Q1 2024 FARO Technologies Inc Earnings Call

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[music]. Please standby your program is about to begin.

Operator: Please stand by; your program is about to begin. Good day, everyone, and welcome to the FARO Technologies First Quarter 2024 Irving School. For opening remarks and introduction, I will now turn the call over to Michael Funari at Sapphire Investor Relations. Please go ahead.

Speaker Change: Good day, everyone and welcome to the Faro technologies first quarter 2024 earnings call.

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

Michael Funari: Good morning. With me today from FARO are Peter Lau, President and Chief Executive Officer, and Matt Horwath, Chief Financial Officer. Yesterday after market close, the company released its financial results for the first quarter of 2024. The related press release and Form 10-Q are available on FARO's website at www.faro.com. Please note, certain statements in this conference call, which are not historical facts, may be considered forward-looking statements that involve risks of uncertainty. Subjects which are beyond our control and include statements regarding future business results, product technology development, customer demand, inventory levels, our outlook and financial guidance, economic and industry projections, or subsequent events, various factors could cause actual results in different materials.

Michael Funari: Thank you and good morning.

Michael Funari: With me today from Faro are Peter low President and Chief Executive Officer, and Matt Horvath Chief Financial Officer.

Michael Funari: Yesterday after market close the company released its financial results for the first quarter of 2024.

The related press release and Form 10-Q is available on <unk> website at Www Dot Ferro Dot com.

Michael Funari: For a more detailed description of these and other risks and uncertainties, please refer to today's press release and our annual and quarterly SEC filings. Forward-looking statements reflect our views only as of today, and, except as required by law, we undertake no obligation to update or revise them. During today's conference call, management will discuss certain financial measures that are not presented in accordance with U.S. generally accepted accounting principles or non-GAAP financial

Michael Funari: Please note certain statements in this conference call, which are not historical facts may be considered forward looking statements that involve risks and uncertainties some of which are beyond our control and include statements regarding future business results.

Michael Funari: Technology development customer demand inventory levels, our outlook and financial guidance economic and industry projections or subsequent events.

Michael Funari: Various factors could cause actual results to differ materially.

Michael Funari: For a more detailed description of these and other risks and uncertainties. Please refer to today's press release.

Michael Funari: Annual and quarterly SEC filings.

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

Michael Funari: In the press release, you'll find additional disclosures regarding these non-gap measures, including reconciliations to comparable gap measures, will not recognize a gap. Management believes these non-gap financial measures provide investors with relevant peer comparisons of core operations. However, they should not be considered in isolation or as a substitute for a measure of factory performance prepared in accordance with GAAP.

Michael Funari: During today's conference call National discuss certain financial measures that are not presented in accordance with U S. Generally accepted accounting principles or non-GAAP financial measures.

Michael Funari: In the press release, you will find additional disclosures regarding these non-GAAP measures, including reconciliations to comparable GAAP measures.

Michael Funari: We'll not recognized in our GAAP management believes these non-GAAP financial measures provide investors with relevant period.

Michael Funari: Comparisons of core operations.

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

Peter James Lau: Now, I'd like to turn the call over to Peter Lau.

Michael Funari: Now I'd like to turn the call over to Peter low.

Peter James Lau: Thank you, Mike. Good morning, and welcome everyone to our call. In the first quarter, our focus on executing the strategic plan we outlined in March continued to drive meaningful results. We again exceeded our targets in the quarter, delivering $84.2 million in revenue, which was towards the high end of our guidance range. $.09 of non-GATT EPS, which was above the high end of our guidance range. $5.6 million of adjusted EBITDA and $4.2 million of free cash.

Peter James Lau: Thank you Mike Good morning, and welcome everyone to our call.

Peter James Lau: In the first quarter, our focus on executing the strategic plan, we outlined in March continued to drive meaningful results, we again exceeded our targets in the quarter delivering $84 $2 million in revenue, which was towards the high end of our guidance range.

Peter James Lau: <unk> <unk> of non-GAAP, EPS, which was above the high end of our guidance range.

Peter James Lau: $5 6 million of adjusted EBITDA, and $4 $2 million of free cash flow.

Peter James Lau: We've taken significant strides the past few quarters in enhancing the operational efficiency of our business. Our first quarter earnings and cash flow demonstrate this progress, marking the first time in four years where we've achieved positive non-gap EPS and cash flow during what is traditionally our slowest quarter. This accomplishment is particularly noteworthy as it signifies a fundamental shift in our operating model, establishing a new starting point from which we expect to benefit in the forthcoming quarter.

Peter James Lau: We've taken significant strides the past few quarters and enhancing the operational efficiency of our business or.

