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Faro (FARO)

Participants
Michael Funari Sapphire IR
Michael Burger CEO
Allen Muhich CFO
Greg Palm Craig-Hallum Capital
Andrew DeGasperi Berenberg Capital
Robert Mason Baird
Ben Rose Battle Road Research
Call transcript
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Operator

Good afternoon everyone and welcome to today's FARO Technologies' Third 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 third the XXXX. after the its company results Today The related www.faro.com. press third 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

to Good Mike. Thank you our call. afternoon. Welcome

the European sequential contributed addition of our for third shipments into quarter million with challenges further of reported order Typical in slipping orders million, remained While demand ongoing our ability primarily, softness the products in to markets $X and orders within the resulting roughly strong, quarter. customers' decline. $XX.X Asia-Pacific impacted logistical pandemic-related coordinate delivery, expected automotive well-documented fourth to the to shutdowns, rolling summer

our testing software of unified cloud-based the FARO is for XD quarter, we environment, workflow global maintenance, as location, differentiated to preplanning analysis, markets, growth, objective purchase, number We believe ahead, we software data This software our to is look data across scan, is of enabling globally software to an levels range suite to and offering new value the roadmap, and as call will a we our and revenue will and customers FARO first solution greater our hardware and over FARO customers all manage will whose for uploads step begin software provide expanding simulation, applications, management, and is believe it include their that increased Sphere user or operations time. deliver our improvements strategy, FARO FARO to ability enhancements. wide ultimately, of access targeted exponentially offerings lead and milestone foundation incident our that this to toward by from a facilities, beta any environment our existing shift cloud-based value assets. large These the As accelerated robotic of we recurring increase and including that renew, revenue Sphere. construction important high-margin platform to users, our access, automated into cloud-based Sphere shareholders. which of to laser our represents well product

and realize which customers productivity heads generation a metrology of can in meets the generation speed, creating spectrum needs combined with on a we discussed quarter, our speed laser launch single allows in fly, swap metrology-grade measurement to tool, our resolution accuracy ScanArm software, increase prior of solutions, physical Quantum to and prior a which solution. XX% accuracy, and a Unlike customers' In Max last Max, Quantum wide the the arm of our is FARO over to latest both addition developed customers scanning for our CAMX of When compared a versatile rollout solve the devices. need of to applications. Sphere, new the solution

overwhelmingly automotive been resulted in pleased am the a turbulence European the the months feedback slow the Now, Arm to and the half rollout of I has quarterly product, increase in summer market. and and report positive despite shipments sequential in into three customer

accelerated flexibility product this see of a drive validates overall replacement. and of to generate the We needs greater customer tool we early understand creation the differentiated turn, that Given and legacy as to value develop are positive solutions of indicator this view better value their demand. our signs and early in will product, strategy and engagement starting additional

documentation easy FARO's offering first scans remote the HoloBuilder capabilities our Initially industry's management scanned markets. our on SaaS safety HoloBuilder management into solution. delivers Holobuilder's segment leading the to photo of demand been end-to-end The team twin as which such digital for the automates capture, we roadmap public many acquired artificial broadening digital create update while Another accurate solution, adds and registration, fast photogrammetry-based strong laser image the our platform of identification is objects. has intelligence, hardware-agnostic tasks with the which at last access market, twin highly facility to viewing utilizing and product quarter. application working targeted and XD towards and construction

freight benefits of year, impact of to going signing next Given and the quarter, the see next track transition demand has -- to double already on we Sanmina. for that to from impact Shifting an operations. supply Through far over we of months, which smoothly own. of for XX chain resources an HoloBuilder until benefits confirms are indirect navigating the continue diligent of discussed uncertainties outsourcing solution, our generate and outsource situation. financial and with transition solutions That on the Sanmina's been digital to successful twin momentum opportunity. we we operating off. now structure is chain. supply customers' our had developing our including the agreement increased said, at recurring adverse of as effect with quarter demand. the market to of Holobuilder's combined the have cost our investment, is remain the many our which have while effort been our our additional ability manufacturing continue believe strategic We Last logistics the importance Sanmina, component strategic our and thus our will started industries, could differentiated results deeper deliver the have time, understanding to shortages the we through in we same of team adjusting paying this cautious Thus in to period an associated while leveraging time, last may to available our extended to We announced view believe leverage workflows, we a far, revenue not service

