Faro (FARO)

Michael Funari Sapphire Investor Relations
Michael Burger Chief Executive Officer
Allen Muhich Chief Financial Officer
Greg Palm Craig-Hallum Capital
James Ricchiuti Needham & Co.
Andrew DeGasperi Berenberg Capital
Robert Mason Baird
Call transcript
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Good morning, everyone, and welcome to today's FARO Technologies' Second Quarter 2021 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. close, 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 call, and Please statements demand, technology may considered events. future and statements note, forward-looking development, business industry inventory subsequent uncertainties not involve and statements in conference customer be risks certain that projections include historical or which this results, facts, economic are levels, regarding and product result to actual materially. factors the Various could differ cause

of described our forth and quarterly Some have yesterday's in set filings. these been at factors press release SEC annual are in length and

our reflect no statements as to required of law, views Forward-looking today, obligation and them. except only as revise update undertake we or by

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

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

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

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

Michael Burger

our U.S. to well, slower growth return Good the performed recover, albeit market products Mike. markets Demand On geographic a the quarter. reflected a China, -- Thank you, at and, Europe pace. particular, while in basis, typically Asia-Pacific quarter our following continue to call. second morning, and welcome the in seasonal for a and a to soft first

XXXX normalize. demand our believe as environment throughout served improve second markets, across we the With activities the our customers' to quarter will improvement continue

remain cautious experienced control will to capacity of introductions, believe as expansion quality Taken in market we together laying to while expanding as over continuing take breadth operations remain starts, slope governments to foundation our long-term such steps That to the on quarter softness focused year-end of impact prioritization commercial ongoing combat and We offerings, those demand the fourth adversely and product initiatives our be the ultimate timing the levels the ahead. for the the opportunities new capture the product we XXXX. streamlining construction of the recovery. and of may our uncertainties, said, local flow with of pandemic, similar in depth ongoing continue the our

discussed process of to a in meet is understanding the organization and customers' to needs. solutions As marketing-led hardware focused prior calls, our and problems their in FARO our delivering on software transitioning

these could recently example accuracy. an by of announced our As of both for be solution. Max Quantum effort efforts customers' Quantum an -- Max identifying and found in ScanArm speed conceived this example need our was

use we have portable Laser measurement hot-swappable the The better The specific provides balance xR's result, heads laser prior a and a offer versatile xS' a over speeds allows XX% As distinct prior solution. compared offers wide swap Probes, versatile which single to increase This devices. which cases. solution a an speed. advantages purpose-built, creating tool, physical which Unlike xS for speed, meets Quantum arm of of the customers the Pro unique for features increases each XX%, and on resolution the xR in Max XX% of and and of generation solutions, and xP accuracy Line to tasks. resolution a in needs advanced measurement accuracy fly, by productivity solution, over results developed resolution X high-precision the a spectrum value scanning

new software, the metrology-grade new set combination of the the of version launch probes. the solution in a was we've probes Another latest we which laser for our CAMX, and new metrology ScanArm our our arm, industry of improves latest scanning critical software, standard our greatly the component, measurement with believe solutions. Through

throughout our solutions time. year, customer encouraged new workflow by continue that the said, very feedback. revenue solution That meaningful worth we takes are launching to highlighting recent and we it's introduce a generating between While

and In construction offering and and a accurate construction subscription safety market. XD through addition on applications. acquisition initial Building end-to-end capabilities the Sanmina hardware-agnostic remote Shifting high-precision digital twin brought incident create comprehensive an XD provides robotic internal market solution and twin and Ultimately, based into delivers provide scanning to solution we weeks solution. we ATS acquisitions. announced which the management operation capabilities ago, last and an with leading contractors to solution, management FARO's fast digital aimed to virtually off viewing. focus off-the-shelf industry's In with X combined image public a The point-cloud FARO's in scanning FARO expanded registration continue agreement cameras. management, the efficiently year's to on to announced which capabilities adds construction acquisition, our our a image quarter, soon to panoramic our of for operations. product focused maps, which HoloBuilder's this access simulation, to general facilities' twin easy at HoloBuilder, these capabilities preplanning HoloBuilder's laser highly will a be breadth representing capture our photo Sphere, first we digital SaaS platform, outsource digital assembly and future cloud-based platform Corporation. model expand of underlying manage call software long-term capture our development documentation we be an progress management, using twin will capture platform the manufacturing With of to second the to road to signing photogrammetry-based market. reality

to transformation, business sites and Stuttgart, our Lake facility Pennsylvania; from manufacturing Exton, in Florida; transition Sanmina Germany FARO to based in a step Thailand. next we Mary, in production X plan the As

of reduces process, customers to target operations, very impact financial required in in proven changes timelines. to allows Sanmina we the greatly development on and our our this deliver chose meet cost our differentiated process. Once management throughout customers' partner and solutions focus a model our the will rigorous selection to ability quality their operational we discuss upon markets. in Following a to simplifies minutes. new based products these our are few confident team our transition Together, complete, sale demand on as of Allen the ability

