our new strategic plan, the estimated fair value of acquired intangibles recognized with the Nutfield, Laser Control Systems, Lanmark and Open Technologies acquisitions were determined to be less than the carrying value of the net carrying value for such assets. We recognized an impairment charge related to such acquired intangibles of $10.5 million in the fourth quarter of 2019. This impairment charge was primarily related to customer relationship and technology intangible assets.
Amortization expense was $5.6 million, $5.4 million and $4.5 million in 2019, 2018 and 2017, respectively. The estimated amortization expense for each of the years 2020 through 2024 and thereafter is as follows:
|
|
|
|
|
|
|
|
Years ending December 31,
|
Amount
|
2020
|
$
|
3,287
|
|
2021
|
3,128
|
|
2022
|
2,642
|
|
2023
|
2,214
|
|
2024
|
1,649
|
|
Thereafter
|
1,551
|
|
|
$
|
14,471
|
|
|
|
9. ACCRUED LIABILITIES
Accrued liabilities consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
|
|
2019
|
|
2018
|
Accrued compensation and benefits
|
|
$
|
15,366
|
|
|
$
|
17,745
|
|
Accrued warranties
|
|
2,090
|
|
|
2,571
|
|
Professional and legal fees
|
|
1,793
|
|
|
2,154
|
|
Taxes other than income
|
|
4,077
|
|
|
3,550
|
|
General services administration contract contingent liability (see Note 13)
|
|
11,886
|
|
|
5,267
|
|
Other accrued liabilities
|
|
2,860
|
|
|
5,040
|
|
|
|
$
|
38,072
|
|
|
$
|
36,327
|
|
Activity related to accrued warranties was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended December 31,
|
|
|
|
|
|
|
2019
|
|
2018
|
|
2017
|
Balance, beginning of year
|
|
$
|
2,571
|
|
|
$
|
2,628
|
|
|
$
|
2,594
|
|
Provision for warranty expense
|
|
3,600
|
|
|
4,096
|
|
|
4,045
|
|
Fulfillment of warranty obligations
|
|
(4,081)
|
|
|
(4,153)
|
|
|
(4,011)
|
|
Balance, end of year
|
|
$
|
2,090
|
|
|
$
|
2,571
|
|
|
$
|
2,628
|
|
10. FAIR VALUE MEASUREMENTS
The guidance on fair value measurements and disclosures defines fair value, establishes a framework for measuring fair value, and requires enhanced disclosures about assets and liabilities measured at fair value. Fair value is defined as the price at which an asset could be exchanged in a current transaction between knowledgeable, willing parties. A liability’s fair value is defined as the amount that would be paid to transfer the liability to a new obligor, not the amount that would be paid to settle the liability with the creditor. Where available, fair value is based on observable market prices or parameters or derived from such prices or parameters. Where observable prices or inputs are not available, valuation models are used to determine fair value. These models employ valuation techniques that involve some level of management estimation and judgment, the degree of which is dependent on the price transparency for the instruments or market and the instruments’ complexity.
Assets and liabilities recorded at fair value on a recurring basis in our consolidated balance sheets are categorized based upon the level of judgment associated with the inputs used to measure their fair value. Hierarchical levels, defined by the guidance on fair value measurements, are directly related to the amount of subjectivity associated with the inputs to fair valuation of these assets and liabilities and are as follows:
Level 1 - Valuation is based upon quoted market prices for identical instruments traded in active markets.
Level 2 - Valuation is based on quoted market prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques for which all significant assumptions are observable in the market.
Level 3 - Valuation is generated from model-based techniques that use significant assumptions not observable in the market. Valuation techniques include use of discounted cash flow models and similar techniques.
Fair Value on a Recurring Basis
Assets and liabilities measured at fair value on a recurring basis are categorized in the tables below based upon the lowest level of significant input to the valuations. Historically, we have presented short-term investments in the fair value table presented below. As our short-term investments in the accompanying consolidated balance sheets are comprised of U.S. Treasury Bills, these investments are classified as held-to-maturity investments and are not recorded at fair value on a recurring basis in our consolidated balance sheets. As such, we have removed short-term investments from the table below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
|
|
|
|
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
Liabilities:
|
|
|
|
|
|
|
Contingent consideration (1)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
733
|
|
Total
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
733
|
|
|
|
|
|
|
|
|
|
|
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. For the year ended December 31, 2019, we paid $3.1 million as part of these arrangements. For the year ended December 31, 2018, we paid $0.9 million as part of these arrangements. The remaining change in the fair value of the contingent consideration from December 31, 2018 to December 31, 2019 was related to changes in our estimates regarding the probability that the former owners will attain certain product release milestones. The undiscounted maximum payment as of December 31, 2019 under the arrangements was $0.8 million, based on certain milestones.
11. OTHER EXPENSE (INCOME), NET
Other expense (income), net consists of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended December 31,
|
|
|
|
|
|
|
2019
|
|
2018
|
|
2017
|
Foreign exchange transaction losses (gains)
|
|
$
|
1,211
|
|
|
$
|
1,386
|
|
|
$
|
(162)
|
|
Present4D impairment
|
|
2,152
|
|
|
—
|
|
|
—
|
|
Contingent consideration fair value adjustment
|
|
(1,562)
|
|
|
—
|
|
|
—
|
|
Other
|
|
512
|
|
|
(247)
|
|
|
(28)
|
|
Total other expense (income), net
|
|
$
|
2,313
|
|
|
$
|
1,139
|
|
|
$
|
(190)
|
|
12. INCOME TAXES
(Loss) income before income tax expense (benefit) consists of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended December 31,
|
|
|
|
|
|
|
2019
|
|
2018
|
|
2017
|
Domestic
|
|
$
|
(40,963)
|
|
|
$
|
(1,723)
|
|
|
$
|
2,468
|
|
Foreign
|
|
(20,051)
|
|
|
6,281
|
|
|
3,359
|
|
(Loss) Income before income taxes
|
|
$
|
(61,014)
|
|
|
$
|
4,558
|
|
|
$
|
5,827
|
|
The components of the income tax expense (benefit) for income taxes are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended December 31,