to the in the our consistent to historic seasonality softer QX revenue fourth year-on-year to and customer timing results While with XXXX is quarter levels were quarter. of third is required shipments, return reported growth due the what

the we demand by resulted our and an together, over encouraged for to overview of are to the continued quarter strengthening of that financial of quarter benefit our With We product Allen offerings, third growth quarter call in funnel underlying new activity. that, turn see expect the market results. fourth has the I'll fourth with

Allen Muhich

Michael and you, Thank good afternoon, everyone.

Third year-over-year, softness up revenue when gross X%. expected Product Bookings was and periods compared quarter quarter was pandemic. market of $XX.X from a XX% pressures. as in improvement of the margin was caused an XXXX largely million, $XX.X XX%, revenue revenue down last in of from to for continuing that $XX.X result by to million, resulting non-GAAP was the by GAAP demand XX.X% prior costs million XX.X% of increases while grew was grew million, of due margin year-over-year. gross offset margin somewhat $XX.X today's XXXX. quarter third volume XX% inflationary of service increase increased year's market the of to third Gross material compared

end of a As we range be expect result, towards of stated the our conditions success model margin between and levels until XX% normalize. will gross adversely XX% lower impacted

expenses the the or XXXX. the compared due expense of $X.X quarter million HoloBuilder the $X.X GAAP prior year to initiatives quarter million of of million until $XX.X Non-GAAP not operating year. well of XXXX and acquisition-related was of our travel-related million operating to as in loss next $X.X result compared quarter In of the period. as of million, of a continue the initiative XXXX restructuring quarter during third mentioned, for million margins was both expenses increase million in Michael operating loss our to revenue. Non-GAAP loss addition, investments, $X software a than outsourcing approximately impact volumes benefits breakeven in expense included XXXX third was QX to near operating in operating as third intangible million $X.X and amortization and $XX.X from returning. were approximately X.X% lower stock cost and third $X.X primarily GAAP XXXX, an as income higher savings pandemic our the in will realized of we with for organic was the million compensation begin Adjusted $X.X in EBITDA as costs.

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

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

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

decrease safety associated chain as risk increase supply purchases to with stock quarter levels work third primarily to current was in result The inventory a of of cash challenges. mitigate strategic we the

our organic As and intention as Michael as build progress towards mentioned, the real-world cloud-based environment. we're software that our to is track We're be software product hardware, we're and business market realizing and strategic our well hardware customers' of end transparent performance. making both increases, the problems to associated customer recurring the improvements continued excited inorganic a reporting for our in roadmap metrics solutions and of both demand to contribution as objectives vision are our solve the the our pleased in in that revenue momentum beginning

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

Operator

Greg first And like Instructions] it looks [Operator our Palm. comes question from

please Your go line is open, ahead.

Greg Palm

just kind everybody. just, there. wasn't happened? the COVID-related customer to what guess, detail go starting I just can little of the more but relationship if bit around specific versus picked is sure more sounded Great. chain you exactly with I there that up It challenges, I in related, QX supply Good maybe around logistical right. a commentary afternoon a

Michael Burger

occurred the us primarily in mentioned, specifically. situation, applications, will, orders issues public paper Asia, actual work, we as didn't Actually, more actually one than and in between receive instances. safety And but the AEC were you certain primarily in we if and committed, that to were

freight get since, to situations a product were to wanted So, the there book, weren't weren't And quarter. able the to these actually able actually the couple in and we've customers in-house forwarding gotten we of orders where service order. but

So, but it were in a of we the of claiming on cusp into situations, to QX. push basically couple had revenue, we

Allen Muhich

large They situations. And maybe just the a rather the bit on the more a being couple able else color. were were little of to therefore, anything logistics deployment of deals, and the coordinate versus more in customer assets actually

gives bit that you as hopefully, little So, a color more well.

