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OFFON

FARO TECHNOLOGIES, INC.

(FARO)
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FARO TECHNOLOGIES : Management's Discussion and Analysis of Financial Condition and Results of Operations (form 10-Q)

07/28/2021 | 04:10pm EDT
The following information should be read in conjunction with the condensed
consolidated financial statements, including the notes thereto, included
elsewhere in this Form 10-Q and Management's Discussion and Analysis of
Financial Condition and Results of Operations included in our Annual Report on
Form 10-K for the year ended December 31, 2020.
FARO Technologies, Inc. ("FARO," the "Company," "us," "we" or "our") has made
"forward-looking statements" in this report (within the meaning of the Private
Securities Litigation Reform Act of 1995). Statements that are not historical
facts or that describe our plans, beliefs, goals, intentions, objectives,
projections, expectations, assumptions, strategies, or future events are
forward-looking statements. In addition, words such as "may," "might," "would,"
"will," "will be," "future," "strategy," "believe," "plan," "should," "could,"
"seek," "expect," "anticipate," "intend," "estimate," "goal," "objective,"
"project," "forecast," "target" and similar words identify forward-looking
statements.
Forward-looking statements are not guarantees of future performance and are
subject to a number of known and unknown risks, uncertainties, and other factors
that could cause actual results to differ materially from those expressed or
implied by such forward-looking statements. Consequently, undue reliance should
not be placed on these forward-looking statements. We do not intend to update
any forward-looking statements, whether as a result of new information, future
events, or otherwise, unless otherwise required by law. Important factors that
could cause actual results to differ materially from those contemplated in such
forward-looking statements include, among others, the following:

•an economic downturn in the manufacturing industry or the domestic and
international economies in the regions of the world where we operate;
•the effect of the COVID-19 pandemic, including on our business operations, as
well as its impact on general economic and financial market conditions;
•our inability to realize the intended benefits of our undertaking to transition
to a company that is reorganized around functions to improve the efficiency of
our sales organization and to improve operational effectiveness;
•our inability to successfully execute our new strategic plan and restructuring
plan, including but not limited to additional impairment charges and/or higher
than expected severance costs and exist costs, and our inability to realize the
expected benefits of such plans;
•our inability to realize the anticipated benefits of our partnership with
Sanmina and to successfully transition our manufacturing operations to Sanmina's
production facility;
•our inability to further penetrate our customer base and target markets;
•development by others of new or improved products, processes or technologies
that make our products less competitive or obsolete;
•our inability to maintain what we believe to be our technological advantage by
developing new products and enhancing our existing products;
•risks associated with expanding international operations, such as difficulties
in staffing and managing foreign operations, increased political and economic
instability, compliance with potentially evolving import and export regulations,
and the burdens and potential exposure of complying with a wide variety of U.S.
and foreign laws and labor practices;
•changes in trade regulation, which result in rising prices of imported steel,
steel byproducts, aluminum and aluminum byproducts and various other raw
materials that we use in the production of measurement devices, and our ability
to pass those costs on to our customers or require our suppliers to absorb such
costs;
•changes in foreign regulation which may result in rising prices of our
measurement devices sold as exports to our international customers, our
customers' willingness to absorb incremental import tariffs, and the
corresponding impact on our profitability;
•our inability to successfully identify and acquire target companies and achieve
expected benefits from, and effectively integrate, acquisitions that are
consummated;
•our inability to realize the intended benefits of the technology, products,
operations, contracts, and personnel of our acquisitions;
•the cyclical nature of the industries of our customers and material adverse
changes in our customers' access to liquidity and capital;
•changes in the potential for the computer-aided measurement market and the
potential adoption rate for our products, which are difficult to quantify and
predict;
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•our inability to protect our patents and other proprietary rights in the United
States and foreign countries;
•our inability to adequately establish and maintain effective internal controls
over financial reporting;
•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, without limitation (i) litigation and regulatory action brought
against us, (ii) quality issues with our products, (iii) excess or obsolete
inventory, shrinkage or other inventory losses due to product obsolescence,
change in demand for our products, scrap or material price changes, (iv) raw
