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Faro (FARO)

Participants
Michael Funari Sapphire Investor Relations
Michael Burger President, CEO & Director
Allen Muhich CFO
Gregory Palm Craig-Hallum
James Ricchiuti Needham & Company
Andrew DeGasperi Berenberg
Richard Eastman Robert W. Baird & Co.
Ben Rose Battle Road Research
Call transcript
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Operator

Good morning, everyone, and welcome to the FARO Technologies Second Quarter 2020 Earnings Call.

For opening remarks and introductions, I will now turn the call over to Michael Funari at Sapphire Investor Relations. Please go ahead.

Michael Funari

Thank you, and good morning. With me today from FARO are Michael Burger, Chief Executive Officer; and Allen Muhich, Chief Financial Officer. closed, quarter released of market for financial the second the XXXX. after the its company results Yesterday The related www.faro.com. press second quarter release and Form available FARO's XX-Q on website at are for the the In help may forward-looking during order statements call. its course this you understand make of to the results, company better management and words can goal, and may objective, by expect, believe, such statements These identified anticipate, will, intend, similar as be plan, continue, words. potential, actual company's in is may materially from the projected statements. It those these forward-looking differ results possible actual to XX-K the in XX differ cause year set may in yesterday's and XX-Q are quarter December that release forth XX, XXXX. the factors Important for results June and Form ended for materially ended press Form company's the

in accordance U.S. accounting conference financial In including or regarding accepted call, measures. measures. with non-GAAP will comparable principles measures non-GAAP today's disclosures press reconciliations find financial additional management to will presented GAAP release, measures these you the certain generally During not discuss that are

While relevant non-GAAP not recognized under provide comparisons core period-to-period investors these operations. measures financial of GAAP, management believes with

be should financial of a as for substitute accordance they isolation or considered measure However, prepared GAAP. a in with performance in not

Now I'd Michael. to call like the turn over to

Michael Burger

customers and expect our our open, to that serve chain, logistics the supply have providing our how the report support Thank morning, Good operations and remain and have global start welcome downturn. and I manufacturing update FARO. our economic recent brief I'd to you, like our teams continued level to to to from by facilities business is Mike. come through a at on call. faring pleased am they

the place XD had pursue to they've continue in customers at of the beginning initiatives year. Our measurement

slowly challenging do beginning global said, new delay uncertainty demand orders, the we're market to environment. ongoing industry in the are we It while predict toward markets second the this most of markets, region-by-region an market the for unfold signs moving current caused to aerospace that forward coming given see recovery in measured a remains we the signs our pointing remains by that in to the All pandemic. the basis. perspective, other bottom marking cautious However, believe difficult quarter will a downturn lost with in the the placing how have many FARO. quarters. environment From demand share have chosen on That not demand are projects,

in control, new However, affecting strategic outbreaks to make our our deteriorate Shifting countries, near-term continuing on outlined to decisions. respond or purchase our conditions adversely could we as progress customers' February. to areas accelerating are we initiatives within

new in team's it Our strong strategy. force to has is and claim still while our go-to-market is And early the embraced sales the growing. transition optimism success,

quickly on in most capitalize With virtual second sales to team demos place person customers year-on-year infrastructure and into interactions, the shifted in the to existing continue quarter sales preferring grew product on coming virtual year. Virtual calls. we the demos limit in basis. to We have XX% a

scalable combined We continue The forward. all to the months demos. an have few virtual stand-alone in last is to personal exceptionally to a efficient gained of ahead and will critical of going experience only as in interest tool effective this but use customer prequalify arsenal sales important we've our found an also tool, and introduction our the not way products, success be over

Our adapted and virtual also marketing organizations environment. service current the to have

future intend grow our example themselves virtual This customer FARO information educate remotely the problems. XD companies business where opportunity in to and seminars, communicate we've more X- practices. and solutions learned can is training how effectively a take our of solve to and and our efficiently increase we interface our another their capabilities product with advantage as that leverage seen in have to We and fivefold of attendance on how to

focus with of market In products. the our our businesses. our tech and open Turning to the quarter, Photonics our divestiture target second increased we