|
|
|
|
|
|
|
2019
|
|
2018
|
|
2017
|
Current:
|
|
|
|
|
|
|
Federal
|
|
$
|
3,215
|
|
|
$
|
(1,694)
|
|
|
$
|
18,951
|
|
State
|
|
400
|
|
|
120
|
|
|
507
|
|
Foreign
|
|
3,809
|
|
|
1,394
|
|
|
2,072
|
|
Current income tax expense (benefit)
|
|
7,424
|
|
|
(180)
|
|
|
21,530
|
|
Deferred:
|
|
|
|
|
|
|
Federal
|
|
(7,630)
|
|
|
(486)
|
|
|
1,038
|
|
State
|
|
(1,667)
|
|
|
(153)
|
|
|
(580)
|
|
Foreign
|
|
3,006
|
|
|
447
|
|
|
(1,645)
|
|
Deferred income tax benefit
|
|
(6,291)
|
|
|
(192)
|
|
|
(1,187)
|
|
Income tax expense (benefit)
|
|
$
|
1,133
|
|
|
$
|
(372)
|
|
|
$
|
20,343
|
|
Reconciliations of the income tax expense at the U.S. federal statutory income tax rate compared to our actual income tax expense (benefit) are summarized below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended December 31,
|
|
|
|
|
|
|
2019
|
|
2018
|
|
2017
|
Tax expense at statutory rate
|
|
$
|
(12,812)
|
|
|
$
|
956
|
|
|
$
|
1,981
|
|
State income taxes, net of federal benefit
|
|
(1,564)
|
|
|
(13)
|
|
|
81
|
|
Foreign tax rate difference
|
|
(1,954)
|
|
|
(1,003)
|
|
|
(2,057)
|
|
Research and development credit
|
|
(753)
|
|
|
(919)
|
|
|
(1,037)
|
|
Change in valuation allowance
|
|
8,485
|
|
|
464
|
|
|
678
|
|
Equity based compensation
|
|
(25)
|
|
|
(390)
|
|
|
33
|
|
Manufacturing credit
|
|
—
|
|
|
—
|
|
|
(191)
|
|
Permanent impact of non-deductible cost
|
|
1,550
|
|
|
727
|
|
|
766
|
|
Provision to return adjustments & deferred adjustments
|
|
356
|
|
|
(654)
|
|
|
777
|
|
Impact of the U.S. Tax Cuts and Jobs Act of 2017
|
|
—
|
|
|
—
|
|
|
17,340
|
|
Change in enacted tax rates
|
|
359
|
|
|
58
|
|
|
2,015
|
|
Global intangible low-taxed income (“GILTI”)
|
|
1,795
|
|
|
402
|
|
|
—
|
|
Intangible & goodwill impairment
|
|
4,999
|
|
|
—
|
|
|
—
|
|
Other
|
|
697
|
|
|
—
|
|
|
(43)
|
|
Income tax expense (benefit)
|
|
$
|
1,133
|
|
|
$
|
(372)
|
|
|
$
|
20,343
|
|
The components of our net deferred income tax assets and liabilities are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
|
|
2019
|
|
2018
|
Net deferred income tax asset - Non-current
|
|
|
|
|
Warranty cost
|
|
$
|
616
|
|
|
$
|
533
|
|
Inventory reserve
|
|
4,820
|
|
|
1,559
|
|
Unearned service revenue
|
|
11,616
|
|
|
6,684
|
|
Employee stock options
|
|
4,157
|
|
|
4,222
|
|
Tax credits
|
|
1,207
|
|
|
485
|
|
Loss carryforwards
|
|
7,481
|
|
|
7,038
|
|
Depreciation
|
|
345
|
|
|
—
|
|
Other, net
|
|
1,760
|
|
|
641
|
|
Total deferred tax assets
|
|
32,002
|
|
|
21,162
|
|
Valuation allowance
|
|
(10,419)
|
|
|
(1,924)
|
|
Total deferred tax assets net of valuation allowance
|
|
21,583
|
|
|
19,238
|
|
Net deferred income tax liability - Non-current
|
|
|
|
|
Depreciation
|
|
—
|
|
|
(2,996)
|
|
Intangibles & goodwill
|
|
(3,174)
|
|
|
(2,261)
|
|
Total deferred tax liabilities
|
|
(3,174)
|
|
|
(5,257)
|
|
Net deferred tax assets
|
|
$
|
18,409
|
|
|
$
|
13,981
|
|
Our domestic entities had deferred income tax assets in the amount of $15.3 million and $7.2 million as of December 31, 2019 and December 31, 2018, respectively. At December 31, 2019 and 2018, our foreign subsidiaries had deferred tax assets primarily relating to net operating losses of $7.2 million and $6.5 million, respectively, the majority of which can be carried forward indefinitely. The valuation allowance for deferred tax assets as of December 31, 2019 and 2018 was $10.4 million and $1.9 million, respectively. The net change in the total valuation allowance for each of the years ended December 31, 2019, 2018 and 2017 was an $8.5 million, a $0.3 million and a $0.7 million increase, respectively.
The valuation allowance as of December 31, 2019 and 2018 was primarily related to foreign net operating loss carryforwards that, in the judgment of management, were not more likely than not to be realized. In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets depends on the generation of future taxable income during the periods in which those temporary differences are deductible. Management considers the scheduled reversal of deferred tax liabilities (including the impact of available carryback and carryforward periods), projected taxable income, and tax-planning strategies in making this assessment.
Significant judgment is required in determining our worldwide provision for income taxes. In the ordinary course of a global business, there are many transactions for which the ultimate tax outcome is uncertain. We review our tax contingencies on a regular basis and make appropriate accruals as necessary.
As of December 31, 2019, 2018 and 2017, our unrecognized tax benefits totaled $1.9 million, $0.3 million and $0.3 million, respectively, which are included in Income taxes payable - less current portion in our consolidated balance sheet.
A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended December 31,
|
|
|
|
|
|
|
2019
|
|
2018
|
|
2017
|
Balance at January 1
|
|
$
|
324
|
|
|
$
|
324
|
|
|
$
|
324
|
|
Additions based on tax positions related to the current year
|
|
314
|
|
|
—
|
|
|
—
|
|
Additions for tax positions of prior years
|
|
1,675
|
|
|
—
|
|
|
—
|
|
Lapse of statute of limitations
|
|
(389)
|
|
|
—
|
|
|
—
|
|
Balance at December 31
|
|
$
|
1,924
|
|
|
$
|
324
|
|
|
$
|
324
|
|
We file income tax returns in the U.S. federal jurisdiction and various state and foreign jurisdictions. The table below summarizes the open tax years and ongoing tax examinations in major jurisdictions as of December 31, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jurisdiction
|
|
Open Years
|
|
Examination
in Process
|
United States - Federal Income Tax
|
|
2016-2019
|
|
2016
|
United States - various states
|
|
2015-2019
|
|
N/A
|
Germany
|
|
2013-2019
|
|
2013-2014
|
Switzerland
|
|
2017-2019
|
|
N/A
|
Singapore
|
|
2015-2019
|
|
N/A
|
We recognize accrued interest and penalties related to unrecognized tax benefits in income tax expense. The total amount of unrecognized tax benefits that, if recognized, would affect the effective tax rate is $1.9 million. We do not currently anticipate that the total amount of unrecognized tax benefits will result in material changes to our financial position. We are subject to income taxes at the federal, state and foreign country level. Our tax returns are subject to examination at the U.S. state level are subject to a three to four year statute of limitations, depending on the state.