Peter James Lau: Our first quarter earnings and cash flow demonstrate this progress marking the first time in four years, where we've achieved positive non-GAAP EPS and cash flow during what is traditionally our slowest quarter.

Peter James Lau: This accomplishment is particularly noteworthy as it signifies a fundamental shift in our operating model, establishing a new starting point from which we expect to benefit from in the forthcoming quarters.

Peter James Lau: From a top-line perspective, in the first quarter, we continued to see strong demand across a wide range of industries. The better-than-expected performance in the quarter was mainly driven by several large manufacturing orders out of the Asia-Pacific region. While pleasantly surprised by the orders, they tended to be specific to individual customer situations. We remain cautious on the overall near-term outlook in the Asia-Pacific region, given the ongoing challenges in the construction market within China.

Peter James Lau: From a topline perspective in the first quarter, we continued to see strong demand across a wide range of industries.

Peter James Lau: Other than expected performance in the quarter was mainly driven by several large manufacturing orders out of the Asia Pacific region.

Peter James Lau: While pleasantly surprised with the orders they tended to be specific to individual customer situations. We remain cautious on the overall near term outlook in the Asia Pacific region, given the ongoing challenges in the construction market within China.

Peter James Lau: Across the broader global market, we have seen our overall pipeline continue to grow, but we have seen a shift in customer behavior in mature markets such as the U.S. and Western Europe during the quarter. There has been both a move to prioritize larger capacity-related investment initiatives and increasing caution on the outlook within commercial construction. As a result, we've seen an elongating sales cycle in these markets, which is evidenced by our first quarter geographical map.

Peter James Lau: Across the broader global market, we have seen our overall pipeline continue to grow but have seen a shift in customer behavior in mature markets such as the U S and western Europe in the quarter.

Peter James Lau: There has been both a move to prioritize larger capacity related investment initiatives and increasing caution on the outlook within commercial construction.

Peter James Lau: As a result, we are seeing an elongated sales cycle in these markets, which is evidenced in our first quarter geographical mix.

Peter James Lau: Operationally, we again saw a notable year-over-year improvement and gross margin, along with a positive sequential trend, considering our revenue season now. As we have discussed in prior calls, our focus on variable cost productivity, mitigation of broker fees, and supply chain localization efforts within Southeast Asia continue to progress as planned. These actions contributed meaningfully to the first quarter results, and we expect this focus on operational excellence to positively impact our results over the next several quarters. Taken all together, our non-gap gross margin improved 420 basis points year over year to 51.8%.

Peter James Lau: Operationally, we again saw a notable year over year improvement in gross margin along with a positive sequential trend considering our revenue seasonality.

Peter James Lau: As we have discussed in prior calls our focus on variable cost productivity.

Peter James Lau: Mitigation of broker fees and supply chain localization efforts within southeast Asia continue to progress as planned.

Peter James Lau: These actions contributed meaningfully to the first quarter results and we expect this focus on operational excellence to positively impact our results over the next several quarters.

Peter James Lau: Taken altogether, our non-GAAP gross margin improved 420 basis points year over year to 51, 8%.

Peter James Lau: As I mentioned earlier, from a cash flow perspective, we successfully generated $4.2 million in free cash flow in the first quarter, marking our second consecutive quarter of meaningful cash flow generation and the first positive Q1 in several years. The initiatives we put in place to monetize our balance sheet are paying off, and we are increasingly confident in our ability to drive sustained cash flow generation under the current market conditions. While we've made great strides in improving financial performance over the past several quarters, it's important to note we're still in the early stages of refining our execution strategies and enhancing outcomes. Our team fully understands the extent of the work ahead and is dedicated to delivering on our plan.

Peter James Lau: As I mentioned earlier from a cash flow perspective, we successfully generated $4 $2 million in free cash flow in the first quarter, marking our second sequential quarter of meaningful cash flow generation and the first positive Q1 in several years the.

Peter James Lau: The initiatives, we put in place to monetize our balance sheet are paying off and we are increasingly confident in our ability to drive sustained cash flow generation under the current market conditions.

Peter James Lau: While we've made great strides in improving financial performance over the past several quarters. It is important to note. We're still in the early stages of refining our execution strategies and enhancing outcomes. Our team fully understands the extensive work ahead and is dedicated to delivering on our plans.

Peter James Lau: The adjustments made to our cost structure thus far, evidenced by our first quarter expense base, improving gross margins, and working capital efficiencies, demonstrate the progress we've made in refining our operational framework. Moving forward, we remain focused on productivity and continuing to expand gross margins, while simultaneously making strategic investments in new products and technologies. We understand the importance of continuing to foster innovation and growth through focused investments in our core business. By maintaining this balanced approach, we aim to both increase shareholder value and expand our competitive position in the market. On the product front, I am pleased to report that now, two quarters after the launch, feedback on our new Orbis Mobile Scanner remains very positive.

