FARO - Earnings call transcript Q1 2021

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Operator

Good morning, everyone, and welcome to the FARO Technologies First 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. the of its XXXX. close, the results market quarter first after company financial released for Yesterday, at The for are website the press first related release quarter available and on Form XX-Q www.faro.com. Faro's Litigation the Safe company help course this the Harbor are be provisions management call, made better may Securities To make that forward-looking and of of statements you Reform may considered results, XXXX. during its pursuant Act the of understand and to Private the expect, will, identified goal, be by as potential, estimate, words can anticipate, statements continue, believe, such objective, may, These plan, and seek, intend, similar words.

of materially views results actual as quarter is XXst yesterday's company's those XX the ended the by It to may forward-looking these and our reflect statements factors forth to projected XXXX. as ended no or except release year update today differ possible risks required the Form Forward-looking in we obligation and from discussion that in undertake for Important only are the in differ Form the statements. of company's XX-Q set them. for press and and uncertainties cause actual March the revise law, XX-K and materially December may results

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

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

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

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

Michael Burger

welcome and call. you Good Thank our Mike. to morning

which of as ongoing typically pandemic. served seasonal grew for of line On of geographic of seasonal a effects historical does our expected revenue, component levels quarter demand each as end markets recover in basis a adverse not seasonality incrementally softness. with we from well a levels. combination trends. our saw quarter similar broad-based our our Service have reflected Within exhibited to continued of First off regions our as markets, fourth the improvement products seasonality

remains its activities as XXXX combined to will revenue When shortages to uncertainties have generations February, to we to and contributions adversely continue whose market hard we new In cautious with such activity supply chain customers have employees continue success XXXX our our affect sight improve stated That the we created products. conditions structure, Faro semiconductor said, our XXth as celebrated health as While run once line rate below providing return normalize. model throughout believe Faro may have achieving we to of near-term anniversary, commitment demand levels, of today. work XXXX an and levels. demand levels our for remain of global several order cost opportunity the business near-term acknowledge

quality As industry. leader led an a a industry measurement accuracy. dimensional being pioneer in measurement in technologies as organization in And for of has reputation core Faro an three such and earned of many the in used historically terms the been engineering developing

Transitions our customers accomplish leverage to organization our differentiation. ultimately led to a is of As on understanding look a We and created with hardware both the understanding, strategy focused delivering we of understanding a the has with and needs. transitioned marketing looking technology those solve meet our to better solutions Faro, problems Faro core reputation trying believe and like what begin will time this software to developing products. take and future our to to and this they and create customers long-term are our deeper are

roadmap in product AEC our the new is market we can example of order to value customers' the provide in how to simple and capturing the the world customer our To possible. with in specifically concrete. focus real look this voice works, of workflow construction the this to task forming pouring or organization of -- order product primary generate greatest meant with a alignment Faro, win For marketing to of ensure a the

warehouses have we by precise level floor requiring is process generic lead is the the the be expensive be time action to measured Thereby, expense solution we targeted the whereby, will will solution our to lead on-site analyzed create to tolerance, measure curing capture can given of this and situation typical complete. of the ultimately If then then the generation tolerance it to product concrete historically this messaging. -- not sales a a market markets. to combined with go-to-market floor previously still is let our opportunities both believe manual high-precision differentiate the right floor large and by process is is and to that were our taken resolve out and rework. alignment the strategy For curing. the before of result. us The rework share with of while to employed desired supported with new targeted flatness, By process is out a needs process floor verify when developed evolving is concrete data that understanding realized within quickly in an if associated is enable customer roadmaps training, It tolerance. floors and saving This problem, cure solutions can and floor pour a the the

selling and an align our which workflows over of customers' create that scanners, team library applications. markets, We sales three XX ultimately targeting to presently are will arms solutions, move with which trackers comprehensive our enable will solutions ever- selling growing different to beyond

and We the product of approach ultimately to of influencing of value we continue at steady our customer a customers add voice the and financial flow on focus performance drive expect our throughout will increased balance believe solutions is this the together Our announcements taken roadmap to enhanced more FARO. year.

applications drives aggregate our solve. important and suite legacy software understand In a for applications software as enabling customers single of future development alignment, platform cloud-based larger they of solutions, the seamlessly into is our product that looking into problems are to portion addition both to to to a value leverage also it a we

In addition organizational user and information can analyze resources delivering cloud data the data and collaboration capture both real-time upload Leverage and and enabling enable platform to to in process in time. a unified access cloud resulting this experience, to customers across field. a the to over within boundaries also

to through a our our into cloud-based information and the transition, turn of with that that faster, together the that better everywhere workflows, them architecture. will first capture of access their developing this a finally intelligence provide With call understanding enable software translated forms for customers over deep for product increased Taken data, strategic enables hardware could customers' which be quarter to our basis namely Allen data more results. overview automated our financial an enable I'll to features

