PERCEPTRON, INC. SAFE HARBOR STATEMENT
Certain statements in this report, including statements made in this
Management's Discussion and Analysis of Financial Condition and Results of
Operations, may be "forward-looking statements" within the meaning of the
Securities Exchange Act of 1934, including our expectation as to our fiscal year
2021 and future results, operating data, new order bookings, revenue, expenses,
net income and backlog levels, trends affecting our future revenue levels, the
rate of new orders, the timing of revenue and net income increases from new
products which we have recently released or have not yet released, the timing of
the introduction of new products and our ability to fund our fiscal year 2021
and future cash flow requirements. We may also make forward-looking statements
in our press releases or other public or shareholder communications. Whenever
possible, we have identified these forward-looking statements by words such as
"target," "will," "should," "could," "believes," "expects," "anticipates,"
"estimates," "prospects," "outlook," "guidance" or similar expressions. We claim
the protection of the safe harbor for forward-looking statements contained in
the Private Securities Litigation Reform Act of 1995 for all of our
forward-looking statements. While we believe that our forward-looking statements
are reasonable, you should not place undue reliance on any such forward-looking
statements, which speak only as of the date made. Because these forward-looking
statements are based on estimates and assumptions that are subject to
significant business, economic and competitive uncertainties, many of which are
beyond our control or are subject to change, actual results could be materially
different. Factors that might cause such a difference include, without
limitation, the risks and uncertainties discussed from time to time in our
periodic reports filed with the
Executive Summary
• In-Line and Near-Line Measurement Solutions - engineered metrology systems
for industrial automated process control and assembly using fixed and robot
mounted laser scanners. We also provide Value Added Services including
training, field service, calibration, launch support services, consulting
services, maintenance agreements and repairs related to our In-Line and
Near-Line Measurement Solutions.
• Off-Line Measurement Solutions - tailored metrology products for industrial
gauging and dimensional inspection using standalone robot-mounted laser
scanners and Coordinate Measuring Machines ("CMM"). We also provide Value
Added Services including training, calibration, maintenance agreements and
repairs related to our Off-Line Measurement Solutions.
• 3D Scanning Solutions - laser scanner products that target the digitizing,
reverse engineering, inspection and original equipment manufacturers wheel
alignment sectors.
The largest end-use market we serve is the automotive industry. New automotive tooling programs represent the most important selling opportunity for our In-Line and Near-Line Measurement Solutions. The number and timing of new vehicle tooling programs vary based on the plans of the individual automotive manufacturers. The existing installed base of In-Line and Near-Line Measurement Solutions also provides a continuous revenue stream in the form of system additions, upgrades and modifications as well as Value Added Services such as customer training and support.
Our Off-Line Measurement and 3D Scanning Solutions are utilized by a wide variety of targeted industrial customers, with the automotive industry representing the largest source of customers for industrial metrology products.
We continue to focus our attention on innovative solutions for our core automotive business. Our unique AutoFit® and AccuSite® solutions, for instance, provide us with confidence for increased automotive market penetration in each of our key geographies, as well as additional product offerings in the future. The four key elements of our strategic plan are:
1. Continuous investment in our engineering capabilities to further expand our
technical advantages;
2. Broadening our product offering to automotive customers and in the future
industries beyond automotive;
3. Achieving greater cost efficiencies as we continue lean practices throughout
the organization; and
4. Management of working capital such that we can maximize free cash flow and
reinvest in the growth of the business and advance our technology.