material price fluctuations and other inflationary pressures, (v) expansion of
our manufacturing capability, (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) manufacturing
inefficiencies associated with new product introductions, (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) the inability of our sales and marketing programs to
achieve their sales targets, (xiv) start-up costs associated with opening new
sales offices outside of the United States, (xv) fluctuations in revenue without
proportionate adjustments in fixed costs, (xvi) inefficiencies in the management
of our inventories and fixed assets, (xvii) compliance with government
regulations including health, safety, and environmental matters, and (xviii)
costs associated with the training and ramp-up time for new sales people;
•changes in gross margins due to a changing mix of products sold and the
different gross margins on different products and sales channels;
•changes in applicable laws, rules or regulations, or their interpretation or
enforcement, or the enactment of new laws, rules or regulations that apply to
our business operations or require us to incur significant expenses for
compliance;
•our inability to successfully comply with the requirements of the Restriction
of Hazardous Substances Directive and the Waste Electrical and Electronic
Equipment Directive in the European Union;
•the inability of our products to displace traditional measurement devices and
attain broad market acceptance;
•the impact of competitive products and pricing on our current offerings;
•our ability to successfully complete our executive officer transitions and the
loss of any of our executive officers or other key personnel;
•difficulties in recruiting research and development engineers and application
engineers;
•the failure to effectively manage the effects of any future growth;
•the impact of reductions or projected reductions in government spending, or
uncertainty regarding future levels of government expenditures, particularly in
the defense sector;
•variations in our effective income tax rate, which makes it difficult to
predict our effective income tax rate on a quarterly and annual basis, and the
impact of the U.S. Tax Cuts and Jobs Act of 2017 on the global intangible
low-taxed income of foreign subsidiaries;
•the loss of key suppliers and the inability to find sufficient alternative
suppliers in a reasonable period of time or on commercially reasonable terms;
•the impact of fluctuations in exchange rates;
•the effect of estimates and assumptions with respect to critical accounting
policies and the impact of the adoption of recently issued accounting
pronouncements;
•the magnitude of increased warranty costs from new product introductions and
enhancements to existing products;
•the sufficiency of our plants and third party resources to meet manufacturing
requirements;
•the continuation of our share repurchase program;
•the sufficiency of our working capital and cash flow from operations to fund
our long-term liquidity requirements;
•the impact of geographic changes in the manufacturing or sales of our products
on our effective income tax rate;
•our ability to comply with the requirements for favorable tax rates in foreign
jurisdictions; and
•other risks and uncertainties discussed in Part I, Item 1A. Risk Factors in our
Annual Report on Form 10-K for the year ended December 31, 2020 and in other SEC
filings.
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Moreover, new risks and uncertainties emerge from time to time, and we undertake
no obligation to update publicly or review the risks and uncertainties included
in this Quarterly Report on Form 10-Q, unless otherwise required by law.
Overview
We are a global technology company that designs, develops, manufactures, markets
and supports software driven, three-dimensional ("3D") measurement, imaging, and
realization solutions for the 3D metrology, architecture, engineering and
construction ("AEC") and public safety analytics markets. We enable our
customers to capture, measure, manipulate, interact with and share data from the
physical world in a virtual environment and then translate this information back
into the physical domain. Our technology enables highly accurate 3D measurement,
imaging, comparison and projection of parts and complex structures within
production, assembly and quality assurance processes. Our FARO suite of 3D
products and software solutions are used for inspection of components and
assemblies, rapid prototyping, reverse engineering, documenting large volume or
structures in 3D, surveying and construction, assembly layout, machine guidance
as well as in investigation and reconstructions of crash and crime scenes. We
sell the majority of our solutions through a direct sales force across a range
of industries including automotive, aerospace, metal and machine fabrication,
surveying, architecture, engineering and construction, public safety forensics
and other industries.
We derive our revenues primarily from the sale of our measurement equipment and
related multi-faceted software programs. Revenue related to these products is
generally recognized upon shipment. In addition, we sell extended warranties and
training and technology consulting services relating to our products. We
recognize the revenue from hardware service contracts and software maintenance
contracts on a straight-line basis over the contractual term, and revenue from
training and technology consulting services when the services are provided.
