FARO Technologies(FARO) - 2022 Q1 - Earnings Call Transcript

Financial Data and Key Metrics Changes - First quarter revenue was $76.7 million, approximately equal to the first quarter of 2021, impacted by the Shanghai lockdown and supply chain shortages [24] - GAAP gross margin was 53.5%, while non-GAAP gross margin was 53.8%, showing an incremental year-over-year increase [27] - GAAP net loss was $9.7 million or $0.53 per share, compared to a loss of approximately $600,000 or $0.03 per share in Q1 2021 [31] Business Line Data and Key Metrics Changes - Hardware revenue was $46.5 million, up 5% year-over-year; software revenue was $10.3 million, up 1%; service revenue was $19.9 million, down 8% [25] - Recurring revenue increased to $16.5 million, up 6% compared to Q1 2021, primarily due to increased subscription revenue [25] - The service revenue decline was attributed to improved product quality, leading to fewer repair billings [66] Market Data and Key Metrics Changes - China accounted for 12% of revenue in 2021, with early Q2 demand remaining strong despite logistics challenges [34] - EMEA region saw a decline in AEC market performance, while 3DM and public safety sectors remained robust [48] - North America experienced a year-over-year revenue increase of about 13%, while EMEA revenue was down 13% due to currency effects [71] Company Strategy and Development Direction - The company is transitioning manufacturing to Sanmina's Thailand facility, expecting $12 million in annualized savings, although timing for these savings has been delayed [15] - The launch of the new FARO Sphere platform aims to centralize 3D data management and enhance customer workflows [21] - The company is focused on developing differentiated solutions and insights through a deeper understanding of customer workflows [22] Management Comments on Operating Environment and Future Outlook - Management expressed concerns about ongoing supply chain constraints and the impact of geopolitical tensions on near-term results, but remains optimistic about long-term opportunities [23] - The Shanghai lockdown has significantly affected logistics operations, with potential disruptions lasting into the second half of 2022 or beyond [10] - Despite challenges, management noted strong demand for new products and positive feedback from early customers [18] Other Important Information - The company maintains a strong capital structure with a cash balance of $107 million and no debt [32] - Guidance for Q2 2022 revenue is expected to be between $77 million and $85 million, with non-GAAP earnings per share projected between negative $0.17 and positive $0.04 [35] Q&A Session Summary Question: Impact of China lockdown on shipments - Management indicated that typically 30% to 40% of total quarterly shipments occur in the last three weeks of the quarter, which were significantly affected by the lockdown [37][38] Question: Demand in EMEA and AEC market - Management noted that while the AEC market was softer, overall EMEA performance was better than expected, with delays in projects rather than cancellations [49] Question: Initial market reception of new products - Positive feedback was reported for the new Laser Scanner, with significant interest and inquiries following its launch [42] Question: Service revenue decline - Management explained that the decline in service revenue was due to improved product quality, leading to fewer repair needs [66] Question: Guidance for China revenue - Management is approaching Q2 guidance conservatively, acknowledging robust demand but uncertainty in logistics capabilities [56][58] Question: Performance in Americas and broader Asia - North America performed as expected, while Asia faced challenges due to the Shanghai lockdown, affecting bookings [62] Question: Transition to subscription model - Management expects the transition to subscription revenue to continue through 2022, with a more significant impact anticipated in early 2023 [76]