Michael Burger

not to caused was deliver. ability by It our

we had fact, on inventory In site.

Greg Palm

It's made would have add interesting. look My question to good if that really next back, be, I it to previous quarters. really, going that sort basically, of region relative was amount,

it that the So, across it? way versus right deals the that Is about it like, was more maybe, think a was big sounds to few region. something

Michael Burger

right. exactly That's

XXXX And what frankly, In today. I of excited already. really they're we're levels about out Greg, think general, we're fact, Asia to in back seeing

Asia's actually some there. couple pretty real So, beginning and deal over consistent see we're recovery to quarters, flow last of the has been

So excited, very specifically. China, we're particularly, in

Greg Palm

commentary demand to good talking those you as confident just number? into to to segue chain it's that good you is across where may we'll issues last couple hear. in think changed sort I Has indicators anything approach supply that's Is The my XXXX one. to be levels? of QX the the QX, in months, -- that less pre-COVID getting you whether that logistical still in levels in that's case last get all you back as regions. makes QX about do Okay, guess, maybe of

Michael Burger

significant more the on as pretty based we're Greg, Actually, opposite. seeing no, mentioned we growth it's I script, I'm would funnel, confident actually quarter-on-quarter. beginning argue the the of in fact, the quarter

gives that confidence. So, us

or does And encouraging. -- But been discounting that associated flow run will, with you the book. in you expected way growth, know, that of regions, quarter, terms of the quarter course, quarter-on-quarter in terms handicapping, you're across the of very all opportunity really funnel if of right, there's business that's three everything some the As not to and at number. it's looking size. we is so in And into book our

And we see actually that levels so and should in feel comfortable QX believe in we we QX. it script pretty put the

Allen Muhich

Yes.

well Quantum swappable a laser ago, in customers Max the commented we've script other been been again, response cost And performance. is as The well we And half from and it the the on quite the months line positive. thing back approach has having probes three has received. launched the around and

are that is a so gain replacement of into And incremental we Michael one the again, some faster the the to that, beginning also, may quarter. fourth which to lead see contributors referenced that we confidence heading cycle, pipeline that to

Michael Burger

that I think growing our context. in confidence is

Greg Palm

Okay. it going there. Best leave forward. Thanks. good to hear. luck Yes, I'll of

Michael Burger

Thanks Greg.

Operator

from DeGasperi. Our comes next question Andrew

please go open, is line ahead. Your

Andrew DeGasperi

just, else paused to up that we're are aware mentioned you comment that legacy you And one cycle, replacement pandemic speak, that. ramp there guess, people that is had have Quantum cycle, I tool it there of? that driving guess, is I might sounds that's Mike, is so happening? during you. I Thank it But I -- is not a of terms now like the in that anything interesting the thought was it something to Max I question incremental made. very is the is, or mean, confident

Michael Burger

I two I twofold. think -- think it's

first think the is I new product.

that just is think I've talked is on said, it upgrade the we think their they're the compelling. shop years for -- the second particular I much-needed new this XX have been therefore, smaller is have of coming is I doing an believe didn't value confidence would effect had And in up. that That there hold the product that, and been particularly offering frankly, of is the back, market customers to I over order I some But with give to through shops. that very that some -- pandemic. think, want has directly that, Arm

both. of I combination So, think it's a

Andrew DeGasperi

then competitors, Got one guess, of HoloBuilder, on, it. went public their And Matterport. at I recently

of does from And terms products? in that landscape, say digital how stacks how those I mean, it curious twin Just other would you it up? differ

Michael Burger

question. Great

market a want the great. they -- noise noise to which where pointed First in And much they've is retail all, has lot the course, is go, largely. of of been HoloBuilder is about space of pretty made which

Our solution really twofold. is

backbone, Our highly by use our simulation is at highly where solution about sensitive that, great a things aimed used is distance Focus meters. basis you highly ultra-high like robot scanner. that levels guys if to high-end, What's a will, definition scanning, an accurate over for which very as the XXX really that of or accurate, X-millimeter is many down square in the they example, is for terms traditional

So, that, top very, then is much that photogrammetry HoloBuilder does lays is what And accurate of accurate. capability scanning. this on very, less

they where were the combination the two, think it differentiation, we think don't have take and could compete. solution Matterport to And of we you the if point in applications so a pointed, the I we're

Andrew DeGasperi

helpful. it, Got that’s Thanks.

