FARO - Earnings call transcript Q3 2020

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Operator

Good morning, everyone, and welcome to the FARO Technologies Third Quarter 2020 Earnings Call.

For opening remarks and introductions, I will now turn the call over to Michael Funari at Sapphire Investor Relations. Please go ahead.

Michael Funari

Thank you and good morning. With me today from Faro are Michael Burger, Chief Executive Officer, and Allen Muhich, Chief Financial Officer. the of its XXXX. close the results market quarter third after company financial released for Yesterday, at The for are website the press third related release quarter available and on Form XX-Q www.faro.com. Faro's better understand order management make call. statements forward-looking help this In the of the may course to during and its company results, you continue, by may, intend, and words. be These as will, objective, statements identified can believe, goal, expect, such words anticipate, plan, potential, similar statements. the company's projected actual results materially differ those forward-looking possible may in from these is It Important actual press are and XX-K factors cause for set ended XX, forth December in Form the materially that to differ XX-Q September ended XXXX. may results company's and year in release for Form quarter XX yesterday's the the

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

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

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

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

Michael Burger

pleased to global a as quarter sequential Pacific pandemic the saw Good Asia On geographic the to Mike. I of in modestly quarter. related in their investment exhibited reopen second face base. improvement resumed customers quarter improved many they second capital began continue Thank you, demand stronger Europe basis, strongest the report overcome of challenges Americas, plans. our to and a third our the to improved call. the morning. economies Welcome in revenue as am we performance our customer and relatively Within

projects public Service greater return for work, begin revenue many and normalized which of and the improvement customers as both Construction condition. throughout resumed operating time including more uptick opportunities markets, and safety demand government and exhibit quarter construction as Architecture and end the greater person repairs. exhibited our to returned from steady to agencies a a Within training to sequential markets allowed AUC or the material Engineering

we demand and markets While activity that trough, said, recovery increased below is in a the the XXXX heightened serve confidence slow quarter second are is expense Shifting underway. our conditions represents the near-term our global to we That remains levels cautious business remain as health our deteriorate, we could February, adversely the changes announced strategic purchasing and non-GAAP and last operating decisions. the when quarterly the I impact XXXX continued plans per of headcount stated increased our compared the structure. and an the the go-to-market that XXXX. initial pleased sales our changes productivity, in from This quarter below am very in indication remain target third despite to our sales we first of expect half well. annualized of result will nearly is levels is the sales revenue transition increased progressing customer's softness, market

to As software to relates initiatives, our on into software solutions we it one platform. and our existing make continue cohesive harmonizing progress solutions

capabilities through to our added on hardware will our help organizations. And these to Faro's and value. industry To enable the enabled automation. team believe focused are two We sophisticated veterans to executive our differentiation we particularly we quarter, R&D customer time our increasingly in decision improving greater third long-term lead and customers initiatives software accelerate software

profile reduce automotive ATS, the enables technology industries space internal as complement their based result, our as ATS to acquisition solutions adoption Solutions Advanced allow in to and to Faro had risk the accuracy, a several has of automotive Swedish digital capital-intensive twin addition leader believe in in announced and with development automatic agreements a such manufacturers. in automotive initiatives, twin the well digital place market technology. measurements three have cost. – three success We or known high meaningfully In Technical acquisition with August, global dimensional time dimensional accelerate of to we this

twin digital we technology applicable serve. AEC, in can large customers and manufacturing in to public to primarily today's for we used safety environments. leverage is people While the ultimate virtual increasingly complex In world is provide equally environments, ways where value create, proposition and looking the markets are

Our physical digital remotely twin unique ways manage market leading accuracy to provide can NFLs.

software with take twin efforts am believe strategy. and I we quarters will three solution which application to resiliency digital While manage build, with software it types under adoption of leading transition strategic opportunities the the to hardware we Faro of way two are time team. a create of our the innovative and in proud the for exemplifies pandemic, the including the Nearly edge quarters looking entire customer into

organization the realized, quarter new largely growth. results. behind call will goals processes our accelerating and us, overview cost financial turn and now third are shifting Allen of for focus With With our an to I the we reduction revenue that, over toward

Allen Muhich

morning, Michael, and you, everyone. Thank good

$XX.X was was down revenue quarter XXXX. quarter to when Third the XX% compared third of million

As market a of continuing result caused by pandemic. the softness

we throughout earlier, demand began quarter. third in conditions the that saw As June, quarter, indicated the Michael in improving and continued

