FARO Technologies(FARO)2024-05-05 18:25Financial Data and Key Metrics - Q1 2024 revenue was $84.2 million, towards the high end of guidance, with non-GAAP EPS of $0.09, above the high end of guidance [7] - Adjusted EBITDA was $5.6 million, and free cash flow was $4.2 million, marking the first positive Q1 in several years [7][11] - Non-GAAP gross margin improved by 420 basis points year-over-year to 51.8% [18] - GAAP operating loss was $5.3 million, compared to a loss of $18.6 million in Q1 2023, while non-GAAP operating income was $3 million, up from a loss of $8.3 million in Q1 2023 [31] - Cash and short-term investments at the end of Q1 were $99.3 million, up $3 million from Q4 2023 [33] Business Line Performance - Hardware revenue was $52.6 million, down 4% year-over-year, while software revenue grew 6% to $10.9 million, and service revenue increased 5% to $20.7 million [28] - Recurring revenue was $16.7 million, representing 20% of total sales [28] - Mobile scanning solutions revenue grew double digits year-over-year, reflecting increasing adoption of the technology [20] Market Performance - Strong demand in Europe and Asia Pacific offset softness in the Americas due to elongated sales cycles [28] - Large manufacturing orders in the Asia Pacific region, particularly China, drove better-than-expected performance, though the construction market in China remains weak [9][28] - In mature markets like the U.S. and Western Europe, customers prioritized larger capacity-related investments, leading to longer sales cycles [17][49] Strategic Direction and Industry Competition - The company is focused on productivity, expanding gross margins, and strategic investments in new products and technologies [12] - The success of Orbis highlights growth opportunities in adjacent markets, with the mobile scanning market expanding the served addressable market [13] - The R&D roadmap aims to increase the served addressable market by 40% over the strategic horizon, with new product launches expected in 2024 [23] - The company is committed to accelerating revenue growth, growing earnings faster than revenue, and expanding free cash flow [24] Management Commentary on Operating Environment and Future Outlook - The company remains cautious on the near-term outlook in Asia Pacific due to challenges in China's construction market [9] - Despite a choppy macro environment, the company is confident in its ability to expand gross margins, control operating expenses, and generate positive free cash flow [35] - Q2 2024 revenue is expected to be between $79 million and $87 million, with non-GAAP EPS ranging from -$0.08 to $0.12 [36] Other Important Information - The company announced a stock grant program for all employees to align interests with long-term goals [15] - Multiple software updates were rolled out, including enhancements to FARO CAM2 and FARO Connect, improving customer experience [21][22] Q&A Session Summary Question: Seasonal Improvement and Market Headwinds - The low end and midpoint of Q2 guidance imply minimal seasonal improvement, attributed to large orders in Q1 from Asia Pacific and elongated sales cycles in developed markets [39][40] - Large orders in China were primarily in the manufacturing sector, driven by government stimulus, and were a mix of direct sales and channel partners [42][43][44] Question: Elongated Sales Cycles - Elongated sales cycles are concentrated in the U.S. and Western Europe, particularly in manufacturing, where customers are prioritizing larger CapEx initiatives [47][48][49] - The company expects sales cycles to normalize in Q2 but remains cautious [49] Question: Macro Indicators and Business Performance - PMI stabilization and upticks are seen as leading indicators, with a 2-4 quarter lag before impacting the company's revenue [50][51][55] Question: Price Increases - Price increases announced at the beginning of the year have received positive feedback, but the full impact has not yet been recognized in results [56]