Earnings call transcript Q2 2023

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Operator

Good day, everyone and welcome to the FARO Technologies Second Quarter 2023 Earnings Call.

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

Michael Funari

Thank you. Good afternoon. FARO Chief Wasserman, Muhich, Executive Officer. from Lau, Chairman; Chief today and President Officer, me are Executive Yuval Peter Financial With and Allen after financial released quarter Today, XXXX. the the of for second its close, market results company is The website on at form FARO’s available related and press release XX-Q www.faro.com.

business not beyond statements involve Please uncertainties, risks industry statements are some conference product our events. considered include maybe results, of call, this certain facts, development, or future projections and forward-looking inventory are control technology and regarding and our note, levels, subsequent which and financial which customer in historical and statements that economic guidance, demand, outlook

could factors actual materially. differ Various results cause to

press these quarterly more description of release other a our today’s detailed and SEC annual and and uncertainties, filings. risks For and please to refer

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

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

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

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

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

Yuval Wasserman

Welcome, to everyone our Mike. you, Thank call.

September year-over-year, of the product to of with Tracker acquisition. Max Second million of revenue well and Quantum was of XX%, XX% following revenue as base as hardware increased ScanArm quarter revenue lines, shipment enabled our the our GeoSLAM both XXXX $XX.X up million up $XX.X addition by Laser

to which did accelerate relatively environment a we call, when activities began demand combined our Laser some better-than-expected Max, our particularly better-than-expected Tracker has availability contributed their resulted cost that previously the reduction announced customers overall see profitability, since line. to higher-than-expected on to earnings unchanged of Related see Quantum decision-making, the further in with also While supply remained revenue. last purchase effects we bottom

with pleased and to we are factors, XX, macro expect future quarters. in continuing PMI in results, purchasing below signaling we improved push due global ongoing including a cycles softness longer-than-usual the the customers our commercial quarter several second construction, decision to While into continue sell

As we a cautious half remain second revenue result, levels. on XXXX

$XX discussed response In FARO's to of we accelerate economic underlying reduced rate uncertain to our improve additional profitability. reductions a realize to spending million call, our expense $XX an to and on in annualized last quarterly the million outlook $XX operating million to million $XX intention

the second to I'm by acquisition. pleased investment of our first, report to cloud multiple development and software streamline environments that resulted synergies included, consolidate actions, these from that completed combination the during and right-sizing recent internal quarter, have driving we which

to robust a and on single XD include to with continues collaborate enables that roadmap cloud software culture users devices created models on Our a view a set user feature interface. single by platform various

efficiently, inherent quickly, our model, remains strategy, able to we more valuable customers we'll key by redundancy provide be our and of element the eliminating prior Software a believe solutions in cost-effectively. and

sales opportunities executing our Second, productivity to global improve in organization.

this learning proactively the and lower regions our revenue We believe investment. optimize levels. our from are We to areas we productivity high affecting to change formula in overall execute affecting without productivity have adversely change

redundancies global those our acquisitions. that additional within certain including structure, from global by across resulted organization eliminate synergies creating Third, consolidating cost our functions and

reduced organization model in executing leveraging to our global on finally, cost. buildings, by footprint sites, And the our distributed inefficient exiting consolidating and reduction

and million million the expenses in inflation, between a now With February, of current this from a executed run the complete, of on $XX exchange GeoSLAM when in September rate of $XX effects a to have our work quarterly actions reduction result addition non-GAAP plan considering rate, XX% which in approximate in basis, which combination weekend we represents XXXX. an announced dollar the with operating will

spent time my of and plan, many to this formalizing speaking our observations. In with share I you with stakeholders would some of like

foremost, I'm with and globe, struck and employees as passion, the broad, technical employee a expertise, met a I've and with a of talented base. around commitment First broad to

applications are our FARO set and safety to and believe aerospace, the XD XD markets. in and AEC, They automotive, crime management in and for and ourselves in the use methodology accident best analysis, we've tools which industry's construction targeted mission delivering for at progress very turn from public in scene ranging

Market competitive operation. devices From a onto developing value. brand waste the which customer's that reinforces system has cloud-based from a and trends, simplify a of both our point view, demonstrated feedback, models capture facility our to coordinate solution that eliminate single management aligns in and it's virtual analysis construction will FARO's long-term different and and customer XD technology apparent efforts of

other hosting long along reviews and capture, individual generate combination for a the shareholder designed value. applications with our in believe term and over will and processing cloud and workflow this use software Through with further I FARO this hardware increased of case marketplace management differentiate specifically team, unique

deliver track To with business to brings and success. Peter pleased wealth and experience CEO. realization as a welcome driving distinguished execution, our enable of proven of record Lau the our a a new of and expertise Peter strategic best-in-class initiatives and President I'm career

companies a at Peter delivered has growth. has Hubble, including leadership to several driving sustainable industry-leading commitment he and held strong excellence and Honeywell, operational where and GE, positions results exceptional key demonstrated