While larger took we core organization's considerably reallocate In aimed up of of revenue X% announced our time resources a the represented our X XXXX, they QX, new these able we approximately to markets. X divesting amount these solutions serve in lines core to businesses, and are markets. product only attention. By exciting at

public First which operators intuitive, Freestyle real in allows tool, X, the differentiated, primarily and is easy at nontechnical use This XD targeted photorealistic images handheld capture to is a to portable scanner. market time. the safety

portable primarily scanner, which faster product at XXx second that up our is and XD is announced competing market. AEC The unique targeted the solution color enables is we laser to than Swift a scans devices

proposition have usable the shared information. better our enablement This metrology. the data believe XD these into and We small XD is to arm our product demanding shops amongst and unique solution capabilities, perform inspections the to combined these of when value in software most customers' faster. FARO aimed Finally, The accurate quickly time. Gage machine measurement transform tool allows XD products, our data articulating core record products versatile with new is capturing at medium-sized ability

through passed established customers' the that I with that and to revenue also model. not savings As bring model. improved highly content, of leading software earlier of taken increase We've in workflow, market, X-year that to higher market we've but captured leveraging we at continue and pleased made our FARO and a success only long-term levels new of create combination an June, sales middle organization. with to will we've our we the performance. am restructuring service progress by are my And reoccurring solutions financial the aligned differentiation this anniversary virtual new Having the actions year as the in

of full expense XX% I'll months to overview our call profitability our for of and non-GAAP current I levels, to will objective, wake that, confident the the X the I'm beat as than operating dedication our expected. success scalable financial am our historical in a targeted million global they model have model results. as revenue when with stated tremendous an situation. our company returns $XX.X extremely FARO team of Our our earlier EBITDA. Allen With transform new over second shown of line in operating of quarter deliver QX proud we entire resiliency turn

Allen Muhich

and Thank morning, everyone. you, good Michael,

down soft perform self-reported the fix in $XX.X X break a reduction impact quarter in of second we of Second the the further our the sales the all and million of $XX.X experienced $XX down revenue XXXX status no compared of a revenue solution. was In were disclosed have non-contract matter. million sales as was a its Including XXXX GAAP update this full end million of quarter of adjustment, of when the pricing decrease GSA as additional proposed we GAAP our million service served as months net XXXX, to time, of compared to this million $XX.X million, market demand an sales second quarter on-site GAAP $XXX,XXX QX compared COVID-XX XX% when inability in result was to Broadly GSA QX on XXXX. of to product our to response to await previously of took we $X.X training issue, non-GAAP $XX.X across as speaking, result were charge pandemic. related activity. million. GSA $XX.X a At to related the markets. of

XXXX included and million travel than environment. compensation XXXX, $X.X the Non-GAAP from or as expenses of restructuring XXXX. of was were related were second million gross with same in of product for is as of absorption. of for overall period. second second $XXX were expenses as million a revenue, expenses well benefited gross cost in and operating the well million the intangible our the compared reduced XX% actions $XX.X result $XX.X New lower costs. our which in worth as amortization The order the quarter as $XX.X of acquisition-related as adversely gross XX% fixed approximately expenses operating GAAP QX margin GAAP year XX.X% XX.X% Non-GAAP given $XX.X down XXXX, margin to XX.X%. million current quarter the prior for as quarter with compared $XXX,XXX quarter's million restructuring bookings was of the full margin cost reduction for company savings the affected lower stock

Michael demand GAAP similar loss of the result to second loss third operating as quarter. to expense quarter, to operating XXXX would depressed with mentioned, least of quarter quarter the the remain through third a for was compared $XX expected As Adjusted demand the second at million operating remain $X.X at the with was the as environment. for we of levels an lower EBITDA million of million. XXXX quarter $X second expect negative

$X.X or was per million $X.XX Our net share. loss GAAP

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

generated outstanding be we to million any $XXX.X with In concludes remarks questions. We of of This by our cash debt. continue XXXX, a quarter this capital driven pleased in of to structure your the collections a maintain We'd time. of and no at cash, primarily second strong balance take prepared receivables. $XXX,XXX