We operate in international markets throughout the world and maintain sales
offices in Australia, Brazil, Canada, China, France, Germany, India, Italy,
Japan, Malaysia, Mexico, the Netherlands, Poland, Portugal, Singapore, South
Korea, Spain, Switzerland, Thailand, Turkey, the United Kingdom, and the United
States.
We manufacture our FARO Quantum Arm products in our manufacturing facility
located in Switzerland for customer orders from Europe, the Middle East and
Africa ("EMEA"), in our manufacturing facility located in Singapore for customer
orders from the Asia-Pacific region, and in our manufacturing facility located
in Florida for customer orders from the Americas. We manufacture our FARO
Focus laser scanner in our manufacturing facilities located in Germany and
Switzerland for customer orders from EMEA and the Asia-Pacific region, and in
our manufacturing facility located in Pennsylvania for customer orders from the
Americas. We manufacture our FARO Laser Tracker and our FARO Laser Projector
products in our facility located in Pennsylvania. We expect all of our existing
manufacturing facilities and third party resources to have the production
capacity necessary to support our volume requirements during 2021.
We account for wholly-owned foreign subsidiaries in the currency of the
respective foreign jurisdiction; therefore, fluctuations in exchange rates may
have an impact on the value of the intercompany account balances denominated in
different currencies and reflected in our consolidated financial statements. We
are aware of the availability of off-balance sheet financial instruments to
hedge exposure to foreign currency exchange rates, including cross-currency
swaps, forward contracts and foreign currency options. However, we have not used
such instruments in the past, and none were utilized in 2020 or the six months
ended June 30, 2021.
New Strategic Plan and Restructuring Plan
In the first quarter of 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 increased and 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.
Pre-tax charges of approximately $49 million were recorded in the fourth quarter
of 2019 in connection with the implementation of our new strategic plan and
included the following:
•$21.2 million impairment of goodwill;
•$12.8 million charge, increasing our reserve for excess and obsolete inventory;
•$10.5 million impairment of intangible assets associated with recent
acquisitions;
•$1.4 million impairment of intangible assets related to capitalized patents;
•$3.4 million impairment of other assets and other charges.
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In connection with the Restructuring Plan, we recorded a pre-tax charge of
approximately $15.8 million during the year ended December 31, 2020 primarily
consisting of severance and related benefits, professional fees and other
related charges and costs including a non-cash expense of $0.4 million related
to the disposal of our Photonics business and 3D Design related assets. We
received $0.7 million in cash payments for the disposal of our Photonics
business and 3D Design related assets in the second quarter of 2020. We are
continuing to execute our cost reduction initiatives to achieve our 20% target
EBITDA margins that could result in pre-tax charges in the range of $5 million
to $15 million for fiscal year 2021.
On July 15, 2021, we entered into a manufacturing services agreement (the
"Agreement") with Sanmina Corporation ("Sanmina"), in connection with the
Restructuring Plan. Under the Agreement, Sanmina will provide manufacturing
services for the Company's measurement device products currently manufactured by
the Company at the Company's Lake Mary, Florida, Exton, Pennsylvania, and
Stuttgart, Germany manufacturing sites. A phased transition to a Sanmina
production facility is expected to be completed over the next twelve months as
part of our cost reduction initiative. The Company expects to incur a cash
charge of approximately $6 million in the second half of 2021, primarily
consisting of cash severance.
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.
In connection with the Restructuring Plan, we paid $13.1 million during the year
ended December 31, 2020 and $3.5 million during the six months ended June 30,
2021, primarily consisting of severance and related benefits.
Amounts reported in millions within this Quarterly Report on Form 10-Q are
computed based on the amounts in thousands. As a result, the sum of the
components reported in millions may not equal the total amount reported in
millions due to rounding. Certain columns and rows within the tables that follow
may not add due to the use of rounded numbers. Percentages presented are
calculated based on the respective amounts in thousands.