XX% up on sequential million on repair, bookings training also sequentially on-site as activities, revenue of basis sequentially. As of was a XX% revenue product were up XX%. was revenue $XX million total Service and increased and customers $XX result up a XX%, while to re-engaged

and demand to was for pleased pandemic we believe the improvement unforeseen gradual margin of to markets lead a quarter XX.X% borrowing demand serve, the second non-GAAP a lows, to quarter continued healthy third sequential see recovery quarters. XXXX. gross gross will coming impacts the any increase of over the While in was margin the that XX.X%, we GAAP

compensation XXXX. $X.X of million acquisition-related operating in remains restructuring were expenses $XXX,XXX lower million its than lower primarily revenue of and and due positive expenses absorption. the amortization intangible it than Non-GAAP stock included in million on year, GAAP improve sequentially to costs. approximately margin increased last and expenses QX $XX.X cost and were $XX.X gross did million, While fixed effect $XX.X operating

operating taken result of million savings with year, quarter XXXX when variable cost was lower as actions for third environment. from sequentially operating environment. Adjusted expenses into the X $XXX,XXX. XXXX investments higher with and loss hardware a restructuring as Non-GAAP of lower increased of an was benefited third base earlier of well and the expenses company million were compensation to $X.X given on soft R&D operating GAAP primarily travel better software million roadmaps. the EBITDA the revenue as loss our approximately making or the expense offsetting in compared quarter $X.X current related demand the our more than for As

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

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

Michael note steadily also like when a XXXX of mentioned continue over changes capital, total structure quarter the $XXX.X and earlier. We of current ATS nearly I In compared driven by or that, in would to the a third acquisition, balance million and soft has cash $X the $XX.X million with capital XXXX, despite of a balance decreased December to no debt. working primarily cash our by demand decreased of maintain XXXX. strong throughout million by inventory environment, to XX%

improving future pleased remarks. to questions. And job our we'd your expect reductions Our a efforts. further operations will any be this fantastic the practices, This result global at time, inventory that has prepared inventory take their and our in done team of management from we concludes

Operator

And Palm first Hallum we'll go [Operator Craig- with question Capital. Instructions] our ahead. take from Please Greg

Greg Palm

Allen, Michael, Hey, morning. good

Michael Burger

Good morning, Greg.

Greg Palm

strength, mentioned start you activity can orders think maybe verticals I if through and public is any cadence but or markets you and that the of overall Maybe end to about the the by maybe safety or surprised quarter out due demand maybe talking sized upside. of just some sort other AEC

Michael Burger

less in metrology and were strong we call primarily driven Europe, QX on stronger because and we surprises. Europe, growth a historical North QX than and had was relatively America in that recovery probably I Asia's think in mentioned XD strong than North in Asia, out had don't a a there rates. based as – sequential the America, relatively We of percentage

actually strong. bit anecdotally of recovered traditionally ended looks customers still a have I kind certainly this so think we had I first, momentum based bit in continuing vacation kind really to were albeit, it's like but fourth concern, and So a quarter. on concerned, number it was dash, recovery We and quarter are of there pretty vacations, do Europe it deliberate, quarter a the it was is the period, our up and Europe, kind begin QX into that slower in they build more felt of that we think August, the Asia were little in extended by pleased the in in a the of and a we so I

Allen Muhich

our market across as affected scanner arm. we also an the little saw more end I the – uptick than emerging, the relatively the that the that see might that good, In Michael thing a demand other safety, we is business bit public in was what add indicated, and agency did in our and verticals

Greg Palm

But, guess in conversations. Okay, business, And thus mean what usually you seeing Can are that in well? mean, year. as driver you, quarter specifically about given big how Okay, I I you're very thinking dash, this December October a good. not and to I certainly customer end QX, I normal mean tends far of a your be so things, we're of

Allen Muhich

back. No, companies are I think, coming we're encouraged that

But years. see demos, to customers But is I a my mass, happened second see difficult not really I we thing going it do of optimistic, is phenomenon. don't in traditionally, it it It say again, and believe and see some weren't ability bode what great waters. that will our again. this face-to-face happen that's it to is robust at well we were becoming the year kind meetings, I what strength do think or and over QX. in company. has is traditionally, lose I and as but QX us spent, happened to capital face-to-face back is QX that XXXX level, guess, be to in the XXXX has think bounce easier, It this expect question that we that in that don't QX and been we coming which uncharted assume but have But, I would would again past think, is know spent I of budgets for capital, do we it, that it as type $XX to is us. spend We're our call to for should back cautiously typically

Greg Palm

the mean sneak I in. missed on mean hear versus did didn't a environment the quarter. I this Okay. that on that's think I somewhat going maybe on a like wanted it, but I feel competitors. especially because that's anything, to differentiated I up you just maybe can to in. leg it want that, the past of more virtual do gain in demos, in I I one gives you some may looking be mean other forward share tool you back I help focus we're

Allen Muhich

the demos also perhaps Absolutely. our very We for in-phase been But, and of think to virtual positive, argue continues culture, both bodes I that, I tool to sales demos as re-track Faro. point now I I indices your our virtual productivity, would think well is has around be think and which in culture. a inculcated in customers' and one very

Greg Palm

Okay. luck the of Allen. Best Thanks for color.