Operator

[Operator take with first Instructions]. Palm Greg And question Craig-Hallum we'll Capital. from our

Gregory Palm

in guess, quarter? typically surprised your the of the with weeks part Was that June, firstly, which strongest you? quarter, X curious consistent last I'm back in you looking I what maybe saw expectations? of the the activity Anything

Michael Burger

-- accelerated. it it Actually, was

think left surprised QX. is crescendo in activity of of in stronger the think which June the is came real how we sign. right, toward but the I we And than seasonally, of real-- strong into the QX much we which were kind So it quarter, we gets kind a end was you're positive general,

Gregory Palm

maybe a geographies as any sort like markets of really stood or recovery And out standpoint? from end that

Michael Burger

Yes.

I relatively saw we in June. think strong was was average Europe say, I America the China North and at and -- stronger. end Japan, of would

Asia and U.S. saw the strength by back, of of of kind were we the So out surprised kind bouncing we

Gregory Palm

Okay. Makes sense.

less the is I whether a gears part Or views Just expense And change a phenomenon? have on COVID might have temporary if I'm travel structure? in you the you cost your go-to-market When on this might the sales these world? through lot think of cycle, this become whether other your web shifting and do how that's kind a even major maybe demos potential P&L? so, flowing expense curious strategy. a changed, of guess, post can

Michael Burger

great Greg. question, a it's Yes,

efficient believe are is conversations do meaningful normally a much more than more we would we do. and of way prequalifying think in that having that I opportunities this person

that's And company the demos not approach. that, on as very of you almost think been think much the we previously focused the had activity correct cost. recall, I believe at any I doing

environment, where we efficient Introducing software, or spending the I In customer a whatever virtual think understanding calls travel cycle. our the or the most to the customer demand them is for. in actually the the to products is to think our way. to technology resources prior our buy

And verifies I do but say least, having we process given market have is environment collecting it. capability the in are to advantage albeit downturn. us full believe that, through this has that of taken We the an data advantage that this of strange this

activity side. we time up terms As big the in of said, is virtual

not We now. have actually time you closed a virtually think say, is. that been prequalification ago, I year orders it to go possible, we But that a proven have have here And absolutely from now I we of norm in possible. end guys not, forward. virtual if be think that the most the would forward? was ask I no, to think but of who capabilities Probably beginning we've us long were it's if will the going leverage Will terms

Allen Muhich

we I that will scalability Michael enable built. it's to though, as that standpoint, a operating pressure, think the model And an indicated. So to from downward at additional think, I going yes, certainly minimum, spend provide

Operator

Jim And we'll Company. next Needham Ricchiuti question from with take our &

James Ricchiuti

of the in What QX? quarter. more And the have Just, lot mentioned Michael, what of a trends so been or activity the I of see like weeks the in the June. you know in far last couple activity like later were pickup you in typically, they

Michael Burger

Actually, seasonal quarter. the of go We're know, end do cycle loaded Jim? the momentum as toward quarter, has through within right, you the a we the

where a had weak the And right? kind which really May, a to we've of felt in which we June, or happen. into funnel, us really March for there's on and size when nowhere And of indication again near of that's demand April, seen the we say, so real so of We're And lot funnel is is good. were build we crescendoed going visibility terms a in becoming XXXX. good that QX that

we've these So of been any believe we has funnel pushed a lot And a call, out. canceled, that as And of mentioned not earlier been they've have the been out. lot in don't projects the lost just pushed share. I

toward that of the some a And trends were the very now seeing is do we're for QX. of So end But which build positive build, us. are early again, seasonal the again, we funnel in going quarter. encouraging as we through

James Ricchiuti

has know QX that typically, seasonality, to of think a been speaking a QX. different just more And how but don't And quarter, of in we're world. seasonally I weak

Michael Burger

vacation typically, in August takes frame. the time Well, Europe a

of kind of number heard we've so And different a anecdotally stories.

have months. for customers some the have actually shutting the period have down foregone Some about Others during been environment. obviously and -- because have of automotive down low vacations time some talked of of guys the summer extending demand

