LAKE MARY, Fla., Oct. 30 /PRNewswire-FirstCall/ -- FARO
Technologies, Inc. (NASDAQ:FARO) today announced results for the
third quarter ended September 29, 2007. Net income for the third
quarter was $0.7 million, or $0.04 per diluted share, a decrease of
$2.5 million, compared to $3.2 million, or $0.22 per diluted share,
in the third quarter of 2006. The third quarter results include a
charge of $2.65 million for the estimated fines and penalties that
the company anticipates could be necessary to resolve the
previously announced Foreign Corrupt Practices Act ("FCPA") matter
with the U.S. Department of Justice ("DOJ") and U.S. Securities and
Exchange Commission ("SEC"). Excluding this $2.65 million charge
and the $0.6 million of related tax effects, net income would have
been $4.0 million, or $.25 per diluted share.(1) Sales for the
third quarter of 2007 were $44.5 million, an increase of $6.1
million, or 16.0%, from $38.4 million in the third quarter of 2006.
New order bookings for the third quarter were $43.8 million, an
increase of $5.1 million, or 13.2%, compared to $38.7 million in
the year-ago quarter. Year- to-date sales are $132.4 million, an
increase of 22.1% and well within the company's full-year guidance
of 20-25% sales growth. "On a year-to-date basis our performance is
in-line with our expectations and we're well-positioned for the
fourth quarter," stated Jay Freeland, FARO's President and CEO.
"The non-recurring effect of the estimated fines and penalties from
the SEC and DOJ had a significant impact on earnings for the
quarter. However, we are pleased to be working toward a final
resolution of the FCPA matter. The overall fundamentals of our
markets and our Company remain strong. The combination of our
secondary offering as well as our cash from operations put almost
$100 million on the balance sheet which we will use to continue
fueling our growth. We just released two new ground-breaking
products, the R&D pipeline is full, and we've seen no change in
demand for the existing products in our portfolio." Gross margin
for the third quarter of 2007 was 59.4%, compared to 58.0% in the
third quarter of 2006. Gross margin increased primarily as the
result of an increase in unit sales in product lines with lower
unit costs due to continuing productivity improvements.
Year-to-date gross margin is 60.1%, slightly higher than the
company's full-year guidance of 57-59%. Selling expenses as a
percentage of sales increased to 30.6% in the third quarter of 2007
compared to 27.6% in the third quarter of 2006 primarily due to
increased compensation and marketing costs. General and
administrative expenses were 17.9% of sales for the third quarter
of 2007 compared to 14.4% of sales in the third quarter of 2006.
General and administrative expenses in the third quarter of 2007
include the accrual of $2.65 million for the estimated fines and
penalties that could be necessary to resolve the FCPA matter and
$0.4 million of professional fees related to the Company's FCPA
matter. The third quarter of 2006 also includes $1.0 million of
professional fees related to the FCPA matter and patent litigation
costs. Research and development expenses were $2.9 million for the
third quarter of 2007, up from $1.7 million in the third quarter of
2006. The increase was driven primarily by costs associated with
the recent launches of the Quantum FaroArm and Fusion FaroArm
product lines. Operating margin for the third quarter of 2007 was
2.2%, compared to 8.9% in the year ago quarter. Income tax expense
was $1.6 million for the third quarter of 2007 compared to $0.5
million in the third quarter of 2006. The Company's effective tax
rate was 69.5% in the third quarter of 2007 primarily as a result
of the increase in non-deductible expenses for U.S. income tax
purposes associated with the FCPA matter compared to 13.9% in the
third quarter of 2006. The Company's effective income tax rate in
the third quarter of 2007, excluding the effects of the $2.65
million penalty, would have been 19.9%.(2) FCPA Update The Company
anticipates that resolution of the FCPA matter will not result in
formal criminal charges being filed against it by the DOJ. The
Company expects, in addition to monetary sanctions, the final
resolution of the FCPA matter with the SEC and the DOJ will include
continuing obligations with the SEC and the DOJ with respect to
monitoring, compliance with the FCPA and other laws, full
cooperation with the government, and the adoption of a compliance
code containing specific provisions intended to prevent violations
of the FCPA. The Company expects that its monitoring obligations
will continue for a period of two years starting with the final
resolution of the FCPA matter with the SEC and the DOJ. The Company
preliminarily estimates that the costs associated with the
monitoring obligations to be in the range of $1 million to $2
million. However, because the scope of the monitoring obligation
has not yet been determined and the outside monitoring firm has not
yet been selected, the actual costs incurred may vary from the
Company's preliminary estimate. The Company intends to provide
updates with respect to the monitoring costs when additional
information is available to the Company. Full Year Sales and Gross
Margin Guidance "Based on the strength of our year-to-date
performance, we are maintaining our previously stated full year
sales guidance range of approximately 20% - 25% growth and
increasing our gross margin range to 58% to 60%," Freeland
concluded. (1) The Company believes that measuring net income and
net income per diluted share without the impact of the $2.65
million FCPA charge and the $0.6 million of related tax effects is
useful to management and investors (when presented in conjunction
with the comparable GAAP measure of net income and net income per
diluted share) because the impact of the $2.65 million charge on
the Company's tax rate could otherwise be unclear to investors. In
addition, management refers to these financial measures to
facilitate internal and external comparisons to the Company's
historical operating results. (2) The Company believes that
calculating its effective tax rate without the impact of the FCPA
charge is useful to management and investors because the impact of
the $2.65 million charge on the Company's tax rate could otherwise
be unclear to investors. In addition, management refers to the
adjusted effective tax rate to facilitate internal and external
comparisons to the Company's historical tax rate. The Company's
third quarter effective tax rate without the impact of the FCPA
charge would have been calculated in accordance with FIN No. 18.