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Results of Operations
The following table sets forth, for the periods indicated, our unaudited results
of operations expressed as dollar amounts and as a percentage of total sales.
                                                        Three months ended June 30,                                                               Six months ended June 30,
(dollars in thousands)              2021                % of Sales         
   2020              % of Sales                 2021                  % of Sales              2020              % of Sales
Sales
Product                       $      60,275                   73.4  %       $ 42,259                   69.8  %       $    114,910                       72.5  %       $  98,784                   70.5  %
Service                              21,835                   26.6  %         18,305                   30.2  %             43,531                       27.5  %          41,295                   29.5  %
Total sales                          82,110                  100.0  %         60,564                  100.0  %            158,441                      100.0  %         140,079                  100.0  %
Cost of Sales
Product                              25,455                   31.0  %         21,333                   35.2  %             50,259                       31.7  %          44,399                   31.7  %
Service                              11,173                   13.6  %         10,335                   17.1  %             22,293                       14.1  %          22,911                   16.4  %
Total cost of sales                  36,628                   44.6  %         31,668                   52.3  %             72,552                       45.8  %          67,310                   48.1  %
Gross Profit                         45,482                   55.4  %         28,896                   47.7  %             85,889                       54.2  %          72,769                   51.9  %
Operating Expenses
Selling, general and
administrative                       33,594                   40.9  %         30,036                   49.6  %             66,942                       42.3  %          66,360                   47.4  %
Research and development             11,760                   14.3  %         10,186                   16.8  %             23,733                       15.0  %          20,601                   14.7  %
Restructuring costs                     779                    0.9  %            636                    1.1  %              2,303                        1.5  %          14,324                   10.2  %
Total operating expenses             46,133                   56.2  %         40,858                   67.5  %             92,978                       58.7  %         101,285                   72.3  %
Loss from operations                   (651)                  (0.8) %        (11,962)                 (19.8) %             (7,089)                      (4.5) %         (28,516)                 (20.4) %
Other (income) expense
Interest expense, net                    39                      -  %            212                    0.4  %                 49                          -  %             246                    0.2  %
Other expense (income), net             883                    1.1  %            117                    0.2  %               (732)                      (0.5) %             590                    0.4  %
Loss before income tax
benefit                              (1,573)                  (1.9) %        (12,291)                 (20.3) %             (6,406)                      (4.0) %         (29,352)                 (21.0) %
Income tax benefit                     (397)                  (0.5) %         (3,359)                  (5.5) %             (2,009)                      (1.3) %          (5,597)                  (4.0) %
Net loss                      $      (1,176)                  (1.4) %       $ (8,932)                 (14.7) %       $     (4,397)                      (2.8) %       $ (23,755)                 (17.0) %



Consolidated Results
Three Months Ended June 30, 2021 Compared to the Three Months Ended June 30,
2020
Sales. Total sales increased by $21.5 million, or 35.6%, to $82.1 million for
the three months ended June 30, 2021 from $60.6 million for the three months
ended June 30, 2020. The increase in sales is primarily the result of the
recovery from the economic effect of the COVID-19 pandemic which adversely
affected the prior year. Total product sales increased by $18.0 million, or
42.6%, to $60.3 million for the three months ended June 30, 2021 from $42.3
million for the three months ended June 30, 2020 primarily due to the recovery
from the economic effect of the COVID-19 pandemic which adversely affected the
prior year. Similarly, service revenue increased by $3.5 million, or 19.3%, to
$21.8 million for the three months ended June 30, 2021 from $18.3 million for
the three months ended June 30, 2020. Foreign exchange rates had a positive
impact on total sales of $3.4 million, increasing the percent that our overall
sales increased by approximately 5.7 percentage points, primarily due to the
strengthening of the Euro relative to the U.S. dollar.
