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Faro (FARO)

Participants
Michael Burger CEO
Allen Muhich CFO
Michael Funari Sapphire IR
Greg Palm Craig-Hallum of Capital Group
Andrew DeGasperi Berenberg
Robert Mason Baird
Call transcript
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Operator

Good afternoon everyone. And welcome to the FARO Technologies, Second 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 closed, the company second XXXX. released quarter the its financial FARO’s Form The release XX-K website at are related www.faro.com. and available press on or customer Please and future are historical events. note and business subsequent statements involve results, facts, which and industry uncertainties development, forward-looking not risks considered product certain and this demand, be include call economic in that statements projections, inventory conference levels, may statements technology regarding Various differ factors results materially. to could cause actual

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

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

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

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

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

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

Michael Burger

Max demand laser to arm In Premium our Quantum you with Thank Welcome and Mike. service Focus the across second our released scanner. markets increases backlog scan call. for driven our demand both quarter in our newly noticeable healthy remained largely by

impacted exchange revenue U.S. changes currencies quarter is year. the impacted the transacted the were in the approximately start results quarter strengthening our rate. major in dollar States the the United was XX% dollar, second continued from of the Roughly and outside up However, by of U.S. XX% against by which of

the speed our feedback of the representing portion scanner historical that Premium products. represent differentiating our These the our our product two X% recent our customer scanning on Premium our use We customer purposes hardware currency scan by X% following constant quarter lines new application and now our launch remain a million, increase have would comparison Focus facility. of compare Quantum with is and base. For in of been improved of Max revenue. of XX% strong sequentially. year-on-year and ease at key qualified are Nevertheless, competitors mobile $XX.X Max’s. on the Max over stream with second quarter favorably trajectory and Thailand features repressed Quantum Quantum up believe laser coupled a historical were April basis, revenue Focus lines products Focus large our tracker shipments similar against a Premium In product from Sanmina, arm of sourced second a

as plans, continue of laser our scanner quarter product the levels be line second pleased to as volumes. their We the with of the to well required end meet completed we At quality to with consistent and move ability Sanmina’s Sanmina. our

our As a outsource initiative actual result, now complete. largely is manufacturing

is transition. delayed, line timing the us allow We the long of that previously Asia in quarter, XXXX. to phased mentioned begin beginning savings savings to the of in partners in progressed we’re Sphere all In million as while standard based Adoption premium for workflows, customers well our resources. as applications, and disruptions be financial believe Sphere $XX operational which is FARO sight full also storage have Sphere chain chain, Southeast XD have we to three supply supply of and will of generation to seeing collaboration shifting to by second has the And due this platform, in Sphere. benefits of cloud a continue new to the as which call annualized expected collaboration. reality and platform software to ongoing digital offering. future will we service cloud and model training enables based party environment our FARO’s current launched creation, dimensional rates term capture

it still needs we conversion of continue O&M in track the to customer the workflows added to is specific as paid develop that on AEC subscription early software days applications and the is address markets. While new value

HoloBuilder. progress. remain pleased the We with business us. to construction are made effectively in the monitor since opportunity scale track about of and the toward efficiently excited to professionals the front teams Turning with and need have they solutions progress progress of the and year In construction the empowering HoloBuilder very acquiring

new offering SaaS solution. capture productivity of managers photos plans end workflow to for the site European accuracy construction application API, cloud. providing them Goldbeck, progress management of We in we use a concert site and June, snapshots. XD our to including releasing textbook our track construction features laser strong example and HoloBuilder the analytics, progress of and their storing Sphere the premium linking real the to strong build will platform signed time, have potential These upon digitized of construction full to Goldbeck a based a and significant advantage new be enable Goldbeck entire using new realize competitive realizing HoloBuilder organization. and continue the cloud management platform the this to an its by XXX continued to across HoloBuilder leading demand over ways into technology. powerful document commercial construction time will agreement that our deploy based In their foundation, progress our firm announced enterprise enhance of projects building is FARO’s with scanning HoloBuilder tools year. integrated in global photo securely firm, high technologies, industry

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

a we and application and are that term. well, tools. are launch of insights, across one and enormous, With the workflow bringing over our both together market provide digitizing technology these positions now support stop long the for expertise FARO physical experience the world excited as to is FARO’s potential Sphere software, customer we The capabilities and

and own continue we execute recessionary the risks. control on operation, given supply are We the our and environment to both to can loud consistent and the monitoring rhetoric chain closely related and areas demand