13. COMMITMENTS AND CONTINGENCIES
Purchase Commitments — We enter into purchase commitments for products and services in the ordinary course of business. These purchases generally cover production requirements for 60 to 120 days as well as materials necessary to service customer units through the product lifecycle and for warranty commitments. As of December 31, 2019, we had approximately $52.6 million in purchase commitments that are expected to be delivered within the next 12 months. To ensure adequate component availability in preparation for new product introductions, as of December 31, 2019, we also had $1.5 million in long-term commitments for purchases to be delivered after 12 months.
Legal Proceedings — We are not involved in any legal proceedings other than routine litigation arising in the normal course of business, none of which we believe will have a material adverse effect on our business, financial condition or results of operations.
U.S. Government Contracting Matter — We have sold our products and related services to the U.S. Government (the “Government”) under General Services Administration (“GSA”) Federal Supply Schedule contracts (the “GSA Contracts”) since 2002 and are currently selling our products and related services to the Government under two such GSA Contracts. Each GSA Contract is subject to extensive legal and regulatory requirements and includes, among other provisions, a price reduction clause (the “Price Reduction Clause”), which generally requires us to reduce the prices billed to the Government under the GSA Contracts to correspond to the lowest prices billed to certain benchmark customers.
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 Government being overcharged under the Price Reduction Clauses of the GSA Contracts (the “GSA Matter”). As a result, we performed remediation efforts, including but not limited to, the identification of additional controls and procedures to ensure future compliance with the pricing and other requirements of the GSA Contracts. We also retained outside legal counsel and forensic accountants to assist with these efforts and to conduct a comprehensive review of our pricing and other practices under the GSA Contracts (the “Review”). On February 14, 2019, we reported the GSA Matter to the GSA and its Office of Inspector General.
As a result of the GSA Matter, for the fourth quarter of 2018, we reduced our total sales by a $4.8 million estimated cumulative sales adjustment, representative of the last six years of estimated overcharges to the Government under the GSA Contracts. In addition, for the fourth quarter of 2018, we recorded $0.5 million of imputed interest related to the estimated cumulative sales adjustment, which increased Interest expense, net and resulted in an estimated total liability of $5.3 million for the GSA Matter. This estimate was based on our preliminary review as of February 20, 2019, the date of our Annual Report on Form 10-K for the year ended December 31, 2018.
On July 15, 2019, we submitted a report to the GSA and its Office of Inspector General setting forth the findings of the Review conducted by our outside legal counsel and forensic accountants. Based on the results of the Review, we reduced our total sales for second quarter 2019 by an incremental $5.8 million sales adjustment, reflecting an estimated aggregate overcharge of $10.6 million under the GSA Contracts for the period from July 2011 to March 2019. In addition, we recorded an incremental $0.8 million of imputed interest related to the estimated cumulative sales adjustment during 2019, which increased Interest expense, net and resulted in a $6.6 million total incremental increase in the estimated total liability for the GSA Matter. As of the date of the filing of this Annual Report on Form 10-K, we have recorded an aggregate estimated total liability for the GSA Matter of $11.9 million. This estimate is based on the information we have as of the date of this Annual Report on Form 10-K and is subject to change based on discussions with our outside legal counsel and the Government.
In January 2020, we received requests for additional information from the GSA and its Office of Inspector General, and we are working with the GSA in responding to such inquiries. We intend to cooperate fully with this and any other Government inquiries. The Government’s review of, or investigation into, this matter could result in civil and criminal penalties, administrative sanctions, and contract remedies being imposed on us, including but not limited to, termination of the GSA Contracts, repayments of amounts already received under the GSA Contracts, forfeiture of profits, damages, suspension of payments, fines, and suspension or debarment from doing business with the Government and possibly U.S. state and local governments. We may also be subject to litigation and recovery under the federal False Claims Act and possibly similar state laws, which could include claims for treble damages, penalties, fees and costs. As a result, we cannot reasonably predict the outcome of the Government’s review of, or investigation into, this matter at this time or the resulting future financial impact on us. Any of these outcomes could have a material adverse effect on our reputation, our sales, results of operations, cash flows and financial condition, and the trading price of our common stock. In addition, we have incurred, and will continue to incur, legal and related costs in connection with the Review and the Government’s response to this matter.
14. STOCK COMPENSATION PLANS
We have two compensation plans that provide for the granting of stock options and other share-based awards to key employees and non-employee members of the Board of Directors. The 2009 Equity Incentive Plan (“2009 Plan”), and the 2014 Equity Incentive Plan (“2014 Plan”) provide for granting options, restricted stock, restricted stock units or stock appreciation rights to employees and non-employee directors.
We were authorized to grant awards for up to 1,781,546 shares of common stock under the 2009 Plan, as well as any shares underlying awards outstanding under our 2004 Equity Incentive Plan (the “2004 Plan”) as of the effective date of the 2009 Plan that thereafter terminated or expired unexercised or were canceled, forfeited or lapsed for any reason. There were 74,386 options outstanding at December 31, 2019 under the 2009 Plan at exercise prices between $43.33 and $57.54. The options outstanding under the 2009 Plan have a 7-year term.
In May 2014, our shareholders approved the 2014 Plan authorizing us to grant awards for up to 1,974,543 shares of common stock, as well as any shares underlying awards outstanding under the 2004 Plan and 2009 Plan as of the effective date of the 2014 Plan that thereafter terminate or expire unexercised or are canceled, forfeited or lapse for any reason. In May 2018, our shareholders approved an amendment to the 2014 Plan, which increased the number of shares available for issuance under the 2014 Plan by 1,000,000 shares. A maximum of 2,974,543 shares are available for issuance under the 2014 Plan, as amended, plus the number of shares (not to exceed 891,960) underlying awards outstanding under the 2004 Plan and the 2009 Plan as of May 29, 2014 that thereafter terminate or expire unexercised or are canceled, forfeited or lapse for any reason. There were 412,343 options outstanding at December 31, 2019 under the 2014 Plan at exercise prices between $33.05 and $61.30. The options outstanding under the 2014 Plan have a 7-year term and generally vest over a 3-year period.