Allen Muhich

Thank you, everyone. good Michael and morning,

lower for of margin million compared X% primarily result ability first non-GAAP product to caused configurations. XX% quarter to XXXX. lower when revenue to million in EBITDA pre-pandemic first incurred levels. quarter million million Gross operating of of the as expenses year. than announced ongoing well demand and million revenue quarter due quarter remain related was intangible included GAAP in of of as XXXX, pandemic. quarter our was XXXX quarter Bookings XX% than XXXX gross continued were due our the approximated first overall the the of down compared the $XX.X $XX.X higher in operating million of gross to $XX.X acquisition of X%. and on XXXX $X.X $X.X and was Adjusted returns softness Non-GAAP period service was restructuring $XX.X last February. $X.X of amortization of year-over-year. approximately to XXXX margin GAAP GAAP Both of revenue the down million We of restructuring partial grew quarter market $X.X loss restructuring-related $XX.X in $XXX,XXX million million loss QX as expenses confident demand $XX.X was cost year prior absorption million and priced included and last operating XXXX. achieve operating X% to was with for the compensation the to first $XXX,XXX. $XX.X in X% last as related lower when for First savings lower to a XX% stock by operating fixed loss margins for the approximately remained benefit the an the cost first expenses of compared $X.X expense from only first a costs. the million Non-GAAP lower million Product actions of down loss revenue was

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

and other share of Our income first was XXXX first non-GAAP changes global XXXX. million of net exchange a the Included $X.XX incentives. per in balances COVID-related for of $XXX,XXX loss compared in foreign $XXX,XXX per associated expense of share receipt in foreign the cash was or quarter, the as the quarter $X to with non-GAAP as rates of QX net gain of currency loss result $X.XX well as re-measurement

$XXX satisfactory and continue primarily a and $XX.X that first to strong finalized reserved of debt. the The a the was GSA balance made resolution government closed a and reported US was in We our structure the of in quarter. a of previously million a with decrease cash to as cash result no to maintain million QX matter capital result payment

reduction are quarter and While February, last actions both we and non-GAAP we're satisfied the our expected cost pandemic the combined fortunate with have first impact near to the of profitability. our breakeven taken typical not seasonality

market forward take We this our our and to new be capitalize of prepared cost combined ability with ultimately questions. This EBITDA demonstrating pleased structure continued to model. improvements concludes to will success our on your yield our when time XX% we'd adjusted are looking that any remarks at

Operator

[Operator our Ricchiuti Needham. question Instructions] from from Jim will first We take

open. Please is Your line ahead. go

Jim Ricchiuti

a on Good you're good business. given a at the some Yes, seeing. to wanted indicator the looking of little bit we're in business bit geographically you. have the US thought of a off just given than seeing just just APAC maybe not is on seasonality morning. Thank was recovery maybe would know it we a little more the But basis as there of focus signs year-over-year the QX because I I what was

Michael Burger

right. All Yes.

northeast little bit continues is The now continue And perspective, from first QX, QX. in coming you signs again, to but and And recovery encouraging. is that The of strong. we've think southwest really we're show continued northeast really America seen QX, a nicely. certainly to which know We I has Asia West in seasonality relatively been the to has Coast us, seeing up we've of Year New is West which Asia seen we're a the seeing -- -- effect North a as big pretty struggle was think signs think for I Chinese back the I more improvement opening and some to struggle. Coast good.

automotive life also of the area which is we're think seeing space the I helpful. signs Detroit in

we're continues The be of encouraged in in were Italy impress but QX and by it though we what Netherlands, with quoting down. activity, Europe. even places what and in pretty recovery -- seeing lockdowns and to encouraged us we're Europe this and So, we're we're terms funnel we by seeing to like build seeing expect

Jim Ricchiuti

Hey this Michael, it little identifying or it. wondering a these that different these relevant? XX is about bit can bit and a intrigued be case of I'm what pretty might Got three or little I'm still use the by top four you And maybe talk workflows workflows.