Peter James Lau: The adjustments made to our cost structure, thus far evidenced by our first quarter expense base, improving gross margins and working capital efficiencies demonstrate the progress we've made in refining our operational framework.

Peter James Lau: Moving forward, we remain focused on productivity and continuing to expand gross margins, while simultaneously, making strategic investments in new products and technologies.

Peter James Lau: We understand the importance of continuing to foster innovation and growth through focused investments in our core.

Peter James Lau: By maintaining this balanced approach, we aim to both increase shareholder value and expand our competitive position in the marketplace.

Peter James Lau: On the product front I am pleased to report that now two quarters. After the launch feedback on our new Orbis mobile scanner remains very positive, notably the revenue for our mobile scanning solutions has increased double digits year over year, reflecting the increasing adoption of our technology.

Peter James Lau: Notably, the revenue for our mobile scanning solutions has increased double digits year over year, reflecting the increasing adoption of our technology. In addition, the success of Orbis underscores the growth opportunity potential of expanding into adjacent markets within our core. By targeting the mobile scanning market with a diversified set of solutions, we've been able to expand our served addressable market, providing an initial proof point towards our long-term growth strategy of entering markets adjacent to our core, where FARO has the right to play and the right to win.

Peter James Lau: In addition, the success of Orbis underscores the growth opportunity potential of expanding into adjacent markets within our core.

Peter James Lau: By targeting the mobile scanning market with a diversified set of solutions, we've been able to expand our served addressable market, providing an initial proof point towards our long term growth strategy of entering markets adjacent to our core where ferro has the right to play and a right to win.

Peter James Lau: Bolstering our software offering in the last quarter, we showcased a strong software release cadence with advancements across our portfolio. Multiple software updates were rolled out, solidifying our commitment to enhancing the customer experience. A key highlight was the enhancement of FARO CAM-2, our leading 3D metrology software, with an upgraded CAD translator that supports additional CAD formats and improves interoperability. Additionally, FARO Connect, our mobile scanning software, received advanced processing options tailored to diverse use cases, empowering customers with greater control of their data. We also unveiled a groundbreaking innovation in FARO Zone 3D aimed at public safety customers. The Mass Zone Collision Prediction System, facilitating the creation of immersive what-if crash animations by seamlessly blending real-world and digital data.

Peter James Lau: Bolstering our software offering in the last quarter, we showcased our strong software release cadence with advancements across our portfolio.

Peter James Lau: Multiple software updates were rolled out solidifying our commitment to enhancing customer experience.

Peter James Lau: A key highlight was the enhancement of Ferro Cam to our leading three D. Metrology software with an upgraded CAD translator, which supports additional CAD formats and improves interoperability.

Peter James Lau: Additionally, Ferro connect our mobile scanning software received advanced processing options tailored to diverse use cases, empowering customers with greater control of their data.

Peter James Lau: We also unveiled the groundbreaking innovation and Faro zone three D aimed at public safety customers. The mass zone collision prediction system facilitating the creation of immersive, what if crash animations by seamlessly blending real world and digital data.

Peter James Lau: Furthermore, with the release of 3D model import, the FARO Sphere XG digital reality cloud solution has become the singular platform where AECO professionals can seamlessly visualize 3D models alongside their reality capture. Our R&D roadmap, which integrates both hardware and software into value-added solutions for our customers, is firmly directed towards increasing our served addressable market by 40% over our strategic horizon. As we move through 2024, we look forward to discussing impactful new product launches with you in greater detail, including the markets they target and the opportunities they represent.

Peter James Lau: Furthermore, with the release of three D model import.

Peter James Lau: The Faro sphere X gene digital reality cloud solution has become the singular platform, where AAC over <unk> can seamlessly visualize <unk> models alongside the reality capture data.

Peter James Lau: Our R&D roadmap, which integrates both hardware and software and the value added solutions for our customers is firmly directed towards increasing our served addressable market by 40% over our strategic horizon as.

Peter James Lau: As we move through 2024, we look forward to discussing impactful new product launches with you in greater detail, including the market stay target and opportunities they represent.

Peter James Lau: To further support the momentum in our business and align the success of all of our stakeholders, I'm very excited to share that we recently announced a stock grab program for all FARO employees. By extending ownership opportunities to all levels of the organization, we align the interests of every single employee with the company's long-term goals, driving motivation, creativity, and dedication to those goals. This program underscores FARO's commitment to our people and our vision of building a stronger, more resilient organization for the future.

Peter James Lau: To further support the momentum in our business and align the success of all of our stakeholders I'm very excited to share that we recently announced a stock grant program for all Faro employees.

