FARO Technologies(US:FARO)2024-11-06 21:20Restructuring and Integration - FARO Technologies achieved approximately $40 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 $10.1 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 $82.6 million, a decrease of $4.3 million or 5.2% compared to $86.8 million for the same period in 2023[90]. - Product sales decreased by $5.4 million, or 8.1%, to $61.5 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 $4.3 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 $4.0 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 $1.6 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 $0.3 million, a significant improvement compared to a net loss of $8.8 million for the same period in 2023[90]. - Total sales decreased by $11.1 million, or 4.3%, to $248.9 million for the nine months ended September 30, 2024, compared to $260.0 million for the same period in 2023[92]. - Product sales decreased by $13.4 million, or 6.7%, to $186.3 million, while service sales increased by $2.3 million, or 3.9%, to $62.6 million[92]. - Gross profit increased by $19.4 million, or 16.9%, to $134.1 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 $106.2 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 $28.6 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 $58.2 million for the prior year period[94]. - Cash and cash equivalents increased by $12.1 million to $88.9 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 $17.6 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 $17.1 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 $1.2 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].