Michael Burger

to end about products. much we these are about talk we talking like going very Well, Sure. up

past. we've floor ballistics one in spatter been public is a are of where examples or leading now forensics part construction we're big -- workflows our around be blood But flatness for we're space. in putting for workflow of will this the XD that or example So, our one. to build space strong together in going digital on In XD complete metrology/AEC metrology twin of be a workflows will the in safety;

Jim Ricchiuti

any in And short-cycle and color for the be if terms of might ship you provide kind it. last question what Got is the of book business there seeing could in just quarter? you current

Michael Burger

encouraging. it's Yes,

knew really QX cycle seasonal around begin seasonality cadence QX us. I is then kind seasonality Frankly planning kind kind encouraging of to returning March to our and the actually we a forecasting of QX Jim is typically and think is is to better, the what none honestly were of of we expect. where softest quarter We which QX looks a reality QX us for wouldn’t And holds end if our on of prediction is the -- vacations. then in is go ago in QX That's a to sideways I it true levels I but that right coming then it back it's XXXX. our based that similar think great. say and and forecast we'll like what said we're we to XXXX holding up year European and

Jim Ricchiuti

lot. Thanks a

Michael Burger

Appreciate Thanks Jim. your interest.

Operator

Craig-Hallum. Our from from next comes question Palm Greg

open. Your ahead. go line Please is

Danny Eggerichs

Eggerichs Danny This Greg. for Hi guys. is on

Michael Burger

Hey Danny.

Danny Eggerichs

was end color just Just quarter? could underperformance any is outperformance if your wondering standpoint market if looking from or there in more we the get there to an expectations little there, a if relative

Michael Burger

Sure. market softness AEC continue But across of States We've we you as even our seen expect of Jim business last saw AEC we kind it exciting. of that's a big of we're market And past saw for north continue seasonality kind showing part Public we small and XD is the will build seems though in market penetration portions strength Europe bit relates and nice XD as metrology be to XD a in to to metrology. was in us that kind asking that's holdout, Europe some us, But pretty the central safety still of the soft. and northeast recovery the construction to if Ricchiuti, seen And board. from which looking some and United strong. perspective. but is metrology years North recovery is really signs America. of we've at the new for of both Asia a be the a in

Danny Eggerichs

Got new helpful. on then And the appreciate year. maybe it. I throughout intros go all we as That's color the product

Michael Burger

Yeah.

Danny Eggerichs

aggregated on update kind software timeline that of any launch? – maybe Where for a offering

Michael Burger

in the We think And as track butts better We on will that. it. this on total are a us, new quarter, year half off last do still for we're about products. planning relates introduced thing working big to it we XX our the we're mentioned, and I It's cadence it for second we'll and XXXX. for

Danny Eggerichs

and move year? OpEx to product maybe launches And then new look the as should these we with throughout coming at as it relates that a OpEx, little how remain we elevated

Allen Muhich

higher operating success that I obviously of I of QX would Allen. to an in expect around range has think we year. throughout expense approximately From us million as were the we $XX end our model think million level. the the – We range $XX again, this standpoint, being is balance at remain to continue in the that

Danny Eggerichs

for me. questions. Okay. Great. for it That's taking my Thanks

Michael Burger

it. Dan. Thanks, Appreciate

Operator

from DeGasperi We'll Capital. from take our next question Berenberg Andrew

ahead. Your Please line open. is go

Alex Ross

Alex for is on on Hi. the Andrew Ross you had of industry. questions. This our behalf one Thank taking exposure the to I auto DeGasperi.

from We the semi have heard cutting that are shortage. auto production manufacturers

will you've if you how I about you. from the was So impact year? anything And of rest your wondering, Thank customers just heard that? think that

Michael Burger

in fortunate capacity that We're automotive a to offline. a as capital Yeah. products not is we sense are tie the direct purchases for our primarily

directly capacities, to So of ebb tied for flow think we're and us. not I kind which of well bodes

I cycles. the take that on has that's part the the that fully of world we've yet. automotive that, and we revenue levels northwest northeast capital recovered slow, kind spending or depressed with north not said, reason longer kind seen the believe however, And – central the really may and because think of of

is I it, part shortage yes. think semiconductor of

Alex Ross

ask last just landscape. you change in Have quarter? more competition the seen any I compared if on And helpful. could to That's one competitive Okay. the

Michael Burger

dramatic. nothing No,

fortunate I context haven't that, good competitor or we're they competitors of, anything or the pretty of unusual got where pricing think some their any merit. we've that price seen anything – we how new products in

Alex Ross

That's me. Great. you. it from Thank

Michael Burger

Thank you. your for you Thank questions.

Operator

Our Eastman Richard comes question from from next Baird.

open. line go Please is Your ahead.

Richard Eastman

good morning. you, and Thank Yes.

Michael Burger

Good morning.

Allen Muhich

morning, Good Richard.