Peter James Lau: By extending ownership opportunities to all levels of the organization, we align the interest of every single employee with the company's long term goals driving motivation creativity and dedication to those goals.

Peter James Lau: This program underscores <unk> commitment to our people and our vision of building a stronger more resilient organization for the future.

Peter James Lau: At our recent investor event held in March, we outlined our commitment to enhancing shareholder value through a strategic approach anchored on three fundamental principles. First, accelerating revenue growth ahead of the market trends we operate within. Second, to grow earnings at a pace exceeding that of our revenue expansion. And third, to expand our free cash flow at a velocity exceeding our earnings growth. FARO operates within highly promising markets poised for growth. By prioritizing our core customers and understanding their evolving needs, we position ourselves to deliver innovative solutions that effectively address their most pressing challenges, giving us the opportunity to outpace market growth.

Peter James Lau: At our recent Investor event held in March we outlined our commitment to enhancing shareholder value through strategic approach anchored on three fundamental principles first accelerating revenue growth ahead of the market trends, we operate within second to grow earnings at a pace exceeding that of our revenue expansion.

Peter James Lau: And third to expand our free cash flow at a velocity, surpassing our earnings growth.

Peter James Lau: Ferro operates within highly promising markets poised for growth.

Peter James Lau: By prioritizing our core customers and understanding their evolving needs, we position ourselves to deliver innovative solutions that effectively address their most pressing challenges, giving us the opportunity to outpace market growth rates through the combination of diligent efforts to expand our gross margins and a milestone funding approach to operating.

Peter James Lau: Through the combination of diligent efforts to expand our gross margins and a milestone funding approach to operating expense management, we expect to be in a position to realize meaningful operating leverage as revenue grows. This disciplined approach ensures sustainable growth while fostering increased profitability and facilitating heightened cash flow generation. The implementation of this strategic playbook over the last four quarters has significantly bolstered FARO's financial standing. We are enthusiastic about the continued execution of this strategy in the years ahead and are confident in its capacity to drive substantial shareholder value creation. With that, I'll now turn the call over to Matt to provide an overview of our first quarter financial results and our second quarter outlook.

Peter James Lau: <unk> management, we expect to be in a position to realize meaningful operating leverage as revenue grows. This disciplined approach ensures sustainable growth, while fostering increased profitability and facilitating heightened cash flow generation.

Peter James Lau: The implementation of the strategic playbook over the last four quarters has significantly bolstered faros financial standing.

Peter James Lau: We are enthusiastic about the continued execution of this strategy in the years ahead and are confident in its capacity to drive substantial shareholder value creation.

Peter James Lau: With that I'll now turn the call over to Matt to provide an overview of our first quarter financial resorts and our second quarter outlook.

Matthew Horwath: Thank you, Peter. And good morning, everyone.

Matthew Horwath: Thank you Peter and good morning, everyone.

Matthew Horwath: First quarter revenue of $84 $2 million was approximately flat with the first quarter of 2023.

Matthew Horwath: First quarter revenue of $84.2 million was approximately flat with the first quarter of 2023. Geographically, demand strength in the Europe and Asia Pacific regions helped offset incremental softness in the Americas as a result of lengthening sales cycles, which Peter mentioned earlier. First quarter hardware revenue of $52.6 million was down 4% year over year, while software revenue of $10.9 million was up 6%, and service revenue of $20.7 million increased by 5%. Recurring revenue was $16.7 million and represented 20% of sales.

Matthew Horwath: Geographically demand strength in the Europe, and Asia Pacific regions helped to offset incremental softness in the Americas as a result of lengthening sales cycles, which Peter mentioned earlier.

Matthew Horwath: First quarter hardware revenue of $52 $6 million was down 4% year over year, while software revenue of $10 $9 million was up 6% and service revenue of $27 million increased by 5%.

Matthew Horwath: Recurring revenue was $16 7 million and represented 20% of sales.

Matthew Horwath: Gap gross margin was 51.4%, and non-gap gross margin was 51.8% for the first quarter of 2024, compared to 47.6% in 2023. As Peter mentioned, in the first quarter, we executed on our variable cost productivity initiatives, including mitigating broker fees and incremental benefits from supply chain localization. Non-GAAP gross margin increased 420 basis points year over year. GAAP operating expenses were $48.6 million and included approximately $5.2 million in acquisition-related intangible amortization and stock compensation expenses and $2.7 million in restructuring and other executive transition costs. Non-GAAP operating expenses of $40.7 million were down $8.1 million from Q1 last year as we realized the benefit of our restructuring efforts and continued productivity improvement.

Matthew Horwath: GAAP gross margin was 51, 4% and non-GAAP gross margin was 51, 8% for the first quarter of 2024 compared to 47, 6% in 2023.

