FARO Technologies Inc. Q1 2025 Earnings Call
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Speaker Change: Good day, everyone and welcome to the Faro technologies.
Speaker Change: First quarter 2025 earnings call.
Speaker Change: For opening remarks, and introductions I will now turn the call over to Michael Funari at Sapphire Investor Relations. Please go ahead.
Peter Lal: Thank you and good morning with me today from Faro are Peter Lal, President and Chief Executive Officer, and Matt Horvath Chief Financial Officer.
Speaker Change: This morning, the company released its financial results for the first quarter of 2025.
Speaker Change: The related press release is available on Faros website at Www Dot Ferro Dot com.
Speaker Change: 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 product and technology development customer demand inventory levels, our outlook and financial guidance economic and industry projections.
Speaker Change: Or subsequent events.
Speaker Change: Various factors could cause actual results to differ materially.
Speaker Change: 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.
Speaker Change: 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.
Speaker Change: During today's conference call management will discuss certain financial measures that are not present in accordance with U S. Generally accepted accounting principles or non-GAAP financial measures.
Speaker Change: Press release, you'll find additional disclosures regarding these non-GAAP measures, including reconciliations to comparable GAAP measures.
Speaker Change: While not recognized under GAAP management believes these non-GAAP financial measures provide investors with relevant period to period comparisons of core operations.
Speaker Change: They should not be considered in isolation or as a substitute for a measure of financial performance prepared in accordance with GAAP.
Peter Low: Now I'd like to turn the call over to Peter low.
Peter Low: Thank you Mike Good morning, and welcome everyone to our call.
Peter Low: In the first quarter, we again exceeded all of our targets revenue was $82 $9 million, which was in the upper end of our guidance range non-GAAP gross margins were 57, 7%, which is above the high end of our guidance range.
Peter Low: non-GAAP operating expenses were $38 $5 million, which was at the low end of our guidance range. As a result in the first quarter. We generated 33 sets of non-GAAP EPS, which was above the high end of our guidance range. The highest Q1 in our history and represented the eighth straight quarter of exceeding our expectations.
Peter Low: Operating cash flow was again positive in the quarter, representing our sixth straight quarter of operating cash flow generation.
Peter Low: During 2024, we spoke at length about the three phases of Ferro strategy to create shareholder value by focusing on our core business.
Peter Low: The first phase was centered around operational excellence to rebuild our financial base and execute our strategic reset to align the company towards a more sustainable winning trajectory.
Peter Low: The second phase was to capitalize on the strong operating leverage we've built into the business in phase one by focusing on organic growth that is underpinned by high probability.
Peter Low: So investment growth sectors that are tightly aligned with our core strengths.
Peter Low: The third stage of our growth strategy is focused on the outer years as we continue to strengthen our net cash position.
Peter Low: To make selective higher risk higher reward organic and inorganic investments that are within or closely adjacent to our core.
Peter Low: With respect.
Peter Low: The phase one quite simply we're accomplishing everything we set out to do and more.
Peter Low: It was another outstanding operating quarter for our team here at Ferro.
Our continued commitment to 80 20 within our operations enabled non-GAAP gross margins of 57, 7%.
Peter Low: Expanding 590 basis points year over year, and proudly for US 25 basis points sequentially above our seasonally strong fourth quarter.
Peter Low: $12 $5 million of EBITDA in the first quarter represents 840 basis points of year over year expansion and an impressive 124% year over year growth.
Peter Low: At 15% EBITDA margin, we are squarely on pace to meet or exceed our 2025 objectives.
Peter Low: And our long term aspirational model.
Peter Low: We expect our phase one operational excellence initiatives to remain ongoing and we continue to identify opportunities to further expand EBITDA and consistently generate positive earnings and cash flow.
Peter Low: Our objective is to remain disciplined in our approach to capital allocation and continue to be prudent with cash and cash based investments.
Peter Low: Looking back to 2023 and 2024, our revenue performance was largely dictated by broader market conditions.
Peter Low: During that period, we had prioritized our phase one initiatives and strategically reoriented, our teams and their activities to take a focused 80 20 approach to seed our phase two organic growth sectors. As a reminder, the growth sectors. We identified during this phase where to refresh our existing portfolio.
Peter Low: To drive market leadership and customer refresh cycles.
Peter Low: To launch new products to increase our addressable opportunity by $800 million in the next three years and.
Peter Low: And to develop global partnerships to drive further scale and reach for the Ferro business.