I'm the be for levels. -- with and you. a context V will kind QX, script recovery to sure if We it, We of back Nike. in and gradual of in we to swish, of is out we it's it in you it it's do I'm not refer crescendo So as and QX. that build, steady bottom don't to to We historical the what believe, Jim. should think going this hopefully, the be think we we've will, a us. said QX expect QX that believe really but

James Ricchiuti

any Or the may no is Are just a of you from that terms environment that aggressively win guys in there? such pricing? more anything competitors to be market is a one's seeing such doing change business not that pricing this standpoint weak from

Michael Burger

Yes.

seen demand versus an think are certified there. day, interesting are and is particularly a And companies, the think at if -- in end customers, pricing, smaller that's where right? a seeing some about true. there stupid realize, us not think create I'm interested of We've I doesn't demand, because, competitors, all of talking latter is We trend I But term. again, preowned so our buying price I lower the is new. not the technical not we

a but a an really data continue, a is interesting seen And really to so one, that and say that's new an trend that's it's that we point. -- has haven't it's going to update it trend

James Ricchiuti

Okay. care. Last me, I'll for back on question and the jump

Or was of if could as EBITDA get adjusted extended lower weak some $XX what were pull, -- more cases, at? $XX million, levers to revenue, breakeven basis, you still on you any levels still rethought have a You've you've low to be there talked that the Just this? about Is at some still but as environment you of to looking somewhat in million. you're that think

Michael Burger

haven't we thought it. No,

that revenues say, scenarios That made were dip is could we very have one. some I to and be Board if levels for we that that that this assumptions things that We our protracted thought, going situation other detailed made be doing. think below said, we in for and that example, time, have today QX has temporary have the we we're is a

to to and products, the the so just the focus cut objective but deal company, products continue to it, we're we've And continue with X new cut demonstrated which the new QX new bone launch and solutions, restructuring doing, to finish is in with and to the the to bone. optimize not on of

that. is in. the progress we objective lot much Our of a come think we've made when of went to toward stronger than this And out market recovers, I

the impact and company. that terms of between we've the pretty think that Jim, walking long-term in of X And big thin line, well. profitability team quarter us health is objective for and the making we management line the kind of So really walked

Operator

we'll Berenberg our question from with DeGasperi And take Andrew next

Andrew DeGasperi

one I follow-up right is end to restructuring, you've competition. all to earlier question quickly the just mean, wanted of one now a I big of underresourced. undergoing I a the asking international your one have some mean, Jim's year. through competitors, on undergone

-- product of the seen more just of one about perspective? pricing, refresh -- slowdown terms we of seen if also they've but had from that terms from in pullback I'm have doing perspective that You thinking in that. any any in the kind that's their talked you've AEC to wondering trying I'm market how

Michael Burger

right? got question. have a tell great you, lot I of anecdotal, and And a to It's it's We data.

identified. So no salesforce.com, now. intended, funnel track we opportunity the we track pun sales basically that every We're have laser on focused, salespeople use guys. by and our we And

we experienced, moves we've down. the would we of maniacally I example, focused opportunities. must in products not tell have their And intensity not QX -- a different. seen this explain that's by if real kind selling we're happened. still pricing I'd double customer's activity. We of But competitors. less could So for to from competitors for I bringing we to see in but opportunity sure have competitors. I'm players understand lot really how new on. they're than do the that in been is is have orders. any of truly every argue understanding can the caused example, And excited from to And X, of to And why our you the I restructuring of data. that, I same not can't We're space. took our if QX returns, sure no that going some slowdown we I'm much I seen, actually traditional when demand that's objective products aware And thing you a these they've to their about just so of really this environment in I'm customers place mentioned, as XXXX on significant place as our in products think, that very market. get not --

And so strategy, that's executed it. our been to we've and

Andrew DeGasperi

then think releases on or helpful. towards past, not great. other that year year. year? calendar assets in And of know end disposed at more the potential interested the in that comment might mentioned the I coming for you looks still the you X that early secondly, -- anything maybe earlier the of specifically, right quarter software we else that Any of know that in end exiting? us next that there's know Is were but what case? maybe let be you noncore. the potentially the -- would you be timing, That's if Great. that some I you've assets of that And this do in you well, Could maybe have mentioned in now should And terms the any up