In the third quarter of fiscal 2020, the Company determined there was a
triggering event caused by the economic impacts of the COVID-19 pandemic and
related restrictions. As a result, the Company recorded a non-cash goodwill
charge of
We continue to set our long-term aspirations for sustained revenue and earnings
growth. As such, our focus remains on product development and improvement
efforts for our core automotive market and adjacent markets, as well as with our
existing customers, potential new automotive customers and their suppliers. Our
strategic investments to update and expand our suite of metrology solutions over
the past several years have further positioned us to meet customers' demand with
top-of-the-line solutions. Our confidence in the long-term growth potential of
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COVID-19 Pandemic
The COVID-19 pandemic poses significant risks to our business. See Note 23 of
the Notes to the Consolidated Financial Statements, "COVID-19 Pandemic"
contained in this Annual Report on Form 10-K for a discussion of the impact of
COVID-19 on our business. The ongoing global public health actions attempting to
reduce the spread of COVID-19 are creating and may continue to create
significant disruptions to our operations, our customer and supplier
relationships, and general global economic conditions. Accordingly, we are
closely monitoring and adjusting for the impact of COVID-19 on our global
operations, communicating with and monitoring the actions of our customers and
suppliers, and reviewing our near-term financial performance as we manage the
Company through the uncertainty related to the COVID-19 pandemic. Over the last
six months, first in
Subsequent Event
On
Results of Operations
Fiscal Year Ended
Overview -We reported a net loss of
Bookings - Bookings represent new orders received from our customers. We expect the level of new orders to fluctuate from period to period and do not believe new order bookings during any particular period are indicative of our future operating performance.
Bookings by geographic location were (in millions):
Fiscal Years Ended June 30,
2020 2019 Increase/(Decrease)
Geographic Region
Americas $ 14.9 24.8 % $ 19.0 26.6 % $ (4.1 ) (21.6 %)
Europe 28.9 48.0 % 34.8 48.6 % (5.9 ) (17.0 %)
Asia 16.4 27.2 % 17.7 24.8 % (1.3 ) (7.3 %)
Totals $ 60.2 100.0 % $ 71.5 100.0 % $ (11.3 ) (15.8 %)
The decrease in bookings for fiscal 2020 as compared to fiscal 2019 of
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million in our 3D Scanning Solutions, partially offset by an increase of
We expect the negative impacts of the COVID-19 pandemic on bookings to continue at least through the end of fiscal 2021 and potentially thereafter.
Backlog - Backlog represents orders or bookings we have received but have not yet been filled as of the reporting date. We believe that the level of backlog during any particular period is not necessarily indicative of our future operating performance. Although most of the backlog is subject to cancellation by our customers, we expect to fill substantially all of the orders in our backlog.
Backlog by geographic location was (in millions):
As of June 30,
2020 2019 Increase/(Decrease)
Geographic Region
Americas $ 6.3 17.3 % $ 11.6 30.2 % $ (5.3 ) (45.7 %)
Europe 18.0 49.6 % 18.2 47.4 % (0.2 ) (1.1 %)
Asia 12.0 33.1 % 8.6 22.4 % 3.4 39.5 %
Totals $ 36.3 100.0 % $ 38.4 100.0 % $ (2.1 ) (5.5 %)
The current year ending backlog decreased by
A summary of our operating results is shown below (in millions):
Fiscal Years Ended June 30,
2020 % of Sales 2019 % of Sales
Americas Sales 20.2 32.4 % 25.1 32.7 %
Europe Sales 29.1 46.7 % 34.6 45.0 %
Asia Sales 13.0 20.9 % 17.1 22.3 %
Net Sales $ 62.3 100.0 % $ 76.8 100.0 %
Cost of Sales 39.0 62.5 % 49.6 64.6 %
Gross Profit 23.3 37.5 % 27.2 35.4 %
Operating Expenses
Selling, general and
administrative 17.2 27.7 % 19.0 24.7 %
Engineering, research and
development 6.1 9.7 % 8.0 10.4 %
Severance, impairment and
other charges 3.3 5.3 % 6.9 9.0 %
Operating Loss (3.3 ) (5.3 %) (6.7 ) (8.7 %)
Other Income and
(Expenses), net
Interest expense, net (0.1 ) (0.3 %) (0.3 ) (0.5 %)
Foreign currency loss,
net (0.6 ) (0.9 %) (0.1 ) (0.1 %)
Other income and
(expense), net 0.4 0.7 % 0.1 0.1 %
Loss Before Income Taxes (3.6 ) (5.8 %) (7.0 ) (9.1 %)
Income Tax (Expense)
Benefit (0.4 ) (0.8 %) 0.2 0.2 %
Net Loss $ (4.0 ) (6.6 %) $ (6.8 ) (8.9 %)
Sales - Net sales of
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Gross Profit - Gross profit percentage was 37.4% of sales in the fiscal year
ended
Selling, General and Administrative (SG&A) Expenses - SG&A expenses were
approximately
Engineering, Research and Development (R&D) Expenses - Engineering, research and
development expenses were approximately
Severance, Impairment and Other Charges - Severance, impairment and other
charges for fiscal 2020 were approximately
During the third quarter of fiscal 2020, we completed an interim goodwill
impairment test (see Note 1, of the Notes to the Consolidated Financial
Statements, "Summary of Significant Accounting Policies -
In fiscal 2019, the charges primarily related to impairment charges for goodwill
and intangibles assets in the amount of
Interest Expense, net - Net interest expense was
Foreign Currency Loss, net - Foreign currency loss was a net loss of
Other Income and (Expense), net - Net other income was
Income Tax Expense - Our effective tax rate for fiscal year ended
Liquidity and Capital Resources
Our primary liquidity needs are to fund product development and capital expenditures as well as support working capital requirements. In general, our principal sources of liquidity are cash and cash equivalents on hand, cash flows from operating activities and borrowings, including under available credit facilities.