Matthew Horwath: As Peter mentioned in the first quarter, we executed on our variable cost productivity initiatives, including mitigating broker fees and incremental benefits from supply chain localization.

Matthew Horwath: non-GAAP gross margin increased 420 basis points year over year.

Matthew Horwath: GAAP operating expenses were $48 6 million and included approximately $5 2 million and acquisition acquisition related intangible amortization and stock compensation expenses and $2 7 million in restructuring and other executive transition costs.

Matthew Horwath: non-GAAP operating expense of $47 million was down $8 1 million from Q1 last year as we realize the benefit of our restructuring efforts and continued productivity improvements.

Matthew Horwath: Gap's operating loss was $5.3 million in the first quarter of 2024, compared with an operating loss of $18.6 million in the first quarter of 2023. Non-GAAP operating income was $3 million in the first quarter of 2024 compared to a loss of $8.3 million in the first quarter of 2024, adjusted EBITDA with $5.6 million or approximately 6.6% of sales compared to an EBITDA loss of $5.5 million in Our gap net loss was $7.3 million, or 38 cents per share.

Matthew Horwath: GAAP operating loss was $5 $3 million in the first quarter of 2024, compared with an operating loss of $18 6 million in the first quarter of 2023.

Matthew Horwath: non-GAAP operating income was $3 million in the first quarter of 2024 compared to a loss of $8 $3 million in the first quarter of 2023.

Matthew Horwath: Adjusted EBITDA was $5 6 million or approximately six 6% of sales compared to an EBITDA loss of $5 5 million in the first quarter of 2023.

Matthew Horwath: Our non-gap net income was $1.7 million, or nine cents per share, for the first quarter of 2024, compared to a net loss of 7.1 million, or 38 cents per share, in Q1 2023. Our cash and short-term investment balance at the end of the quarter was $99.3 million, up $3 million from Q4 due to profitability levels and continued working capital improvement. Given our current accounts receivable balance, expectations for revenue, and our new expense base, as well as further enhancements to our inventory management, we continue to expect to be cash flow positive throughout the first half of 2024.

Matthew Horwath: Our GAAP net loss was $7 3 million or <unk> 38 per share. Our non-GAAP net income was $1 7 million or <unk> <unk> per share for the first quarter of 2024 compared to a net loss of $7 1 million or <unk> 38 per share in Q1 2023.

Matthew Horwath: Our cash and short term investment balance at the end of the quarter was $99 $3 million up $3 million from Q4 due to profitability levels and continued working capital improvements.

Matthew Horwath: Given our current accounts receivable balance expectations for revenue and our new expense base as well as further enhancements to our inventory management, we continue to expect to be cash flow positive throughout the first half of 2024.

Matthew Horwath: While we are pleased with our first quarter results and view them as evidence the business is moving in the right direction, we remain cautious in the near term. From a geographic perspective, we do not expect the construction market in China to rebound in the second quarter.

Matthew Horwath: While we are pleased with our first quarter results and view them as evidenced the business is moving in the right direction, we remain cautious in the near term from.

Matthew Horwath: From a geographic perspective, we do not expect the construction market in China to rebound in the second quarter and together with the elongated sales cycles in select geographies, we want to remain thoughtful and measured in setting expectations for the second quarter of 2024.

Matthew Horwath: And together with the elongating sales cycles in select geographies, we want to remain thoughtful and measured in setting expectations for the second quarter of 2024. Additionally, although the macro environment remains choppy, our confidence level continues to increase in our ability to deliver on our execution priorities that we outlined during our March Investor Event. Specifically, in our ability to expand gross margins, control our operating expenses, and generate positive free cash flow. As a result, at present FX rates, we expect second-quarter revenue of between $79 and $87 million.

Matthew Horwath: Although the macro environment remains choppy, our confidence level continues to increase and our ability to deliver on our execution priorities that we outlined during our March investor event, specifically in our ability to expand gross margins and control our operating expenses and generate positive free cash flow.

Matthew Horwath: As a result at present FX rates, we expect second quarter revenue of between 79 and $87 million.

Matthew Horwath: At those revenue levels, and given corresponding non-GAAP gross margin between 51% and 52.5% and non-GAAP operating expenses of between $41 million and $43 million, we would expect non-GAAP earnings per share ranging from negative $0.08 per share to positive $0.12 per share for second quarter profitability. This concludes our prepared remarks, and at this time, we'd be pleased to take your questions.

Matthew Horwath: At those revenue levels, and given corresponding non-GAAP gross margin between 51% and 52, 5% and non-GAAP operating expenses of between 41 million and $43 million, we expect non-GAAP earnings per share ranging from negative <unk> <unk> per share to positive <unk> 12 per share for <unk>.

Matthew Horwath: Second quarter profitability.