Peter Low: I'm quite pleased to report that Q1 was an inflection point for our business as we saw many of these phase two opportunities contribute to our performance and despite an unforeseen deterioration in the macro in Q1 due to tariff policy, our net orders in the first quarter grew by 6% year over year.
Peter Low: We built backlog in the quarter, which gives us more confidence as we continue through the year.
Peter Low: From a market perspective in the first quarter the underlying market remains similarly difficult to Q4 with incremental deterioration and strengthening between geographies.
Peter Low: Overall Q1 ended in line with what we expected although the Americas was not as strong as expected, specifically, Mexico, Canada and the United States is tariff related uncertainty from the end of January all the way through March persisted.
Peter Low: This was partially offset by the underlying economy in Europe strengthening.
Peter Low: And we started to turn the corner with a return to growth in Asia and in China in particular.
Peter Low: Matt will talk more about how we see Q2, playing out when we explained guidance in just a few minutes.
Peter Low: The other offset was our phase II growth factors, we've had a very busy six months in terms of our product refresh initiatives.
Peter Low: As we discussed last quarter, we had three major releases in the fourth quarter.
Peter Low: Our new and improved arm with quantum ex making it the most accurate arm in the market.
Peter Low: Focus range of scanners, which have the longest range on the market and our Orbis mobile scanner with the best Lam and data quality on the market.
Peter Low: In addition in the first quarter, we had two major software launches with Cam to our leading metrology software and zone are leading public safety software.
Peter Low: All of these launches are seeing strong early traction driving revenue gains accelerating customer upgrades and contributing to our first quarter performance. The positive uptake we've seen thus far reinforces our conviction that product refreshes are an important lever in both defending and expanding our market.
Peter Low: Sure.
Peter Low: Moving to our initiatives to expand the addressable opportunity that Ferro serves in late January we successfully launched LEEP S. T to the market and the receptivity has exceeded our expectations and.
Peter Low: In February and March our teams generated meaningful revenue from this handheld metrology tool and the pipeline of opportunities that we've created so far has exceeded our expectations. We look forward to converting those opportunities into revenue into the come in the coming quarters.
Peter Low: Building on the leap momentum last week, we launched Faro linked to the market a groundbreaking software led solution with a scanner and 360 degree camera combination designed to democratize the global scanning market.
Peter Low: Blink automates the complex process of capturing three D models and delivering insights through our sphere Xg cloud platform with just the touch of a button.
Peter Low: Blink delivers high quality scanned and insights without requiring the expertise of an experienced operator, which can take years to acquire.
Peter Low: The billing solution will be sold by us as a hardware and a software bundle and so far the response has been fantastic.
Peter Low: Ahead of the April 15th launch, we began global trading with our sellers and our global Channel network. While also conducting private demonstrations for select end users under NDA and the early reception has exceeded expectations with close to $1 million in preorders ahead of the launch.
Peter Low: We're one year into our three year journey, but with leap and Blake, we have now executed on over 60% of our Sam expansion target.
Peter Low: With a revamped new product strategy and our expectation of more launches in the coming quarters and years ahead, we feel really good about the pace of our product launches and the receptivity, they're gaining in the market.
Peter Low: To help put our new product launch cadence into perspective between our core refresh initiatives and our Sam expansion strategy. We've now had seven major product launches in the last six months.
Peter Low: That's more than we did over almost five of the previous years combined.
Peter Low: It is a clear testament to our strategy of strengthening our core and how applying 80 20 principles is allowing us to deliver more impactful solutions in a more efficient manner.
Peter Low: We will continue to stay committed to accelerating innovation and investing in solutions growth.
Peter Low: Finally, our partnership growth factor continues to show great promise as we discussed in our last earnings call. In January we signed two major global partnership agreements each expected to contribute low eight figures in revenue on an annual basis.
Peter Low: In the first quarter one of those partnerships has already begun to contribute to our orders and revenue with both partnerships expected to contribute to our order book in the second quarter.
Peter Low: Partnership on our digital reality solutions is often running with a top 10 product being launched to their customers in April.
Peter Low: As a reminder, the metrology partnership in product lines is not yet publicly announced and we don't expect that partner to two announced until the fourth quarter of this year.
Peter Low: But moving forward, we're actively managing a handful of other promising new partnership opportunities. In addition to expansion of more solution into the existing partnerships, we hope to announce either another new meaningful partnership or a meaningful expansion to an existing partnership still this year.
Peter Low: We feel comfortable that we've established appropriate swim lanes with these partnerships and expect them all to be win win scenarios for all parties.