Cash on Hand. Our cash and cash equivalents were
Cash Flow. The
Cash provided by investing activities in fiscal year 2020 is due to the sale of
short-term investments of
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Cash provided by operations totaled
The cash used for working capital items included cash utilized for other assets
and liabilities of
• The change in other assets and liabilities is primarily related to the
timing of accruals for leases, taxes and payroll.
• The change in accrued liabilities relates to a decrease in legal, consulting
and other liabilities. In addition, the VAT payable in China decreased
mostly due to a reduction in revenue caused by COVID-19.
• The change in deferred revenue, is primarily due to decrease in sales
related to COVID-19.
• The change in accounts payable is due to the timing of payments made to our
suppliers, as well as a decrease in inventory purchases.
• The change in inventory is primarily due to revenue reduction related to
COVID-19.
Cash provided by financing activities in fiscal year 2020 was primarily due to
cash received from our lines of credit of
Cash used for investing activities in fiscal 2019 is due to capital expenditures
of
Cash provided by operations in fiscal 2019 totaled
The cash used for working capital items in fiscal 2019 included cash utilized
for other assets and liabilities of
• The change in other assets and liabilities is primarily related to the
timing of several prepaid assets, including our corporate insurance coverage
and the settlement in the trade secrets case.
• The change in accrued liabilities and expenses relates primarily to payments
of our annual short-term incentive compensation made in the first quarter of
fiscal 2019 that related to fiscal year 2018 performance.
• The change in deferred revenue, is primarily due to the initial impact of
adopting ASC 606, as well as 2019's overall lower activity level.
• The change in accounts payable is due to the timing of payments made to our
suppliers, as well as a decrease in inventory purchases.
• The change in inventory is primarily due to the reduction in work in
process, generated in large part, by the adoption of ASC 606.
Cash used for financing activities in fiscal 2019 was primarily due to cash
received from our stock compensation plans of
Working Capital Reserves. We provide a reserve for obsolescence to recognize
inventory impairment for the effects of engineering change orders as well as the
age and usage of inventory that affect the value of the inventory. The reserve
for obsolescence creates a new cost basis for the impaired inventory. When
inventory that has previously been impaired is sold or disposed, the related
obsolescence reserve is reduced resulting in the reduced cost basis being
reflected in cost of goods sold. A detailed review of the inventory is
performed annually with quarterly updates for known changes that have occurred
since the annual review. During fiscal year 2020, we increased our reserve for
obsolescence by
We determine our allowance for doubtful accounts by considering a number of factors, including the length of time trade accounts receivable are past due, our previous loss history, our customer's current ability to pay their outstanding balance due to us, and the condition of the general economy and the industry as a whole. We write off accounts receivable when they become uncollectible, and payments subsequently received on such receivables are credited to the allowance for doubtful accounts. During fiscal year 2020, there was no material change to our allowance for doubtful accounts. See Note 4, of the Notes to the Consolidated Financial Statements, "Allowance for Doubtful Accounts", contained in Item 8 of this Annual Report on Form 10-K.