Upon election to the Board, each non-employee director receives an initial equity grant of shares of restricted common stock with a value equal to $100,000, calculated using the closing share price on the date of the non-employee director’s election to the Board. The initial restricted stock grant vests on the third anniversary of the grant date, subject to the non-employee director’s continued membership on the Board. Annually, the non-employee directors are granted restricted shares equal to 50% of their compensation on the first business day following the annual meeting of shareholders, calculated using the closing price of our common stock on that day. In addition, the independent Chairman of the Board is annually granted restricted shares with a value equal to $50,000, and the Lead Director, if one has been appointed, would be annually granted restricted shares with a value equal to $40,000 on the first business day following the annual meeting of shareholders, calculated using the closing price of our common stock on that day. The shares of restricted stock granted annually to our non-employee directors, our independent Chairman of the Board and, if applicable, our Lead Director vest on the day prior to the following year’s annual meeting date, subject to a non-employee director’s continued membership on the Board. We record compensation cost associated with our restricted stock grants on a straight-line basis over the vesting term. Our non-employee directors also may elect to have their annual cash retainers and annual equity retainers paid in the form of deferred stock units pursuant to the 2014 Plan and the 2018 Non-Employee Director Deferred Compensation Plan. Each deferred stock unit represents the right to receive one share of our common stock upon the non-employee director's separation of service from the Company. We record compensation cost associated with our deferred stock units over the period of service.
Annually, upon approval by our Compensation Committee, we grant stock-based awards, which historically have been in the form of stock options and/or restricted stock units, to certain employees. We also grant stock-based awards, which historically have been in the form of stock options and/or restricted stock units, to certain new employees throughout the year. The fair value of these stock-based awards is determined by using (a) the current market price of our common stock on the grant date in the case of restricted stock units without a market condition, (b) the Monte Carlo Simulation valuation model in the case of performance-based restricted stock units with a market condition, or (c) the Black-Scholes option valuation model in the case of stock options.
Our annual grants in February 2019 and the stock-based awards granted to Michael D. Burger upon the commencement of his service as our President and Chief Executive Officer in June 2019 and to Allen Muhich upon the commencement of his service as our Chief Financial Officer in July 2019 consisted of performance-based restricted stock units and time-based restricted stock units. Our annual grants in March 2018 consisted of time-based stock options and time-based restricted stock units. The number of stock options and/or restricted stock units granted was based on the employee’s individual objectives, performance against operational metrics assigned to the employee and overall contribution to the Company over the prior year.
For the stock-based awards granted in 2019, the time-based restricted stock units vest in three equal annual installments beginning one year after the grant date. The performance-based restricted stock unit awards vest at the end of the 3-year performance period if the applicable performance measure is achieved. The related stock-based compensation expense will be recognized over the requisite service period, taking into account the probability that we will satisfy the performance measure. The performance-based restricted stock units granted in 2019 will be earned and will vest based upon our total shareholder return (“TSR”) relative to the TSR attained by companies within our defined benchmark group, the Russell 2000 Growth Index. Due to the TSR presence in these performance-based restricted stock units, the fair value of these awards was determined using the Monte Carlo Simulation valuation model. We expense these market condition awards over the three-year vesting period regardless of the value the award recipients ultimately receive
For the stock-based awards granted in 2018, the time-based restricted stock unit awards vest in full on the three-year anniversary of the grant date. The stock options vest in three equal annual installments beginning one year after the grant date. The fair value of these stock-based awards is determined by using (a) the current market price of our common stock on the grant date in the case of restricted stock units or (b) the Black-Scholes option valuation model in the case of stock options.
The Monte Carlo Simulation valuation model incorporates assumptions as to stock price volatility, the expected life of options or awards, a risk-free interest rate and dividend yield. The weighted-average grant-date fair value of the performance-based restricted stock units that were granted during 2019 and valued using the Monte Carlo Simulation valuation model was $66.16. No performance-based restricted stock units were granted during 2018 and 2017. For performance-based restricted stock units granted during 2019 valued using the Monte Carlo Simulation valuation model, we used the following assumptions:
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31
|
|
|
2019
|
Risk-free interest rate
|
|
1.8% - 2.48%
|
Expected dividend yield
|
|
—
|
%
|
Expected volatility
|
|
45.0
|
%
|
Weighted-average expected volatility
|
|
45.0
|
%
|
The Black-Scholes option valuation model incorporates assumptions as to stock price volatility, the expected life of options or awards, a risk-free interest rate and dividend yield. The weighted-average grant date fair value of the stock options that were granted during the years ended December 31, 2018 and 2017 and valued using the Black-Scholes option valuation model was $23.43 and $14.51 per option, respectively. There were no stock options granted in 2019. For stock options granted during the years ended December 31, 2018 and 2017 valued using the Black-Scholes option valuation model, we used the following assumptions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31
|
|
|
|
|
2018
|
|
2017
|
Risk-free interest rate
|
|
2.65
|
%
|
|
1.88% - 2.02%
|
Expected dividend yield
|
|
—
|
%
|
|
—
|
%
|
Expected option life
|
|
4 years
|
|
5 years
|
Expected volatility
|
|
45.0
|
%
|
|
45.2
|
%
|
Weighted-average expected volatility
|
|
45.0
|
%
|
|
45.2
|
%
|
Historical information was the primary basis for the selection of the expected dividend yield, expected volatility and the expected lives of the options. The risk-free interest rate was based on the yields of U.S. zero coupon issues and U.S. Treasury issues, with a term equal to the expected life of the option being valued.
A summary of stock option activity and weighted average exercise prices follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options
|
|
Weighted-
Average
Exercise Price
|
|
Weighted-Average
Remaining
Contractual Term
(Years)
|
|
Aggregate Intrinsic
Value as of
December 31, 2019
|
Outstanding at January 1, 2019
|
|
792,943
|
|
|
$
|
47.59
|
|
|
|
|
|
Granted
|
|
—
|
|
|
—
|
|
|
|
|
|
Forfeited
|
|
(80,782)
|
|
|
54.82
|
|
|
|
|
|
Exercised
|
|
(225,479)
|
|
|
35.45
|
|
|
|
|
|
Outstanding at December 31, 2019
|
|
486,682
|
|
|
$
|
52.37
|
|
|
3.4
|
|
$
|
2,267
|
|
Options exercisable at December 31, 2019
|
|
428,411
|
|
|
$
|
52.86
|
|
|
2.1
|
|
$
|
1,836
|
|
The aggregate intrinsic value of stock options exercised during the years ended December 31, 2019, 2018, and 2017 was $3.4 million, $7.5 million and $1.2 million, respectively. The total fair value of stock options vested during the years ended December 31, 2019, 2018, and 2017 was $5.1 million, $3.7 million and $4.1 million, respectively.
The following table summarizes the restricted stock and restricted stock unit activity and weighted-average grant date fair values for the year ended December 31, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
Weighted-Average
Grant Date
Fair Value
|
Non-vested at January 1, 2019
|
|
311,000
|
|
|
$
|
42.66
|
|
Granted
|
|
284,445
|
|
|
50.83
|
|
Forfeited
|
|
(33,291)
|
|
|
48.43
|
|
Vested
|
|
(163,836)
|
|
|
39.32
|
|
Non-vested at December 31, 2019
|
|
398,318
|
|
|
$
|
49.53
|
|
We recorded total stock-based compensation expense associated with our stock incentive plans of $11.1 million, $7.6 million and $6.5 million in 2019, 2018 and 2017, respectively.