Michael Burger

-- we ongoing. yes, on will be software releasing new a basis. continuous of perspective, software From almost a And it's that's actually versions

are our question So to we the on investments your And down terms answer of be software. We'll is continuing. yes. last doubling in

So so that anything, hasn't yes. and If changed. it's intensified,

short relates always don't businesses, have the opportunities business radar to disposing the it we have in the business. divest any for other to term, our tech or businesses affect, QX. to optimize that of no We're As company specific assets. at like of example, But of we looking would plans open on anything terms Photonics

Operator

will next Eastman from And our take Richard we Baird. question with

Richard Eastman

a And just is could XD about kind possible of those market Just couple and the maybe three just any thinking I'm funding in of could things, then the bad business how Michael, you it of bit just different around it color E&C or for comes did measurements recover? a put little end of groups or public safety. And the potential less these end quickly from performed And buckets? quarter. where markets,

Michael Burger

question. a It's Right. great

have noise but positive, and second a And is of about capital seems this of they're automotive recovery, XD market et automotive with convinced to are going lot in a So business. year, we'll our The cetera, the half we see. some business the aligned the environment biggest and to signs. although It's aerospace or is I'm early of lot times. be demand their drive tough metrology, positive that aligned not going purchases business through been and

demand, companies these work seen America some metal of part doing resurge, kind Asia. general, in that big in we've really in other metrology And is of that and actually of smaller particularly The XD are sort.

that or of positive are a part places. XX,XXX -- And of are metal customers, you that businesses that's kind types that shops talk working XX,XXX heavy a smaller big machine about these of spread So when is sign.

particularly seeing coming put lot core, seems And kind docket, that our very a back positive. safety so businesses was of America. a being us, think for to projects smaller that's are back I in and North of and on be Public surprise and the which coming nice is back these we been

as a sign positive well. that's So

construction hard we're I in get norm. law think been and kind the we're apprehension in to construction I I business, North purchases slow there's about capital. the America. the AEC, seeing for are the talking though we place terms attention, -- Europe changing, has will, of And think are it of out signs life some there in but during construction projects that's if of going even enforcement. you us early was The to space, surprisingly think new days anyone's leveling an think I capital on, actually pandemic, in of that

to good the seems making through right So to mend the metrology America noise. automotive. seems construction be in back, metalworking signs and safety coming in driven Public be and is by the on there's

what So that's I don't if you were know looking.

Richard Eastman

maybe targeted? We're maybe at the the or just lower look trying that. end restructuring is just talked like? Okay, more I commentary steps? need you think primarily does we additional is restructuring. all number? $XX X kind it these restructuring need think is positive noise. footprint of Have a planned kind to focused headcount given days. what can't question in Or gauge, that around maybe -- million half to that other you still at the million $XX Noise that the We And at And of And to noise. I'm of started I any you taking I to the gave, initial restructuring around of range. where look second

Michael Burger

restructuring. When of are I'll bulk, much the large talk to we're the number was of let in countries talk Well, has government the we financially. on to are $XX some lingering under below let restructuring. the mandated you're million to of cost number be done. some headcount of done, a at. restructuring coming percentage situation issues certain We I'll point. where will pretty I planning not in of that we're the we'll But that that million February, we where the European in But terms situation we announced kind to is that any is headcount the $XX do Al done. able of until which say where had And Allen

Allen Muhich

Yes.

right. it Michael think characterized I

we well So to million, relative $XX doing $XX to think and communicated that number. had we we are million

operating of As his prepared lower guided in almost bit our to. remarks, just $XX indicated million a -- almost -- is had we Michael $XX million expense than

good our very and the to feel and frankly, that we're while the cost ability in about to manage areas. we so structure invest our demonstrate in And continuing business business

at so point a outside And to of that pretty we'll time indicated, with in Michael of couple areas layer this as we're lingering well done that continue in.