Investments. At
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Credit Facilities. We had
On
Our Brazilian subsidiary ("Brazil") has several borrowing facilities with total
available borrowings of B$354,000 (equivalent to approximately
See "Liquidity and Capital Resources - Impact of COVID-19 Pandemic" for a description of the Company's loan under the Paycheck Protection Program.
Commitments and Contingencies. In
In the third quarter of fiscal 2018, the
In the fourth quarter of fiscal 2019, we identified a potential concern
regarding the residency status of certain
See Item 3, "Legal Proceedings" and Note 17, of the Notes to the Consolidated Financial Statements, "Commitments and Contingencies", contained in Item 8 of this Annual Report on Form 10-K, for a discussion of certain other contingencies relating to our liquidity, financial position and results of operations. See also, Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Policies - Litigation and Other Contingencies".
Capital Spending. We spent
Capital Resources. Information in this "Outlook" section should be read in conjunction with the "Safe Harbor Statement," cautionary statements and discussion of risk factors included in "Item 1A: Risk Factors" of this report.
At
Foreign earnings held in the form of cash and cash equivalents are taxed at a
15.5% rate and the remaining earnings are taxed at an 8% rate. We completed our
evaluation and related calculations related to the Transition Tax during the
second quarter of fiscal 2019, which confirmed our previous conclusion that our
foreign tax credits would completely offset any tax calculated. As a result, we
have not made any cash payments related to the Transition Tax. As a result of
the Act and the payment of any Transition Tax due, we may be in a position to
repatriate our past and future foreign earnings to the
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our subsidiaries outside
Impact of COVID-19 Pandemic. We are continuously reviewing our liquidity and
anticipated capital requirements in light of the uncertainty created by the
COVID-19 pandemic. To provide additional liquidity during this period and in
light of economic uncertainties posed by the COVID-19 pandemic, the Company
entered into a loan with
Any portion of the PPP Loan that is not used for Qualifying Expenses or is not otherwise forgiven is expected to be repaid on the terms set forth above. We cannot be certain as to the amount of the PPP Loan that will be forgiven, if any.
In connection with the PPP Loan, as required by the CARES Act, we certified that "current economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant" and were otherwise eligible for the PPP Loan. While we believe we are eligible for the PPP Loan, in the event it was determined that we were not eligible for the PPP Loan, it is possible we would be required to repay the PPP Loan on an accelerated basis, rather than over two years provided under the PPP Loan promissory note, and at a higher interest rate than 1.000% per annum. See "Item 1A. Risk Factors" titled "As a borrower under the Paycheck Protection Program our eligibility for and forgiveness of that loan is likely to be reviewed by the SBA."
As a result of our PPP Loan, utilization of our existing credit facility with Chemical, continued collection of customer receivables, and cash, cash equivalents and short-term investments, we believe we have sufficient cash resources to fund our current operations and strategic plans for at least the next twelve months. Our expectations are based upon our internal projections about the global automotive industry and related economic conditions, as well as our current understanding of our key customers' plans for retooling projects. If our key customers' plans differ from our understanding or the impact of the COVID-19 pandemic varies from our expectations, our results of operations and financial condition could be more negatively impacted. See "Item 1A. Risk Factors" titled "The COVID-19 pandemic has disrupted and may continue to disrupt our business, which could have a material adverse impact on our results of operations and financial condition."