Gross profit. Gross profit increased by $16.6 million, or 57.4%, to $45.5
million for the three months ended June 30, 2021 from $28.9 million for the
three months ended June 30, 2020, and gross margin increased to 55.4% for the
three months ended June 30, 2021 from 47.7% for the three months ended June 30,
2020. Gross margin from product revenue increased by 8.3 percentage points to
57.8% for the three months ended June 30, 2021 from 49.5% for the prior year
period primarily due to changes in product mix, and the favorable impact of the
recovery from the economic effect of the COVID-19 pandemic which adversely
affected our product fixed cost absorption in the prior year. Gross margin from
service revenue increased by 5.3 percentage points to 48.8% for the three months
ended June 30, 2021 from 43.5% for the prior year period, primarily due to a
reduction in departmental costs as a result of the Restructuring Plan.
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Selling, general and administrative expenses. Selling, general and
administrative expenses increased by $3.6 million, or 11.8%, to $33.6 million
for the three months ended June 30, 2021 from $30.0 million for the three months
ended June 30, 2020. This increase was driven primarily by an increase in
selling commission expense due to higher global sales and an increase in travel
expense as there were pandemic stay-at-home orders in the prior year. Selling,
general and administrative expenses as a percentage of sales decreased to 40.9%
for the three months ended June 30, 2021, compared with 49.6% of sales for the
three months ended June 30, 2020. Our worldwide period-ending selling, general
and administrative headcount increased by 67, or 9.8%, to 751 at June 30, 2021,
from 684 at June 30, 2020.
Research and development expenses. Research and development expenses increased
by $1.6 million, or 15.5%, to $11.8 million for the three months ended June 30,
2021 from $10.2 million for the three months ended June 30, 2020. This increase
was primarily driven by higher compensation expense resulting from increased
engineering headcount and costs to accelerate new product development. Research
and development expenses as a percentage of sales decreased to 14.3% for the
three months ended June 30, 2021 from 16.8% for the three months ended June 30,
2020.
Restructuring costs. In February 2020, we initiated the Restructuring Plan to
improve business effectiveness, streamline operations and achieve a stated
target cost level for the Company as a whole. Restructuring costs included in
operating expenses for the three months ended June 30, 2021 and June 30, 2020
were $0.8 million and $0.6 million, respectively, primarily consisting of
severance and related benefits charges.
Interest expense, net. We recorded interest expense, net of less than $0.1
million and $0.2 million for the three months ended June 30, 2021 and three
months ended June 30, 2020, respectively.
Other expense (income), net. For the three months ended June 30, 2021, other
expense was $0.9 million compared with other expense of $0.1 million for the
three months ended June 30, 2020. This change was primarily driven by the effect
of foreign exchange rates.
Income tax benefit. For the three months ended June 30, 2021, we recorded an
income tax benefit of $0.4 million compared with income tax benefit of $3.4
million for the three months ended June 30, 2020. Our effective tax rate was
25.2% for the three months ended June 30, 2021 compared with 27.3% in the prior
year period. The change in our income benefit was primarily due to a lower
pretax loss during the second quarter of 2021 and changes in our effective tax
rate. The change in our effective tax rate was primarily associated with
discrete tax items and a shift in the geographic mix of pretax income expected
for the full year 2021.
Our quarterly estimate of our annual effective tax rate and our quarterly
provision for income tax (benefit) expense are subject to significant variation
due to numerous factors, including variability in accurately predicting our
pretax and taxable income or loss and the mix of jurisdictions to which they
relate, as well as the amount of pretax income or loss recognized during the
quarter.
Net loss. Our net loss was $1.2 million for the three months ended June 30, 2021
compared with net loss of $8.9 million for the prior year period, reflecting the
impact of the factors described above.

Six Months Ended June 30, 2021 Compared to the Six Months Ended June 30, 2020
Sales. Total sales increased by $18.3 million, or 13.1%, to $158.4 million for
the six months ended June 30, 2021 from $140.1 million for the six months ended
June 30, 2020. The increase in sales is primarily the result of the recovery
from the economic effect of the COVID-19 pandemic which adversely affected the
prior year. Total product sales increased by $16.1 million, or 16.3%, to $114.9
million for the six months ended June 30, 2021 from $98.8 million for the six
months ended June 30, 2020 primarily due to the recovery from the economic
effect of the COVID-19 pandemic which adversely affected the prior year.
