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Faro (FARO)

Participants
Michael Funari Sapphire Investor Relations
Michael Burger Chief Executive Officer
Allen Muhich Chief Financial Officer
Greg Palm Craig- Hallum Capital
Jim Ricchiuti Needham & Company
Andrew DeGasperi Berenberg Capital
Ben Rose Battle Road Research
Call transcript
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Operator

Good morning, everyone, and welcome to the FARO Technologies Fourth Quarter and Full Year 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. the and its full close, the results market quarter fourth year after company financial released for Yesterday, of XXXX. release year with press quarter at www.faro.com. available related and for website XX-K The the on and Faro's full SEC have the filed been and are Form fourth of In help are Safe that statements may understand considered and you Private the results, the and its the make order the management course Reform provisions XXXX. may pursuant Litigation to made Harbor to during of better Act company this Securities call, be of expect, be believe, objective, These by and statements can identified estimate, seek, plan, words similar goal, such continue, as will, potential, words. may, anticipate, intend,

as the those materially projected Forward-looking may or that XX. to yesterday's except and today from update actual Form and by statements. company's results differ them. of materially no these statements the views the December in as the is It forward-looking risks XX-K actual differ set obligation reflect revise the discussion only company's for results possible factors year of may cause law, our Important release and are ended in required we uncertainties forth and to press undertake in

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

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

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

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

Michael Burger

We experienced demand helped to fourth of budget Demand the public AEC welcome as of each of in and Good call. across confidence. sequential to with Mike. adjust strength of geographies growth. I each pandemic to safety, quarter XX% am morning our impacts demand report markets year pleased both our to our growth our enable and particular enabled sequential Europe, gain in in ongoing economies end global Thank line. customers our served increase product improve the which with utilization and sequentially our continued strength grew you, notable scanner our year-on-year

While strong seasonal below XXXX, fourth and shareholder us primarily result revenue recovery in versus growth confidence tenets; quarter those realizing as near-term back-office near-term revenue long-term That of key to market processes. increased on of on targeting a of remain to behind was continuation the would of demand to new increased year, is profitable the a targeted many annualized to would Broadly objective ultimately first cost the XX% a speaking, relied that model us that would value. this structure strategy of enable success our realize create drive two globalization on – from our in The levels EBITDA our million by approach, savings. XXXX savings transformation as flat softness, with of that go outlook our the we continues. of $XX to outlined to well levels activity remain a February in experienced in fourth of heightens gradual the demand a the continue addition we seen first cautious said, further quarter trough sequential expect we throughout last the FARO more typical strategy in improvement and the In our growth market XXXX the demand quarter.

our brought one In our made our by transformation, was structure; our go months, significant sales hardware reduced the product of both enable tenet sales the progress our person enabled understanding differentiation market compared we’ve problems under and changes our to team unit vertical have XX% entire approximately improve when productivity enabled of these to better delivering to Driven roadmap sales managers the that better sell team eliminated at customers than XXXX. long-term with by per to competitors. XX% in The enabling portfolio. product of a team customer-focused strategies. product executive; by and our FARO’s software first half differentiation. In engineering fourth twelve business targeted new by to headcount we leadership last solve These and delivering marketing long-term their organization, product second solutions quarter strategic now and our are our product market-focused sales

features further simple focus automated outlined a intent cloud-based productivity. strategy increase and to that our information to and do. more data data to they our these we enable architecture. on anticipate access our everywhere additional with concepts, information finally, three to customers’ strategic These customers time. our can hardware marketing data automated; occur translated into is the of we a better everything over deep workflow, understanding capture everywhere force faster; will leads that software the developing In and Our rollout sales provide previously to which be them encapsulate faster, capabilities of their influence enables enable sales of corporate our more increased quality a intelligence product We data improve through

lead provided versus new website customers, a foundation of lead new the our tracking going process. leads identifying, very resulted team. team focus pleased a to on quality of historical to to report for sales management qualifying and went lead our quantity resulted inefficient leads which last thousands Our hundreds and I approach am in week faro.com in technology-based sales targeting live our of provides literally

to accelerate realized call products much our of ten With financial XXXX, with initiative this sharing to the launch. look pace efficiencies with our year, as this will we improve you launched the progress we’ve pandemic, do. over overview to results. despite for pleased quarter they to am we I we’ve the setting further sales coming In forward last these in in I’ll expect process. made the the fourth we expect year. that, already turn a Allen new an have I new more We but over

