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FARO Technologies(FARO) - 2024 Q3 - Quarterly Report
FAROFARO Technologies(FARO)2024-11-06 21:20
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Restructuring and Integration - FARO Technologies achieved approximately 40millioninannualizedsavingsthroughitsRestructuringPlan[80].−TheIntegrationPlanhasincurredtotalrestructuringchargesof40 million in annualized savings through its Restructuring Plan[80]. - The Integration Plan has incurred total restructuring charges of 26.7 million, with cash payments of 10.1millionasofSeptember30,2024[80].−FARO′scloud−basedofferingsarebeingconsolidatedfromthreeplatformsintoasinglecustomerofferingaspartoftheIntegrationPlan[80].−FAROhasnotincurredanycostsassociatedwiththeIntegrationandRestructuringplansinQ32024,comparedto10.1 million as of September 30, 2024[80]. - FARO's cloud-based offerings are being consolidated from three platforms into a single customer offering as part of the Integration Plan[80]. - FARO has not incurred any costs associated with the Integration and Restructuring plans in Q3 2024, compared to 1.6 million in the same period in 2023[80]. Financial Performance - Total sales for the three months ended September 30, 2024, were 82.6million,adecreaseof82.6 million, a decrease of 4.3 million or 5.2% compared to 86.8millionforthesameperiodin2023[90].−Productsalesdecreasedby86.8 million for the same period in 2023[90]. - Product sales decreased by 5.4 million, or 8.1%, to 61.5millionforthethreemonthsendedSeptember30,2024,primarilyimpactedbya61.5 million for the three months ended September 30, 2024, primarily impacted by a 3.4 million decline in the APAC region, particularly in China[90]. - Gross profit increased by 4.3million,or10.34.3 million, or 10.3%, to 46.0 million for the three months ended September 30, 2024, with gross margin rising to 55.7% from 48.0% in the prior year[90]. - Selling, general and administrative expenses decreased by 4.0million,or10.34.0 million, or 10.3%, to 34.0 million for the three months ended September 30, 2024, resulting in a decrease in expenses as a percentage of sales to 41.2%[90]. - Research and development expenses increased by 1.6million,or19.51.6 million, or 19.5%, to 9.8 million for the three months ended September 30, 2024, representing 11.8% of sales[90]. - Net loss for the three months ended September 30, 2024, was 0.3million,asignificantimprovementcomparedtoanetlossof0.3 million, a significant improvement compared to a net loss of 8.8 million for the same period in 2023[90]. - Total sales decreased by 11.1million,or4.311.1 million, or 4.3%, to 248.9 million for the nine months ended September 30, 2024, compared to 260.0millionforthesameperiodin2023[92].−Productsalesdecreasedby260.0 million for the same period in 2023[92]. - Product sales decreased by 13.4 million, or 6.7%, to 186.3million,whileservicesalesincreasedby186.3 million, while service sales increased by 2.3 million, or 3.9%, to 62.6million[92].−Grossprofitincreasedby62.6 million[92]. - Gross profit increased by 19.4 million, or 16.9%, to 134.1million,withgrossmarginrisingby9.8percentagepointsto53.9134.1 million, with gross margin rising by 9.8 percentage points to 53.9%[92]. - Selling, general and administrative expenses decreased by 11.7 million, or 9.9%, to 106.2million,withexpensesasapercentageofsalesdecreasingto42.7106.2 million, with expenses as a percentage of sales decreasing to 42.7%[92]. - Research and development expenses decreased by 3.9 million, or 12.3%, to 28.6million,withexpensesasapercentageofsalesdecreasingto11.528.6 million, with expenses as a percentage of sales decreasing to 11.5%[92]. - Net loss was 8.1 million for the nine months ended September 30, 2024, compared to a net loss of 58.2millionfortheprioryearperiod[94].−Cashandcashequivalentsincreasedby58.2 million for the prior year period[94]. - Cash and cash equivalents increased by 12.1 million to 88.9millionasofSeptember30,2024,drivenbycashgeneratedfromoperatingactivities[94].