This press release contains forward-looking statements (within the
meaning of the Private Securities Litigation Reform Act of 1995)
that are subject to risks and uncertainties, such as statements
about our plans, objectives, projections, expectations,
assumptions, strategies, or future events. Statements that are not
historical facts or that describe the Company's plans, objectives,
projections, expectations, assumptions, strategies, or goals are
forward-looking statements. In addition, words such as "may,"
"believes," "anticipates," "expects," "intends," "plans," "seeks,"
"estimates," "will," "should," "could," "projects," "forecast,"
"target," "goal," and similar expressions or discussions of our
strategy or other intentions identify forward-looking statements.
Other written or oral statements, which constitute forward-looking
statements, also may be made by the Company from time to time.
Forward-looking statements are not guarantees of future performance
and are subject to various known and unknown risks, uncertainties,
and other factors that may cause actual results, performances, or
achievements to differ materially from future results,
performances, or achievements expressed or implied by such
forward-looking statements. Consequently, undue reliance should not
be placed on these forward-looking statements. Factors that could
cause actual results to differ materially from what is expressed or
forecasted in forward-looking statements include, but are not
limited to: -- our inability to further penetrate our customer
base; -- development by others of new or improved products,
processes or technologies that make our products obsolete or less
competitive; -- our inability to maintain our technological
advantage by developing new products and enhancing our existing
products; -- our inability to successfully identify and acquire
target companies or achieve expected benefits from acquisitions
that are consummated; -- the cyclical nature of the industries of
our customers and the financial condition of our customers; -- the
fact that the market potential for the CAM2 market and the
potential adoption rate for our products are difficult to quantify
and predict; -- the inability to protect our patents and other
proprietary rights in the United States and foreign countries; --
fluctuations in our annual and quarterly operating results , and
the inability to achieve our financial operating targets as a
result of a number of factors including, but not limited to (i)
litigation and regulatory actions brought against us, (ii) quality
issues with our products, (iii) excess or obsolete inventory, (iv)
raw material price fluctuations, (v) expansion of our manufacturing
capability and other inflationary pressures, (vi) the size and
timing of customer orders, (vii) the amount of time that it takes
to fulfill orders and ship our products, (viii) the length of our
sales cycle to new customers and the time and expense incurred in
further penetrating our existing customer base, (ix) increases in
operating expenses required for product development and new product
marketing, (x) costs associated with new product introductions,
such as product development, marketing, assembly line start-up
costs and low introductory period production volumes, (xi) the
timing and market acceptance of new products and product
enhancements, (xii) customer order deferrals in anticipation of new
products and product enhancements, (xiii) our success in expanding
our sales and marketing programs, (xiv) costs associated with
opening new sales offices outside of the United States, (xv)
fluctuations in revenue without proportionate adjustments in fixed
costs, (xvi) the efficiencies achieved in managing inventories and
fixed assets; (xvii) investments in potential acquisitions or
strategic sales, product or other initiatives, (xviii) shrinkage or
other inventory losses due to product obsolescence, scrap, or
material price changes, (xix) adverse changes in the manufacturing
industry and general economic conditions, (xx) compliance with
government regulations, including health, safety, and environmental
matters, and (xxi) other factors noted herein; -- changes in gross
margins due to changing product mix of products sold and the
different gross margins on different products, -- our inability to
successfully implement the requirements of Restriction of use of
Hazardous Substances (RoHS) and Waste Electrical and Electronic
Equipment (WEEE) compliance into our products; -- the inability of
our products to displace traditional measurement devices and attain