Allen Muhich

quarter quarter a as continuing of pandemic. result Fourth the revenue to when everyone. $XX morning, of million the XXXX XX% good of caused down and by market Michael, you, was Thank fourth softness compared

improvements. indicated quarter, we earlier, Michael continuing As the in saw fourth demand

XX%, basis, XX%. Service of revenue million up $XX.X while X% sequential were off million was up bookings As sequentially, a XX% of a product sequentially. while revenue on $XX.X result quarter, revenue decreased was total third strong a

quarters. increase and continue non-GAAP see gross While in we to continue any healthy quarter a pleased unforeseen margin over seasonality historical recovery patterns reflect gradually we was to the barring sequential XX.X%, demand, serve will the GAAP was XX.X%. gross markets believe the pandemic the impacts margin improve and coming Fourth in to

QX of million than the million, earlier million $XX year, product were XXXX. of year That $XX.X in in in reduction basis included effect savings a with charges, returned in and of than approximately million in we fourth amortization product-related year-over-year million part revenue. reduction charges. EDGE certain QX company the from product compared related lower actions replace XXXX prior million, costs. the specific charges; of improved for strongly said, $X.X in ongoing or of do desired to offset for million and focus performance-based compared GAAP fourth XX.X% was roadmaps. With satisfaction. base in non-GAAP it anticipate not lower are fixed our operating was compensation GAAP software to year, a quarter to expenses; XXXX, remained income million $XX.X it QX due restructuring the its to for than expected and primarily The stock compensation Non-GAAP investments. our million resulted $X.X of absorption, revenue, into our lower and were committed million partially also cost more as of unfavorable on lower as EBITDA annualized focus of as generations continued generation acquisition-related further $XX.X and lower customers’ $XX.X $XX taken result cost restructuring investments demand operating benefited this quarter of while margin during sequential quarter positive savings, lower respect a we for on prudent $XX our operating reliability the the expenses was gross in margin intangible and sequentially when issues making configuration. offset need aligned well to operating mix subsequent by million ARM last increased While were than revenue to continuing the one-time fixed $X.X Adjusted $X.X as $X.X priced, and hardware non-GAAP as were revenue. million income our elected we expense expense product expenses on million while the operating exhibiting lower full more on than as primarily that quarter, XXXX higher products $X.X our customer in is making XXXX the This was our R&D fourth increase on

basis. Barring that per $XX.X rate approximate changes be tax tax future rate a approximate the million non-GAAP share normalized the multi-year million QX included unforeseen completion and from international our income assets will deferred income. believe net primarily period amortized any to will GAAP both $X.XX taxable our we effectively XX% over recognized international Our global that quarter, made was an In and reducing tax to changes, structure. $XX a we resulted GAAP or of continue on benefit tax

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

working that reduction accounts similar balance a of Further, the we our from revenue soft nearly$XX to decreased have our business. result progress $XX million has continue demand a capital primarily issued stock fantastic strong long-term total and our and receivable, of had We as structure done note levels a current a pleased from summary, overall on team $XXX.X as the by short tightening of of months. to by management nearly inventory, over twelve with and the fourth of the last million working or our cash throughout million, XXXX combined no are XX% cash first despite benefit our global meaningful In million I $XX balance capital business, like the and previously inventory necessary with reductions quarter the processes. would operations a the a pandemic In of the has decreased environment, despite payable operate steadily XXXX representing to also levels a inventory on XXXX, in maintain of increased impact by debt. capital exercise accounts half job our options. of has short-term

the promise and to and the our have cost changes have now delivered necessary efficiency We structure on of sales increased executed on scalability.

Our understanding to roadmap into team market sales focused has marketing the that the translating team our to and and and of product also verge our on is efficiencies. will focus improved requirements go further leads providing customer the voice on of significantly qualified our

our support as broader our lower to Finally, the evidenced a This into our we operations glimpse efficient significantly provides made are required throughout levels. we’ve improvements more with assets reduction working capital by business. the operational

the are remain near-term we we XXXX. about excited about While levels, cautious demand

built expect remarks. the be and your XXXX returns. to pleased foundation deliver this strong revenue have We in any long-term This we to And time, take we'd growth at concludes our prepared shareholder questions. profitable of

Operator

first Greg Craig- Capital. Our from Instructions] Palm from Hallum question [Operator comes

Your line is Please open. ahead. go

Greg Palm

Yes. on Allen, congrats quarter Michael. the Morning, Hey, Thanks. good here.