Similarly, service revenue increased by $2.2 million, or 5.4%, to $43.5 million
for the six months ended June 30, 2021 from $41.3 million for the six months
ended June 30, 2020. Foreign exchange rates had a positive impact on total sales
of $5.8 million, increasing the percent that our overall sales increased by
approximately 4.1 percentage points, primarily due to the strengthening of the
Euro relative to the U.S. dollar.
Gross profit. Gross profit increased by $13.1 million, or 18.0%, to $85.9
million for the six months ended June 30, 2021 from $72.8 million for the six
months ended June 30, 2020 and gross margin increased to 54.2% for the six
months ended June 30, 2021 from 51.9% for the six months ended June 30, 2020.
Gross margin from product revenue increased by 1.2 percentage points to 56.3%
for the six months ended June 30, 2021 from 55.1% for the prior year period,
primarily due to changes in product mix, and the favorable impact of the
recovery related to the COVID-19 pandemic which adversely affected our product
fixed cost absorption in the prior year. Gross margin from service revenue
increased by 4.3 percentage points to 48.8% for the six months ended June 30,
2021 from 44.5% for the prior year period, primarily due to a reduction in
departmental costs as a result of the Restructuring Plan.
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Selling, general and administrative expenses. Selling, general and
administrative expenses increased by $0.5 million, or 0.9%, to $66.9 million for
the six months ended June 30, 2021 from $66.4 million for the six months ended
June 30, 2020. This increase was driven primarily by an increase in selling
commission expense due to higher global sales and an increase in travel expense
as there were pandemic stay-at-home orders in the prior year. Selling, general
and administrative expenses as a percentage of sales decreased to 42.3% for the
six months ended June 30, 2021, compared with 47.4% of sales for the six months
ended June 30, 2020. Our worldwide period-ending selling headcount increased by
67, or 9.8%, to 751 at June 30, 2021, from 684 at June 30, 2020.
Research and development expenses. Research and development expenses increased
by $3.1 million, or 15.2%, to $23.7 million for the six months ended June 30,
2021 from $20.6 million for the six months ended June 30, 2020. This increase
was primarily driven by higher compensation expense resulting from increased
engineering headcount and costs to accelerate new product development. Research
and development expenses as a percentage of sales increased to 15.0% for the six
months ended June 30, 2021 from 14.7% for the six months ended June 30, 2020.
Interest income, net. For the six months ended June 30, 2021, we recorded
interest income of less than of $0.1 million compared with interest income of
$0.2 million for the six months ended June 30, 2020.
Other expense (income), net. For the six months ended June 30, 2021, other
income was $0.7 million as compared to other expense of $0.6 million for the six
months ended June 30, 2020. This change was primarily driven by the effect of
foreign exchange rates as well as COVID-19 related foreign incentives received
in the current year.
Income tax benefit. For the six months ended June 30, 2021, we recorded an
income tax benefit of $2.0 million compared with income tax benefit of $5.6
million for the six months ended June 30, 2020. Our effective tax rate was 31.4%
for the six months ended June 30, 2021 compared with 19.1% in the prior year
period. The change in our income benefit was primarily due to a lower pretax
loss during the first half of 2021 and changes in our effective tax rate. The
change in our effective tax rate was primarily associated with discrete tax
items, and a shift in the geographic mix of pretax income expected for the full
year 2021.
Our quarterly estimate of our annual effective tax rate and our quarterly
provision for income tax expense are subject to significant variation due to
numerous factors, including variability in accurately predicting our pretax and
taxable income or loss and the mix of jurisdictions to which they relate, as
well as the amount of pretax income or loss recognized during the quarter.
Net loss. Our net loss was $4.4 million for the six months ended June 30, 2021
compared to $23.8 million for the prior year period, reflecting the impact of
the factors described above.