−Cashprovidedbyoperatingactivitieswas88.9 million as of September 30, 2024, driven by cash generated from operating activities[94]. - Cash provided by operating activities was 13.4 million during the nine months ended September 30, 2024, compared to 17.6millionusedinthesameperiodof2023[94].RevenueRecognition−FARO′srevenueisprimarilyderivedfrommeasurementequipmentandrelatedsoftware,recognizeduponshipment[77].−Thecompanyrecognizesrevenuefromhardwareservicecontractsandsoftwaremaintenanceonastraight−linebasisoverthecontractualterm[77].−Recurringrevenuefromhardwareservicecontracts,softwaremaintenancecontracts,andsubscription−basedsoftwareapplicationswas17.6 million used in the same period of 2023[94]. Revenue Recognition - FARO's revenue is primarily derived from measurement equipment and related software, recognized upon shipment[77]. - The company recognizes revenue from hardware service contracts and software maintenance on a straight-line basis over the contractual term[77]. - Recurring revenue from hardware service contracts, software maintenance contracts, and subscription-based software applications was 17.4 million for the three months ended September 30, 2024, compared to 17.1millionin2023[82].−RevenuefromsoftwareproductsforthethreemonthsendedSeptember30,2024,was17.1 million in 2023[82]. - Revenue from software products for the three months ended September 30, 2024, was 11.2 million, consistent with the same period in 2023[82]. - The company capitalized 1.2millionincostsrelatedtointernallydevelopedsoftwareforboththethreemonthsendedSeptember30,2024,and2023[82].OperationalChanges−ThecompanytransitionedmanufacturingtoSanmina,completingthephasedtransitionbythebeginningofQ32022[80].−FARO′spartnershipwithSanminaisexpectedtosupportproductioncapacitynecessaryfor2024[79].−Thecompanyhasabandoned17,000squarefeetofunusedmanufacturingspaceinExton,Pennsylvania,aspartofitscostreductioninitiative[80].ForeignCurrencyExposure−AsofSeptember30,2024,581.2 million in costs related to internally developed software for both the three months ended September 30, 2024, and 2023[82]. Operational Changes - The company transitioned manufacturing to Sanmina, completing the phased transition by the beginning of Q3 2022[80]. - FARO's partnership with Sanmina is expected to support production capacity necessary for 2024[79]. - The company has abandoned 17,000 square feet of unused manufacturing space in Exton, Pennsylvania, as part of its cost reduction initiative[80]. Foreign Currency Exposure - As of September 30, 2024, 58% of the company's revenue was invoiced in foreign currencies, with 43% of assets denominated in foreign currencies, indicating significant exposure to foreign exchange risks[100]. - The company has not utilized off-balance sheet financial instruments to hedge foreign currency exchange rate exposure, relying instead on natural hedges from revenue and expenses[100]. Internal Controls and Compliance - A material weakness was identified in the company's internal controls related to information technology general controls (ITGCs), specifically in user access management, which could lead to material misstatements in financial reporting[105]. - Remediation actions include hiring new IT leadership with public company experience and revising user access controls to ensure appropriate segregation of duties[106]. - The company expects to complete the remediation of the identified material weakness prior to the end of fiscal 2024[106]. - No changes in internal control over financial reporting occurred during the three months ended September 30, 2024, that materially affected the company's internal controls[108]. Legal and Regulatory Matters - The company believes that ongoing legal proceedings will not have a material adverse effect on its financial condition or results of operations[110]. Economic Factors - General inflation has negatively impacted the company's cost of sales and operating expenses, affecting customer capital for purchasing products and services[102]. Shareholder Actions - The company repurchased a total of 588,856 shares for a total cash payment of 10.0 million as part of its share repurchase program[94]. Taxation - The effective tax rate was 93.9% for the nine months ended September 30, 2024, compared to 9.1% in the prior year period[92].