Speaker Change: This concludes our prepared remarks and at this time, we'd be pleased to take your questions.

Operator: And at this time, if you would like to ask a question, please press the star and 1 on your telephone keypad. You may withdraw your question by pressing star 2. Once again, to ask a question, please press the star 1 on your telephone keypad. I will take our first question from Jim Ricchiuti on Needham, please go ahead.

Speaker Change: And at this time, if you would like to ask a question. Please press star one on your telephone keypad.

Speaker Change: You may withdraw your question by pressing Star Q.

Speaker Change: Once again to ask a question. Please press star one on your telephone keypad.

Speaker Change: And we'll take our first question from.

Speaker Change: Jim.

Jim: <unk> with Needham. Please go ahead.

James Andrew Ricchiuti: Hi, thank you. Good morning.

Jim: Hi, Thank you.

Jim: Good morning.

Jim: So I'm looking at the low end.

James Andrew Ricchiuti: So I'm looking at your below end and the midpoint of your guidance, and it implies virtually no seasonal improvement, which you almost always experience. So yeah, I'd like to go into that a little more. Is that that conservatism? Are you seeing something? additional players in the market that maybe represents more headwinds exiting Q1? Or are there some comparisons at work here? You've talked about China still being weak. And clearly, there were some larger orders that you did call out in APAC, which I'd like to follow up on. But I wonder if you could frame that a little bit for us?

Needham: The midpoint of your guidance.

Speaker Change: It implies virtually no seasonal improvement, which you almost always.

Speaker Change: So yes, I'd like to go into that a little more is that is that conservatism or are you seeing something.

Speaker Change: Additional in the market that maybe represents more headwinds exiting Q1 or are there some comparisons that work here and you've talked about China still being weak and clearly there were some larger orders that you.

Speaker Change: Call out in APAC, which I'd like to follow up on it but I wonder if you could frame that a little bit for us.

Peter James Lau: Yeah. Hey, Jim, this is Pete. Good morning to you as well, and thanks for the question. Good morning, Pete.

Speaker Change: Yeah, Hey, Jim This is Pete good morning to you as well and thanks for the question.

Peter James Lau: Yeah, I mean, as we look at our range, normally, you would see seasonality. What we talked about in our remarks was a couple of large orders out of China, which a little bit skewed our expectations for our geographical mix in the first quarter and, coupled with, you know, some slowing in the developed markets due to, you know, larger capacity initiatives from some of our customers. You know, we saw a little bit of a slowdown in longer sales cycles in developed countries, along with some large orders that we don't necessarily expect to repeat in Q2.

Pete: Yeah, just I mean, as we look at our range normally you would see seasonality what we when we talked about in our remarks was a couple of large orders out of out of China, which which are little bit skewed our expectations in our geographical mix in the first quarter and coupled with.

Pete: Some slowing in the developed markets do too.

Pete: Larger capacity initiatives from some of our customers.

Pete: We saw a little bit of a slowdown in longer sales cycles in those developed countries.

Pete: Along with some large orders that we don't necessarily expect to repeat in Q2. So as we think about the seasonality of the business you're right normally it goes up but if you take those orders out of Q1.

Peter James Lau: So as we think about the seasonality of a business, you're right, normally it goes up, but if you take those orders out of Q1, the Asia Pacific orders out of Q1, we would expect to see that seasonality, along with a cautious outlook, you know, in those developed regions as we see kind of how the second quarter develops.

Pete: Asia Pacific orders out of Q1, we would expect to see that seasonality along with a cautious outlook.

Pete: In those developed regions as we see kind of how the second quarter develops.

James Andrew Ricchiuti: And can you elaborate on these large orders in APEC, where they... Unknown Speaker Are you entirely in China or were there some other countries? What kind of customer or application and was this a direct sale or a channel partner, as you called out last quarter?

Speaker Change: And can you elaborate on these large orders.

Speaker Change: <unk>.

Speaker Change: <unk>.

Speaker Change: Clearly in China or were there some other countries.

Speaker Change: It's kind of it.

Speaker Change: Customer application.

And was this direct sale or a channel partner as you called out last quarter.

Peter James Lau: Yeah, it's a good question, Jim, and I would say a mix between direct sales and channel partners. But as we've seen the construction market in China continue to remain muted, we've shifted a lot of our sales resources from construction over to manufacturing. And, you know, in the manufacturing space, obviously, the Chinese government has put in place measures to stimulate the Chinese economy. And we came across, and we were pleasantly surprised, came across some very nice large orders in China in the manufacturing space, both through channel partners and our direct sales teams.

Speaker Change: Yeah. It's a good question, Jim and I would say a mix between direct cell and channel partners, but as we've seen the the construction market in China continued to remain muted we've shifted a lot of our sales resources from construction over to manufacturing.

