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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
Jim Ricchiuti Needham & Company
Rob Mason R.W. Baird
Ben Rose Battle Road Research
Andrew DeGasperi Berenberg Capital Markets
Call transcript
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Operator

Good afternoon, everyone. And welcome to the FARO Technologies First Quarter 2022 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 afternoon. FARO Chief Burger, Financial from and Executive today Muhich, Allen Officer. me are Chief Michael Officer; With Today after market results for close, the company first of released quarter XXXX. the its financial on release XX-Q and The at related are press available www.faro.com. FARO’s Form website projections development, call economic regarding statements may subsequent historical product future or forward-looking that business conference considered and uncertainties and technology are involve not results, Please note risks this customer and which levels, certain statements in industry demand, facts inventory be include events. and statements Various cause results differ to factors actual could materially.

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

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

During will release, financial non-GAAP management will presented Accepted today’s are not U.S. certain press accordance or comparable these regarding Accounting Principles measures will the that non-GAAP disclosures you measures, discuss in In of measures non-GAAP relevant these Management with provide additional Generally in find core reconciliations measures. call, investors financial period-to-period financial measures, conference to their believes comparisons GAAP. GAAP not operations. including recognize

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

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

Michael Burger

our Thank you, Welcome Mike. call. to

headwinds based demand performance, our impacted driving several in healthy results quarter, broad While our first across our remained served the below expectations. markets

shipments. area. of is at Chinese end lockdown aware, you the quarter, hub Shanghai many As a are logistics for FARO’s Government Shanghai the COVID the first of throughout the lone all Chinese mandated

March. or potentially was remains planned booked XXXX as could those shipment into orders to the last second result, beyond. half well Chinese Ultimately, today at as our own This continues last in operations, the challenge and effect the customers. a week, of to As both logistics of originally of end disruptions one prevented these which lockdown, our the of lockdown

work to continuing teams the operations on Our logistics mitigate situation. short-term to are plans

to Beyond overall to chain first availability, of the in continued limiting ship. quarter, our impact available this shortages we inventory component challenge, material supply had goods of specific the certain constraints and amount

Our work to mitigate continued chain hard disruptions. supply team to

impact challenges However, at to to point, expect quarter shipments. we these continue second this

first quarter softer for previous-generation of our toward about launch new Laser long-term experienced remain strategic than excited European goals. the Scanner. by disappointment our quarter, the in of revenue particularly Laser performance, market, profit Lastly, in we demand progress brought and we overall our our Despite expected first Scanner, continued AEC with our anticipation on the the

Sanmina Our manufacturing we Tracker through ScanArm shipped on manufacturing initiative product logistics Laser shipments future product now our as and sourced of will lines to these from two outsource with Sanmina All be remains Thailand existing center. track, have of Sanmina’s moved lines facility. our and now both

We have in activities QX. our sites both the stopped of U.S. manufacturing of end as of

complete to current product expect remaining this the transition quarter. Laser We of of this line Scanner end by the

$XX continue transition outlined, long million the realization in operational we that to in term and a believe savings. have financial previously this of benefits We including annualized the of

However, FARO launched Focus as we the model our this workflow as digital our software collaboration reality with be new continues a dimensional increases XD FARO including includes these environment our be which cloud capturing our Sphere. which cost to FARO generation out, wrestle all the and future platform applications, Scanner, full creation, Earlier Sphere and Stream next supply timing both based savings enables is App, mobile will storage HoloBuilder. limitations. for month, collaboration and Laser and Premium FARO pushed three well of platform, teams as

real-time news doubling the functionality increased can time customer interplay new over decrease laser standing capabilities. are individually these which taken enabled stream XX%, as years including ahead. combination offerings scan effectively and preregistration, scanner on delivering performance between as these of software remote changes and keenly validation by of and processing is focused the well in control, scanner types It we Also onsite has three of each customer While in apps our value, several remote upgrade enhancements, all step the productivity. function

While from and days, feedback early beta post-launch both customers been overwhelmingly it’s our has early positive.