Allen Muhich

Thanks, Greg.

Michael Burger

Thanks, Greg.

Greg Palm

some I to surprised on Maybe more revenue am bit. Europe of activity. down, numbers a add. anything guessing get to you the the set color it to when outperformed cadence sounds was It all a bit, start, but maybe guys good

Michael Burger

A bit. little

end not we kind would pent-up placed budgets and the that expect We a we what based the think traditional was on we’ve through it the taken certainly didn’t see were of year. be and We the Europe. been capital to in strength that there this Europe. back of case was I the in trends of by happened at that discounted lot year

a so, And sure. was it positive for surprise

Greg Palm

just what the Or Michael, but expectations? the pace in of you’ve clear as gradual, that QX that saw pace pretty recovery is demand, end-market of is view at and you on early ahead too the this it make change mean, prior we you on I been is all, just conclusion? think sort of running based

Michael Burger

think I it don’t is. No,

of think I levels XXXX exiting to would we’ve balance if see year not the think But we throughout We that gone that expect through see still swings publicly back be that the think we I we of we’ve XXXX. traditionally. I won’t seasonal the to don’t are I of any this gradual be will said and and feel reason that to level repeated. still year the disappointed recovery be calendar kind QX by that

Greg Palm

Yes.

something existing it to Okay. more incremental is the makes substantial are you as this product It can more is introductions then, going am market curious, Or incremental of what it’s should lines? be sense. we new with upgrades sort that go, to far to new as And as adjacent sort I on view products market that year, to something of today? picking

Michael Burger

right. Yes. It’s mix, a always

we things on You are I put in always but last should products, that say a three on the also us historic, or about planning than differentiated talking And delivering four position am when are been. I upgrades different are of and doing we’ve years. some over historically

am And through working achieve the XXXX, in are of our despite So, very I XXXX. XXXX. pleased what products home it’s number rhythm the able introduced a actually Greg. to eclipse we primarily we and I bulk we’ve But I in think, that got mix, from believe we’ll of with

Greg Palm

Yes.

Thanks. those look We forward Great. Okay. to hearing what going lot that’s forward.

Michael Burger

Appreciated. interest, your Greg. for Thanks

Operator

comes Your at from next Jim Ricchiuti question Needham.

open. line Your ahead. is Please go

Jim Ricchiuti

in in what business go Michael, metrology on around business quarter. back to and just the that the internals give, saw Europe versus scanning can you you you Wanted strength saw good of there? Hi, to XD the morning. color Any the

Michael Burger

XD Yes. the of at end strength quarter further. saw We type in the particularly metrology, of

We business are there with AEC scanning very in and overall the but not around world the in the Europe, Europe pleased charts led certainly just business. our

been very of to think, outside level in the kind we’ve bear relatively the we that’s in just surprised I of working States and Europe were recovery big XD United metrology. fruit of safety. safety we and begun happen So, couple public saw of of hard also deals a public on at And

kind is Europe Europe. in it cylinders. a countries think that on we’ve negative lockdown don’t of talking about there in I back all And and Germany So, in the would that even other is looks I it. on are should say, general have hitting traditionally levels seen effect

public followed to feels and Europe big across strong right I lead think us some and the deals by was it now a metrology really AEC I safety. XD in So, board. was think pretty driven

Jim Ricchiuti

which Got business lagging? at if other these bit potentially of which are then, of and a it. you look maybe APAC, And areas that in we markets, confidence the North maybe little the giving more America or are recovery

Michael Burger

of we That’s a us by in to great lot the they about we seeing benefit, are first seeing particularly in were a question. virtue where the are China and We feel of And really way recover restructured, good are we for proper. Asia. we’ve

confidence. Year New and Clearly, now, we China, have and lot So, on back we they believe a there are is strong right Chinese of holiday.

from most QX best concerning now. Asia So, the of right we versus America, and QX spotty predict North are where Europe Probably to just will be because down and Asia is it’s in and that. with at it’s really hard

So, I from quarter. very perspective, last strength think, a was strong Europe

to North and continues strength America grow is in Asia lagging.