Speaker Change: And in the manufacturing space.

Speaker Change: Obviously, the Chinese government has put in place.

Speaker Change: Measures to stimulate that Chinese economy, and we came across and we were pleasantly surprised Cayman graphs are very life, a nice large orders in.

Speaker Change: In China in the manufacturing space.

Speaker Change: Both through channel partners and our direct sales teams and we're really pleased with those orders, but we but ultimately.

Peter James Lau: And we're really pleased with those orders. But ultimately, those large orders are different from, you know, kind of what we experienced quarter to quarter. So again, if we remove those from our base, we would see sequential improvement first quarter to second quarter. Obviously, our aim is to always get more large orders. But, you know, those orders come with, you know, less frequency than our normal flow. Okay. Understood. Okay. Thank you

Speaker Change: Those large orders are different from kind of what we experienced quarter to quarter. So again, if we remove those from our base, we would see sequential improvement first quarter to second quarter. Obviously, our aim is to always get more large orders, but those those those orders come with them.

Speaker Change: Less frequency than than our normal flow of business I would say.

Peter James Lau: Okay, thank you.

Speaker Change: Understood. Okay. Thank you.

Speaker Change: Jim.

Operator: Thank you. And our next question comes from Greg Palm with Craig Hollum. Please go ahead.

Speaker Change: Thank you and our next question comes from Greg Palm with Craig Hallum. Please go ahead.

Gregory William Palm: Yeah, thanks. Morning, guys.

Gregory William Palm: Yeah. Thanks, Good morning, guys. Thanks for taking the questions here.

Gregory William Palm: Thanks for taking the questions here. I just want to follow up a little bit on, you know, what you're seeing out there in terms of the elongated sales cycles. Just to be clear, is it concentrated in a certain geography, in certain end markets or segments? I just want to be clear exactly what you're saying.

Gregory William Palm: I just wanted to follow up a little bit on what you're seeing out there in terms of the elongated sales cycles is just to be clear is it concentrated.

Gregory William Palm: And in a certain geography in certain end markets or segments I, just want to be clear exactly what you're saying.

Peter James Lau: Yeah, thanks, Greg. Good morning, and thank you for the question.

Speaker Change: Yeah. Thanks, Greg Good morning, and thank you for the question.

Peter James Lau: You know, what I would say is we see the market, and specifically in the U.S. and Western Europe, we see those markets continuing to be strong in the manufacturing side of our business, so strong, in fact, that our customers are so busy with larger-type CapEx and capacity-related initiatives. And ultimately, our products tend to be smaller CapEx-related initiatives. And so as those customers move through their cycles to increase their capacity, it's just elongated our sales cycle a little bit in the first quarter.

Speaker Change: What I would say as we see the market is specifically in the U S and Western Europe, we see those markets continuing to be strong in the manufacturing side of our business.

Speaker Change: So strong in fact that our customers are so busy with larger type capex.

Speaker Change: And capacity related initiatives and ultimately our products tend to be smaller capex related initiatives and so as those customers move through their cycles to increase their capacity.

Speaker Change: A long gated our sales cycle and a little bit in the first quarter.

Peter James Lau: And we would hope and expect to see those sales cycles sort of normalize as we move, you know, into the second quarter. But we want to be cautious because we did see that elongation in the first quarter. Again, I would say in Western Europe and specifically in the U.S.

Speaker Change: And we would hope and expect to see those sales cycles sort of normalize as we move in.

Speaker Change: Into the second quarter, but we want to be cautious because we did see that elongation in the first quarter again, I would say in western Europe, and specifically in the U S.

Gregory William Palm: Yep, okay, because I was gonna, you know, follow up with, you know, trying to tie out what you're seeing with, you know, some better, maybe macro data, or at least a stabilization, you know, in some of the manufacturing data, the PMIs, you know, especially over in Europe, and I know that's kind of a good, you know, sort of, a metric, maybe a But how do you sort of tie what, you know, we're seeing in some of the macro indicators with kind of what you're sort of hearing or seeing in your own business? And I'm more asking these questions as we progress throughout the year, not just in Q2. Greg, it's a really good question.

Speaker Change: Yeah, Okay, because I was going to follow up with you.

Speaker Change: Trying to tie out what you're seeing with some some better maybe macro data or at least a stabilization in some of the manufacturing data. The PMI is especially over in Europe, and I know that's kind of a good sort of.

Speaker Change: Metric, maybe a lagging metric for your for your business, but how do you sort of tie what were seeing in some of the macro indicators with kind of what you're sort of hearing or seeing in your own business.

Speaker Change: And I'm more asking about as we progress throughout the year not just give it to Greg.