Peter's competitive will solutions, leading the software-enabled organization are through advantage. global presence we as a to expand digital driver continue success enhance Peter key technology. can demonstrated reality solutions XD recognized With and transition leader in its has Under that and growth be a position how its firsthand FARO software leadership, to in confident of and

over share With that, to turn few let it me comments. a to Peter

Peter Lau

afternoon, Thank everyone. and you, good Yuval,

various to start to me with of high-quality saying, across industries. track a excited delivering I Let rich customers by a legacy innovation FARO, really of a company join am and record solutions

the FARO's success. team driving to am leadership a new role, opportunity have my talented work In fortunate dedicated to alongside I to

we for creation ahead, and remain our at customers the value of shareholders will heart As strategy. look

offerings, Our service customers, and of remains our FARO excellence strong that will continue goal our provide trusted of deepen and we ensure our enhance and forging to product partner support. needs, with partnerships their transformation. digital By pursuit in operational is exceptional to understanding their customer

feel months growth customers, many privileged poised look we very future capabilities, well to I lead I forward technological believe foundation, Faro next and our our to success. into strong our speaking With shareholders, a ahead. I in the of are commitment for of and you unmatched to with chapter. and employees,

of quarter financial turn to second results. over now will call an Allen I that, With the overview to provide our

Allen Muhich

good Thank everyone. Peter, afternoon, and you,

Quantum ScanArm was revenue compared organically and XXXX, quarter primarily trackers. million, XX% higher X% of up Max of second $XX.X Second quarter or shipments to when of with our laser the due

revenue quarter Second $XX.X million hardware was XX% up year-over-year. of

Over service the over for and X% as last is XX%, success leading up prior of XX reflection continuing months, and increased longer XX products the and organically launched software indicator hardware differentiation of the months ago. revenue, term a revenue to reported period, XX is XX hardware is a ultimately which strong we or month the

continues roughly of customer million revenue from purchases to was conversion the subscriptions. of Software flat licenses to year-on-year and reflect perpetual $XX.X

end this expect the conversion of to to by XXXX. predominantly continue to be complete We subscription

consecutive year-on-year of modest reported first growth million service in represented five year-over-year, revenue while quarters. we is Finally, service a revenue X% increase $XX.X such it the

gross was for of XXXX. second was and gross GAAP XX% margin non-GAAP the margin quarter XX.X%

During an which with of our well and results. million goods the GAAP impacted $X.X inventory as as sold accessories, quarter, predominantly non-core we incurred adversely reserve associated products cost discontinued demo

resulted raw high costs continued exchange material rates of basis, non-GAAP decline. compared year-over-year a gross dollar margin On quarter's relative and the non-GAAP the in second U.S. to historical strength

As we the expect gross tight an from stems margins to material market, the of which higher semiconductor a cost components adversely primarily affect reminder, in broker to balance raw of XXXX. extremely sourcing reported

the to their Given transactions we the annualized not previously Asia. that expected are the nature, affect chain committed to million savings supply these expect from adversely in shift in to Southeast of $XX unique our result timing

to We will shift realized savings the as the cost we to from continue suppliers lower XXXX. believe to exit begin be

our selling expect Asia in we adverse in margin currency significantly XXXX. gross emphasize relatively capitalize improve our on to product therefore chain, remained and we as local has costs and Southeast want the prices mix unchanged to material and of expectations I that supply long-term a underlying normalized

operating and expenses $X.X restructuring million and million $X.X other were acquisition-related expenses compensation included stock million approximately costs. $XX.X in and GAAP in transaction intangible and amortization

our despite restructuring Non-GAAP was efforts. year, operating began of expense $XX.X realize GeoSLAM flat million, we QX the to inclusion with expenses benefits the as operating last roughly of

now of quarter at fourth FX present With of our $XX quarterly instead realizing XXXX. than approximately to the quarter million are the completion beginning spending of $XX expected the to in expense committed we sooner rates third of million reductions,

XXXX. second second of of of XXXX quarter million in GAAP operating Non-GAAP $XXX,XXX. operating was second was of the million with of adjusted the $XX.X in quarter $X.X compared loss of XXXX, loss loss operating in the in EBITDA $X quarter the second $X.X a loss million to million compared was an XXXX, quarter

