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Faro (FARO)

Participants
Michael Funari Sapphire Investor Relations
Michael Burger President and Chief Executive Officer
Allen Muhich Chief Financial Officer
Andrew DeGasperi Berenberg
Danny Eggerichs Craig-Hallum Capital Group
Hendi Susanto G-Research
Call transcript
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Operator

Good morning, ladies and gentlemen. And thank you for joining today’s FARO Technologies Third Quarter 2019 Earnings Release Conference Call hosted by Michael Burger.

I will now turn the call over to Michael Funari at Sapphire Investor Relations.Please go ahead sir.

Michael Funari

Thank you and good morning. With me today from FARO are Michael Berger, Chief Executive Officer and Allen Muhich, Chief Financial Officer.

the of its XXXX. close, the results the quarter third after company financial released for Yesterday, at The for are website the press third related release quarter available and in Form XX-Q www.faro.com. FARO's better understand order management make call. statements forward-looking help this In the of the may course to during and its company results, you

actual continue, materially are may by is in may forth intend, and XXXX those words. and It cause XX, be These as actual for XX, results these to XXXX. Form Important for will, objective, statements XX, company's September identified forward-looking can differ Form believe, factors goal, yesterday's expect, that differ results the the projected and March in materially the that release company's possible and June ended ended such from December words, set XXXX, XXXX, press anticipate, XX, may plan, potential, XX-K statements. year in the similar XX-Q quarters

not measures to call, During non-GAAP management conference regarding are measures release, Principles In Accounting Generally financial measures. including today's accordance you certain measures. or additional measures, of our reconciliations will financial with these find GAAP disclosures Accepted press these U.S. that presented comparable will discuss non-GAAP in

of in relevant, considered these isolation measures that should recognized or performance not non-GAAP These a in Management financial believes financial are prepared GAAP. be of provide as period-to-period for investors financial our with comparisons measures operations. accordance and measure a core under not with substitute GAAP

the like to turn Now, over call Michael. to I’d

Michael Burger

welcome our Good and Mike. morning to you, Thank call.

quarter when of were compared closed $XX.X X% down with of results quarter We revenue quarter third disappointing. XXXX. Our to the third million the

the more from The uncertainty with results. by This will non-GAAP affected our we of many reported net result, you leading peers. into $X.XX of is to financial resulting per reported financial continued performance. share. tensions quarter's loss similar additional provide a recently quarter insights demand our As situation industry adversely third a market trade Allen, a

process. some made to the However, I strategic progress you share we've with want of planning on our

now XXX last customers interviews chart forward as well I some my series believe to employees, become. discussed FARO. we of I've build in FARO our opportunities one markets, customers, of as path point was peers employees technologies, with priorities of completed as our well than and conduct current FARO view a first to the quarter, company's more joining one-on-one the can marketplace on vendors, a after as As of as an effort help of state the understand we what for discussions with to

did our we're plan will with where you key remains While understand headed. that of I full incomplete, you a help want to elements share couple

world them solutions. terms class are of better turn gain in what hardware provide products. in and data are that FARO it's hardware and Our believe That dimensional a customers industry's to been enough customers acknowledged has capturing. – and understanding We enables accurate need key a that don't that three to solve the of some of fastest to most focus trying provide I on needed problems said, simply the provider and

food and words, customers potential other allow capturing our but we enable data, that solutions easily virtualized based Not to tools into that up them our only chain, world. full the for provide information. need the realize captured the the move XD to also In turn complete of to by workflow data providing services the

this or to to of hardware environment choice unique industry we interact FARO believe have and federal data, store, the analyze, application used an data. any at products I transform customer, can opportunity of into which a capture in with enter, these regardless share,

believe example market illustrates what an Let is me solutions-based we share a opportunity. that you with

can the building accuracy, Within used products to time-based to twin data results to high of Effectively environment, virtual that digital efficiencies and with placement, capture name this in creating of use fixture a out and degree factory a are of the our layout, measure a includes facility, and the you. or tooling tool manufacturing manufacturing simulations operation of inefficiencies a in factory be a relay which high-precision a workflow. image tolerances, workflow