Allen Muhich

you. Thank

Michael Burger

Thanks Greg.

Allen Muhich

Thanks it. Greg. I appreciate

Operator

And Jim our Needham. question next go we’ll take ahead. Please with Ricchiuti from

Jim Ricchiuti

morning guys. Hi, good

where of part the you have area successful of the if modest, that of is you speak what may I seeing new it. may of in this can business. wondering, strategy the the are terms I a business have mean commented side just You more look on your I on business. you're at of But on decline little missed that go-to-market showing this, side year-over-year the I'm fairly service service bit to and

Michael Burger

best big definitely ensuring in part particularly for got a it's the a quarter-and-a-half we've terms of of streamlining experience. business, been that the Services Yes. through focus really our and us processes user

that the driving lot factories That's, machines are because to back. really shipped was back actually is an come fantastic Training of were is terms revenue the didn't levels. nobody just there when we in using hands reference or QX, on. needed their was up, fact of person you done really in really training was, more that to our really virtual coming what's get of in lot but a coming that think, today think and training, efforts, frankly people it, get being big with repair, customers calibrations a certainly part of I QX, in I we our training but which has increase also been normal can't saw virtual service a and back, there

in So, obviously the person is best. training

there. we so, And we saw, a saw resurgence

levels in mix revenue to think normalized to of going started where kind the So based it's that than on revenue. in dollar product I think terms has just is of of service QX. more say I we favor I product change faster wouldn't that in returning over

Jim Ricchiuti

that, And there Got of of or be components R&D was as number? it. how there, increase in R&D a level the going bit OpEx should – sequentially. anything about Is that a is think about a had of on base that Allen, unusual whether R&D thinking we side going this should we an the forward you forward,

Michael Funari

to wasn't in level There maps. And I prior indicated we anything as to our adding both software to our number. unusual hardware as deliver R&D calls we think be the that resource able as in well are road

bit is tick operating hiring we, expect in third in us continued expect as therefore Again, the Certainly, it would Michael the as R&D, QX, results again. we as overall both some – expense fourth I well it looking-forward, as to to for little the can affecting I increased expenses quarter, as see a we think built-in revenue, in where from quarter operating variable of the QX. an with level. and the more as indicated, up compensation think you from revenue variable compensation was and just well which the increase expect

And a of James well So, we talked February. about a in within bit success last the that – but Please. further uptick, back please… guess I year, certainly model

Allen Muhich

count very going were the, to. QX the spends already before was I I of the head this – I kind was in spend. we we, pandemic, that add just Jim we of And during that think going thing the project were hit. just to underway were cognizant

we a And very lot in slowed this R&D. expenses in through lot were could we words, in In as the pandemic. areas prudent terms of so hard as of run a we around running rate spend cutting other Company, of in R&D and but kept we expenses

Jim Ricchiuti

just hearing question, seeing consistent regions, the that's automotive final market more across fact you're And And just recovery we're more hearing? in geographic of what that your here. in and we're signs of what wondering with and

Allen Muhich

terms public strong lot there still not there a recovery we But XD Well of probably QX, stronger I think are capital come some is albeit reticence. and safety metrology public E&C. as as and saw Automotive we in as they a QX we at mentioned, question versus back, construction. of a pulling is saw triggers, least again has safety little bit in is, and activity. The in

companies are on bodes think back automotive to at many back XXXX the And back to don't work coming a levels is I QX, though than ramping. be think I I I lot well. and and of different back back coming spending capital. money I even factories are think But that online, factories think expect and

Jim Ricchiuti

fine. Okay,

Michael Burger

also on The we think side that add I that automotive might with twin guys engaged to are the appeared be it, active. digital very

again us historically, automotive the I a slightly good we've progress which nature, than all flavor why making one be the which And in so going will market that again, we're think think what of which different relatively we're about on had to is of it. reasons front, necessarily excited capital isn't I give

Jim Ricchiuti

Thanks it. very much. Got

Allen Muhich

Jim. you, Thank

Operator

our [Operator with Instructions] And go we’ll question Capital. next Andrew Berenberg from take Please ahead. DeGasperi