Peter Low: With respect to phase II, we're accomplishing everything that we set out to do across all three growth factors with more opportunities still to come in our pipeline.
Peter Low: Before turning the call over to Matt I wanted to address the topic currently on everyone's minds tariffs.
Matt: And the expected impacts we believe that tariff policy will have on Faros business.
Matt: Want to start by reminding folks about a few key points related to ferro.
Matt: First <unk> business model is attractive and that approximately one third of our revenue comes from software and localized services, which are not affected by tariffs.
Matt: Second Ferro has extremely high contribution margins. So we believe the effect of tariffs on our cost of goods sold is manageable and third only approximately 40% of our revenue runs to the United States.
Matt: As most of you know we manufacture all of our hardware in Thailand.
Matt: In terms of the direct impact of tariffs the rough framework would be revenue multiplied by the percent of our business. That's hardware multiplied by the percent of cost of goods sold in our contribution margin.
Matt: Multiplied by the percent of our business shipped to the United States multiplied by the percent tariff rate for Thailand.
Matt: Put it in absolute dollars or 36% reciprocal tariff on Thailand at our current revenue has about a $9 million impact to gross margin.
Matt: If we then add some of the accessories, we source from other companies countries. The total impact comes to $10 million or two 9% of our 2020 for revenue.
Matt: If the final reciprocal tariff rate on Thailand remains 36%, we would expect to cover the full impact with a low single digit price increase.
Matt: In the near term given the 10% blanket tariffs currently in place in early April we enacted a 1% price increase to cover the impact as we await the conclusion of negotiations.
Matt: While we are unsure now of the final outcome post negotiations we've already analyzed our business we have the infrastructure in place to go live with a price increase within two days once we know the final rate in.
Matt: In terms of our ability to pass along price, we generally feel positive about it as our products are high tech at a relatively low capital equipment price point, which results in low price elasticity.
Matt: With that said, we will continue to monitor the health of the market and review our discount rates daily to control potential price leakage.
Matt: Additionally, as I spoke about on the Q4 earnings call. We're actively assessing the option to repatriate U S bound portion of our production to the U S and a strategic move to mitigate long term exposure.
Matt: As a reminder, we already have 11 localized service centers around the world that service our installed base of equipment daily beef.
Matt: Because we service our products all of these centers already have all of the necessary equipment to manufacture and test our products and we believe we can stand up localized manufacturing in the United States and less than six months with minimal to no investment.
Matt: Once tariff rates are finalized within a week, we will be able to complete our modeling on items like tariffs and shipping costs and components between various countries that determine the economic viability of localization remember, though this would be in addition to the price increase that we intend to execute to fully offset the gross margin.
Matt: Dollar impact.
Matt: Furthermore, we're already taking action where possible as an example today we ship all of our goods for sales in Latin America through the United States and we're working with Sanmina to change that process Sanmina will ship directly to our entities in Latin America further reducing our tariff based from 40% of revenue to approximately 30.
Matt: Percent of revenue, which will reduce the total impact of tariffs again. This will be in addition to the price increase to fully offset the gross margin impact.
Matt: Last we will continue to monitor that.
Matt: Broader demand environment, so far and it's early days in Q2, but so far demand has outpaced in Q1 and approximately flat to the prior year.
Matt: As our products are lower capital cost solutions, and often required to run customers facilities. We believe the near term demand impacts of the broader macro.
Matt: It may be more muted for us since then larger capital projects like building new product lines. Nevertheless, we've evaluated several demand sensitivities and already have cost reduction plans in place to preserve cash and profitability for each of these scenarios and.
Matt: In summary, we have plans in place ready to execute once we have clarity on the final tariff rates and believe we are well prepared to continue to create the kind of shareholder that you've come to expect from us across multiple different scenarios in the short term looks.
Matt: Looking further ahead, we believe that tariffs may become a net positive for our business as companies accelerate near shoring initiatives and look to diversify their supply chains.
Matt: Overall, we feel very well prepared for multiple direct and indirect tariffs related to scenarios and we're extremely pleased with how we started 2025.
Matt: All metrics exceeded our expectations and we are beginning to see the results of the groundwork laid on our phase II growth sectors through new product introductions and expanded strategic partnerships with even more opportunities in the pipeline. We're confident in the strength of our strategy our operating model are.
Matt: Business model and our ability to drive continued shareholder value and above market revenue growth with that I'm going to turn the call over to Matt to provide an overview of our first quarter financial results and an in depth second quarter outlook.