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

QX, discussed or of and loss loss XXXX. or we a realize XXXX, expense in $XX May, for a quarter million net net $X.X compared $X.X million non-GAAP new to our In share second base. Our was share quarterly $XX charge per $X.XX between per total to of the $XXX,XXX million approximately

core resulting XX% to from write-offs affected incurred increase as in seek we for environment. basis, by On focus reduce footage charges, on square and as work have we inventory hybrid other and strategic utilized given product our facility lines, asset-related year-to-date a our we $XX million cash employees, severance write-downs over

cash that approximately be We to expect of continue the charges payments. combined to XX%

$X.X million end $XX.X cash or $XXX,XXX at cash the generated with approximately was incurred We the the Our excluding $X.X and during balance during flat payments of quarter quarter. free when flow the cash QX. remained of restructuring quarter in million million

improving collections in and six-day of remain QX in half focused We XXXX. further outstanding on sales accelerated second sequential with the our day very improvement a expected

expectations well positive cash XXXX. accounts the new current of inventory and our management, balance, Given free as as remain to for stays expect second revenue, enhancements our further our we half flow in to expense receivable

between expect Moving of share $X.XX and non-GAAP gross At revenue million FX revenue $XX and expenses of those $XX of levels of operating on $XX.X per $X.XX. and million. XX% and non-GAAP and $XX rates, to corresponding million, between present margin a would guidance. XX% non-GAAP we and between quarter expect At we million loss given third between

this to primarily As a experienced a summer QX us softer QX last such from due quarter reductions. There and backlog a as to year are seasonally we be exceptions benefit months in the Europe. tends where QX strong year for reminder,

sequential our considering historical XXXX the third of decline effects approximately the representative seasonality. XX% these is of backlog QX, at projected changes midpoint The of when quarter

of we'd remarks, time pleased take prepared to this be and our concludes This questions. any your

Operator

Greg [Operator move to Palm Hallam. We'll first Craig Instructions] with

line Your open. is

Greg Palm

forward to congrats on quarter. with in Look aboard. Good the Thanks. welcome working you afternoon, results here Peter, everyone. the improved and

Peter Lau

Greg. Thanks,

Allen Muhich

Thank you.

Greg Palm

by an whether market, it I because end clearly a doesn't on starting quarter. So, quarter more what maybe has provided thinking even top by revenue quarter us of changed, of bit whether was than what us And demand months that guess little give color few a saw, just together anybody like sound maybe geography, of flush, a off, last kind can it end but ago? was quite think you just -- of environment came the range just you any the were you of it better bit I the the ahead

Peter Lau

Allen, that? to would like answer you

Allen Muhich

Sure.

the of were folks close little in expectations couple the beginning had I they opportunities Greg, see they that had us related relative further. of accelerate think decision-making the a bit we to provided out time the entering quarter that at quarter, to pleasantly So of a to our some surprised expected to

as we demand And out incremental so, did as see the quarter, the we we quarter. navigated some closed

upon indicated. that we to tracker Additionally, some available we laser the we based predominantly becoming realize on and able had arm us material to the availability upside were as

continued pipeline second at the we into remains end the quarter. into you're in the the underlined tends outer expectations it building third to of be a remarks, the demand of in to of quarters We head that what continued our is opposed in more and prepared quarter, softness third the indicating closing somewhat right, relatively we the and quarter third be of as consistent our highlighted quarter, PMI the appears the traditional the saw where also to there. into which opportunities steady with saw seasonality but with decisions customer position we out quarter continued bit end push-out As at of second the as

going decisions to We to, in buy. good that of they're actively terms demand losing going believe different continues to The to news who buy we be don't we're sideways see share. making customers they're again, as or pushing opposed what

on now able that. longer-term And to market especially prepared hardware we'll of so, and the benefits enjoy improve, I think that we're that remarks, to highlighted that given optimistic that side in continues stabilizes as growth, cautiously the we demonstrated we've the and the the revenue be

Greg Palm

Understood.