Jim Ricchiuti

and queue, And maybe the jump it. in one Allen. back Got more I’ll

Allen Muhich

Sure.

Jim Ricchiuti

in you targets in the business additional of about mindful may, in be relates laid certainly, those I think we am potentially model anything thinking be as should – profile that the or hit I QX, you additional incurring If you the executing just, I as are targets. terms about in either how you against of financial the of margin - those that of we targets you’ve some getting it mean, terms pretty COVID? out? wondering investments to even XXXX, And just cost should we are

Allen Muhich

model. bit thing more were range on of range. think for XX% outlined of given This lower XX%. We good by the - to Again, our and we the that had that translate that one. at that would into, operating to that gross success that focused us. head additional at expenses, million that levels I In again temporary it’s No. we we higher which quarter. appreciate a Again, EBITDA revenue into right XX% But still believe That’s $XX XX% in the very at still is good is a the relatively to ago, achievable of here end will reset flat a approximately the We fourth anticipate XX% of outlined again it’s a XXXX. were we year end compensation us we a question, a Overall, of the higher as around $XX Jim the model success on are be I and revenue, adjusted million. some margins. caused

in every We intention that have XXXX. of delivering on

Jim Ricchiuti

you. it. Got Thank

Michael Burger

Jim. Thank you,

Operator

comes next Our Andrew from question from Capital. DeGasperi Berenberg

ahead. open. line go Your Please is

Andrew DeGasperi

Good morning.

Michael Burger

Hey, Andrew.

Andrew DeGasperi

questions. had just a I few Hi.

The year, should I year year there because looking repeat this and that we themselves, in first that in about. saw odd larger an about deals on of being bit models if expect anything mean, XXXX, at our particularly seasonality XXXX given be little is in pandemic terms year the of, and we as mindful don’t next you to next public think just for look given wondering thinking should we safety that a just that I the at the QX. But am

Michael Burger

QX No, seeing think, that you the then, look XXXX, same and I evidence profile are on we experienced at that pattern go what experienced XXXX. and back seasonal of the are in if to that’s But planning forget expect and on through that in are we QX, QX, QX XXXX XXXX, planning at same planning historically et revenue XXXX see we XXXX, right. of to in on. cetera, to we we And end

Andrew DeGasperi

it big to is, public you these look And how safety like it. lumpy of you us and the we get deal out I were that end-markets? at that know, deals were, typical tell Got can’t sizes if in I how but mean, of terms is it

Michael Burger

they typical. Yes, are

are of labor been last way we’ve that in and of look hard trying to beginning where really public what’s strong to the that if kind the think, it’s in working I Asia. in we’ve safety, we by historically North grow Europe over you outside primarily fruits also months And North America back XX been really encouraging been is, and see of America.

growing opportunity is hasn’t but business, Asia dramatically. the materialized new in funnel So,

so, really am right, are And are safety relatively they you public overall. encouraged I lumpy. And of

nothing the deal we that there Asia. lumpiness of seeing is the about size are in the structure So, unusual deals of and in or the Europe

Andrew DeGasperi

helpful. That’s

on a Just the focus sales one you. been that’s productivity. I big for force obviously, mean,

Michael Burger

Yes.

Andrew DeGasperi

ended where of could that that think that just doing I more attack. obviously job with a thinking not just if am that or up. out of am get power you good wondering pleased you The anything is not. was I wondering, there I

Just would could level the be force the deliver? you what ideal curious think to know where sales

Michael Burger

Yes.

are and are we et we’ve we script, spending individual guy. cetera. in time grown And at we people expect As as to thousands all leads, a to going those the generation. historically, sales in we on script, a on the of said of lot lead numbing that mentioned just It’s effort mind follow-up leads are

rate more conversion are we more right value productivity what will front-end. And think which upside to to chance, very exciting just think market, get course, right is look. basically another historically. should the our of of to behind if people new our of kind put and our that that so, revenue the stack act of corporate continue at hit you marketing market adds product sales behind opportunity to in in that’s result, But we that and selling and products than more leads website, and we new introduced been then, as a we’ve direct begin region, It’s you improve. the And people, effort front-end, efficiency. the that had help virtue it the the time And will be add week you completely to will by doing right check We a that the for offering I low have last if pretty organization. we’ll in a out. marketing value will a guy money we set that as technology hit of lot a We the

to a could our the And more improvement, to of there in a be and But are that extensiation terms so, sales yes, is having I is come. forces. share productivity first to improving think show we excited there done but still of with about of lot metric you productivity the pretty