that levels Quantum voice these new resulted of we will ScanArm, of believe volume of from product scanner, We our the differentiation the the Focus with high have XX% With Premium productivity. launch industry forefront on continue with and products the the new customer. now push lines to Max the refreshed our our maniacal combined of of have recently to products to hardware focus launched FARO

be In addition have by wide the ranging Sphere for integrated our applications. we construction HoloBuilder strong continues XXX management continue offerings, year. degree calendar to technology, the demand model, coupled these workflow. its platform and HoloBuilder’s workflows end our software-as-a-service of HoloBuilder’s with to associated will to see photo-based and this application into unique business its exciting application progress new The

We continue large leverages solutions is market scanning photo-based coupled to our ultimately high fixed technology with for scanning FARO’s accuracy, to our there expertise, that solution. untapped mobile use to laser along believe a potential HoloBuilder’s easy

projects, insights of well deeper the experience workflows, to excited which are and we launch workflow expertise and bringing tools. one application The now a support that to structure through technology our time across capabilities market customer strategic provide positions leverage. enormous the our potential developing while committed and the same adjusting world focused operating transition our is digitizing together our and We user FARO’s XD stop software, the generate customer’s With solutions FARO collection over we of remain the and toward physical differentiated are management at to us for Sphere, centralizes a of these data long-term. understanding and insights

than FARO to COVID, overview in including for our results. With create opportunity turn of current stronger as market, well will near-term While financial the the remains tensions, an lingering first ever. the uncertainties the long-term of I quarter to Allen geopolitical call that, results. ongoing effects our risks over the The as for

Allen Muhich

Thank good afternoon, and Michael, you, everyone.

of X%. service revenue a increase First demand from nearly revenue primarily approximately to dollar was up compared supply $XX.X revenue software million of ongoing basis, due strengthening. the On in ScanArm, and of million year-over-year was Shanghai X%, $XX.X up primarily when $XX.X $XX.X hardware million first headwind up by $XX.X shortages X% revenue of well million was revenue. quarter for the U.S. down million lockdown impacts of XXXX, the XXXX, Max was driven the X% quarter Recurring Michael our to that by offset chain currency of QX to and X% Quantum subscription as mentioned as from revenue increased of was earlier, equal resulted continued

customer modest have We purchases see revenue to a subscriptions. of begun of previously to as licenses perpetual we overall convert software flattening

XX.X% margin somewhat quarter realized Additionally, but incrementally margin product our increases. was XXXX. non-GAAP a we revenue increased adversely improving due meaningful impacting cost to largely by products material that is GAAP customer for over Gross time have the repair enhancements first the gross XX.X% was year-over-year, and quality material was last shift made offset and of margin billings. gross experience, months towards and higher months XX XX from to margin

with as below of some initiatives the the in a the XXXX of $XX.X travel-related end loss X.X% compared -- levels $X.X of of and of operating first $X.X higher compensation an included restructuring million GAAP a on inflation acquisition-related expenses EBITDA Non-GAAP compared near because of model quarter or to loss $XXX,XXX XXXX. material $X.X XXXX. the portion operating during was of operating pandemic $X.X portion approximately both expense return. our as revenue. depending Given HaloBuilder $X.X loss were quarter impact continue as of increase XX% dipping expenses as stated XXXX, low was quarter investments in success our operate the negative amortization the the our ongoing acquisition, margin and of intangible was to quarters in of was million million expect of quarter realized of million the costs, upon million QX operating Non-GAAP XX% in than of XXXX, range. and continue lower savings revenue the the end to first of in first and GAAP million with as the of to our million to Adjusted expense million we $X in $XXX,XXX first organic operating stock costs. gross $XX.X well we

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

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

in We levels reduced relatively $XXX to quarterly several balance are cash a should a our revenue high accounts no and collection maintain structure include of well as well that the that the quarter, month strong that continued shipment with due debt. continue million to as I the is certain receivable balance remained factors capital note despite third levels. challenges understood. high This of