As of December 31, 2019, there was $11.7 million in total unrecognized stock-based compensation expense related to non-vested stock-based compensation arrangements. The expense is expected to be recognized over a weighted-average period of 2.0 years.
The following table summarizes total stock-based compensation expense for each of the line items on our consolidated statement of operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended December 31,
|
|
|
|
|
|
2019
|
|
2018
|
|
2017
|
Cost of Sales
|
|
|
|
|
|
|
|
|
Product
|
$
|
628
|
|
|
$
|
477
|
|
|
$
|
342
|
|
Service
|
373
|
|
|
351
|
|
|
430
|
|
Total cost of sales
|
$
|
1,001
|
|
|
$
|
828
|
|
|
$
|
772
|
|
Operating Expenses
|
|
|
|
|
|
Selling, general and administrative
|
$
|
8,786
|
|
|
$
|
5,210
|
|
|
$
|
4,412
|
|
Research and development
|
1,282
|
|
|
1,583
|
|
|
1,272
|
|
Total operating expenses
|
$
|
10,068
|
|
|
$
|
6,793
|
|
|
$
|
5,684
|
|
15. (LOSS) EARNINGS PER SHARE
Basic (loss) earnings per share is computed by dividing net (loss) income by the weighted average number of shares outstanding. Diluted earnings per share is computed by also considering the impact of potential common stock on both net income and the weighted average number of shares outstanding. Our potential common stock consists of employee stock options, restricted stock, restricted stock units and performance-based awards. Our potential common stock is excluded from the basic (loss) earnings per share calculation and is included in the diluted earnings per share calculation when doing so would not be anti-dilutive. Performance-based awards are included in the computation of diluted earnings per share only to the extent that the underlying performance conditions (and any applicable market condition) (i) are satisfied as of the end of the reporting period or (ii) would be considered satisfied if the end of the reporting period were the end of the related contingency period and the result would be dilutive under the treasury stock method. When we report a net loss for the period presented, the diluted loss per share calculation does not include our potential common stock, as the inclusion of these shares in the calculation would have an anti-dilutive effect. A reconciliation of the number of common shares used in the calculation of basic and diluted earnings (loss) per share is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
|
|
2018
|
|
|
|
2017
|
|
|
|
|
Shares
|
|
Per-Share
Amount
|
|
Shares
|
|
Per-Share
Amount
|
|
Shares
|
|
Per-Share
Amount
|
Basic (loss) earnings per share
|
|
17,383,415
|
|
|
$
|
(3.58)
|
|
|
17,043,167
|
|
|
$
|
0.29
|
|
|
16,711,534
|
|
|
$
|
(0.87)
|
|
Effect of dilutive securities
|
|
—
|
|
|
—
|
|
|
305,289
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Diluted (loss) earnings per share
|
|
17,383,415
|
|
—
|
|
$
|
(3.58)
|
|
|
17,348,456
|
|
|
$
|
0.29
|
|
|
16,711,534
|
|
|
$
|
(0.87)
|
|
Securities excluded from the determination of weighted average shares for the calculation of diluted (loss) earnings per share, as they were potentially antidilutive
|
|
886,274
|
|
|
|
|
393,970
|
|
|
|
|
1,049,563
|
|
|
|
16. EMPLOYEE RETIREMENT BENEFIT PLAN
We maintain a 401(k) defined contribution retirement plan for our eligible U.S. employees. Costs charged to operations in connection with the 401(k) plan during 2019, 2018 and 2017 aggregated to $2.2 million, $2.1 million, and $1.7 million, respectively.
17. VARIABLE INTEREST ENTITY
A variable interest entity (“VIE”) is an entity that has one of three characteristics: (1) it is controlled by someone other than its shareowners or partners, (2) its shareowners or partners are not economically exposed to the entity's earnings (for example, they are protected against losses), or (3) it lacks sufficient equity to permit the entity to finance its activities without additional subordinated financial support from other parties.
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. This contribution represented a minority investment in present4D. This investment's business purpose is to coordinate the design and development of modules supporting compatibility with virtual reality for our existing software offerings.
As of our investment date, present4D was thinly capitalized and lacked the sufficient equity to finance its activities without additional subordinated financial support and is classified as a VIE. We do not have power over decisions that significantly affect present4D’s economic performance and do not represent its primary beneficiary. After April 27, 2020, present4D may request additional equity financing of up to $1.8 million from us in exchange for additional share capital, which additional equity financing would be at our discretion. 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. Further, the note is collateralized by the perpetual and royalty-free, non-exclusive, transferable and sublicensable license granted to us to use present4D’s software.
We do not intend to provide future support to present4D or to obtain the aforementioned additional share capital in the future. We do not intend to use the perpetual and royalty-free, non-exclusive, transferable and sublicensable license granted to us to use present4D’s software. During the year ended December 31, 2019, we wrote off our investment in, and our note receivable with, present4D and recognized a total loss of $2.2 million. Our portion of present4D’s net loss for the year ended
December 31, 2019 was approximately $0.2 million. We had no remaining asset related to present4D at December 31, 2019. Our investment in this unconsolidated VIE was $1.7 million as of December 31, 2018 and was included in Other long-term assets in our consolidated balance sheet as of such date. We have no remaining exposure to loss for our involvement with present4D.
18. GEOGRAPHIC INFORMATION
Since the fourth quarter of 2016, we had operated in five verticals—3D Manufacturing, Construction Building Information Modeling (“Construction BIM”), Public Safety Forensics, 3D Design and Photonics—and had three reporting segments—3D Manufacturing, Construction BIM and Emerging Verticals. As discussed in our Quarterly Report on Form 10-Q for the third quarter of 2019, our new management team, led by our new Chief Executive Officer (“CEO”), formulated and began to implement a new comprehensive strategic plan for our business. As part of our strategic planning process, we identified areas of our business that needed enhanced focus or change in order to improve our efficiency and cost structure. In the fourth quarter of 2019, we reassessed and redefined our go-to-market strategy, refocused our marketing engagement with our customers and re-evaluated our hardware product portfolio.
As part of our new strategic plan, and based on the recommendation of our CEO, who is also our Chief Operating Decision Maker (“CODM”), in the fourth quarter of 2019, we eliminated our vertical structure and began reorganizing the Company into a functional structure. Our executive leadership team is now comprised of functional leaders in areas such as sales, marketing, operations, research and development and general and administrative, and resources are allocated to each function at a consolidated unit level. We no longer have separate business units, or segment managers or vertical leaders who report to the CODM with respect to operations, operating results or planning for levels or components below the total Company level. Instead, our CODM now allocates resources and evaluates performance on a Company-wide basis. Based on these changes, commencing with the fourth quarter of 2019, we are now reporting as one reporting segment that develops, manufactures, markets, supports and sells CAD-based quality assurance products integrated with CAD-based inspection and statistical process control software and 3D documentation systems. Our reporting segment sells into a variety of end markets, including automotive, aerospace, metal and machine fabrication, architecture, engineering, construction and public safety. These activities represent more than 99% of consolidated sales.