Richard Eastman

the that side and are around think impact is to product margins just we're that guess, your on that seeing a for top seeing perspective customer a this quick you gross more produce FARO, chain that? and Is bit line base that's or when for at it point. your about supply line their everywhere, Very the alluded issues impact Michael, you spend for your of matter you to inability question. I some maybe

Michael Burger

our hasn't No. context directly The semiconductor the us situation of impacted in products. really building own

So, stage. I think we're this fortunate at least to

you affecting I earnings depressed, ultimately second our basically or then capital think more buys. of on and build ability get a effect and – confidence are this it's capacity, typically opportunities is depresses So, which authorities a when in have to so not signature situation think much order actually go capital customers the we out, we've I affect, just what away, because elongated. And seen an pushed that they typically, the earnings,

revenue short-term. the relatively So, maybe effect us, of think for I pushing out

Richard Eastman

Okay. more to measurement the that's side well, And going be as XD presumably? on

Michael Burger

probably. and be across yes, probably will Actually, think metrology I Yeah. affected general, the most. Automotive XD Board in the

Richard Eastman

Okay. to margin gross quarter? And the then in charges that does a basis I just do – Allen, there the maybe in quick was this Maybe the some obsolescence noticed What question around, taken. – on queue, the product question inventory

Michael Burger

and I'll talk about then implications. that about Let financial me Allen the let talk occurred how

and terms cost we portfolio. was be our in know, product pretty was a but developed, have effective. there was critical you been or that think aggressive to In competitive I going this not at situation, we believe looking As of being did very product

basically redirecting then So in Go resulting up and -- resulting the of excess inventory. R&D we Allen. ahead was basically ended the canceling some move that that product elsewhere. And

Allen Muhich

And impact margin was Yeah. one standpoint quarter financially point. overall bit a percentage the just the of on revenue on from profile the north a

Richard Eastman

margins? gross then… To And Okay.

Allen Muhich

True.

Richard Eastman

impact? And toward measurement. kind product mix mix this Is point Yeah. XD or of just -- dynamic in product, understand, of again again, we've here that of price in this And presumably kind this spoken then terms lower I stabilizing to the maybe shift issue product before. mix

Michael Burger

it has. Yes,

think I think is think stabilize I have quarter-to-quarter a And on ahead. go we seen positive. basis, -- we it which

Allen Muhich

of a impact. and just of team in our product little positive I had add bit quarter, frankly couple initiated a marketing a a actions think little Maybe to the bit there, they

we historic levels So still only improvement of a two ago. a year we but but bit bit it's I at previously to stabilization, that in saw than worse a were or not relative think mix,

Richard Eastman

Okay.

right. All thank Well, you. Excellent. Okay.

Allen Muhich

you. Thank

Operator

Rose from from Road. Instructions] Our Ben next [Operator Battle question comes

ahead. open. is line Please Your go

Ben Rose

and morning, Allen. Michael Hi, Yes. good

you question use a digital mentioned had Just twin case… the

Michael Burger

Right.

Ben Rose

the know stand? evaluations technology. where …on perhaps automotive for you side. think to believe And I companies might had the metrology twin that you some in the of XD going you and on have Could evaluations they I European those interesting digital perhaps in of some use speak

Michael Burger

made are have really where I where that don't excited twin But it and an announcement We with I'm today digital to customers. as will we say about super relates are we with have the ATS the continues the evaluations the of that leveraging in are we've acquisition Sweden. terms And feedback increased extremely out number evaluations. of that of to be ongoing positive

we're making great we're really actually think progress. So I

Ben Rose

then you mentioned perhaps side like Great. the in how last Safety it quarter seasonal you I on and good including North and performing that's that some America pretty quarter this Safety. Public to in know Great. the Could speak sounds business part of even And impacts? Public opportunities

Michael Burger

other Yeah. No The Public be North cycle general, we're continuing make quite our for Safety products even sales in to Safety positive America bit including than a to market our for I think longer inroads. largest construction. and continues Public is

So if when -- in townships, you and selling we're will. to municipalities

time. so level we're takes at sales And even many many it selling cases in that country as Europe cycle which a longer. cases, can imagine and you In Asia, actually takes in

a it's sprint. year. we not a seasonality fiscal So And on municipalities marathon see as a did are many expect to some

we is America some said, our to concern healthy North about year, that of to sure are many started make the are in has our and funnel intact so their ability Public is so that move. over the some uncertainty it's and police And all so for budgets budgets let's obviously external. the have of for both in Safety getting which departments before continues them and That new and There there quite funding, again. equipment buy process -- impact grow process about particularly capital

Ben Rose

Okay. very Great. much. Thanks

Michael Burger

You're Thank you. welcome.

Operator

program speakers questions further that over closing now appears will turn any no I the remarks. to time. back our It for or at this additional we have

Michael Burger

to really forward much. appreciate I attention and all you're know We busy giving an next everybody's you today. update very we Thank you look quarter.

Operator

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

this disconnect time. may You at

FARO (FARO) 30 Apr 212021 Q1 Earnings call transcript