broad market acceptance; -- the impact of competitive products and
pricing in the CAM2 market and the broader market for measurement
and inspection devices; -- the effects of increased competition as
a result of recent consolidation in the CAM2 market; -- risks
associated with expanding international operations, such as
fluctuations in currency exchange rates, difficulties in staffing
and managing foreign operations, political and economic
instability, compliance with import and export regulations, and the
burdens of complying with a wide variety of foreign laws and labor
practices; -- unforeseen developments in our FCPA matter or in
complying with the FCPA in the future; -- the fact that there is no
assurance that the Company's discussions with the SEC and the DOJ
will result in a resolution of the FCPA matter with either the DOJ
or the SEC or that any such resolution, if reached, may differ from
the resolution currently anticipated by the Company; -- the fact
that predicting when the FCPA matter will be finally resolved with
the SEC and the DOJ is not possible; -- the fact that the amount of
monetary sanctions ultimately paid by the Company to the SEC and
the DOJ in resolving the FCPA matter, whether imposed on the
Company or agreed to by settlement, may exceed the amount that that
has been reserved by the Company; -- the fact that the ultimate
costs of the Company's continuing monitoring obligations in respect
of the FCPA matter are uncertain and may vary from the Company's
preliminary estimates of such amount as a result of a number of
factors, including without limitation the fact that neither the
scope of the monitoring obligation nor the identity of outside
monitoring firm have been determined; -- the outcome of the class
action securities litigation against us, including any amounts that
are not covered by the Company's D&O insurance; -- higher than
expected increases in expenses relating to our Asia Pacific
expansion or our Singapore manufacturing facility; -- our inability
to find less expensive alternatives to stock options to attract and
retain employees; -- the loss of our Chief Executive Officer, our
Chief Technology Officer, our Chief Financial Officer, or other key
personnel; -- difficulties in recruiting research and development
engineers, and application engineers; -- the failure to effectively
manage our growth; -- variations in the effective tax rate and the
difficulty predicting the tax rate on a quarterly and annual basis;
-- the loss of key suppliers and the inability to find sufficient
alternative suppliers in a reasonable period or on commercially
reasonable terms; and -- the other risks detailed in the Company's
Annual Report on Form 10-K and other filings from time to time with
the Securities and Exchange Commission. Forward-looking statements
in this release represent the Company's judgment as of the date of
this release. The Company undertakes no obligation to update
publicly any forward-looking statements, whether as a result of new
information, future events, or otherwise. About FARO With
approximately 14,600 installations and 7,000 customers globally,
FARO Technologies, Inc. designs, develops, and markets portable,
computerized measurement devices and software used to create
digital models - or to perform evaluations against an existing
model - for anything requiring highly detailed 3-D measurements,
including part and assembly inspection, factory planning and asset
documentation, as well as specialized applications ranging from
surveying, recreating accident sites and crime scenes to digitally
preserving historical sites. FARO's technology increases
productivity by dramatically reducing the amount of on-site
measuring time, and the various industry-specific software packages
enable users to process and present their results quickly and more
effectively. Principal products include the world's best-selling
portable measurement arm - the FaroArm; the world's best-selling
laser tracker - the FARO Laser Tracker X and Xi; the FARO Laser
ScanArm; FARO Laser Scanner LS; the FARO Gage, Gage-PLUS and
PowerGAGE; and the CAM2 family of advanced CAD-based measurement
and reporting software. FARO Technologies is ISO-9001 certified and
ISO-17025 laboratory registered. FARO TECHNOLOGIES, INC. AND
SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) Three
Months Ended Nine Months Ended (in thousands, except per share Sep
29, Sep 30, Sep 29, Sep 30, data) 2007 2006 2007 2006 SALES $44,521
$38,365 $132,389 $108,463 COST OF SALES (exclusive of depreciation