Andrew DeGasperi

That’s great. Allen. last And one for

companies that of marketing terms side, model are is kind alike. going the assume for costs I a forward, a on speaking second sales with half mean, travel, of and starting in we year marketing, I the are some Just Should see to and XXXX? next of in we to assume trend in guess, similar terms resumption the going conferences apex

Allen Muhich

typical related certainly travel than have expenses runrate. Yes. and today within or We less normal our less than

activity some it exited however what We increased compared of as have XXXX of earlier was parts we to in XXXX. that the

third was So, certainly example. higher an QX and than quarter quarter the second as

I by the as to to that, but then might of we as we within range you us so, But, little think to continue talked we despite due – investments staying range. some talked enable a as still previously. model and million R&D will to revenue. we remain the stay that committed And to due we we to to expect $XX well grow earlier. very million still that drift year higher the the $XX still about see deliver as that that us about that bit the goes But within ultimately

Andrew DeGasperi

you. Thank helpful. That’s

Operator

have We Battle Road. from question Instructions] from Roche [Operator Ben Rose from Ben a

Your Please go open. line ahead. is

Ben Rose

Allen morning, good Yes, Michael. and

Michael Burger

Ben. Hi,

Ben Rose

Couple whether meaningful Focus FARO these contributors? I was quarter a as ask curious scanning you well Gage the products over of bit on the metrology, performance Swift and were side to little as factory about the the this in specifically questions.

Michael Burger

in product a that of recovery are differences the I our Asia continue Gage in with think with rate. adoption pleasantly significant. kind space spending I both. scanning, we to in really And two expect to ramp. capitalize on we think on have lot positive. effort a flagship and in terms some hand-in-hand and guess, time They that of am ASP Mobile mobile and the new The that of first scanning trend arguably am Europe. XD surprised are is pleased that I to and goes Swift very and Swift metrology of I real it we with is is between the are adoption. I

in we mobile with and in the XXXX. will yes, scanning articulating both So, space pleased of I innovate the both continue to them in arm and am

Ben Rose

am specifically within I metrology. And XD Okay. curious,

Michael Burger

Right.

Ben Rose

serve you pleased XD You in the which that the earlier And know to their fastest terms that measurement? you investment call coming performing. I commented how to this segment is in appear curious back end-markets be the had with of in am were of

Michael Burger

It’s an phenomenon. interesting

seeing seeing machine strong, and we Asia pretty shops are smaller force. back are We particularly Europe the coming back with actually. in automotive in And coming and some

With of And is America in the over where we for are West North broad exception And to think example, for machine the in and Europe. East of small a America, space the is shop kind seeing pandemic. recovery based America which the are automotive in it hold to the that Coast in not the is seeing area, stronger medium I as Coast. where we we recovery than North relates not Asia the are

– levels. and lagging still XXXX general XXXX, So is in aerospace

seeing are of thing but We they of trigger terms type of pulling in the activity are purchases. coding not projects in terms

So, you was that that are… helpful? what Is

Ben Rose

it may, products? I kind Yes, one very into if of for gross whether to And That’s kind that overview. Allen, of level strong I that was broad the warranties for with like can be XXXX? of QX. a does curious extended have know very helpful just do looked sale Or to sustained margin the in am yes. services

Allen Muhich

Yes.

the longer expect in margins. a what that that have the the forward. over is demonstrated last Nothing the more I think period we’ve what pickup couple saw services out of would a extended moving a – ordinary, Ben. one-time us overall, bit small enabled – little would of within nothing out expect of we a I we – items to over

Ben Rose

Okay.

very right. All much. Okay. Thanks

Michael Burger

Ben. Thanks,

Operator

this It closing remarks. appears speakers that we or our over turn no to questions for further will I the time. at have call now additional back

Michael Burger

everyone thank for listening. Well, we

are. We are where very about we excited

much in you. said Allen As XXXX. attention. very appreciate And to next looking Thank forward your you we are quarter. we to script, his Talk

Operator

This program. for does Thank today’s participation. you your conclude

time. may You any at disconnect