Critical Accounting Policies
Our discussion and analysis of our financial condition and results of operations
are based upon our financial statements and accompanying notes, which have been
prepared in accordance with accounting principles generally accepted in
Revenue Recognition. In accordance with ASC 606, revenue is recognized when or as our customer obtains control of promised goods or services in an amount that reflects the consideration which we expect to receive in exchange for those goods or services. To achieve this principle, we analyze our contracts under the following five steps:
• Identify the contract with the customer
• Identify the performance obligation(s) in the contract
• Determine the transaction price
• Allocate the transaction price to performance obligation(s) in the contract
• Recognize revenue when or as we satisfy a performance obligation
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We have contracts with multiple performance obligations in our Measurement Solutions product line such as: equipment, installation, labor support and/or training. Each performance obligation is distinct and we do not provide general rights of return for transferred goods and services. Accordingly, each performance obligation is considered a separate unit of accounting. Our Measurement Solutions are designed and configured to meet each customer's specific requirements. Timing for the delivery of each performance obligation in the arrangement is primarily determined by the customer's requirements. Delivery of all of performance obligations in an order will typically occur over a three to 15-month period after the order is received. For the equipment performance obligation, we typically recognize revenue when we ship or when the equipment is received by our customer, depending on the specific terms of the contract with our customer. We have elected to treat shipping and handling costs as an activity necessary to fulfill the performance obligation to transfer product to the customer and not as a separate performance obligation. For the installation, labor support and training performance obligations, we generally recognize revenue over time as we perform because of the continuous transfer of control to the customer. Because control transfers over time, revenue is recognized based on the extent of progress toward completion of the performance obligation. We do not have price protection agreements or requirements to buy back inventory. Our history demonstrates that sales returns have been insignificant.
We exercise judgment in connection with the determination of the amount of revenue to be recognized in each period. Such judgments include, but are not limited to, allocating consideration to each performance obligation in contracts with multiple performance obligations and determining the estimated selling price for each such performance obligation. Any material changes in these judgments could impact the timing of revenue recognition, which could have a material effect on our financial position and results of operations.
Intangible Assets. We acquired intangible assets consisting of a
Impairment of Long-Lived Assets Subject to Amortization. Long-lived assets, such as property and equipment and definite-lived intangible assets, are reviewed for impairment whenever events or changes in circumstances indicate that the related carrying amounts may not be recoverable. In assessing long-lived assets for impairment, assets are grouped with other assets and liabilities at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities. If circumstances require a long-lived asset or asset group to be tested for possible impairment, we compare the undiscounted cash flows expected to be generated by that asset or asset group to its carrying amount. If the carrying amount of the long-lived asset or asset group is not recoverable on an undiscounted cash flow basis, an impairment charge is recognized to the extent that the carrying amount exceeds its fair value. Fair values of long-lived assets are determined through various techniques, such as applying expected present value calculations to the estimated future cash flows using assumptions a market participant would utilize, or through the use of a third-party independent appraiser or valuation specialist.
During the fourth quarter of fiscal 2019, due to the impairment indicators
discussed in "Goodwill" below, we assessed whether the carrying amounts of our
long-lived assets in the CMM reporting unit (the asset group) may not be
recoverable and therefore may be impaired. To assess the recoverability, the
undiscounted cash flows of the asset group were analyzed over a range of
potential remaining useful lives. The result was that the asset group carrying
value exceeded the sum of the undiscounted cash flows. After a fair value
analysis, we determined that our trade name and customer relationships were
impaired. We recorded a non-cash impairment loss related to these definite-lived
intangible assets of
See Note 7, of the Notes to the Consolidated Financial Statements, "Intangible Assets" for further discussion. There were no impairment indicators for other long-lived assets subject to amortization.
Companies have the option to evaluate goodwill impairment based upon qualitative factors similar to the indicators described above. If it is determined that the estimated fair value of the reporting unit is more likely than not less than the carrying amount, including goodwill, a quantitative assessment is required. Otherwise, no further analysis is necessary.