While turn opportunities, that, remain we or second our financial seen effects call our to With we managing results. the I’ll our booking business overview pace, accordingly. and cautious not of over have on direct an are to provide Allen quarter

Allen Muhich

and Michael you, Thank good everyone. afternoon

the compared Second approximately million quarter with down revenue of XXXX. quarter of was XX.X X% second

second XX% X.X impacted of Michael million As up quarter revenue was U.S. in Premium with demand stronger a arm our roughly scan the on revenue by our Americans XX% the Quantum Focus primarily orders the basis, dollar in Max for grew our X% year-over-year. constant quarter both at currency second scanner year-over-year. and Driving this in result was particularly the overall mentioned, increase were

million and HoloBuilder to revenue down in continue hardware actual service software the was expect revenue XX.X in revenue compared the million X into Recurring of management X% year-over-year. the XX.X primarily point of was million of currency was Americas coming revenue down XX.X to to X% our growth We X% On strength application. an construction in up XXXX progress due year-over-year, basis XX our of of year-over-year other leverage when geographies quarters. was the up million to QX X%

purchases last see begun to revenue discussed and subscriptions. modest perpetual software quarter, of licenses flattening to convert a previously as overall we’ve we customer As we

second history enhancements months product margin of is impacting and to realize XXXX. quality meaningful quarter we’ve experience our and but over improving GAAP the that reasons. from material gross the revenue for margin XX% was customer for recent Additionally, was last lower was time XX.X% our billings. primary gross XX margin XX adversely This than made two gross non-GAAP

first manufactured dollar as products related on U.S. a U.S. local strengthening The basis. exchange are dollar however the our priced of often in currency, is to the rates

relates remain results, the U.S. quarter material second in for lower in opportunities configurations to XXXX, X.X compensation to given the the believe compared was second of for upcoming some committed costs. to gross previously model increases basis targets benefit quarter second inclusion quarters. in our XXXX, success which rates. unfavorable continue second GAAP EBITDA near The approximately expenses operating discussed one of from we XXX operating HoloBuilder second than operating operating of pressures million points our operating of that million XX.X geographic expenses XXXX margin and the margin XX%. was primarily $XXX,XXX. strengthening loss due We a cost X.X That of closed XX% restructuring implies GAAP may we’re in said realizing term that financial of shifting including was supplier to the of of and a Non were of of offsets included of below exchange million profit acquisition acquisition approximately will until conditions stock operating in that savings in X.X Adjusted X and million intangible lower result compared X.X XXX,XXX effect configuration year million the we with as the products XXXX. Southeast was the more our Non-GAAP X.X range seeing now the dollar and rates million QX our with and expenses targeted expense related higher an to mix external USD chain or XX.X XXXX. than million improve, quarter operate of GAAP to quarter ago, million loss loss quarter FX amortization Asia. begin shift associated we to our specific

lower, And the reported against Our offset hedge virtually in and the revenue overall future. creating natural today, FX while they dollar. costs operating income levels by were and were relatively unaffected strengthening both a movements

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

non-GAAP of or net to and in $X.XX of the $X.X financial bank I loss legal expense should Our was income per balances a XXXX. profit by our share was foreign gain, million that or other per a primarily quarter of re-measurement second held recognized included our million $X.XX that note approximately due in was XXX,XXX, X.X entity. share for XXXX dollar in to the QX, U.S. results compared non-GAAP

through an debt. despite structure We we Further, year. maintain a timing result in sequential the balance days increase affect expected of to an our flow remainder of in $XX a day term quarter in sequential with million cash capital strong no reduced million saw inventory the in reduction AR sales given approximate payments. capital XX as XXX Sanmina balance remain We with a aged short in cash revenue. on with the QX levels outstanding a significant the focused made receivables progress our results working on We of that improvements approximate overall partnership that reduction continue reducing didn’t of