Just on I the at the think specifically, what midpoint, the that understand more lot at a of comments, historically. least it decline QX but a guide, sequential I suggests, seen think you've I than

guess into it's get QX process just pulled well? the I question of as just or conservatism, but those sales so, the what And bit maybe did is, a QX thought QX little of curious is on some

Yuval Wasserman

I think, Yuval. is this

sorry, basically areas of what expect was that seasonality. is think course. in you see from a QX buying year decline, was customers now to I'm are decisions. Also, Last QX I signals we our unique. Seasonality, some right getting see And unique. that delaying

mainly We coming and AEC And from a the expect decline of on see is XDM, being also, based some see market. headwinds changing the be manufacturing we're spotty industries tend seasonality. We to because regions. to and market, The cautious.

you what the of and of a forward. see So is expectation market our analysis going result

Peter Lau

Hey history a recent to is because Greg, around interpolate. the hard sequential, bit comment just another little

sequential the Given not from saw is of certainly effect in odd COVID we history. that our XXXX, recovery in COVID by and XXXX, typical quarter some the changes

to revenue by XXXX do see it's things the been. decline XX% that's you availability look history, in XXXX, I by back the quarter wheelhouse not one cause be it's material in we before and another. demand we back of broader have where environment, affected where is that impacted we unfortunately and know recognized not where in to right while If ancient the And demand historically have in challenges but go a sequential

three lineup be the So of two to that somewhat to opportunities it. a the desire guide combined Yuval the how that indicated, with, we lineup we as see, pipeline just and conservative,

Greg Palm

Yes.

Makes but maybe just if can, of because I the Peter, And week, you've Okay. a one as question, over sense. for in been I you've little only fair, guess not this for last role a kind looked it's upon that excites color what that anything be mean, more a well? you you strategic that'd around, little joined, most? improved and that why be can be on from can changed, think I Thanks. a helpful standpoint as you're curious bit

Peter Lau

is it's execution midterm. sound. question. the in all I think Greg. the sure, us Yes, Strategically, our for Thanks and strategy about And for short

I to strategically hardware growing place and FARO, is right with of opportunity to a be. operating that's to really margins front us technology revenue our of moving generate I will for combined and cash. that's great convergence think at at exciting fast software, us, the the to growth in for market all and and drive a think FARO, exciting And very it's give opportunity there expand a pretty our The right in opportunity value and ability us create execution shareholders. exciting, of

Greg Palm

Okay, back Thanks. in hop queue. the great. I'll

Peter Lau

Thanks, Greg.

Yuval Wasserman

Thank you.

Operator

Berenberg. DeGasperi to next Andrew with we'll move And

open. is line Your

Andrew DeGasperi

been so? see forward, arrival. any Peter, you Thanks. strategy hardware Do in number the do before a you wondered joined terms in broadly in previous can maybe Good make how you've could software I just had for of you that if number solutions? elaborate And I recently your do commercialize changes two, path implemented was discuss. essentially of one. afternoon. you know at would you and to experience the going the it's did think maybe you you there's guess And other FARO that terms terms of firms, only similar

Peter Lau

very much for you question. Thank Yes. the

ahead but as I There as opportunity and changes, to to sound. horizon. think the strategy don't think be they is are is us mentioned, going strategy taking, shareholder I look think the that there, of I it's for and of execution the Again, in under on the for there enable of a lot strategy of get think I terms hood, and changes material changes I may In degrees create the is value. us execution very

decades, last customer the and in offerings high corporations businesses technology pretty were intersected two hardware industrial create with really I've multinational Over value. both to spent software

opportunity similarities global here and at businesses sales. that public, see of The And same execute software on FARO. Most those and same here is the of premium I opportunity that between pretty all were urgency all stuff execution. we and think for the of and business ahead models, us to what do those and if the see here I've new hardware All FARO. on we all And the we're understanding those, this flow a nature. that development, key businesses environments top run in I margins, some and an in the which placed on really striking. We're than growth transformation increase faster required expand bottom keen to line, the priorities. is agile generation. continue cash trajectory, what's We've the of had got opportunity and form We our grow line product fast-paced I a

Andrew DeGasperi

while? growth? making you in would words, change after that potentially level other expect still of are that XX% essentially would And your should that Would what revenue weaker kind margin was that? in that, for this in maybe, you mean, but then And the it sort on a chance, it, and the Or and helpful. more grow I doesn't words, it's reflect of That's any line. cutting are on just terms sound in taking macro? cost And current say you land by bottom I of previously? say we the expense this, and said Is some margins if balance weakness the EBITDA if the other creating precautious, you the way around may, precaution revenue in discussed is a to not, side structure? you like it between

Peter Lau

Yes.

the about we the we little say can on tremendous is the given So margin. expect certainly maybe revenue, in I opportunity of expenses, think the economic and environment. have a I real on what early the into What uncertainty a gross in macro to detail kind get

improved have XXXX the I we've as that that of we'll then set we actions well. out four, into opportunity and and three think as for cost we to begin lever the benefit obviously see base in the in QX to grow fixed here