Operator

[Operator Instructions]. we'll go to Road with Ben And Research. Rose next Battle

Ben Rose

a wanted the Just With kind key And gross second of And understand what I margin quarter, regard guess, in revitalize think I the do question. product half the margin, to gross to, there to through anything first. the was in it? I'll from better it is start a particular year? standpoint, that the you of in depressed

Michael Burger

Al. ahead, Go

Allen Muhich

Yes.

indicated gross -- the non-GAAP from into margin by the a prepared really the I XXs the think standpoint driven as reduction reduction the down in remarks, revenue. we've high for in was

average have commensurate. therefore, is. line down they're our contribution and down, margin corporate consistent obviously We comes comes revenue relatively than gross across and And higher the as reductions product what margin -- therefore,

for of XX% time. operating our of expectation an at remains back XX% a natural to the Our had we that XX% extended our more And this time. period That objective. levels, when range time, rebounds that point in in up point success unchanged will been revenue is at see model historic into to increase is into at XX% we this

indicated, steady. As relatively remains pricing Michael

would have that standpoint have from software mix sort a margin. as to Anything would focus be tend gross a competitors higher solutions seen haven't positive we permanent some of to certainly, gross any generally any of our that for and We on by more margins our us. draconian efforts change ourselves, more or

this we the want of just by I stretch And because cavalier appear really so about what general, I've of being of in volume-driven. to talked in about not are terms concerned any imagination, don't XX% just

Ben Rose

warranty been service last outlook having able Great. has that more then to focus And does a pretty even there? that And you the big how continue rate in know the in -- Were that Okay. selling warranty I than high a over and tough last and on fact, side, successful the service attach on service. the environment? this success appear year

Michael Burger

of this and No, successful through process. been service very think Yes. I selling attach within contracts we've rate terms our

think calibration. there's sending an but there their that And seen working, are and are -- of advantage environment. COVID that's have understanding trend -- I equipment slower time environment. really of positive in what companies this we've back don't smaller phenomenon, through still for and demand They're a this taking that certification particularly

I think when was gets see COVID. been the our we'll return think through positive environment to levels, normal back demand customers, I I for I but where to it back think -- it's it

Ben Rose

on rather than data out with has just Michael, then metrology the And your Great. side. the to it you respect obviously noise respect for that to first ISM, the factory sources, substance macro Okay. these federal, There's with in of and of comments Fed's on production do key factories time. positive the to the book on I'm if wondering something kind level reopening being industrial the said so to noise some been of forth. with And coming

on online might get that. start of back the we versus When to think wanted in? purchase see your you the cycles thoughts As if in getting new things your equipment. kick of to just for do And products some making purchases

Michael Burger

Yes. to script, we said point, Well, of our I believe. see beginning why the think now. we're lowest is kind we, that the we trough, it's QX it that's And in

is So the positive. noise

I and capacity to there's I I new And big time them et sign automotive And and May a either difference, coming big talk off going think the there between a think equipment back or factory a the confidence of that guys in on work, cetera. to right? back is starting was equipment. think purchase. guys, operate typically technology were a and a frame buying difference coming new some of lot April, of There's a needs

we're is so see. customers focused We're for seeing guys And know we're a automotive to now. building demand which funnel, really again, tracking pull order, and buying a funnel their -- the And to comes don't on maniacally of end sales our think I an opportunity and trigger actually the think cars are positive. a I place many people perfect the our lot again, seeing environment. every new is example. right I how There's it down And

-- we'll where So activity, QX I relates And and positive. I think happening as are their calling that's again, trough. confidence I we're the it back things we were. The see returning trends think to builds start as in consumer the think us to

Operator

And there time. this be at for back any no remarks. to the to call questions I'll over additional Burger Michael appears further turn

Michael Burger

attention. your and for calling everybody the of We quarter, to we a take focus and solution than positioned ago continuing introduced today again, products on new trough, reemphasize thank X we're to want We strategy. we our are -- this QX to we're advantage to were better that. want year I

look So attention talking appreciate you. forward everyone's you quarter. Thank to to we next and

Operator

and conclude program. Thanks you, your this Thank participation. for your does

You disconnect at may any time.