and amortization, shown separately below) 18,065 16,121 52,873
44,822 GROSS PROFIT 26,456 22,244 79,516 63,641 OPERATING EXPENSES:
Selling 13,625 10,597 39,951 32,458 General and administrative
7,978 5,519 18,496 18,296 Depreciation and amortization 971 1,023
3,013 3,096 Research and development 2,881 1,741 7,129 5,390 Total
operating expenses 25,455 18,880 68,589 59,240 INCOME FROM
OPERATIONS 1,001 3,364 10,927 4,401 OTHER (INCOME) EXPENSE Interest
(income) (590) (189) (1,182) (516) Other (income) expense, net
(720) (153) (1,427) (440) Interest expense 3 3 7 9 INCOME BEFORE
INCOME TAX 2,308 3,703 13,529 5,348 INCOME TAX EXPENSE 1,603 514
3,840 810 NET INCOME $705 $3,189 $9,689 $4,538 NET INCOME PER SHARE
- BASIC $0.04 $0.22 $0.64 $0.32 NET INCOME PER SHARE - DILUTED
$0.04 $0.22 $0.63 $0.31 FARO TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (UNAUDITED) September 29, December 31,
(in thousands, except share data) 2007 2006 ASSETS Current Assets:
Cash and cash equivalents $25,409 $15,689 Short-term investments
72,780 15,790 Accounts receivable, net 44,554 42,706 Inventories
26,440 23,429 Deferred income taxes, net 2,695 1,845 Prepaid
expenses and other current assets 7,115 3,222 Total current assets
178,993 102,681 Property and Equipment: Machinery and equipment
12,008 9,131 Furniture and fixtures 4,625 3,988 Leasehold
improvements 3,066 2,615 Property and equipment at cost 19,699
15,734 Less: accumulated depreciation and amortization (12,651)
(8,889) Property and equipment, net 7,048 6,845 Goodwill 18,510
17,266 Intangible assets, net 5,967 6,221 Service Inventory 10,448
7,278 Deferred income taxes, net 3,648 3,985 Total Assets $224,614
$144,276 LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities:
Accounts payable $9,811 $11,182 Accrued liabilities 13,729 10,379
Income taxes payable 1,209 2,151 Current portion of unearned
service revenues 6,945 4,569 Customer deposits 252 618 Current
portion of long-term debt and obligations under capital leases 54
90 Total current liabilities 32,000 28,989 Unearned service
revenues - less current portion 5,123 2,917 Deferred tax liability,
net 1,044 1,200 Long-term debt and obligations under capital leases
- less current portion 166 115 Total Liabilities 38,333 33,221
Commitments and contingencies Shareholders' Equity: Common stock -
par value $.001, 50,000,000 shares authorized; 16,689,853 and
14,586,402 issued; 16,621,893 and 14,464,715 outstanding,
respectively 17 14 Additional paid-in-capital 147,946 85,160
Retained earnings 35,142 25,452 Accumulated other comprehensive
(loss) 3,327 580 Common stock in treasury, at cost - 40,000 shares
(151) (151) Total Shareholders' Equity 186,281 111,055 Total
Liabilities and Shareholders' Equity $224,614 $144,276 FARO
TECHNOLOGIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH
FLOWS (UNAUDITED) Nine Months Ended (in thousands) Sep 29, 2007 Sep
30, 2006 CASH FLOWS FROM: OPERATING ACTIVITIES: Net income $9,689
$4,538 Adjustments to reconcile net income to net cash provided by
operating activities: Depreciation and amortization 3,013 3,096
Amortization of stock options and restricted stock units 956 151
Provision for bad debts 223 - Deferred income tax benefit (542)
(402) Change in operating assets and liabilities: Decrease
(increase) in: Accounts receivable (218) (7,146) Inventories
(4,798) 1,601 Prepaid expenses and other current assets (695)
(2,117) Income tax benefit from exercise of stock options (2,993) -
Increase (decrease) in: Accounts payable and accrued liabilities
2,499 (537) Income taxes payable (785) 666 Customer deposits (314)
345 Unearned service revenues 5,064 2,527 Net cash provided by
operating activities 11,099 2,722 INVESTING ACTIVITIES: Purchases
of property and equipment (1,807) (2,680) Payments for intangible
assets (264) (714) (Purchases of) proceeds from short- term
investments (56,990) 700 Net cash used in investing activities
(59,061) (2,694) FINANCING ACTIVITIES: Payments of capital leases
(60) (146) Income tax benefit from exercise of stock options 2,993
- Proceeds from issuance of stock, net 58,409 - Net cash provided
by (used in) financing activities 61,342 (146) EFFECT OF EXCHANGE
RATE CHANGES ON CASH AND CASH EQUIVALENTS (3,660) (212) INCREASE
(DECREASE) IN CASH AND CASH EQUIVALENTS 9,720 (330) CASH AND CASH
EQUIVALENTS, BEGINNING OF PERIOD 15,689 9,278 CASH AND CASH
EQUIVALENTS, END OF PERIOD $25,409 $8,948 DATASOURCE: FARO
Technologies, Inc. CONTACT: Keith Bair, Senior Vice President and
CFO, +1-407-333-9911, Web site: http://www.faro.com/
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