Peter James Lau: And you're right, we have seen the PMI stabilize and maybe uptick a little bit, although I would say I would call out that, you know, in certain countries, it's better than others around the world. But on the whole, you're right. You know, generally, I think you're also right to point out that it is a bit of a leading indicator. And historically, if you remember back to our March event, we showed our revenue growth and the correlation to the PMI trends.

Speaker Change: It's a really good question and you're right we have seen the PMI.

Speaker Change: <unk> stabilized and maybe uptick a little bit although I would say I would call out that in certain countries, it's better than others around the world, but on the whole year right.

Speaker Change: Generally I think you're also right to point out that it is a a bit of a leading indicator and historically if you remember back to our March event, we showed our revenue growth and the correlation to the PMI trends and we typically see a two to three to four quarter lag relative to the PMI and our revenue.

Peter James Lau: And we typically see a two to three to four quarter lag relative to the PMI and our revenue. And so it is good news for us as the PMI continues to, you know, strengthen. You know, and of course, it depends on, you know, our mix and where those countries are where the PMI is strong and where it's weakening a little bit. But, you know, on the whole, I would definitely classify it as a leading indicator.

Speaker Change: And so it is good news for us as the PMI continues to you know.

Speaker Change: Strengthen.

Speaker Change: And of course, it depends on our mix and where those countries the PMI as being strong in and where its weakening a little bit but on the whole I would definitely classify it as a leading indicator and we generally lag that by a couple of quarters.

Peter James Lau: And, you know, we generally lag behind by a couple of quarters. Yep, okay. And then last one, I recall you talking about price a little bit as a lever. And I'm curious where you are, if you've taken prices up across certain product lines across most product lines, you know, how that was received by the customer base, the feedback, maybe the timing of some of those price increases? Can you just give us a little bit of color there, please?

Yep, Okay, and then last one I recall, you talking about price a little bit as as a lever and I'm curious where you are at if you've taken price up across certain product lines across most product lines. You know how that was received by the cusp.

Speaker Change: Based on the feedback maybe the timing of some of those price increases can you just give us a little bit color. There. Please yes.

Gregory William Palm: Yeah, sure, Greg. We announced a price increase at the beginning of the year. And ultimately, when we announce price increases, our quotes are good for a period of time. And so, I would say the feedback so far has been positive. You know, but ultimately, because of that lag between the announced date and the implementation date, you know, while we've seen positive outlook and feedback on that price increase, we've not recognized a ton of price in our results yet and view that as an opportunity moving forward.

Speaker Change: Yes sure Greg.

Gregory William Palm: The price increase at the beginning of the year and ultimately when we have announced price increases our quotes are good for a period of time and so I would say feedback so far has been positive.

Gregory William Palm: But ultimately because of that lag between announced date and implementation date.

Gregory William Palm: While we've seen positive outlook and.

Gregory William Palm: And feedback to that price increase we've not recognized a ton of price in our results, yet and and view that as an opportunity moving forward.

Peter James Lau: Okay, that was what I was getting at. Okay, awesome. I will leave it there. Thanks. Okay, thanks.

Speaker Change: Okay that was what I was getting at Okay, awesome I will leave it there. Thanks.

Speaker Change: Okay. Thanks, Greg.

Operator: Thank you. And this concludes our Q&A session. I will now turn the call over to Peter Lau for his closing remarks.

Speaker Change: Thank you and this concludes our Q&A session I will now turn the call over to Peter <unk> for closing remarks.

Peter James Lau: Thank you, Operator. On behalf of all of our colleagues, I want to thank you for your interest in FARO. FARO has a strong foundation, and we continue to improve our financial performance. As we outlined in our March Investor event, we are extremely enthusiastic about our strategic playbook and ability to create short and long-term shareholder value. Our first quarter performance was a significant step towards achieving our long-term goals as we demonstrated a fundamental shift in our operating model. We look forward to sharing our progress towards those goals and the execution of our strategy in subsequent quarters. This concludes our call today. Thank you very much for your time.

Peter James Lau: Okay. Thank you operator.

Peter James Lau: On behalf of all of our colleagues I want to thank you for your interest in Ferro Ferro has a strong foundation and we continue to improve our financial performance as we outlined at our March Investor event, we are extremely enthusiastic about our strategic playbook and ability to create short and long term shareholder value our first.

Peter James Lau: Quarter performance was a significant step towards achieving our long term goals as we demonstrated a fundamental shift in our operating model. We look forward to sharing our progress towards those goals and the execution of our strategy in future quarters. This concludes our call today. Thank you very much for your time.

Operator: This concludes today's program. Thank you for your participation. You may disconnect at any time.

Speaker Change: This does conclude today's program. Thank you for your participation you may disconnect at any time.

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