We not collectability any changed have and receivables. the or our payment term practices ultimate do of policies about not concern have outstanding

quarter and Moving guidance. disappointed lower China Shanghai to we hard we of on XX% lone the center. ability Chinese have end its Unfortunately, the from are on our accelerating. missed coming the effect revenue which following our see of ship to we the was in guidance, XXXX in extremely and did range lockdown first provided to product not logistics

to on our alternatives, and strong Chinese to limit concerned our we Chinese material customers. ship we to is customer shipments. Our our while early -- remain continue team demand have customer about that remains challenges ability availability QX general other logistics working Further, our

in million, revenue the a at XXXX, from the $XX As the million midpoint typical result, which between second expect quarter. we first of increase $XX sequential a and quarter of represents

earnings time, our negative per take prepared concludes any between your questions. And and $X.XX remarks. This at be would of positive We non-GAAP this expect of to $X.XX. we pleased share

Operator

our first from come question Palm Craig-Hallum. Instructions] [Operator And with Greg will

Greg Palm

of way. impacts. those a for you getting questions a in I asked quarter? it exactly quantify I kind Thanks the How here. are in maybe, maybe saw, kind important guess time into two last on don’t the China right taking impact Yeah. you different weeks know, typical what Can the of saw

Michael Burger

Good afternoon, Greg.

in talked this shipping we XX% if and we about the the calls in wrong. three previous me of weeks quarter, ship, of to XX% have total But are that probably am we typical quarter. Allen our think correct I typically I last

Allen Muhich

Correct.

Greg Palm

but clearly of shortfall, explain, I that would not… guess, sense. Okay. mean some makes help It the I

Michael Burger

Yeah.

Greg Palm

the nearly entirety. …

So on it little related? I market a what’s like sounds going is bit AEC mostly it the across was as softer on more Is equally all color guess geographies? there? it Maybe EMEA challenged,

Michael Burger

Actually, impact the actually Greg, was second biggest availability. material

continue get to is shipped what throughout surprised supply able with chain. from be to the quarter We our

material in market largely, the China, EMEA finally, would AEC the the shortage we I the And track opportunities. or again, of availability, we followed by was factors, three space. argue believe So largest and then frankly, that

but we -- some and we And cancel, opportunities largely think sense. I us there was seen think this have seen due at that’s We in to actually Laser a Scanner. about them potentially not offering have that EMEA, saw push shipments think was I our new least press

very win Our our number our of to rate funnel robust. opportunities, continues be and very,

So is that in and I think our the market. why it’s - of EMEA I perspective AEC don’t think terms

Greg Palm

the question I what product, important new guess more Laser new type Scanner the product, the with of demand…

Michael Burger

right. All

Greg Palm

that that seeing to … the been with now are market? released that’s you

Michael Burger

the Very largest web day of the our website. hits we leads our on single inquiries, announced day busiest of single positive. or on a product track We the the of number number generated, that number was

FARO largest The I or product the views. XX,XXX on teaser the YouTube. video for think video watched is we was itself the most have --

great So and excitement for seems pent-up a of opportunity us. there’s of kind it that deal

it bit really the in since delay was which nicely. a it between pretty that grown actually people it the get of July, that from is we And hands So launched really, Max Quantum and so has it. you good. far, But there have learned in a their we is launch, test launch and funnel time what looks

Greg Palm

Okay. hear. Did last I see then one, that housekeeping And summer just a item. you Good in a didn’t give booking release? guys to the

Michael Burger

don’t think we I have. No.

Allen Muhich

We have not…

Michael Burger

Allen?

Allen Muhich

…and frankly…

Michael Burger

Correct.

Allen Muhich

becomes bookings valuable that so any continue as providing think point are be a and to of model leading reporting shift in of not it we towards are we because this misleading longer, we less Frankly, subscription can more indicator revenue time. and at we a that Yeah.

Greg Palm

Okay. Understood. All right. hope I back… will

Michael Burger

Greg. Thanks

Greg Palm

Thanks. queue. the … in

Michael Burger

Thanks Greg.

Operator

Thank you.

Our Jim will with from & Company. next Ricchiuti Needham come question

Jim Ricchiuti

Hi. Good afternoon.