Taken of basis while form which our customer namely time. incremental us top greater further to the the same value operating a of our placing leverage at in growth these solid understanding workflows, to shareholder transition, differentiate strategic allow actions line higher marketplace, place to translates developing and over deep a in together, capabilities the ensure time, operating structure our

Directors. our we Finally, announced election of Board the new members to X of

contributions direction. hardware that our our Board to disclosed, FARO enabling look experience their and have software in guide turn right that second join They very on addition we pleased As October for of forward call successful Allen they key Davern us. Chin our our overview the Board. leading over cloud-based the set success the demonstrated I'll element us Moonhie is previously businesses and to maintain to am help results. quarter of of an to Alex strategic the each I aligned in that, particularly a I transformation X. on ensuring closely much with officially markets with as are With financial

Allen Muhich

Thank good and you, Michael, everyone. morning,

gross in million was and XX.X% grew year-over-year gross of XX% was the of margin XX.X% up of $XX.X pandemic. of caused was $XX.X was of signaling revenue fielding margin revenue were a to XX% million of compared prior Gross XXXX revenue margin last revenue and increased million demand and improvement compared year's $XX.X ahead market largely XX%. GAAP market result slightly Product of second continuing non-GAAP a and by when XX% as increases grew year-over-year of quarter to of Second to the the modest Bookings service quarter for due $XX.X volume second versus sequentially million the quarter, quarter softness periods. up backlog. XXXX.

material amortization $X.X savings loss Non-GAAP for the million second GAAP operating XXXX pandemic the X% loss in year the in the the XXXX of of of realized of during to million XXXX operating of quarter quarter the That period. restructuring Our return. intangible to million was inflationary loss second in term. Adjusted continue of a do QX did as compensation was $X.X our of quarter approximately $XXX,XXX expense expenses, costs. were approximately margins revenue. primarily for quarter higher $XX modestly began and volumes cost million portion million $XX.X operating $X.X quarter compared and than second of travel-related due in operating operating to EBITDA we gross in compared near market. acquisition-related $XXX,XXX affect today's costs in and stock not increase headwinds million the as investments in was we million prevalent to income XXXX. material lower $X.X of and Non-GAAP the an GAAP prior software XXXX, or expenses with included an said, second pressures anticipate reflect expense to $XX.X million was $X.X second

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

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

cash maintain $XXX million capital a structure strong debt. to balance with no of continue We and a

decrease in in primarily we cash. paid million was a The of $XX of acquisition the cash second quarter HoloBuilder which result for

of software to expected mid-$XX HoloBuilder million to and addition quarterly rate. increase platform, non-GAAP investments in core our ongoing is operating With run expenses the a our

$XXX increased target our a model EBITDA has level to As versus of million achieve million our previously the XX% set. margins, objective revenue result, quarterly $XXX to

XXXX, benefit of digital twin second months the in of expected of of we our these savings $X approximately We expected when expected The transition severance. half write-down. to believe our right XX impact realized in cash we cash quarter company ensure with XXXX, consisting market, first other Sanmina a complete. to will first primarily followed improvement a have Total savings charge the approximately million the Offsetting announced and to consolidate recently are of the investments steady mid-term, outsource this pre-tax including the opportunities believe to and of $XX The half over XXXX. Given within to is over the future million in spend are labor result on long-term phased the the impact and asset the $XX by in full growth. through of to and manufacturing. when incur the be through million XXXX, XXXX facility the to expects next million completed $XX material charges annualized negligible plans be

$XX market will in realize organic it expects our the company progress in demand environment. fully pleased in announced vision solve customers' restructuring the we're of the continued our charges, improvement February solutions cloud-based realizing to XXXX. the a million We're in $XX and that million problems towards hardware-software inorganic these real-world With and strategic making charges end

for HoloBuilder, and large addition this our the on capitalize to management digital of growing well end-to-end solution us twin With market. positions