In between the would and remainder again a strengthen exchange from of were experience dollar to assumes rate of the further quarter, during today’s to U.S. on revenue levels. which guidance. a we the we reported revenue XX Moving headwind quarter, levels. If million, constant expect third the XX million to

now In and improvement With $X.XX. customers challenge, positive expect while ecosystem, talk to We which and ultimately closing, from share our platform view, per negative in non-GAAP see prove of gain XD greater our between business. they launched we insights a recession all ultimately earnings continue recently Sphere signs from models. have the of the the can $X.XX we collaborate FARO of several

software We In are highest XD and customers highest laser XXXX. models excited the history, with enable QX, booked and the the from our will we quarter scanner non-QX that FARO hardware. applications and quarter, since at units value our they our of level in by new roadmap the targeted second unique had workflows new with create

second below XXXX of time. team, this from revenue levels QX, continues XX XXXX. a concerns the availability to with strategy grow. execution Quarterly quarters key representing X% manufacturing transition recurring show of remains pleased months XX approximately material progress. Following to Recurring two fluid revenue have is we’re and over can of appear XX entered our of We’ve our to million into million quarter, change an easing last the in this heading while quickly, CAGR availability above levels situation complete. challenges to the Increased material steadily be our by the and increased result is and work half

increase rates the in pipeline, well Finally, in in typically despite size our regions. modest of our as entering of slow seen we’ve the summer our geographic the quarter, as conversion a both absolute modest months, increase third each a

laser scanner comprise which launched and recently Our attention portfolio, we’re are gaining scanner good XX% of our products, customer hardware and winning.

time. in of generating have that We’d our digitalizing value near world’s momentum the about while This opportunities excited this for concludes questions. physical customers vision executing building the objects. prepared any on remarks the term our to our term also for shareholder pleased from we long your business the We’re be at take

Operator

[Operator Instructions] Group. first We Greg of Craig-Hallum with go move will to Palm Capital ahead. Please

Greg Palm

interested high maybe last could sort of saw, shook more of hoping quarter. and cadence afternoon. standpoint, us questions. good view what for couple level just you in Yes, a the giving from quarter you Thanks the I weeks really how the start of taking with in most important of was a of out kind those

Michael Burger

of rush typically we’ve and the We a as this have different. Yes. past in no to was talked quarter the the end quarter

think probably lead turns times of lot we’ve last than are. momentum that’s material that I that quarter. history built a I of our saw the And that’s we because vocal that month. I traditionally. a of very issues, think because build. seen quarter to about think think month done the a some effect of shows, had been I lot the as going last we’ve And of we’ve And into little in will more But it linear say products, bit what our we some shortage

other linearity different, anything the beginning a than the quarter. little So in materially we of bit more didn’t perhaps see

Greg Palm

geographic surprised was an trends. revenue reason in And Americas where I million isn’t from that? the you impact, headwinds, exactly maybe had couple with Can detail FX region, a a was down just inconsistent the really quarter-over-quarter, and that what you was basis normal which seasonal the is FX for understand

Michael Burger

in up it bookings. Well, in down revenue, was but

Allen demand. the within to think the latter We this able I shipped came toward script. last his of wasn’t in saw strong really it so in referenced And quarter part. a be Much

by feeling We’re about actually today, good XD pretty driven America largely M.

is this market change. M than a think was an strong. I of So XD actual issue timing more

did for as actually also quarter We us safety well well. saw the in public really

Americas, the context in the bookings about good particularly of really forward. feeling we’re going So

Greg Palm

and me have you you a chance I gave to don’t them. backlog? know book missed bill quarter Do a I if by those.

Michael Burger

we recall Allen I don’t if that actually our. publish in

Allen Muhich

build we beginning Greg, I at quarter. that we the did Michael haven’t within the same numbers some that the at we section of backlog time, published, that did are but Those think indicate

one. booked bill greater that I was assume So think you the can than

Greg Palm

reason And I I then more a I new I’m bit of detail on that well. whatnot. behind or gross configurations. decline, the not the entered margin maybe or a about if missed little just new guess something or price said customers exactly you was byproduct lower you think Allen sure geography margin, as go the that in the a behind lower reason

Allen Muhich

our rates are think reduction. commented I currency on two revenue affecting Yes, was reasons in again, the denominated the adversely that for exchange dollar. One and we simply purchases U.S.

a lower exactly margin what is second The is a of shift you priced, towards indicated lower configuration. which bit

also the China, had that up You be shipped that product here to second on a it that in that margin the all why that of comment shipped, affected head us, margin recall think into adversely in to as first backlog fact, for made the much profile lower of continues from geography of side again, bit China scale which it also mix a really some of quite we be expect which next the tends quarter change second of we held was the in couple quarter. we I some too quarters. heading see that out the the into don’t bit That is of course, very we us quarter. quarter. the a of for in the strong we

one those line sight can time, of relatively at strong, of from what expect comments. news, which bad not Our long, of is to good is overly in regions see margin types remain this but news point lower we we those