Michael Burger

Good afternoon.

Jim Ricchiuti

Just the to EMEA a region… on spend wanted moment

Michael Burger

Great.

Jim Ricchiuti

concerns, AEC are there, relates effects a the you if was as softer, … the I of or you in that metrology the things scanner are am of so concerns couple slowing seeing over wondering seeing Europe, any it other business? the but in the parts either the macro of to business market

Michael Burger

No.

expected we a actually. for as better probably EMEA did I overall, think us region than

that think not in the I we downside kind we that lot EMEA space. region. safety think is robust have seen believe we pushed, it’s probably with by the seen virtue be of pushed. for are have that I us new a scanner but are nothing projects of continue and one all. be some not mix I the something, just we delay. canceled, was at and XDM Jim, waiting a What cancellations But, anticipation again, public to do a to seeing projects AEC the pushed being of of seeing And relatively are do

Jim Ricchiuti

as And think we Okay. about the…

Michael Burger

Yeah.

Jim Ricchiuti

with do this second that that with maybe… we as that facing? you availability see are factor, biggest think Sanmina, challenge path, is see Sanmina, cited relationship the improving do along how do …the the but issue. soon gradually move When of you further probably materials you the You whole you

Michael Burger

I want think… to say, I

Jim Ricchiuti

Go Yeah. Yeah. ahead.

Michael Burger

No. Yeah. Yeah.

we the transition been with them before we chain. previous we think with helping even I mentioned us calls, actually have to have them, deal had actually in Sanmina, once supply As and inked they have manufacturing

last vendor So and problem hasn’t similar they of are probably it relationship -- in the of got I of things have a don’t the other really a and for other to quarter really -- the What they the quarter our concerned much customers that They it talked problem are the the with with and expect some have about for. kind resins that very been and and we and half, longer that, mitigate plastic mitigated now, benefactor problem. I we but we building issues certainly, completely before, have it middle have like are no our is like whack-a-mole. think it’s semiconductors problem recently. And in it’s beginning we was a particularly about said the of

haven’t mitigated So the but completely helped, Sanmina has problem. they

Jim Ricchiuti

initial you with question if reception? color from you very on Last provide I seeing early am days market It’s but there’s Okay. in could of wondering me. are what Sphere, any terms

Michael Burger

had as -- It’s in been calls, -- previous we arrangements. positive. really customers participated beta we that all XX through positive We about We gone have we beta, very think talked several in feedback. I

around days begin announced going we really, the good, actually. We yet forward fantastic, But think I and feedback metrics the kind talk has of early base. not really about to have been clearly. user will It’s

Allen Muhich

and that Laser mobile information new It keep the not Jim, I And information and think, mind together Sphere, the how right? it’s how interplay -- new just with Scanner they then it’s to more make between for enable the important in is ultimately scanning and the much they process the Sphere, and the work web. Stream App efficient and and on capturing working the

well. but the obviously, has combination it’s So those, I been, think really received of

Jim Ricchiuti

Thank Okay. you.

Michael Burger

Jim. Thanks

Operator

Thank you.

R.W. will with question next Rob Our Baird. Mason come from

Rob Mason

Yes. Good taking for evening. questions. Thanks the

Michael Burger

Rob. Hi,

Rob Mason

I clear Michael. just quarter be I wanted to wanted second to hey, -- on guidance. just the

region? revenue, You are assuming into that China for assume what shipments zero, no just

Michael Burger

think completely hard. don’t I it No. are said, That handicapping pretty that’s accurate. we

a this got and we are certainly, quarter. bit we control, in think I not

guidance So we conservatively. are very approaching QX

Rob Mason

alleviate -- you ability the guess, to, would if region export the the countermeasures, doesn’t into have But I be? this itself, guess, that I Okay.

Michael Burger

Yeah.

exploring In fact, our shipping own. not and centers that through other we are logistics actually are

Rob Mason

Okay.