Yuval Wasserman

If of QX. I may majority realized QX The QX chime be in, taken, is in we've will the the and actions this Yuval. actions

very accelerated into In possible, soon look speed, a surgical. our restructuring to The the fact, We was benefit approached realize efficiency, the focus, have restructured during early simplicity, we QX. be second and year lot as for we synergies, as restructuring in as and savings of as will with realized it cost also way the of future. the of the program these a benefit and and half this

excellence, execution A leverage, the have as spend efficient between is more experience And we really week the Obviously, to the running Both of companies raised. questions of see we management here right you the than into Pete more to those we on look hood realizing what going and vast a Pete going company the lot now, He's the have under deep in lot in expect address fast, a that and way, half. operational deep and excitement to time value. cross-section of opportunities see, opportunity operational driving experience myself deep, shareholder has some and is the to the to deliver and the opportunities. has

Peter Lau

changes, revenue other and to outlined prepared we not and affect might again I indicated, redundancies pretty the add expectation. effect terms etcetera, term. some Hi how generate Yuval to made in with changes current least do us, how to have the to Andrew. think ability going in revenue The as about an levels. redundancy remarks, I those to longer to in and asked near our able on term, so continue of ability and be were It's feel expect even is resulting we from those you environments, we our at good the We over able be surgically cloud revenue acquisitions, question to eliminate on able we've our the thing adversely around effects, that's only not

Andrew DeGasperi

helpful. you. That's Thank

Operator

Donahue Joseph Baird. next Instructions] [Operator with We'll to move

Your line open. is

Joseph Donahue

in how Hey, Asia. year-over-year everyone. sales that gives were maybe more a the are the trending trends that? general into the geography Could It Americas, you looks some overview give by us of weakest geographically perspective in like strongest

Peter Lau

you Allen, this have do information?

Allen Muhich

Sure, I sure do.

So the organization half seen benefited from in think weakening me, a been strong. unfortunate strengthening dollar the quite leadership very performance strong the some organization, XXXX. growth strong the we've dollar the first has has has prior of the and over Americas, of It in months. also XX and not And effect last, excuse relative a of in Americas continued the we've a over had that relatively therefore, steady the I

more EMEA, a bit been it's In sporadic. little

in period. EMEA, particular had we very quarter second The strong a

a to I aerospace need closed an Asia APAC spend bit have think bit the within a saw within leading we us, that we the some specifically growth area And basis. space, nice and focus time a of us a as where automotive be on, for metrology the because and was we very then in quarter, decliner revenue to performance to of a quarter. helped of Pacific XX% bit XD out overall tends us

XX%. As they a you earlier, us strong been to basis for closer year, we've about an acquisitions overall exclude last of we, currency the currency over and actual where constant commented has roughly the on quite basis when grown growth X% effects on the hardware as

several we've we months products, we think capitalize go think forward that We right quarters. and the continuing so, the products. to made to over we've into And sales here got look the we've on the got next last progress organization these XX right the

Joseph Donahue

it continuing to this the And products you. line? potentially on how XXXX, half there Thank could the mentioned you portfolio. could and some that line, great. That's Can contribute top today of or growth in any at give kind how impact taking the of margin on second least maybe out perspective

Allen Muhich

we're the to are a products that products are that around bit referring The periphery.

benefited couple not of won't or has arm, of not of want gross So and laser have therefore our into laser tracker. four materially have not them revenue not that and really I they say launched our that our to I the details either. years ago, scanner, not our our course, there's margin which but probably affected a materially go specifically three are, over, ones,

And top to as or any bottom see changes. significant line the line expect so, don't result a of we change in

What really see mantra heavily that help and more matter us. continue at is be products internally the on become over you more to to has and least, focus ours on focus the And a of that more we to streamlining us been an expect future able will though, ability that that time. to and successful in

Joseph Donahue

Thanks. it Great. pass on. I'll

Operator

that And there no this further questions the for are it turn Wasserman does to at any closing appear time. call remarks. I would like now Yuval to back

Yuval Wasserman

everyone the good was for results we're than Thanks today. for about realizing the we're We're QX to of realizing in the We're we ahead us, we're us looking about leadership Thank and of the earlier the joining in company a with to many planned. near the quarter us and excited so forward future. you much. of and opportunities excited new some speaking you future. implementing excited changes

Operator

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

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

FARO (FARO) 2 Aug 232023 Q2 Earnings call transcript