Greg Palm

sense. makes Yes,

Okay, I’ll luck. leave it there. Thanks. good And

Operator

Please question ahead. take we’ll next Andrew And with DeGasperi our from Berenberg, go

Andrew DeGasperi

I tone picture. is seems why Is you you the question going I the a like little back of mean, can that the for come that quite had you to quite bit the is bit from guess were first? of a pipeline? I Greg it last question. towards inflation demand just quarter? bit quarter. a latter of that improve just have guess to out pressures since function a your it part painting maybe the I one feel from you seen asked, like that and it stronger you a break Thanks broad my Is second is function perspective, much the it half versus seems seeing? end my guess, taking the improved like

Allen Muhich

the cautiously so cautiously said, same that optimistic. we’re like and and I does, Well, that optimistic. we’re read we think same the hear everyone snippets We

I is includes and traction continues you Max globally. quarter of well highest think Quantum by that driven And Focus what’s products. seeing booking new new this statistics, terms was largely scanners, the Premium. of the really, our making Quantum product. hardware time us we’re was in kind the for optimistic really to We second of products, our some both strength and demand but the do some in gave new that the in Max

we of the new encouraged by were hardware so the very And products. adoption rate

also very to very Sphere, And the premium the at finally, We’re by is FARO subscribers that positive. we for this a kind And from continues the we’re then sign grow. of together our really base. believe up for customer getting very, all traction HoloBuilder, excited of time. coming feedback great also And

seen We the world all guide. in our continues grow, pipeline to grow our also the QX funnel have effect competence our around bad despite on total news that has our opportunity an

hasn’t off you seasonally, been happened here. since If which of guiding we’re QX up I’ve notice, frankly,

very And us. new the again, by trend So for positive driven largely products. is this a

everything could right. change tomorrow. that is pointing we into Something Everything can and we that know up the control

are now. we we really feeling right so where good about are And

Michael Burger

performance, also the maybe well. really And we And it is under a quantify constant what’s just that provided as happening repeat bit just simply currency provide covers. Andrew this to a little to

with ago. that think range bit I what bit drivers, we feeling And a higher around million quantified than places same built indicated some also indicated little bit you the a backlog. The of time, had is we’re of combined constant bullish more provided us of revenue quarter. $XX.X the at combination that that what currency so of why days of XX the Michael seeing And we end that last a more with the towards

Andrew DeGasperi

Got that improve we are essentially product to going year which environment? cycle? to of include when going you product to to in we’re started see HoloBuilder, it. That’s and in customers rapid the guess then to the Should we helpful. it happens? the once more end it’s comes you’re use the Sphere that expect And I going expect should guess say dramatically we that the expansion towards I once Like of

Michael Burger

growing is slow race. recurring time steady takes that any believe and a that real girth ARR of the We It build revenue to needle. moves

applications some in approach. remarks, we our our growth that’s see have believe, As that. from and think last new believe revenue rate roadmap we’ve the positive of we to And total for I accelerate the year. our I A Allen in really mentioned HoloBuilder But multiyear revenue to recurring should the at that. to his accelerate is Sphere ‘XX we from continuing positive believe toward we’re and think around combined continue compound about in growing a very proper XX% and We is making objective with very X% is it. That’s again, of have of to us a said ARR nature good a the feel grow annual I HoloBuilder that continue progress past, sign or I in do context, recurring

Andrew DeGasperi

the I is one range. might issues you the trending be last understand margins. why the then And helpful. That’s and on below

Is is when particularly things return to? of effects? know, in entirely terms you what curious do product to that on historical of that it a as know got that Or you’ve think that like, mix would based the sort timeline to the range Like, there improve? do see essentially you it can do Just we to when the situation? like

Michael Burger

Europe, that harder way way I Well, typically the product configurations are don’t to it we’ve countries, control. the the the Asia, is I mean is in it product are also products. these put and together. And is buying What seen the Eastern but mix, some the Southeast lower China’s guys of actually, developing mix from technology sounds, think particularly actually

Quantum laser country. applications be versus net and Those example, has typically uses probing growing China a at Max particular margin on that that the scanning, for point. to seem this For effect

a back move. mix, to mix. type quarter that that so we of thing And to, it’s as Europe kind for think as example, overnight. going don’t that’s think change said, stronger multi think Allen But comes as for other economies, should vacations, I of that We a continue and we drive