Total sales to external customers is based upon the geographic location of the customer.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31,
|
|
|
|
|
|
|
2019
|
|
2018
|
|
2017
|
Total sales to external customers
|
|
|
|
|
|
|
United States
|
|
$
|
151,646
|
|
|
$
|
156,242
|
|
|
$
|
141,595
|
|
Americas-Other
|
|
14,110
|
|
|
15,086
|
|
|
13,531
|
|
Germany
|
|
52,083
|
|
|
53,251
|
|
|
49,860
|
|
Europe-Other
|
|
70,196
|
|
|
74,010
|
|
|
65,201
|
|
Japan
|
|
33,361
|
|
|
37,607
|
|
|
35,270
|
|
China
|
|
32,934
|
|
|
36,130
|
|
|
30,405
|
|
Asia-Other
|
|
27,435
|
|
|
31,301
|
|
|
25,055
|
|
|
|
$
|
381,765
|
|
|
$
|
403,627
|
|
|
$
|
360,917
|
|
Long-lived assets consist primarily of property, plant, and equipment, goodwill, and intangible assets, and are attributed to the geographic area in which they are located or originated, as applicable.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
|
|
|
|
2019
|
|
2018
|
|
2017
|
Long-Lived Assets
|
|
|
|
|
|
|
United States
|
|
$
|
45,225
|
|
|
$
|
61,557
|
|
|
$
|
54,703
|
|
Americas-Other
|
|
10,889
|
|
|
10,702
|
|
|
13,834
|
|
Germany
|
|
26,295
|
|
|
30,154
|
|
|
26,611
|
|
Europe-Other
|
|
4,984
|
|
|
24,935
|
|
|
9,124
|
|
Japan
|
|
1,423
|
|
|
1,039
|
|
|
558
|
|
Asia-Other
|
|
2,313
|
|
|
2,358
|
|
|
2,246
|
|
|
|
$
|
91,129
|
|
|
$
|
130,745
|
|
|
$
|
107,076
|
|
19. LEASES
We have operating and finance leases for manufacturing facilities, corporate offices, research and development facilities, sales and training facilities, vehicles, and certain equipment under which we assume the role of lessee. We do not lease assets as a lessor. Our leases have remaining lease terms of less than one year to approximately seven years, some of which include options to extend the leases for up to eight years, and some of which include options to terminate the leases within three months. We currently do not sublease any of our leased assets.
We determine if an arrangement is a lease at inception. Operating leases are included in Operating lease right-of-use (“ROU”) asset, Lease liability, and Lease liability - less current portion in our consolidated balance sheets. Finance leases are included in Property and equipment, net, Lease liability, and Lease liability - less current portion in our condensed consolidated balance sheets.
ROU assets represent our right to use an underlying asset for the lease term, and lease liabilities represent our obligation to make lease payments arising from the lease. Operating lease ROU assets and lease liabilities are recognized on the commencement date of the lease based on the present value of lease payments over the lease term. Variable lease payments that depend on an index or rate include the variable portion when calculating ROU assets and lease liabilities. Variable lease payments that do not depend on an index or rate are expensed as incurred. As most of our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available on the commencement date of the lease to determine the present value of lease payments. We use the implicit rate when readily determinable. The operating lease ROU assets also include any lease payments made and lease incentives. Our lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option at the time the lease is commenced. Lease expense for lease payments is recognized on a straight-line basis over the lease term.
While we have lease agreements with lease and non-lease components, we account for the lease and non-lease components as a single lease component.
The components of lease expense were as follows:
|
|
|
|
|
|
|
Year Ended
December 31, 2019
|
Operating lease cost
|
$
|
8,114
|
|
|
|
Finance lease cost:
|
|
Amortization of ROU assets
|
$
|
363
|
|
Interest on lease liabilities
|
$
|
45
|
|
Total finance lease cost
|
$
|
408
|
|
We recognize lease payments made for short-term leases where terms are 12 months or less as the payments are incurred. Our short-term lease cost for the year ended December 31, 2019 was $0.2 million.
Supplemental balance sheet information related to leases was as follows:
|
|
|
|
|
|
|
As of
|
|
December 31, 2019
|
Operating leases:
|
|
Operating lease right-of-use asset
|
$
|
18,418
|
|
|
|
Current operating lease liability
|
$
|
6,349
|
|
Operating lease liability - less current portion
|
13,272
|
|
Total operating lease liability
|
$
|
19,621
|
|
|
|
Finance leases:
|
|
Property and equipment, at cost
|
$
|
1,870
|
|
Accumulated depreciation
|
(1,150)
|
|
Property and equipment, net
|
$
|
720
|
|
|
|
|
Current finance lease liability
|
$
|
325
|
|
Finance lease liability - less current portion
|
426
|
|
Total finance lease liability
|
$
|
751
|
|
|
|
Weighted Average Remaining Lease Term (in years):
|
|
Operating leases
|
4.48
|
Finance leases
|
2.48
|
|
|
Weighted Average Discount Rate:
|
|
Operating leases
|
5.10
|
%
|
Finance leases
|
5.09
|
%
|
Supplemental cash flow information related to leases was as follows:
|
|
|
|
|
|
|
Year Ended
December 31, 2019
|
Cash paid for amounts included in the measurement of lease liabilities:
|
|
Operating cash flows from operating leases
|
$
|
8,037
|
|
Operating cash flows from finance leases
|
$
|
45
|
|
Financing cash flows from finance leases
|
$
|
358
|
|
|
|
ROU assets obtained in exchange for lease obligations:
|
|
Operating leases
|
$
|
8,970
|
|
Finance leases
|
$
|
—
|
|
Maturities of lease liabilities are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
Year Ending December 31,
|
Operating leases
|
|
Finance leases
|
2020
|
$
|
7,188
|
|
|
$
|
355
|
|
2021
|
|
3,955
|
|
|
315
|
|
2022
|
|
3,110
|
|
|
86
|
|
2023
|
|
2,841
|
|
|
37
|
|
2024
|
|
2,709
|
|
|
6
|
|
Thereafter
|
2,371
|
|
|
—
|
|
Total lease payments
|
$
|
22,174
|
|
|
$
|
799
|
|
Less imputed interest
|
(2,553)
|
|
|
(48)
|
|
Total
|
$
|
19,621
|
|
|
$
|
751
|
|
20. BUSINESS COMBINATIONS
In April 2017, we completed the acquisition of substantially all of the assets of Nutfield, a component technology business located in Hudson, New Hampshire, which specializes in the design and manufacture of advanced galvanometer-based optical scanners, scan heads and laser kits, for a total purchase price of approximately $5.5 million. During the fourth quarter of 2019, we impaired the goodwill and intangible assets related to this acquisition. See Note 7, “Goodwill” and Note 8, “Intangible Assets” for further information. The results of the acquired business’ operations as of and after the date of acquisition have been included in our consolidated financial statements as of and for the years ended December 31, 2019, December 31, 2018 and December 31, 2017.