Matt: Thank you Peter and good morning, everyone.
Matt: First quarter revenue of $82 $9 million was down 2% versus prior year geographically, the Americas and European regions were down, 3% and 1% respectively. While in the Asia Pacific region, we experienced growth of 1%.
Matt: On a constant currency basis revenue was up year over year for the first time since Q2, 2023, and as Peter alluded to we built some backlog in the first quarter gap.
Matt: GAAP gross margin was 57% and non-GAAP gross margin was 57, 7% for the first quarter of 2025 compared to 51, 8% in 2024.
Matt: In the first quarter, we continued to see year over year productivity gains driven by our ongoing supply chain localization efforts as well as nominal contributions from price increases launched at the start of the year.
Matt: As a result, non-GAAP gross margin increased over 25 basis points sequentially versus our seasonally strong Q4 and marks the highest quarterly level since 2018.
Matt: GAAP operating expenses were $43 4 million and included $4 4 million in acquisition related intangible amortization and stock compensation expenses and $513000 in restructuring and other costs.
Matt: non-GAAP operating expense of $38 $5 million was down $2.2 million from Q1 last year as we continue to realize productivity improvements and a benefit from the restructuring program implemented in Q4 of last year.
Matt: As a reminder, regarding our restructuring program. It is our intention to reinvest some of those savings into higher growth regions. Throughout 2025, partially offsetting this we will continue to look for productivity opportunities.
Matt: GAAP operating income was $3 $8 million in the first quarter of 2025, compared with an operating loss of $5 $3 million in the first quarter of 2024, non-GAAP operating income was $9 $3 million in the first quarter of 2025 compared to $3 million in the first quarter of 2024.
Adjusted EBITDA was $12 $5 million or 15% of sales compared to $5 $6 million in the first quarter of 2024.
Matt: Our GAAP net income was $906000 or <unk> <unk> per share our non-GAAP net income was $6 $4 million or <unk> 33 per share for the first quarter of 2025 compared to approximately $1 $7 million or <unk> <unk> per share in Q1 2024.
Matt: Our cash and short term investment balance at the end of the quarter was $102 6 million up $3 $9 million sequentially during.
Matt: During the quarter, we continued to execute on our collections and working capital initiatives and based on current market conditions, We expect positive adjusted free cash flow for 2025.
Matt: It is clear that the broader macro environment remains choppy in Q1, we saw softness in the Americas region, largely due to the uncertainty around tariff policy, which we expect to continue and ultimately affect other regions across the world I want to provide more details than normal so our Q2 guidance given the current environment.
Matt: The current uncertainty around the ongoing tariff policy discussions we expect to see the market continue to worsen in Q2 from a guidance perspective, we are assuming that the market for our hardware revenue to be down 10% year over year, we expect our operating expense to rise at current foreign exchange rates and we expect there to be some negative impact of tariffs.
Matt: Costs in our gross margins.
Speaker Change: However, we have a lot of opportunities, resulting from the strong strategic execution Peter discussed earlier from a topline perspective, we expect the normal mid single digit increase on seasonality from Q1 to Q2 independent of the broader macro environment.
Matt: We have our previously announced partnerships that will contribute to Q2 revenue.
Matt: We are forecasting an acceleration from leap that we launched in late January and we launched late last week and receptivity has been very strong.
We have the seven new product refreshes that we launched over the last six months and we expect foreign exchange to be a tailwind to revenue at current rates. Additionally, we implemented an incremental 1% price increase in April and as Peter mentioned, we have an attractive business model that has approximately one third of reoccurring revenue from our software and <unk>.
Matt: Service businesses that provides us with good visibility and high confidence into a meaningful portion of our revenue.
Matt: In addition to the tailwind we have built some backlog in the first quarter that we believe helps solidify our outlook for Q2.
Matt: From a gross margin standpoint, we have our localization program continuing to deliver incremental benefits the January and April price increases and benefits from current foreign exchange rates versus Q1.
Matt: On top of that as Peter described we are taking immediate action and planning in this uncertain environment given the long list of puts and takes we believe it's prudent to remain thoughtful and measured as we set expectations with regards to revenue, we expect that the 10% year over year decline in the hardware market will be largely offset by the normal sees.
Matt: Analogy and contributions from our growth initiatives as a result at present foreign exchange rates, we expect second quarter revenue of between $79 million and $87 million, which represents a nominal year over year growth rate at the midpoint.