Michael Burger

still is in you and we that, very read what’s in this I very Al in cities demand China, as happening I What probably China have is so we other conservative. and his say, said can’t all And within will control remarks think, are robust.

higher to through. ever about we In achieved the kind think frankly, in of But chart, are if you have getting a terms fact, bookings. in them, I trending of than, crawl getting terms will, product of we it’s

products. quarantine through for a shift example, it’s Beijing for today, So on if XX-day we

establishing the go and reality And because all in to our are is them quality want we it. other center, make through we days to still that trying we us. is and and cities, working to setting Sanmina used think into we sure early logistics challenging way the want the we through. Sanmina, are centers these it’s product it’s shipping up haven’t So product are help But I we because

Rob Mason

Understand.

I I maybe a curious when the bookings, touch the Europe, Americas perspective… macro you some -- noisy fare as take quarter. from got Okay. just Without and on am just, end well. you And did discussed the bookings of broader how guess, but towards visibility That’s could Asia on things

Michael Burger

Right.

Rob Mason

what regions? in just April … saw in you trended those how and you

Michael Burger

lockdown From perspective, going internal was course, a what customers got despite forecast even that by on close forecast Shanghai, -- perspective themselves. Asia -- we and with affected of of deal the very the in were are many

about you read So facilities, et but not if really, much they didn’t know literally have cetera. I allow don’t into anybody it, the

Asia’s EMEA, think, And very on I I effect expected. with Europe, the think, had, of as was muting mentioned, general, healthy much that I So pretty AEC bookings. was exception America the North a in business. North

Rob Mason

Okay.

Okay.

drop The year-over-year question. business as last service Just well sequentially. down did as

Michael Burger

Correct.

Rob Mason

know installed I base… the

Michael Burger

Right.

Rob Mason

well. sequential that some of stepped trend that else? can through the just the impact but has that we sequentially on this Is out down think step the indicative something level … -- that, was or drop year that as line of first quarter should

Michael Burger

do want Al, take to you that one?

Allen Muhich

Sure.

some remarks, my beginning is indicated very think that I diligently the to improve As and prepared are in we we I working of are products we shipping been from that see have the benefit quality that. to on of one things our

so little products the not in time past repairing bit have dip. we and took had that material that for And a our of under are billings a contract

trying happening to in the think And the do Shanghai. to experience I with is dynamics exactly think customer standpoint but do. standpoint, a has of quality that great, just not are of with from from the in revenue I overall of some do what improvements a service that some which has are it we to product, is

revenue, of run, that it those will to. be be I that in So -- there referred I it lower quality has the will but think because think changes than historically service rebound I some that

Rob Mason

I see.

Okay.

Allen Muhich

Quality improvements.

Rob Mason

I Yes. you. Very jump Thank the good. will queue. in

Michael Burger

Thank you.

Operator

Battle you. Research. right. Thank take Instructions] from our Ben question last [Operator All with will Rose we And Road

Ben Rose

afternoon, Michael Allen. Yes. and Good

Michael Burger

Ben. Hey, Ben. Hey,

Ben Rose

North call look regard out a from bright spot which on mix? this could to quarter, that did something anything Is the product at America, to of all you standpoint? With comment to be there

Michael Burger

Yeah. No.

I are XDM in of positive. think and pleased we seeing that’s the we very pretty were been with what recovery

North the talked market encouraging. strong. aerospace be the Public automotive we seeing we are safety to last quarter, kind glimmers and for about or of then think year, end strong the business QX in very push hope of was of very I lot business us. and In a and quiet. automotive, because that’s And into America continues a budget primarily year I perspective at of end relatively of think there’s the went sideways. the you from it’s AEC come

it’s Sphere. the think I within seasonal

So then but AEC primarily America I and some was North automotive was XDM think I by strong, in aerospace strong. led in relatively recovery think

Allen Muhich

revenue what in Maybe again bit XX% little was just within Americas, about XX%, was standpoint, strengthened. EMEA, down up on year-on-year Ben. it at which it talking are if performance a look from Revenue color to the well, the much a more put quarter, you actually exactly right, has you approximates year-on-year was about. dollar U.S. the the based In how Michael on as

that our AEC So basis, some terms a again, the be about of on APAC, bit softness. and the worse in in because where what Michael of is Americas flat, of of talking was local the we rates relatively flat currency in than in growth then double-digit expected shipments. predominantly would And we it saw to the have Americas. Shanghai year-on-year, relatively because the Otherwise,

hopefully, that what’s little well. as a geography you happening gives bit on more by So, color

