FARO Technologies(US:FARO)2019-05-05 05:27Financial Data and Key Metrics Changes - Total sales for Q1 2019 were $93.6 million, an increase of 0.8% compared to $92.8 million in Q1 2018, with a negative impact from foreign exchange rates of $4.0 million [26][27] - Gross margin for Q1 2019 was 58.8%, an increase of 0.9 percentage points from 57.9% in Q1 2018, primarily due to higher service margins [31] - Net income was $0.2 million or $0.01 per share for Q1 2019, compared to $0.5 million or $0.03 per share in Q1 2018 [35] Business Line Data and Key Metrics Changes - 3D manufacturing segment sales were $56.6 million, a decrease of 6.7% from $60.7 million in the prior year, driven by lower product unit sales [28] - Construction BIM segment sales increased by 12.2% to $25.4 million, attributed to higher product unit sales and service revenue [29] - Emerging Verticals segment sales were $11.6 million, up 22.3% compared to $9.5 million in the same prior year period [30] Market Data and Key Metrics Changes - The 3D manufacturing segment experienced declines in the Americas and Asia Pacific regions, while EMEA saw modest growth on a constant-currency basis [28] - Strong year-over-year sales growth in the Asia-Pacific region for Construction BIM indicates high customer demand potential [29] Company Strategy and Development Direction - The company aims to be a technology leader in 3D measurement and imaging solutions, focusing on new product introductions and expanding its global sales force [5][10] - A new key performance indicator was introduced to measure orders per sales full-time experienced headcount, reflecting a modernized sales process [7] - The company is investing in new technologies and acquisitions to expand into new vertical applications, including a new Photonics vertical [8] Management's Comments on Operating Environment and Future Outlook - Management acknowledged that the sales force disruption was primarily in the 3D manufacturing segment and impacted all regions, but necessary for future growth [38] - The company expects challenges in Q2 due to foreign exchange impacts and sales headcount turnover, but anticipates better performance in the second half of the year [76] - Preliminary indicators do not suggest a worsening macro environment, although there are concerns regarding the automotive and aerospace markets [51][80] Other Important Information - The company plans to increase its sales headcount by 15% during 2019, but only achieved a 4% increase in Q1 due to higher-than-expected turnover [21] - General and administrative expenses increased by 19.4% due to CEO succession costs and GSA-related expenses [33] Q&A Session Summary Question: Can you characterize the sales force disruption? - The disruption was only in the 3D manufacturing segment and impacted all regions, correlated with lower sales in regions with lower PMI scores [38] Question: What is the expected timeline for improvements in the 3D manufacturing segment? - It is expected to take a couple of quarters to work itself out, with long-term advantages from the portfolio restructuring [40] Question: How much of the sales force turnover was concentrated in the U.S. market? - Higher turnover was observed in the Americas, correlating with a 3% year-over-year decline in that region [42] Question: What are the implications of the macro environment on the business? - The most direct correlation with the macro environment was seen in the 3D manufacturing segment, particularly in Japan's automotive market [79] Question: Is the service gross margin increase sustainable? - Management believes the service margin increase is sustainable, with minor fluctuations expected as efficiencies are explored [49]