Sanmina. of our cost partner, line have with We the sight new of transformation our completing to structure manufacturing

of achievement to revenue. be XX% be which, as pleased that take approximately prepared the to reporting to questions. progress expect XX% operating margin is coming committed with gross reminder, our look financial achieve in $XXX remain of XX% adjusted million and remarks in in EBITDA time, at we'd XX% success quarterly We expense, we resulting our Lastly, quarters. will model, a with we XX% this forward continued realized This our your concludes the to any to to


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

Greg Palm

guess, just by orders it looks revenue starting I amount the with in decent the a off orders, quarter. outpaced like

logistics that just Or late if issues anything any the simply you're quarter able there there. seeing kind was So to supply chain-related curious kind ship? Just orders out of in that was of chain-related? received supply weren't

Michael Burger

the some. the It really from basically throughout pushing if seen experienced it received the to the customer some chain-related so impact back-end was didn't order logistics ended end QX. perspective, supply was over Yes, issues more booking when up we've we really Yes. -- into say of that rate we We've hard and quarter, quarter order. a revenue. the some for the loaded quarter, It's around was didn't but of we actually but

Greg Palm

forward? material quarter, all Okay. how Makes thinking June that but going about at about sense. I said in costs. impact be an you And think we that don't should I was something impact Allen, the if elevated know

Allen Muhich

Yes. impact to said, material in some in along be to able quarter. expect question. our we much of an see We do customers. Not the Greg, good third to quarter. do second the opportunity those pass some have increases That to

operating. changes depending to modest of And how margins so duration range, think our and expect indicated But would in again, in which this towards where as and remarks, bit been prepared is at we time, the term, gross we costs. near the the the end range over versus the impact we've I but some ultimately relatively of modest, it's a point more of length lower maybe the material in here upon middle little our these depth

Greg Palm

in of those most kind a And investments, of excitement understand then, I and more are on terms bit the lots sort of kind opportunity talk digital in don't, what for some like OpEx, is, can lots us companies a of twin? the opportunity a starting it. little the think and to it Got certainly of go just Because detail theme but that of increasing the around Okay. of maybe about? seems that you

Michael Burger


environment having you context space I a and facility that of it is is and it twin actually have safety, a then think, that you layouts take in accurate virtual think the to allows ability your And that a the I cases, our public the a as physical both digital that running construction facility conversation plan, kind twin and changes but A as digital didn't if a waste? twin reducing is, we we with. to able issues biggest of and people. some the pre-incident accurate, to twin means all catch-all, change But It And of, you have of the different digital lot very you close it's things one of it to in -- is lot know space I be how minimize to customers' as a the seems of digital will. close the many planning, to virtually it's and you our you can do And to manifestation model And I having truth really customers. to becoming better frankly, different desire that or waste. a a think, anticipate or less factories, of in in is customers in think all point, we're space definitely to plan of conversation waste. the with representation plan. catch-all, plan,

Greg Palm

last just Got interesting. That's And it. then, one.

closer if So the the to with be Just that the are number to number from to like What increasing that. guess? I will those been in that sort alluding were outsourcing? be rate past? to capture you of $XXX that the of stages, are the savings would million EBITDA those number fully revenue XX% costs run affect manufacturing to once you've that at to all look achieve able the Would -- how those curious number realized

Allen Muhich

just on to to the think an the very XX%, revenue do a on The acquisition HoloBuilder the timing outsource the EBITDA not next, the adverse overachieving to path manufacturing XX our question. XX commit savings call XX% to ready the that and that coming impact yet. on And model. is the -- there good but with picked revenue to months, it, on able number, I towards getting that our It's at that or we're ability a up a number I lower higher cause nuance, think versus you does Yes. the to right? expenses timing over be difference our with realize between


Jim Our Ricchiuti from Company. Needham question next & from comes

James Ricchiuti

that about how the anything us how first seasonality in -- better you're be share you normally and loaded, QX? month anything the that not wondering you that as question, be given are. that is just that sense this I'm might if typically experience give seeing quarter. may seen with able to Question But the might little back-end a seeing the you're entering be in And just quarters there to us momentum fair a there's you've that --

Michael Burger

quarters. have started we've QX around quarter. have that in fashion vacations Europe, loaded as within vacation is that the customers We're August. the starts our broad-based QX experiencing back-end I -- the all the concern pretty typical are most typically we typically think typically in we And Actually, -- which probably in

born our kind last So over again, of the kind see expected. and really several we're we first step, a part QX out of years. to is take that's traditionally the -- the in sideway quarter QX But August of history, as not