On March 9, 2018, we acquired all of the outstanding shares of Laser Control Systems, a laser component technology business located in Bedfordshire, United Kingdom, which specializes in the design and manufacture of advanced digital scan heads and laser software, for a purchase price of $1.7 million. We paid an additional $0.6 million in contingent consideration earned by the former owners for meeting certain milestones. During the fourth quarter of 2019, we impaired the goodwill and intangible assets related to this acquisition. See Note 7, “Goodwill” and Note 8, “Intangible Assets” for further information. The results of Laser Control Systems’ operations as of and after the date of acquisition have been included in our consolidated financial statements as of and for the years ended December 31, 2019 and December 31, 2018.
On March 16, 2018, we acquired all of the outstanding shares of Photocore AG, a vision-based 3D measurement application and software developer in Zurich, Switzerland, for a total purchase price of $2.4 million. This acquisition supports our long-term strategy to improve our existing software offerings with innovative technology in photogrammetry. The results of Photocore AG’s operations as of and after the date of acquisition have been included in our consolidated financial statements as of and for the years ended December 31, 2019 and December 31, 2018.
On July 6, 2018, we acquired all of the outstanding shares of Lanmark, a high-speed laser marking control boards and laser marking software provider located in Acton, Massachusetts, for a purchase price of $6.3 million. We paid an additional $0.3 million in contingent consideration earned by the former owners for meeting certain milestones. During the fourth quarter of 2019, we impaired the goodwill and intangible assets related to this acquisition. See Note 7, “Goodwill” and Note 8, “Intangible Assets” for further information. The results of Lanmark’s operations as of and after the date of acquisition have been included in our consolidated financial statements as of and for the years ended December 31, 2019 and December 31, 2018.
On July 13, 2018, we acquired all of the issued and outstanding corporate capital of Open Technologies, a 3D structured light scanning solution company located in Brescia, Italy, for an aggregate purchase price of up to €18.5 million ($21.6 million), subject to post-closing adjustments based on actual net working capital, net financial position and transaction expenses. We paid an additional $2.2 million in contingent consideration earned by the former owners for meeting certain product development milestones. An additional €2.0 million ($2.2 million) in contingent consideration may be earned by the former owners if certain product development milestones are met in the future. The U.S. Dollar amounts have been converted from Euros based on the foreign exchange rate in effect on the closing date of the acquisition. During the fourth quarter of 2019, we impaired the goodwill and intangible assets related to this acquisition. See Note 7, “Goodwill” and Note 8, “Intangible Assets” for further information. The results of Open Technologies’ operations as of and after the date of acquisition have been included in our consolidated financial statements as of and for the years ended December 31, 2019 and December 31, 2018.
The acquisitions of Nutfield, Laser Control Systems, Photocore AG, Lanmark and Open Technologies constitute business combinations as defined by FASB ASC Topic 805, Business Combinations. Accordingly, the assets acquired and liabilities assumed were recorded at their fair values on the date of acquisition. The purchase price allocations below represent our final determination of the fair value of the assets acquired and liabilities assumed for such acquisitions. In the year ended December 31, 2019, certain refinements were booked for the Open Technologies acquisition as part of the finalization process, which included a reduction of $2.6 million to the valuation of the customer relationship intangible and the recognition of a deferred tax liability of $1.9 million. Goodwill increased $4.4 million as result of these changes in the finalization process.
Following is a summary of our allocations of the purchase price to the fair values of the assets acquired and liabilities assumed as of the date of each acquisition:
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|
|
|
|
|
|
|
|
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|
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|
Nutfield
|
|
Laser Controls Systems
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|
Photocore AG
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|
Lanmark
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|
Open Technologies (3)
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|
|
|
|
|
|
|
Accounts receivable
|
|
$
|
160
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
610
|
|
|
$
|
2,735
|
|
Inventory
|
|
539
|
|
|
—
|
|
|
—
|
|
|
299
|
|
|
1,852
|
|
Other assets
|
|
96
|
|
|
—
|
|
|
—
|
|
|
76
|
|
|
634
|
|
Deferred income tax assets
|
|
131
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|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Intangible assets
|
|
2,329
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|
|
1,400
|
|
|
1,435
|
|
|
1,366
|
|
|
7,821
|
|
Goodwill (1)
|
|
2,357
|
|
|
928
|
|
|
1,010
|
|
|
5,355
|
|
|
13,573
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|
Accounts payable and accrued liabilities
|
|
(12)
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|
|
—
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|
|
—
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|
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(159)
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|
|
(2,926)
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Other liabilities (2)
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(104)
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(579)
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|
—
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|
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(971)
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(5,201)
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Deferred income tax liabilities
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|
—
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|
|
—
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|
|
—
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|
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(325)
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|
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(1,876)
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Total purchase price, net of cash acquired
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|
$
|
5,496
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|
|
$
|
1,749
|
|
|
$
|
2,445
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|
|
$
|
6,251
|
|
|
$
|
16,612
|
|
(1)The goodwill arising from the acquisitions consists largely of the expected synergies from combining operations as well as the value of the workforce. A portion of the goodwill is expected to be tax deductible for Nutfield.
(2)For Laser Control Systems, Lanmark and Open Technologies, this total consists primarily of the fair value of the projected contingent consideration.
(3)Amounts converted from Euros to U.S. Dollars based on the foreign exchange rate on the closing date of the acquisition.
