FARO has announced its financial results for the second quarter that ended on June 30, 2019.
Michael Burger, President and Chief Executive Officer said, , “I’m excited to have joined FARO in mid-June and to lead the company through its next phase of evolution.” “I am very encouraged by our company’s technological, manufacturing, and organizational strengths and FARO’s potential for growth. Looking forward, we will be developing a strategy to leverage our capabilities to deliver long-term shareholder value,” he added further.
Second Quarter 2019 Financial Summary
Total sales were $93.5 million for second quarter 2019, as compared with $98.2 million for second quarter 2018, which included the unfavorable impacts of $5.8 million from the GSA sales adjustment described below and $2.5 million from changes in foreign exchange rates. Excluding the impact of the GSA sales adjustment, non-GAAP* total sales were $99.3 million for second quarter 2019, up 1.1% as compared with $98.2 million for second quarter 2018. FARO grew its service revenue year-over-year by 13.2% in second quarter 2019, driven by the growth of our installed base and our focused after-market sales initiatives. Product sales for second quarter 2019 decreased year-over-year primarily due to the GSA sales adjustment, the impact of changes in foreign exchange rates, and a decrease in unit sales within their 3D manufacturing segment, especially in Asia-Pacific region. New order bookings were $106.1 million for second quarter 2019, down 0.4% as compared with $106.5 million for second quarter 2018.
As previously disclosed, The Company sold its products and related services to the U.S. Government under General Services Administration (“GSA”) Federal Supply Schedule contracts (the “Contracts”) since 2002. On February 14, 2019, FARO reported to the GSA and its Office of Inspector General that their preliminary internal review determined that they may have overcharged the Government under the Contracts (the “GSA Matter”). In fourth quarter 2018, the company reduced its total sales by $4.8 million and recorded $0.5 million of imputed interest in other expense related to the GSA Matter based on their preliminary internal review at that time. Faro also retained outside legal counsel and forensic accountants to conduct a comprehensive review of their pricing and other practices under the Contracts (the “Review”). On July 15, 2019, FARO submitted a report to the GSA and its Office of Inspector General setting forth the findings of the Review, which reflected an estimated aggregate overcharge of $10.6 million and imputed interest of $1.0 million under the Contracts. Based on the results of the Review, the company reduced their total sales for second quarter 2019 by an incremental $5.8 million (the “GSA sales adjustment”) and recorded an incremental $0.4 million of imputed interest in other expense.
Gross margin was 56.0% for second quarter 2019, as compared with 58.7% for the same prior year period, reflecting a strong increase in service margin, which was more than offset by the impact of the GSA sales adjustment. Non-GAAP* gross margin was 58.5% for second quarter 2019.
Operating loss was $4.9 million for second quarter 2019, as compared with operating income of $1.9 million for second quarter 2018, primarily reflecting the GSA sales adjustment and incremental general and administrative expenses of $1.5 million related to their Chief Executive Officer succession and $0.7 million related to advisory fees incurred during second quarter 2019 in connection with the GSA Matter. Non-GAAP* operating income was $3.1 million for second quarter 2019.
Other expense was $1.9 million for second quarter 2019, as compared with $0.4 million for the second quarter last year, driven by a $1.5 million impairment charge related to the strategic investment in an early stage software company, and $0.4 million of imputed interest recorded in the quarter related to the GSA Matter.
FARO reported a net loss of $6.4 million, or $0.37 per share, for second quarter 2019, as compared to net income of $1.2 million, or $0.07 per share, for second quarter 2018. Non-GAAP* net income was $2.5 million, or $0.14 per share, for second quarter 2019.
The company generated $11.9 million in cash flow from operations for second quarter 2019 and remained debt-free, with cash and short-term investments totaling $145.4 million.