Matt: At those revenue levels and given our strong Q1 operating baseline and the puts and takes I just outlined corresponding non-GAAP gross margin between 57% and 58, 5% and non-GAAP operating expenses of between $38 5 million and $45 million when taken together, we would expect non.
Matt: non-GAAP earnings per share ranging from 20 <unk> per share to <unk> 40 per share for second quarter profitability.
Matt: This concludes our prepared remarks and at this time, we'd be pleased to take your questions.
Speaker Change: Thank you and at this time, if you would like to ask a question. Please press the star and one on your telephone keypad you may remove yourself from the queue at any time by pressing star to you. Once again that is star one to ask a question and your first question comes from the line of Jim Ricchiuti.
Jim Ricchiuti: With Needham <unk> Company. Please go ahead.
Matt: Yes.
Matt: Thanks, Good morning.
Matt: Just a question as to.
Speaker Change: How youre thinking about the hardware business shaping up for Q2.
Speaker Change: I guess, where I'm going with this is historically ferro has gotten.
Speaker Change: A larger slug of revenues and late in the quarter and so when we think about what occurred in Q1 have you.
Speaker Change: You may now.
Speaker Change: Information and data that get you comfortable with that kind of a scenario because I'm trying to understand what youre seeing from customers across your major verticals and also if you could where youre seeing more noticeable changes in tone or expectations.
Jim Ricchiuti: Yes, Jim Thanks, Thanks for the question and I think.
Jim Ricchiuti: Just going back to Q1, and you're right historically, we see a lot of bookings and.
Jim Ricchiuti: Billings at the end of the quarter and we saw that in March of this year.
Jim Ricchiuti: And we mentioned that we saw specifically in the U S.
Jim Ricchiuti: And in Mexico, and Canada, but despite that rate despite the deterioration, which we didn't see we feel pretty good about our phase II growth factors and.
Jim Ricchiuti: It was really able to help us offset Q.
Jim Ricchiuti: Q1, so as we cycle into Q2 as I mentioned in the prepared comments.
Jim Ricchiuti: So far and it's early days in April we're seeing about what what we saw last year and frankly, we're quite a bit ahead of what we saw in our pacing in Q1.
Jim Ricchiuti: So out of an abundance of caution as Matt talked about in the guide.
Jim Ricchiuti: What we're seeing so far does not correlate to a down 10% in the hardware market, but relative to our guide we assumed a downturn hardware market, even though we're not seeing that.
Jim Ricchiuti: Quite yet in April in Q2, and so you know if we if we continue on the pace that we're going to we don't see the downturn, we think that the opportunity than would be.
Jim Ricchiuti: Against the guidance to be closer to the higher half of that guidance range, but again.
Jim Ricchiuti: Cautionary we want to make sure that we don't stick our head in the sand and we're prepared for as downturn in the hardware market in case. It does show up like it did show up in Q1 in the Americas and so from that perspective, we feel generally pretty comfortable with the guidance I mean, I think in terms of what we're seeing is core.
Jim Ricchiuti: Cautious optimism I think around the world.
Jim Ricchiuti: That deals are going to get done, but we are seeing like we saw in Q1, some people delay purchases and again, that's okay. Because we've built that really into the calculus for our second quarter Guide.
Jim Ricchiuti: Got it thanks for that and.
Jim Ricchiuti: With respect to new products and the potential for that to be a tailwind.
Jim Ricchiuti: For you guys is that are you thinking more along the lines of that being a bigger tailwind at.
Jim Ricchiuti: All else being equal on the macro side in the second half as opposed to Q2 or how much I guess, where I'm going is how with this is how much of a tailwind.
Jim Ricchiuti: In Q2 in the quarter, we're in right now.
Speaker Change: Yes, no no. Its a good question, Jim and just as a reminder, right. We launched we launched two of the new products the new <unk>.
Jim Ricchiuti: Opportunity expansion products.
Jim Ricchiuti: <unk> happened in late January and obviously there is there is some time that it takes to get our teams enabled and customers demo ing those products and so with leap, we only really had two months in the first quarter not all three months and then if you throw in another four to six weeks of.
Jim Ricchiuti: Kind of getting up to speed, we really didn't see a lot from leap in Q1 or as much as we would expect that in cycling into Q2, and then again in early Q2 on April 15th we launched blank and and we've revamped our product launch process such that we're in a position now to be under NDA to be.
Jim Ricchiuti: Really kind of.
Jim Ricchiuti: Enabling our sales people at our partners and end users and we got close to $1 billion of preorders from Blink before we even launched it so.