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Liquidity and Capital Resources
Cash and cash equivalents decreased by $52.3 million to $133.3 million at June
30, 2021 from $185.6 million at December 31, 2020. The decrease was primarily
driven by net cash used in operating and investing activities. Cash used in
operating activities was $12.3 million during the six months ended June 30,
2021, compared to $16.1 million of cash provided by operations during the six
months ended June 30, 2020. The decrease was mainly due to changes in working
capital accounts, primarily a decrease in accrued liabilities driven by the
$12.3 million settlement of liability related to the GSA matter.
Cash used in investing activities during the six months ended June 30, 2021 was
$37.8 million compared to cash provided by investing activities of $23.4 million
during the six months ended June 30, 2020. The change was primarily due to the
$34.0 million used in the acquisition of a business during the six months ended
June 30, 2021, as compared to the maturity of U.S. Treasury Bills amounting to
$9.0 million during the six months ended June 30, 2020 without such activity
during the six months ended June 30, 2021.
Cash provided by financing activities was $1.2 million during the six months
ended June 30, 2021 compared to cash provided by financing activities of $1.3
million for the six months ended June 30, 2020. The change was primarily due to
larger payments for taxes related to the net share settlement of equity awards
during the six months ended June 30, 2021 compared to during the six months
ended June 30, 2020.
Of our cash and cash equivalents, $92.5 million was held by foreign subsidiaries
as of June 30, 2021. On December 22, 2017, the United States enacted the U.S.
Tax Cuts and Jobs Act, resulting in significant modifications to existing tax
law, which included a transition tax on the mandatory deemed repatriation of
foreign earnings. As a result of the U.S. Tax Cuts and Jobs Act, the Company can
repatriate foreign earnings and profits to the U.S. with minimal U.S. income tax
consequences, other than the transition tax and global intangible low-taxed
income ("GILTI") tax. The Company has reinvested a large portion of its
undistributed foreign earnings and profits in acquisitions and other investments
and intends to bring back a portion of foreign cash in certain jurisdictions
where the Company will not be subject to local withholding taxes and which were
subject already to transition tax and GILTI tax.
On November 24, 2008, our Board of Directors approved a $30.0 million share
repurchase program. Acquisitions for the share repurchase program may be made
from time to time at prevailing prices, as permitted by securities laws and
other legal requirements, and subject to market conditions and other factors.
The share repurchase program may be discontinued at any time. There is no
expiration date or other restriction governing the period over which we can
repurchase shares under the program. In October 2015, our Board of Directors
authorized an increase to the existing share repurchase program from $30.0
million to $50.0 million. We made no stock repurchases during the six month
period ended June 30, 2021 under this program. As of June 30, 2021, we had
authorization to repurchase $18.3 million remaining under the repurchase
program.
We believe that our working capital and anticipated cash flow from operations
will be sufficient to fund our long-term liquidity operating requirements for at
least the next 12 months.
We have no off-balance sheet arrangements.
Contractual Obligations and Commercial 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 June 30, 2021, we had
$40.9 million in purchase commitments that are expected to be delivered within
the next 12 months. Other than as described in the preceding sentences, there
have been no material changes to the contractual obligations and commercial
commitments table included in Part II, Item 7 of our Annual Report on Form 10-K
for the year ended December 31, 2020.
Critical Accounting Policies
The preparation of our condensed consolidated financial statements requires our
management to make estimates and assumptions that affect the reported amounts of
assets, liabilities, revenues, and expenses, as well as disclosure of contingent
assets and liabilities. We base our estimates on historical experience, along
with various other factors believed to be reasonable under the circumstances,
the results of which form the basis for making judgments about the carrying
value of assets and liabilities that are not readily apparent from other
sources. Some of these judgments can be subjective and complex and,
consequently, actual results may differ from these estimates under different
assumptions or conditions. A discussion of our critical accounting policies is
included in Part II, Item 7, "Management's Discussion and Analysis of Financial
Condition and Results of Operations" in our Annual Report on Form 10-K for the
year ended December 31, 2020, as filed with the Securities and Exchange
Commission on February 17, 2021. As of June 30, 2021, our critical accounting
policies have not changed from those described in our Annual Report on Form 10-K
for the year ended December 31, 2020.
                                       29

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