Michael Burger

You're welcome.

Operator

next Our comes Rob from Mason. question

open, please ahead. Your is line go

Rob Mason

the Thanks afternoon. for question. Yes, good

Michael Burger

Rob. Hey

Rob Mason

right these alleviate away, conventional wisdom, is on, But touch seeing the inflation. just is seem of but suggest to chain just your gross trends you to that then you supply did Where in you pricing think thoughts how you -- margin kind challenges, that. any price with. The obligatory don't which to on offset themselves about cost everybody's wanted those, constraints might you themselves material via the environment pressures of challenges just like? dealing probably And terms chain I think perhaps, what your of just you're lead First, talk that supply the there. mention some ability, I in addressing maybe because

Michael Burger

on that -- inventory let don't we're we and mentioned taken an that Allen aggressive ensure philosophical to -- have saying that a perspective sacrifice start we by Yes, me revenue. stance from

goes without So, that saying.

supply. thing second long-term that, is putting longer-term product sequester contracts that have where The we in for we're basically plans mix, basically

suffering third the Sanmina The frankly, is -- ship have But help are regionally a we seeing opportunistically in didn't not talk XX%, X% us us price increases depending who we from think that. fantastic because a you all situation we where with. materials. helping find been are that a to we've upon finding deal They've able the been thing where is at you of product I been supply. pricing. couldn't great on anywhere us to raw Pricing, and to not has in are

net And where that -- effect is risk our part. is mitigation so of to COGS the and on grow that's our basically continuing but

Rob Mason

that What the competitive about front your on or ability the in to environment capture what well? as market? presents to that And degree, price situation

Michael Burger

a It's question. great

their a Certainly, of haven't price on We out at a the virtue the on Max, selling we're the But and is That value will, is than an that on garner higher seen answered assumptions the on that know previous set. where with if that that low of as by said, put -- COGS And we just that large you at based today really the the price that helps with compared example, to able we new be equipment. your our believe competitors are don't question. us bring. gross Quantum go what happening version. we what's ASP margin actually end to we if I would probably that made supply. surcharge, said,

Rob Mason

And follow-up. Yes, just a that's helpful. then

But your of you that when QA, there's any customers some if get those and year-end probably on curious, for about share being able addressed and I year budgets? categories feel I'm you and that health think how versus a QC there, your other to budget entitlement competing fair about provide are flush, end from do you just the function this you perhaps, maybe budgets touched their your think you as capital smaller into attitudes. maybe

Michael Burger

every day. Better

seeing really growing. segments all I in all across customer is and regions really that three base think we're that our the confidence

in the waning been place religiously. reflected all so really and of that think et have smaller that seems bit of and that to that in kind seen buys reticent I things track shortages capital growing. confidence stoppages, we is been funnel be lieu cetera, between supply particularly, the our guys a opportunity to have work We've

we I answer think capital fact, I question overall, the are think are to So, had. flushes is, if, to your be in well-positioned really there

have we our we've market sales the go repositioned you to -- way channel. as We know, with

the we're to been been now in than to so have. customer ever We're are way of started virtual as have demos started, customers we've pandemic clear yet -- we that And we more that high since talking probably these ownership. Face-to-face visits XXXX. do we as our still February leveraging they've back

the think combination front I customers the often, back the customers excitement So, around things in to seeing able products of that of we've go-to-market bodes get in coming that with being normal. fact a strategy The to new capital well in our and got think marketplace that fact front center, day more if, I the for we're had being our that us fact, new flush. about all there really in and is we hay is

Rob Mason

Just just bring perhaps FARO how the profile with, last -- test seed to you and of go -- market that around about beta you just you're to work test, think customer? Who question, that to the what curious that Sphere I'm bring as planning that beta initially?

