FARO Technologies(US:FARO)2023-05-03 23:52Financial Data and Key Metrics Changes - First quarter revenue was $85 million, an increase of 11% year-on-year, driven by hardware revenue of $55 million, which rose 18% [12][16] - GAAP gross margin was 46.7%, while non-GAAP gross margin was 47.6%, negatively impacted by rising raw material costs and a strong US dollar [8] - GAAP operating loss was $18.6 million, compared to a loss of $7.2 million in Q1 2022, while non-GAAP operating loss was $8.3 million, up from $3 million in the prior year [9][29] Business Line Data and Key Metrics Changes - Hardware revenue increased significantly, while software revenue was approximately flat at $10.3 million, and service revenue was $19.7 million, also flat [16] - Recurring revenue accounted for $16.7 million, representing 20% of total sales [16] - The transition from perpetual software licenses to subscriptions has led to a 60% decline in perpetual software revenue since its peak in 2019 [6] Market Data and Key Metrics Changes - The company experienced a slowdown in customer decision-making, particularly in Europe and Asia Pacific, affecting the expected close dates of opportunities [83][84] - The opportunity funnel grew significantly in Q1, but the number of opportunities for Q2 was lower than usual, indicating a potential slowdown in the second half of the year [50][83] Company Strategy and Development Direction - The company is focused on optimizing its business and delivering more value to customers while maintaining a strong technology foundation and sound strategy [36][24] - The integration of acquisitions, such as GeoSLAM and SiteScape, is progressing well, enhancing the company's portfolio of 3D capture devices [86] - A shift towards a SaaS business model is being pursued, with an emphasis on recurring revenue and broadening applications [54][23] Management's Comments on Operating Environment and Future Outlook - Management noted a challenging operating environment with higher material costs and a softer end market impacting profitability [29][84] - The company is targeting $20 million to $30 million in annualized savings, with a focus on improving profitability as it exits the second and third quarters [14][18] - Guidance for Q2 revenue is projected between $79 million and $87 million, with expected non-GAAP gross margins between 45% and 48% [32] Other Important Information - The company reported a cash balance of $88.6 million at the end of the quarter, with expectations for improved cash flow in Q2 [19] - The management team is focused on driving working capital efficiencies and achieving free cash flow objectives [31] Q&A Session All Questions and Answers Question: Insights on the retirement timing and its implications - The retiring CEO indicated that the timing was appropriate for a transition, expressing confidence in the team's capabilities and the ongoing strategy [46] Question: Details on the slowdown in orders and market conditions - Management acknowledged a significant backlog and noted that Q1 saw challenges in order fulfillment, with a concerning trend of orders being pushed to the end of the quarter [43][50] Question: Changes in software strategy with new leadership - The new leadership affirmed support for the existing software strategy, emphasizing the importance of execution and efficiency in achieving growth objectives [53][54] Question: Trajectory for cost savings and gross margin improvements - Management provided insights on expected cost savings and indicated that gross margins should improve as material costs normalize and supply chain transitions take effect [66][67]