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In a quantitative assessment, the fair value of a reporting unit is determined
and then compared to its carrying value. A reporting unit's fair value is
determined based upon consideration of various valuation methodologies,
including the income approach and multiples of current and future earnings. In
fiscal 2018, we adopted ASU 2017-04 Intangibles -
In the fourth quarter of fiscal 2019, we completed our annual goodwill impairment testing. The impairment test consisted of a quantitative assessment due to a decrease in our stock price in the fourth quarter 2019 and uncertainty with future revenue growth primarily due to companies postponing decisions about purchasing new capital goods such as CMMs. The estimated fair value for the CMM reporting unit was determined using the income approach and the market approach, both of which yielded similar fair values. With the income approach, fair value is determined based on the present value of estimated future cash flows, discounted at an appropriate risk-adjusted rate. We used our internal forecasts to estimate future cash flows and include an estimate of long-term future growth rates based on our most recent views of the long-term outlook for the business. Other significant assumptions and estimates used in the income approach include terminal growth rates, future estimates of capital expenditures, and changes in future working capital requirements. Such projections contain management's best estimates of economic and market conditions over the projected period. The discount rate is sensitive to changes in interest rates and other market rates in place at the time the assessment is performed. The discount rate used in the annual valuation was 16.0% for CMM. With the market approach, fair value is determined based on applying selected pricing multiples to CMM's historical and expected earnings. The pricing multiples are derived based on the observed pricing multiples for identified comparable publicly traded companies.
Based on the results of the 2019 annual impairment test, the fair value of our
CMM reporting unit was less than its carrying value. As a result, we recorded a
non-cash goodwill impairment charge of
In the third quarter of fiscal 2020, we determined there was a triggering event
caused by the economic impacts of the COVID-19 pandemic and related
restrictions. As a result, we performed an interim quantitative impairment test
as of
After these impairment charges, the adjusted carrying value of CMM's goodwill
was zero at
Deferred Income Taxes. Deferred income tax assets and liabilities represent the
estimated future income tax effect in each jurisdiction that we operate of
temporary differences between the book and tax basis of our assets and
liabilities, assuming they will be realized and settled at the amounts reported
in our financial statements. We record a valuation allowance to reduce our
deferred tax assets to the amount that we believe is more likely than not to be
realized. This assessment includes consideration of cumulative losses in recent
years, the scheduled reversal of temporary taxable differences, projected future
taxable income and the impact of tax planning. We adjust this valuation
allowance periodically based upon changes in these considerations. See Note 21,
of the Notes to the Consolidated Financial Statements, "Income Taxes", contained
in Item 8 of this Annual Report on Form 10-
Litigation and Other Contingencies. From time to time, we are subject to certain legal proceedings and other contingencies, the outcomes of which are subject to significant uncertainty. We accrue for estimated losses if it is probable that a liability has been incurred and the amount of the loss can be reasonably estimated. We use judgment and evaluate, with the assistance of legal counsel, whether a loss contingency arising from litigation should be disclosed or recorded. The outcome of legal proceedings and other contingencies is inherently uncertain and therefore a loss cannot always be reasonably estimated. Accordingly, if the outcome of legal proceedings and other contingencies is more adverse than we initially anticipate, we would have to record a charge for the matter, potentially in the full amount at which it was resolved, in the period resolved, negatively impacting our results of operations and financial position for the period. See Note 17, of the Notes to the Consolidated Financial Statements, "Commitments and Contingencies", contained in Item 8 of this Annual Report on Form 10-K for a discussion of current material claims.
Stock-Based Compensation. The Company accounts for non-cash stock-based compensation in accordance with ASC 718, "Compensation - Stock Compensation". Under the fair value recognition provisions of this statement, stock-based compensation cost is measured at the grant date based on the value of the award and is recognized as expense over the vesting period. Determining the fair value of stock-based awards at the grant date requires judgment, including estimating the number of stock-based awards that are expected to be forfeited. The estimated forfeiture rate may change from time to time based upon our actual experience. An increase in the forfeiture rate would require us to reverse a portion of our prior expense for non-cash stock-based compensation, which would positively impact our results of operations. See Note 20, of the Notes to the Consolidated Financial Statements, "Stock-based Compensation", contained in Item 8 of this Annual Report on Form 10-K.
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Leases. The FASB issued ASC 842, "Leases" which establishes a right-of-use (ROU)
model that requires a lessee to record a ROU asset and a lease liability on the
balance sheet for all leases with terms longer than 12 months, which we adopted
in fiscal 2020. We elected to use the modified retrospective approach as our
transition method. Operating lease right-of-use assets and liabilities are
reflected within the captions "Right-of-use assets", "Short-term operating lease
liability" and "Long-term operating lease liability", respectively, on the
Company's Consolidated Balance Sheet as of
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