Ben Rose

Yes. just question one That one I more And -- for guess Michael. does.

moving that management the very the of how quarter. order shaping curious just the was mentioned to rest in whether, had year? facilities sizable might retail I here in You pipeline be for up know me, excuse last

Michael Burger

Very good.

an I obviously a that we order of large there’s, number haven’t magnitude. closed. think closed of orders But,

still are double by are as on and overall quarter size We about business encouraged level the last year to, this very track of the we talked to activity that we

Ben Rose

very you much. Thank Okay.

Michael Burger

it. Appreciate Ben. Thanks,

Operator

Thank you.

from last Capital Andrew Berenberg will DeGasperi with question come Markets. Our

Michael Burger

Hi, Andrew.

Andrew DeGasperi

question. Hi one and me just fitting had I thanks for in.

guess, I think to subscription license of because or was on-prem. you permanent the transition mentioned flattish, from, kind software I the revenue of

if… wondering Just

Michael Burger

Correct.

Andrew DeGasperi

bit little headwind …can you be give of line when around less think you transition that like of us time maybe a forward? might going a

Michael Burger

of that of we will subscription as through get and done. that we the expect predominantly we early would parts see transition to think I transition continue into XXXX, towards balance be XXXX to the some

Andrew DeGasperi

follow-up Got just in maybe Max. of it. Quantum And on the -- terms a on

delays said, that? how in? kind like some out some think that’s we mean, region could visibility deals. the I pushed guess, comes from you that I of any have that Should for if availability or expect pent-up be as product meaningful you demand on the I

Michael Burger

obviously I, demand. ripple there’s I any that we seen customer are through. mentioned, quarter yes, they have did haven’t to the think into Well, is hard do the that the Chinese cancellations, next including as We push quantify some enduring. situation despite going and really we orders It’s pent-up base, we from to how so some believe

our team think anticipate on is and is it’s given going the it, think the so handicap have But quarter to Andrew, wrong. able kind have in embarrassing. I going China. site, what’s this This but really it logistics first is port but about China it’s own quarter we is concerned pent-up I are frankly, what as guidance. we Shanghai our We very didn’t ripple we this -- why, to concern. of much effect not a of are in hard all much just been hope we and do that really be we the

we proud guidance. give missing the that not are We first quarter of

not are concerned over our personally. we all away too think going that’s going that skis we are I do just or that’s again and to and getting about so don’t tomorrow. go So of realistic hoping that to very far

Andrew DeGasperi

mix that margin? level one wonder, you gross revenue gross if is in mentioned -- expect would is quarters heard think range, might dip I you of you of some last it that margin that. just it a below a correctly, the it Maybe is Right. drive terms sense. That makes little that a mentioned I the here factor I or

Allen Muhich

Yeah.

to near-term, a our think again, remarks we in shift fluctuate But in that bit. a seen we here quarter-to-quarter can can I and and upon have we prepared with expect the revenue higher can we towards XX%, right, margin is by where just the it reported, large, almost commented, XX% think at but about -- towards would to that, the well revenue So end flex comment just dip we products it, it $XX did below just as we be as XX% I lower of as depending million. like

So we XX% break you can of get for kind being -- for where margins sense is that point a where to below that range. XX%

Andrew DeGasperi

it. you Got Thank Perfect. very much.

Allen Muhich

You bet.

Michael Burger

Thanks.

Operator

At All call time, any no right. the there Thank further would I to like you. turn Burger Mr. queue. closing over in are questions this to the remarks. Michael back for

Michael Burger

your very for much. and next you before. and you. quarter, not Thank in Thank we will your to you time Thank you talk interest if FARO

Operator

participation. ladies gentlemen. appreciate today’s concludes conference. and you, your Thank This We

You disconnect at any may time.