August So pretty anxious we're and to think, started off see stacks I normal, up. how

James Ricchiuti


more for there you're Sanmina, be transition that gradually I supply buying wondering to this some reason in benefits know I'm is is this process some some talking going, but their chain the see the why the On side you business? year, about the able any or benefits? question chain take Allen, how of 'XX think gets of they'd seeing active really a on just some over power? from wouldn't opportunities At about you, maybe to point of perhaps as just the what supply course a to be do role of realize

Allen Muhich

we've And articulated a and there's again, we question. think, savings a indicated I have good labor a the that component. as both It's material Yes. opportunity,

our U.S. for the those knows, manufacturing of couple a has and supply localized in to been one manufacturing are those everybody As And locations in facilities. Germany. chains in centered

Sanmina, absolutely, chain opportunity, we time, So Thailand-based as move more a the purchasing an same the Sanmina's from leverage power. standpoint, cost towards is at a to facility, enhance supply there

is an talking goes we that opportunity into So time numbers that and think the material we've Jim. savings there built about, for decreased as do cost that's been by,

Michael Burger

I would also...

James Ricchiuti

Okay, but of not to ahead necessarily Thailand. move the

the of to to really they before them You have? you're there able need with buying realize power be some purchasing that that -- really

Allen Muhich

yes. I that's think correct,

Michael Burger

cost help. announcement advance of say hard correct, to big begun us already to been They've would from but They've the perspective, Sanmina in thereof. anticipation us has help actually helped I source in some a materials. the of in a

access maybe for better materials, excited really term we about not not on -- short think we're but can of what they pricing do, materials. So to terms in

James Ricchiuti

similar on revenue see? the Which HoloBuilder hold Got for build just out initiatives software the have actually the side. you question interest most a areas And on you? to you then, there the Are there recurring out deals it. that to underway

Michael Burger

quite whatever at, to hole capture truth truth algorithm -- as burning juncture. pocket you technologies completely the perspective that commercially. software we we a of is really a if our that few a a there's are the that's didn't actually speeds think, out either is into But in will, actual the companies HoloBuilder's from ability technology that different measurement. our adds getting We that looking -- are I a there this and the space, have nothing in there we're this case, perspective at or or up having kind processing

but again, of now. hole So Jim, pocket we're looking a burning at all there's nothing in right those, our

James Ricchiuti

we should we Okay. this year? track, it about next think how think on out launching? And when Sphere And about should looking to

Michael Burger

QX current it is as think think a slow And I schedule. as said, will I from our we subscribers. sign be -- a revenue I've ramp up perspective

guys expect -- the of we end actually said, much would you pointing impact. toward recurring coincident I we'll Sphere, so can that I So very think, revenue probably XXXX, That we're to for begin on out start you break and about it, the track to, where our us of with talking to revenue launch can meaningful it.


Andrew from question from Berenberg our DeGasperi Capital. Take

Andrew DeGasperi

I I $X at -- on said basis XXXX. had since -- the when was in revenue it's growing compounded know annual a acquisition so and quick you so a million of on announced or that you generating a HoloBuilder. one year, per XX%

continue, accelerate like, you growth high use at curious we with asset? the as level should even integration, expect other to cases to that look Just know, potentially if that for not of

Michael Burger

We've days on for us. accelerating under about planning about X point. at think our it expect belt on It's current we're early had for rate don't I its the talking that to continue growth here trajectory. We weeks. just this

and us. brought their excited base, So very we're what we getting excited still some but We're different base a by from have that extremely by frankly, customer to learning feedback from they the them. overlap, they customer which offer, we're we're

feedback getting that the fantastic. So is we're

we believe the to should rate that we continue experienced. So already be they've growth that able

Andrew DeGasperi

QX locked That's a Or I to that may still the based think actually that helpful. the potentially market? changed expect consider And rate. -- that, it guess that quarter the and that back impact seeing would what kind normalized when think you revenue that reach I that's earlier that? Is think Or to issues you comes you in the of up number, on we a plan mentioned all? you're that at do what should localized in has to