Andrew DeGasperi

Great, morning. good

Allen Muhich

good morning. Hi,

Andrew DeGasperi

I just two quick questions. had

little on the and do First, would environment I or with, the products of what the in help to you line on bit twin the that digital side? the, expand scanner. you little the wondering the asset you if on terms the ATS secondly, I will of revenue arm a it to was bridge the what and wondering on terms on particularly impact expand then, as in a bottom competitive side, from be any manufacturing just just change noticed was to relates if could in And

Allen Muhich

typical, competitive big Yes, seems competitive be QX perspective reference changes, who I from the and commented in a we not I than that by what of XXXX. to knows QX we've believe means? probably typical scenario that would or QX, less

aggressive pockets competitors. pricing, see from do the won't we across super traditional say our have, We of board I

we nothing a from that surprised perspective. that So competitive us

is order but I competitive Asia, market in in dramatic But they've we've of then QX, so wanted ATS nothing in frankly keep terms really in of – us workflow, is environment, Faro set actually Asia, very albeit twin a to and and metrology, XD any effectively manufacturer using consternation not new what data was with of cloud-based in-state. Europe hasn't what it so run out, business that manufacturers includes that in knowledge digital a there but metrology – new which across what they successful is a for and think twin a date. that our, car a competitor on and Digital in set, really hosting acquisition QX or we been we're XD creating particularly competitively is bring a we their our becoming is and several changed eyes far. from equipment caused data the provider, and a

So been partner they over decade. a ours a for of have

a them able for car capabilities it take that inculcate several into being currently made leverage so, in. to lot workflow sense Faro, they're of and involved manufacturers us their beyond just And their to

and said public that And in is facility metrology. script, catastrophe or also we twin building is planning the building, applicable As mapping. you XD also, see in public digital the safety We believe around applications management. when believe around there we building beyond ownership,

equipment. Faro experience, has decade public of workflow metrology very So we see repeatable believe with it that in a super applicable XD is complex obviously a we that automotive, the in in this accurate, really separate application market, a but safety, see bring AEC application, as manufacturing, but is in plus we developing there's an and also guys and utilized them don't and that it and in these

marriage was and So we're very a us like excited. for it

we third what the what And leverage markets the I know that is objective question into to discussed. that was. Our they forgot

Andrew DeGasperi

software Yes, quantifiable top terms was to in simulate it where to they not And I do de follow-up other any in the to bring of digital some kind your it's helps other of or tried what time over component is do as do provide and and that stresses I'm in do minimis sort going Ansys software product, side like a table of impacts not, time? to ask line. on you potentially mentioned I like on essentially if they just assimilation the mean, and there they something the the what sure of to others real words, but twin image but words, digital a that on

Michael Burger

viewed a what spread very understanding new taking From minimis, be a actually relatively that anxious inculcating revenue software very software. bring software allows environment, in to the to manufacturers terms software. that that virtual market workflow, what not And I digital important their suite. as the is yet. Faro developed to and not being software measurement think perspective, very in we these de is and guys think – of the the basically at And very very opportunity application it's this not in are to point-cloud growing. quickly, time. work-flow us able huge and mentioned we're have important is and seen our the easy, And And into they its I twin We simulation haven't

Andrew DeGasperi

to road That’s update the helpful six from next maps us the my wonder if just question, twelve months. Michael. product And on you I last for can

releases. idea in an getting inclusive expect of what should terms new Just we

Michael Burger

we've of say product the they year. would I this the year more but three we major end won't two before consider what for what to introduce end releases expect two are, year. introduce I XXXX products, the new today, the Well of before

the two to will we and working of that directly create are in diligently one charge products, executives charge of One software a drumbeat very we've to call in hired you me. hardware new report mentioned in of We engineering. and that new engineering if

differentiated challenge the in regular, much products this and can and And more than to on a new create in customers of done which frequent so their we've part past. drumbeat basis expect really charters

Andrew DeGasperi

That’s helpful, thank you.

Michael Burger

I Burger You And At turn remarks. for questions. to the any Thank call additional will over you. closing there back no appears to this or Michael are time, welcome. be further

Michael Burger

this everybody's think morning. to levels I we appreciate We about recover ultimately would It's this don't attention. see very excited attention beginning great to forward We back a is you Thank giving update look is XXXX and We're believe to, we an to we next and where quarter. an the QX think this the but, your but recovery for you slow, example are. that. steady is business recovery, of

FARO (FARO) 31 Oct 202020 Q3 Earnings call transcript