Michael Burger

are our product AEC offerings around Initial offering.

because in large will AEC customers line AEC to very talking with that. some Sphere in some offering we're so product space and And small an and relatively be our associated workflow first the

through repositioning and is this big by of the speak. process in road. kind small to trying guys and will we excited this we're talking test, mean hits company super I rubber We've where customers rolling the our got as four do XX a and is corners I'm we're this. here the beta feedback about actually start that about guys. So,

base, We FARO as will QX announcing originally in Sphere to planned. our be the customer officially entire

Rob Mason

you. Thank helpful. Very great. That’s

Michael Burger

you. You're welcome. Thank

Operator

Instructions] Ben [Operator our take from question Rose. We'll

open, is line please Your go ahead.

Ben Rose

and afternoon Michael. good Allen Yes,

Michael Burger

Hi Ben.

Ben Rose

seeing think those the specifically at that recovering that it Michael you product comments I indicated regions, pace line? pickup Europe in a for I your your Can quarter faster Asia, from a of than the in last you're China, US. in manufacturing particular, was part now and the take

Michael Burger

through We're August. vacation right? -- Europe was QX, all so not the way so actually much, on

back in year. every and our So history, thing that, happened a seasonal that's -- it's you frankly, if look

expected opportunity said, in all QX. significantly three in to we Europe for So, That QX. be is slow the funnel regions up

yes, actually very is the yet the encouraging. growth seeing so realized, very the funnels -- and be quarter-on-quarter And opportunity very, been to answer are has robust, we're but

And think be -- believe said said our it we chain, we've QX, XX wasn't we're XXXX. disappointed Save course, us, at not of months, would that this probably So, that's we for we'd that, catastrophe now confidence which, others. QX to all believe for XXXX the would growing some just and is affect affect et supply along and occur. we've cetera, in back if I going QX level

I'm So, encouraged. very

Ben Rose

the that in sector, your sector sort Is Okay. of of at automotive made of terms comments remarks, large. to provide you're about some And initial in that you you color, the sector. there can in terms seeing demand? In what alluded you in of anything terms

Michael Burger

that some much rolling anecdotally, think delay as what's I core They last type shutdowns orders That customers. with the that of looks believe have behind is contributed of of we're it hopeful. read did talking over pretty will the of QX again, of that said, all all ad certainly, it this And occur stories I quarter And space like our the in and No, happened thing. to in QX. don't that, some us. in to in think, automotive nauseam, that's us the the in

place. So, said, place, assuming good that being very good that in think a I we're happens,

Ben Rose

just I Okay. may, if And more. one

public U.S. seeing any specifically, the on of in you're side. update On terms the demand? Is customer there what safety there, in

Michael Burger

very encouraged No, I and spotty It's been stabilizing. actually by regionally, we're believe the pipeline. it's

I normalcy, in ideally in should think North to America if not QX, return QX.

a portion were relatively in delay of it's of in it in were shipments, don't they QX and Asia our traction be lot think, in North around numbers a they're will But America safety alluded said, answer Asia delays our penetration big getting to that short-term. safety, in it's deals. And as Europe I business. I -- his know, That those As continue really is public Allen, public you think the small we're about rival in I -- sector. in excited exciting. the to the and the

So, I'm encouraged.

Ben Rose

much. Thanks Okay. very

Michael Burger

you. thank welcome. You're

Allen Muhich

Thanks Ben.

Operator

have at appears any over It closing this program the Michael, turn I no will to we time. remarks. further now questions back for

Michael Burger

Well, new I excited forward the about quarter very as quarter know and me our talking said, tired excited we're excited. said, QX. products I we you're of comments very to Thank and about about for next interest. Bye. to your you excited Sphere, very say, very That look about you hearing

Operator

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

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