and for teams Giving the enable the risk reducing of is factory To impact operator also existing also virtue services the to need all provides solutions. nature reoccurring and but simulate This workflow changes and our change a factory teams solutions our anticipate FARO of digital development by sale example the facility, very change. within model understand real of customer's not on ongoing business any the utilization by guide facility thereby to that of so products a virtual opportunity or ability software the revenue future problems. of hardware only and marketing world truly success its sticky. they exceptionally and our solve This our approach can profile

focused customer charter our In to new the navigate this this we objective so, leverage recently to to to doing lead much is To leadership. of while more have added become a transition. our whose technology team, VP market process, Marketing continuing and Product is

come part we've go-to As need to repeat of our also of our market identified change customers. portion have fortunate strategy. our large are Today, process, strategic a from a to revenue we planning

of us relatively and to buying purchases, often pass stay requiring to long in a between attached cycle. a customer However, years front several to major

territory supporting FARO a have calling we customers, product multiple In this within can and portfolio experience model, with confusing a our assigned their them base, for account our not full while sales and team suboptimal, mention the integrated From to customer. often more members be or product a enable on people we provide unscalable technically effort breadth representing group a streamline an the our line of different products customer's our of sales FARO. of plan with perspective, to to In specialists. expensive and single today's from to

base on technology foundation the in scalable much our of will sales believe peers team We pivoting us that model headcount. many to and enable will which customer focus sales sales provide the that space, a this to grow sales by faster of our understanding model well-established used our than is better

plan strides of the make this this hiring new fully in half to new will begun to already the Sales team. to model initiative, a transitioned in Senior Vice first aid lead to direction President we and To We've of global be in XXXX. sales be our sales

our be efficiency. transitioning an as quality has improving we'll our leverage task a entirely fallen generation hired of over to We help step towards that sales chartered Marketing relationships, process launching Corporate new quantity have team. recently previously emphasize IT to sales a engagement to with process driven lead VP technologies that current marketing qualified who manage Further, customer a was our customer additional marketing will

Finally, leverage we while BXB sales to our efficiencies is there go-to-market opportunity to primarily continue relationship, process. approach our into an BXC that will be think

and we such As purchase soft contracts as effectively service, an post-sale more example, an e-commerce launch site, have to items will customers which enable training. initially

our offering However, our expand intention to aggressively is time. over e-commerce

We sense. will where it of channels makes also be increasing indirect our use sales

each As us success set We large plan I and you forward of our the remains process. I have markets. technologies our financial previously, earned a plan early in had of an in look said, That to updated full in an of XXXX. our growing including model strategic enviable market full mentioned share extent meaningful target that sharing with

outlined be headwind will believe strongly While the line today I've top a to rates growth, the the long-term. bottom line over our near-term I strategies near-term above macro and along FARO at top to industry will uncertainty that with trends revised grow line enable likely for and economic market others the

to Allen call financial the over that, our for turn With I'll quarter third overview of an results.

Allen Muhich

joined strategies about shareholder positions the I Thank morning company three strength FARO’s the just FARO described, in believe in you, XD Michael, the with well because the good market I for months sensing Michael increased product ahead. the ago everyone. years and value offerings of combining

the markets, many in effect Pacific, XXXX, Moving in year-over-year third onto million companies XXXX. continuing total this others surrounding primarily indicated, as the the of compared ongoing of and space $XX.X decline in on results, the to having many for it's to as of financial is million the of third the industry. $XX.X were our quarter countries automotive as broader to for Similar result trade uncertainty softness served the have what sales disputes well due our Asia quarter

interest up million with quarter down $XX.X reflecting a aftermarket focus as million continued our the such the $XX.X of sale to quarter, Service sales matter of on as compared Product year-over-year accrual GSA sales related charges products, expense. of an million, third in XXXX. disclosed were the the XX% for calibrations. XX% to $XX.X XXX,XXX training consisting were third and tool In were previously