Michael Burger

we're think optimistic. Well, I

capital. publicly, I fundamentally And levels. we them to chain we're guidance, I our said necessarily really we maybe optimistic next our quarter perhaps see it real. said ability with supply our And not giving and, changed dampen ability in ship is supply think general. affect product, for our shortages. is said gain more The not weren't coming is an be new in beginning don't what products buy we've may as our if situation we are those end customer their while X, concern. force demand very to supply to to would back therefore, ship have but That's chain chain customers' I or the disappointed think their at sales we the traction. script, really appetite our shortages don't products but to things in And about

a pretty -- we're it's just headed been So -- direction. the a crazy been year. right it's is -- It's everything

just we're optimistic, we're how's -- that? So cautiously

Andrew DeGasperi

I That's like one supply sites? than guess, have transition. from had the would just Jim's X the a follow-up they helpful. you guess with And to perspective in have terms materials to access I better Do have I [indiscernible] chain, own question what a Sanmina, your and of last

Michael Burger

I as to to factories. not to alluded a in some FARO source to And really Sanmina, helping if benefit were Absolutely. attached get I seen do not material. chains will, consolidating By the to some internally get factories the And you weren't of it. of manufacturing really prior even as each each we've to power, we integrated actually mentioned get demand. their that of Allen but already supply any expertise, chain. only leverage of supply many by result, to internal our we think we to -- hard their gaining that us our had Jim, transitioning And announcement even the buying

us on In price is side. the And able materials. getting supply not very you're tight, talking environment, help Sanmina about to however, talking helped we're to this supply reduction, term. they'll confident has us more So short getting really where really about you're that where access chain be that's

I help -- think and they're And are business the cost. us part written, of their contracts term, that model industry's to us way with with of should long motivated business very It's the big able help they be cost. our to model. a

we're we're So -- fortunate Sanmina, a and than I very to think, probably to we're have supply and forward have. we looking very currently healthier streamlined chain


We'll take Rob our [Operator from next Mason question from Instructions] Baird.

Robert Mason

Michael, adding if you your think quarter. much resources these I'm type fourth sales a do or about level? million force where how productivity beyond your for targets get that curious, may terms quarter back force call and by back be capacity need getting the the just levels in -- sales may to reside consider revenue XXXX of level? level, does Or to, you have to it, we once existing more $XXX its

Michael Burger

kind of metrics really would $XXX COVID I We and need our the selling our million we're don't situation. any add feeling a resource get beyond, I good quarter. out to million as add the we to come the would $XXX productivity that we say, believe $XXX probably sales dramatic about to to to that much we don't anticipate million, of of organization need

it's What's -- number the us current environment with of that's So getting force. don't from we've in believe gas the precluded will, sales if I of lot a to think, demand those levels. salespeople. our tank, got it's I the you

Robert Mason

okay. Okay,

how either X out? through some XD the your that second on seeing point, markets you could as by any the metrology versus into AEC quarter that key markets geography and you perspective I distinctions third, the on or call Just you'd again you're mean, came between those perform offer

Michael Burger

is Asia, China I so XD think, market, the XD particularly metrology in very a been seen if gain, will, bit, automotive XD space nice -- Yes. in recover seen that you led which We've we've and in a by in underserved encouraging. we've really metrology.

in of than America, machine particularly slower automotive, long North provide terms we that is in some think, smaller a been the which shops, of number than tail of the other have. in -- hoped we'd I customers

So they which bounce it big again, metrology were, at In they encouraging. rates buying XD again, we've along. Europe, buying the not looks guys are maybe super like is but are seen the

huge haven't QX. hopeful for a a We seen and will that recovery driver yet, be we're

in So been signs for metrology general slower recovery. XD has example, but of XXXX, seeing summarizing than, in nice we're

Robert Mason

commercial Is point front within for made to product? you AEC, that the Just still the had comes starts. the uptake end? new the AEC starts Is construction trigger a on at reference maybe

Michael Burger

We believe on actually that Many actually are of so. our the customers on. based buy working they capital project

against they equipment So our actually project, buy of they some -- the build from that costs or us. out charge the

actually much the new us start, don't But as there's really so as relatively for projects We it's albeit And changing, participate particularly opportunity That's residential in to company relatively commercial. small. add equipment. been it's slow, side. a on

congratulations new position. So really, on should commercial starts us. Hey, is really kind of, I think, be the for bellwether your


turn questions at will program that Michael no this appears time. it over now further the I to back we And Burger. have

Michael Burger

where we're our We're of Well, stated very are plans. progress with pleased of excited. momentum, terms to making a and we lot we're in

to next So giving quarter. we appreciate you everyone's interest and forward Thank you. an look update


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

time. any disconnect may at You