I continues had supply be margins think this. think negative I also believe talked chain and effect I in But as and FX to about a gross we’ve that pricing that that we’ve XXX costs, on of increase part points chain basis seen has a well. supply

guess who So a as I I from will knows longer is think are a gross think term reverse the good chain supply itself? when thing perspective currency, margins, deal, mix completely as And ours. your

Allen Muhich

I thing to guess thing cost chain transition the only in is Southeast Asia. also savings guess, the that’s add I from that realize material expect the would The more that supply I only located we a to

level, effects that. to that that see, will happening ultimately, currency line that with as gross XXXX, we’re prepared sight beginning think of of and happens. some that course, when upon we’ve some to mix margins indicated and from back We’re historic beginning benefit other had. to now we expect the bolster depending to as happening throughout I And what’s with the of to see we And what’s our remarks, ultimately see

Andrew DeGasperi

Allen. thanks Great,

Michael Burger

the term to mix that think through I markets. recurring fix here us is revenue, growth as accretive very goes for long be will

Operator

Robert ahead. Please to Baird. Mason with [Operator Instructions] next move We go

Robert Mason

Yes, of kind typical Hi, quarter up around the are I and level seeing typically get gives good from input seasonal fourth level the activity was of that that seeing? that Are we the a step around that given any you curious. standpoint? tone you a just bookings comfort gives coding question. for you thoughts you in afternoon. Amit taking just order your Thanks business Michael, curious,

Michael Burger

Yes.

general. But And to giving we’re that far. yes, the attends much QX. not year crescendo you’re seasonality out more We’re guidance feeling in to confident right about

And as it conversion confidence really, to of due think about funnel remarks, in also we ills. the product. talked builds cures continues this primarily think I rate a that builds increase So Allen’s new to and lot yes, with it we the

those So and words things well the there the recession out hear both for that said all Yes. I of All QX us. occurring. same around bode language that think for we

we necessarily hear haven’t but effects any it. yet, certainly We seen of it

a cause so things we’re may than that bit be wildcard And little seeing to a that’s different what Certainly. today.

Robert Mason

Could or across regions more a What didn’t an expansively I saw think even you Americas order well. that. But comment just comment the quantify on little you regions? he from standpoint? the main as other two

Michael Burger

Pacific, yet. of haven’t that’s bookings and that a what almost Asia driven relatively of was third, I bookings driven it where signs is a Yes, split. third been metrology slower not competence us, showing, revenue a scanner, from traditional perspective, Europe bookings I bounce perspective China. shown perspective. we’d and The third, scanners a world And largely a and seen was a to think new in into a going terms XD And bookings that for also gives perspective. from was our second perspective, from is thing had the still Japan about M us by geographic of from by since in AEC as it Europe in than I XXXX. by in certainly pre-COVID. exciting mentioned, mentioned segment. actually, from general, really back from in perspective, a highest driven life it XD think we strong public was a about like QX. history, interesting remains the nice seen the marketplace M interesting has America see a from is that in North primarily has QX largely we’ve booking was earlier, the we what XD safety the And lagging,

a FARO’s think in and scanner which long I dominated, no bookings. I was And demand new term. waiting one up there a it So lot again, scale, pent really region is materialized of global encouraging on think new for

Robert Mason

making think with Michael and or salesforce? By existing reps. you adding getting, the account how reception I reps you are mean, are dynamics products curious there. I’m with Or Are that the trending have out that the the you changes the are capacity? just they’re any you you new

Michael Funari

adding. that close one’s just capacity, through the of not believe are talking business, seeing. to I our the We think chest managing we’re no I all have dynamic context that those do we about. really in adequate market But

that we goals to we’ve got internal always, fact fulfill to But cautiously can sticking continue to demand have XXXX. If where for our we our selling enough now capacity in see capacity right to We’re we we just that. where change I believe do we growth continued optimistic. in think We can And to need, get organization enough we we’re from to knitting. believe need be XXXX. we

Operator

to at to no are time. like call there I the appears It for now would this further turn questions back Michael Funari, any remarks. closing

Michael Funari

you much. very Thank

are we guys feeling good where right now. really you are about as think we have I denoted,

your where manufacturing is good to you are for products traction forward Bye. much Thank time. happening. new the look in talking we product consolidation milestones happening so we to where and Sphere new QX. about we very are. really major And up We Our ended about and around feel you

Operator

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

and wonderful disconnect any may a time You have at afternoon.