response self that of I reported have proposed should status resolution. further a to the note we GSA update wait on no our pricing issue, our as we for

with And quarter the were softness. as of Pacific was compared XXXX, quarter for for New $XX compared $XX.X our mentioned for order segment, were $XXX.X third decrease automotive a last year. quarter X% the Asia mostly $XX.X market by third and result bookings XXXX. with XD the sales as units lower XXXX million, of million the sales, driven This same third manufacturing million down million as previously quarter of

recorded to In our of for million compared the quarter result Construction in sales the for BIM XXXX, were compared Vertical coming for vertical. This third million segment for GAAP the was XXXX, sales $XX.X period. and of gross quarter as were of prior for In decrease year period. year lower of the XX.X% with third third this million, as of XXXX. margin sales quarter same with prior million XX.X% $XX.X Emerging XXXX $XX.X our non-GAAP segment, compared the third from acquisitions prior quarter mainly $XX.X same margin unit was XX.X% gross was as

margins margins. increase result gross in point a service a of our percentage business nearly non-GAAP our gross Overall, as XX increased

As calibrated I been profitability. tools has service maintained has customers sales in well focused to mentioned also efforts that area the ensure a resulted previously, higher our

of or $X.X included XXXX, million were the the of and XXXX, amortization operating expenses third approximately by third GAAP $XX.X lower expenses. operating $XXX,XXX operating XXXX, compensation quarter as Non-GAAP headcount. increased compared in result expenses quarter of of and was million million intangible than million operating the demand acquisition-related million for a sales stock GAAP as QX for driven an with environment. $XX.X of of loss higher loss $X.X $X

$X.X Adjusted sales. of X% million or EBITDA was

compared per per loss third to XXXX, net the net million, XXXX. our was $X.XX loss QX non-GAAP $X.X of GAAP $XXX,XXX quarter share earnings Our $X.XX for non-GAAP in or share was

to payments a the continue debt. $X.X result consumed consideration of high XXXX, $X.X with of million non-GAAP and performance structure cash financial a as of in third and acquisitions. disclosed we million breakeven strong quarter maintain contingent previously liquidity for no in In near We capital our

over decreased from million of in $XX.X balance XX relatively $X.X and long-term combined remained million in short inventory for payable of the of outstanding and an balance receivable of decreased sales $XXX.X and our days slightly while or payable to levels share by per the accounts cycle Improving receivable, $XXX.X the and area netted capital of XXXX, overall important steady million, accounts with million, be decreased Combined $XX $XX.X $XXX.X quarter Our at to approximately days. cash Overall, accounts a in days. working XXX quarter million quarter. $X conversion second inventory million short will us. long-term accounts focus million

a Finally, want on comment this we couple of made I reporting quarter. changes to

First, use of in financial you'll have measures an increased noted our non-GAAP communications.

of definition with amortization related estimate we intangible is industry, stock the where acquisition non-GAAP items. non-recurring material and in compensation Our along expenses, typical

information the We the transparency believe increased underlying as this operations. of of performance supplemental our

as calls longer no on expenses including expense, operating function own we support those statement. reporting Instead, line expenses. the in our reported depreciation out they are and amortization within the Additionally, its income

way our we to a enables in changes Taken a consistent believe provide therefore improved peers. more industry reporting together, and compatibility practice, with these

For trend your includes reflect tables press updated convenience, our including results changes. supplemental these previously historical our reported release to of

any at prepared pleased time, questions. take This concludes be our this we'd remarks, your to and of

Operator

take We'll Berenberg. question Andrew with Please first go our Instructions] DeGasperi from ahead. [Operator

is open. line Your

Andrew DeGasperi

for Thanks question. taking my

do strategy potentially on three In in there's three wanted well, the have, going M&A software. know a a most the on this, software-as-a-service the you I bit transition this understand terms like But of discuss you're It have or and Markets Capital a to for moving to the sounds mostly, I just vehicle focus you that? to to to this to change be I model. a – the little – around pronged big would going tools your to the software, Day. just be wanted necessary know trying to of timing

this provide to sales potentially transition to were you from in if maybe, then perpetual you And see drop the do as that of hardware? your licensing you model, part a currently