Following are the details of the purchase price allocated to the intangible assets acquired for the acquisitions noted above:
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Nutfield
|
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|
Laser Control Systems
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|
Photocore AG
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Lanmark
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Open Technologies
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Amount
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Weighted Average Life (Years)
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|
Amount
|
|
Weighted Average Life (Years)
|
|
|
Amount
|
Weighted Average Life (Years)
|
|
Amount
|
Weighted Average Life (Years)
|
|
Amount
|
Weighted Average Life (Years)
|
Trade name
|
|
$
|
29
|
|
1
|
|
$
|
—
|
|
0
|
|
$
|
—
|
|
0
|
|
$
|
—
|
|
0
|
|
$
|
—
|
|
0
|
Brand
|
|
—
|
|
0
|
|
|
26
|
|
1
|
|
22
|
|
1
|
|
26
|
|
1
|
|
103
|
|
1
|
Non-competition agreement
|
|
144
|
|
5
|
|
29
|
|
3
|
|
9
|
|
3
|
|
—
|
|
0
|
|
—
|
|
0
|
Technology
|
|
1,970
|
|
10
|
|
1,319
|
|
7
|
|
1,343
|
|
7
|
|
760
|
|
7
|
|
4,441
|
|
7
|
Customer relationships
|
|
95
|
|
10
|
|
26
|
|
10
|
|
61
|
|
10
|
|
580
|
|
10
|
|
3,277
|
|
10
|
Favorable in-place lease
|
|
91
|
|
12
|
|
—
|
|
0
|
|
—
|
|
0
|
|
—
|
|
0
|
|
—
|
|
0
|
Fair value of intangible
assets acquired
|
|
$
|
2,329
|
|
10
|
|
$
|
1,400
|
|
7
|
|
$
|
1,435
|
|
7
|
|
$
|
1,366
|
|
8
|
|
$
|
7,821
|
|
8
|
We test goodwill for impairment annually or more frequently if an event occurs or circumstances would indicate that it is more likely than not the fair value of the reporting unit is less than the carrying value. We changed the timing of our annual test of goodwill during 2019 to align with our updated strategic plan and annual budgetary process. Accordingly, we performed our annual quantitative test for impairment of our recorded goodwill as of December 10, 2019. As a result of this test, the estimated fair value of each of the Photonics reporting unit, which included goodwill recognized with the Nutfield, Laser Control Systems and Lanmark acquisitions, and the 3D Design reporting unit, which included goodwill recognized with the Open Technologies acquisition, were determined to be less than the carrying value of the reporting unit, indicating a full impairment. This impairment was driven primarily by historical and projected financial performance lower than our expectations and changes in our go-forward strategy in connection with our new strategic plan.
Additionally, as a result of historical and projected financial performance lower than our expectations and changes in our go-forward strategy in connection with our new strategic plan, the estimated fair value of acquired intangibles recognized with the Nutfield, Laser Control Systems, Lanmark and Open Technologies acquisitions were determined to be less than the carrying value of the net carrying value for such assets. We recognized an impairment charge related to such acquired intangibles of $10.5 million in the fourth quarter of 2019.
Acquisition and integration costs are not included as components of consideration transferred, but are recorded as expense in the period in which such costs are incurred. To date, we have incurred approximately $0.8 million in acquisition and integration costs for the Nutfield, Laser Control Systems, Photocore AG, Lanmark and Open Technologies acquisitions. Pro forma financial results for Nutfield, Laser Control Systems, Photocore AG, Lanmark, and Open Technologies have not been presented because the effects of these transactions, individually and in the aggregate, were not material to our consolidated results of operations.
21. SUBSEQUENT EVENTS
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 sustainable value to our shareholders and customers. Key activities under the Restructuring Plan include a continued focus on efficiency and cost-saving efforts, which includes decreasing total headcount by approximately 500 employees upon the completion of the Restructuring Plan.
These activities are expected to be substantially completed by the end of 2021. We estimate that the Restructuring Plan will reduce gross annual pre-tax expenses by approximately $40 million, to be realized in the fourth quarter of 2020 on an annualized basis. We estimate that the implementation of the Restructuring Plan will result in pre-tax charges of approximately $26 million to $36 million, which are in addition to the pre-tax charges of approximately $49 million recorded in the fourth quarter of 2019 in connection with the implementation of our new strategic plan. We expect $18 million to $22 million of these additional charges to be in the form of cash charges. Actual results, including the costs of the Restructuring Plan, may differ materially from our expectations, resulting in our inability to realize the expected benefits of the Restructuring Plan and our new strategic plan and negatively impacting our ability to execute our future plans and strategies, which could have a material adverse effect on our business, financial condition and results of operations.
22. QUARTERLY RESULT OF OPERATIONS (UNAUDITED)
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|
|
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|
|
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|
|
Quarter ended
|
|
March 31,
2019
|
|
June 30,
2019
|
|
September 30,
2019
|
|
December 31,
2019
|
Sales (1)
|
|
$
|
93,617
|
|
|
$
|
93,491
|
|
|
$
|
90,516
|
|
|
$
|
104,141
|
|
Gross profit (2)
|
|
53,018
|
|
|
50,741
|
|
|
50,772
|
|
|
43,601
|
|
Net income (loss) (3)
|
|
152
|
|
|
(6,405)
|
|
|
(6,199)
|
|
|
(49,695)
|
|
Net income (loss) per share:
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.01
|
|
|
$
|
(0.37)
|
|
|
$
|
(0.36)
|
|
|
$
|
(2.85)
|
|
Diluted
|
|
$
|
0.01
|
|
|
$
|
(0.37)
|
|
|
$
|
(0.36)
|
|
|
$
|
(2.85)
|
|
(1)For the second quarter of 2019, sales were reduced by an incremental $5.8 million sales adjustment related to our GSA Contracts based on the results of the Review conducted by our outside legal counsel and forensic accountants.
(2)For the fourth quarter of 2019, gross profit was reduced by a $15.1 million inventory reserve charge primarily driven by the evaluation of our hardware product portfolio, which increased our reserve for excess and obsolete inventory.
(3)For the fourth quarter of 2019, we incurred an impairment loss of $35.2 million, 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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter ended
|
|
March 31,
2018
|
|
June 30,
2018
|
|
September 30,
2018
|
|
December 31,
2018
|
Sales (1)
|
|
$
|
92,834
|
|
|
$
|
98,244
|
|
|
$
|
99,705
|
|
|
$
|
112,844
|
|
Gross profit (2)
|
|
52,106
|
|
|
55,994
|
|
|
50,612
|
|
|
62,841
|
|
Net income (loss) (3)
|
|
455
|
|
|
1,205
|
|
|
(2,488)
|
|
|
5,758
|
|
Net income (loss) per share:
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.03
|
|
|
$
|
0.07
|
|
|
$
|
(0.15)
|
|
|
$
|
0.33
|
|
Diluted
|
|
$
|
0.03
|
|
|
$
|
0.07
|
|
|
$
|
(0.15)
|
|
|
$
|
0.33
|
|
(1)For the fourth quarter of 2018, sales were reduced by a $4.8 million estimated cumulative sales adjustment, representative of the last six years of estimated overcharges to the Government under the GSA Contracts.
(2)For the third quarter of 2018, gross profit was reduced by a $4.7 million inventory reserve charge resulting from an analysis of our inventory reserves in connection with our new product introductions and acquisitions, which increased our reserve for excess and obsolete inventory.
(3)For the fourth quarter of 2018, as additional guidance was released during the Securities and Exchange Commission's Staff Accounting Bulletin 118 remeasurement period related to the U.S. Tax Cuts and Jobs Act of 2017, we completed our transition tax analysis, which resulted in an income tax benefit of $1.0 million.