Michael Burger

the basic the for believe time. lot the of It's has a company And we've way, great by period interface question. got Initially, a software-as-a-service capabilities been a today. on we of some working

or be but is real I a brand necessarily will real issue initiative, new difference the think the this not So emphasis.

have a today, individual software large XX quite time. developed have have number think software organizations engineering actually We I that almost we over of been platforms

sift we if challenges our you believe then optimize real through kind the it as And value offer and a to environment. those, – will where an is of

we've so think initially part this on have time, working software time, that over the I period we we And been we But some resources. think for will would be of enough of R&D which resource and year. grow success spend talk our about early we that release go-to-markets our the part we model, be we'll next – and about of we'll when model discussion our talked which

Allen Muhich

revenue a software I'm a seeing perpetual a our a we that other transition drop the make as it for revenue think through a period decrease and revenue model, in out that that material more software to we thought grow recurrent of over we go stream of percentage companies don't time you've any to the as in we again, sure revenue a transition. ultimately the level then seen might to relates anticipate opposed a horizon license we make don't expect transition, as it as then transition. time, But as And

Andrew DeGasperi

And on? you around – as in but a you're if or this XXXX this – it. going can early event it, pushing just don't XXXX, potentially later where disclose for terms know, timing this, start think of you to do is Got I

Michael Burger

time. that of will in we half second about, as position talked believe it's of to be of believe for the roll developing a something, think I capability been period we've transition. I We that some XXXX. it kind it's out we a

Andrew DeGasperi

on just you And that. it. sales think indirect trend, about Got the made expanding comments I some

felt you're on FARO like on But back the they rates that? changed past the that potentially were direct, was think, moving direction. Can it because in elaborate higher. I close to maybe sounds you

Michael Burger

models to direct a believe major the could not sales in that shift believe It's better. direct we We still sales model. from indirect, indirect we do leverage

sales would said so we'll our makes And where too. it continue at will an use as replace it, but augment direct to channel we not in I look sense it going it it will be and our script, forward,

Allen Muhich

adverse Yes, it’s nature. to opportunities, We an might by it, makes its varying of certainly where it deploy sense. it more we're but not

Andrew DeGasperi

deliver the then Got recovery terms side? it. a for force, the you incremental don’t in sales if lastly margins, And revenue in see me optimizing of this potentially

Michael Burger

I'm sorry, it? don't I you Could understand the repeat question.

Andrew DeGasperi

In terms of your strategy on optimizing the sales force.

Michael Burger

Right.

Andrew DeGasperi

other for Is in without revenue any margin there a improvement improvement potential increase in in without any words revenue? or

Michael Burger

We I that success believe so, talk And we'll will yes. of model part the be think about. this

Andrew DeGasperi

Thanks Sounds good. again.

Michael Burger

the you questions. Thank for

Operator

ahead, with go We'll take Palm from Greg Craig-Hallum next your question the is line our Group. Please Capital open.

Danny Eggerichs

Eggerichs on today. this guys, Hi actually is Danny for a Greg

Michael Burger

Danny. Hi

Allen Muhich

Hey, Danny.

Danny Eggerichs

the challenges sales that way quarter? for top any on Is those to quantify wondering just line there So force. there disruption to the

Michael Burger

we is a believe very talented Actually, believe – force but think that – don't don't primarily we've is we that direct. today, And – sales believe scary. that I we changes got

the relatively view our be straightforward. in transition so should And

the think do disrupts But to as continue be really – should we – risk, not the is always not in – the we growth concerned there I have revenue revenue objective but past. see in don't short-term. in we we're really about the

Danny Eggerichs

you're what in environment? that. just I guess more broader Appreciate And challenging macro seeing it. wondering environment, Got competitive your light of then the throughout

Michael Burger

I actually, peers they're We've it same Yes. softness effect. primarily the exactly and most like in of think seen Asia and looks releases our seeing read we've

share We loss seeing anywhere. significant don't believe that we're

is this probably micro So driven. economic we primarily believe

when economy adoption in new so of lot We're a still got product products to are well a think we've the very and I kind returns state. And normal we positioned driving market. new the of

Danny Eggerichs

good. one for That's then one it. just me. Got last And

lower those verticals, you or those Looking the from at I that the there deemphasizing digits, sales said know something but emerging or from what's is sales this revenue low-double possibly guess acquisitions? there was down I year-over-year, coming unit prior to cause due acquisitions, lower any unit

Michael Burger

Yes.

part do strategy there's been some We we year. our is the it when time. optimization we'll and that over this that release that next believe strategy of going think of opportunity be acquisitions for the part some we're rollout in early have I of through purchased

think really business with several of associated acquisitions, of focused, was All I a granted these technology are there them.

some a business disappointed we little these said, pleased of technology being with I think perspective. were aspect bit of the technical the from acquisitions, with contribution that overall relatively we're a

was kind so the of of versus business strategy rationalize technology And is purchased. the really that to part originally the

part that's be of strategy our sifting through and So reflected we're the going-forward. that going in will

Danny Eggerichs

from That's Great. Thanks for the right. all All me. color.

Michael Burger

Thanks.

Operator

with next G-Research. question take Hendi go from our Instructions] Please Susanto We'll [Operator ahead.

is line open. Your

Hendi Susanto

and Michael morning Good Allen.

Michael Burger

Good morning.

Hendi Susanto

the in and pricing of pressure, terms environment you Can market current feasibility? characterize market competition

Michael Burger

I it as quarter last really think Yes, hasn't much. from changed

not we competitively. concern course think any seen competitive a We I of cause we've any have competitors shift more general moves seen our that than from the business. big normal or change pricing – don't not

I pushed. of somehow on we're to I all the about are we've believe We they working in think projects continue China the been capital up be don't away, dried access Asia, and projects to that concerned think many but has particularly and Japan. that in going

that we're that's think by very primarily don't situation. driven but think closely, driven of macro by competitors. the We economic watching we that's kind So

Hendi Susanto

to your opinion? economic and did U.S-China say tensions then how theoretically let's if soon go get And recover market trade demand micro fast resolved, we can how in

Michael Burger

Relatively quickly, believe. I

much situation products to the and U.S. I don't is of from think, affected in China, customers it buying as believe sentiment so. we is the as directly our I – Chinese tariffs by by away move

that if impact, have think resolved, would I a positive I a to that think quarter. was would within be

not to and going in on that's like it. we're the said, That doesn't happen it planning look short-term

come how resolve to with to got up to resolution we've our this. own So

for today in the we're that that now, the won't quarter that I environment right probably certainly think next So we believe change.

Hendi Susanto

then change that And it. in Got anything Japan? might

Michael Burger

push got major going seen primarily We've automotive. on some projects We've Japan. in out, some in

recovers, in think when think a And market we'll really so automotive be I I position. the good

We We going But a demand situation once macroeconomic a resolved continue in had the lot invest there, to believe be a we've historically so on of I benefactor. automotive we're think for driven we is Japan. businesses and should to and absolutely to focus I that FARO it. perfect is success continue think

Hendi Susanto

Got it. Thank Michael. you thank Allen. you And

Michael Burger

Thank you. welcome. You're

Operator

for to the Burger your further I no are there at will And on line time. the Michael closing this call CEO, comments. questions turn any

Michael Burger

you we our next today you into attending which Thank our go in to quarter really we bit and look appreciate strategy. little much. the you. depth Thank forward a We call around very hopefully can more

Operator

does today's may conclude This disconnect. your program. you you participation. now Thank for And