Jim Ricchiuti: We feel that.
Jim Ricchiuti: Although leaf contributed to Q1 in a somewhat meaningful way, we expect acceleration from leaf and new blank and thus our new products kind of as we cycle into Q2, and hopefully then for the rest of the year.
Jim Ricchiuti: Got it thank you guys.
Jim Ricchiuti: Jim.
Speaker Change: And once again, if you would like to ask a question. Please press the star entered one on your telephone keypad now.
Speaker Change: And you will have your next question from Greg Palm with Craig Hallum Capital Group. Please go ahead.
Greg Palm: Yeah. Thanks.
Greg Palm: Now I'd like to think I'm getting sick of congratulating you guys, but you know what you've been able to accomplish over the last call it year than simply incredible self job well done congrats.
Greg Palm: Thank you Greg good to hear you.
Greg Palm: I'd like to just dig in a little bit more in kind of what you're seeing here and out there and I'm not sure. If we can just break it apart from kind of the core business and in new products, but you know everybody is worried about the macro environment and tariffs and slowdown and widened.
Greg Palm: It doesn't sound like Youre necessarily seen any change in behavior, but just give us a little bit more like by end market by product line by geography, just exactly what youre seeing out there maybe that's a good place to start.
Greg Palm: Yes, yes, Greg yes.
Greg Palm: It's a good question and again.
Greg Palm: We saw it we did see it in Q1 and two.
Greg Palm: Particularly in the first quarter.
Greg Palm: In places like Mexico, Canada, and then towards the end of the quarter more so in the United States.
Greg Palm: If you kind of think through that and then back to the timeline of some of the tariff announcements, Canada and Mexico were almost immediate you know at the end of January we saw a slowdown and then and then obviously with some of the auto and the steel related tariffs, we kind of saw it begin to accelerate in.
Greg Palm: In March.
Greg Palm: And I think for us.
Greg Palm: Our biggest end market is just general manufacturing and that seems to be holding in there fairly well.
Greg Palm: Aerospace and defense.
Greg Palm: For us seems to be holding in there fairly well automotive of course, there's a lot of.
Greg Palm: I'd say uncertainty in automotive and so we're seeing not just the big autos, but some of this.
Greg Palm: The the associated supply chain, the tier the tier twos and the tier threes.
Greg Palm: Really just kind of taking a careful and a cautious approach to.
Greg Palm: Yes.
Greg Palm: <unk>.
Greg Palm: The uncertainty in what could be the future and look I think at this point there is a lot of <unk>.
Greg Palm: Hope I would say that.
Speaker Change: The tariffs are going to be largely negotiated and theres going to be a good outcome and in these 90 days, but again for Matt and I Hope is not a strategy right and so we are we are expecting or we are forecasting or we are planning for a 10% hardware down market in Q2.
Speaker Change: Despite the fact that we and again, it's early days in April we haven't seen it yet, okay, but but but there is there is definitely a possibility that it happens and so we're planning for that.
Speaker Change: Look as it gets as.
Speaker Change: Is it potentially gets worse from here as we talked about we're already looking at strategies to repatriate some of our production.
Speaker Change: Move around our global supply chain, such that we're shipping direct to Latin America.
Speaker Change: <unk> got.
Speaker Change: A couple of sensitivities.
Speaker Change: On demand and what we would do from a cost standpoint to deliver to continue to deliver positive cash flow in <unk>.
Speaker Change: Earnings and so look I would say at this point right now anything can happen and we're planning for anything to happen, then and a bunch of different scenarios and.
Speaker Change: Well look we will look to continue to what I would say, Germany is a good example of automotive hasnt been strong there. The last couple of years and we've pivoted a lot of our sales activities to defense and aerospace and general manufacturing and we had a good result doing that in the first quarter and so we'll continue.
Speaker Change: To look for the pockets of the market that are strong in and pivot our demand generation and our sales efforts.
Speaker Change: <unk> will follow it will follow the money both from an end market standpoint, but also from a geographic standpoint.
Speaker Change: Yes, I think we can all appreciate the the prudent approach and in this time.
Speaker Change: I'm curious as it relates to the.
Speaker Change: The order growth can you just.
Speaker Change: I just want to make sure I'm clear on this was it was it a lot of sort of last minute.
Speaker Change: Revenue was at building more of a backlog for second half deliveries because you obviously did the book to Bill over one and it doesn't imply like youre going to ship. It in Q2. So I'm just kind of curious where those orders are going to fall in terms of the revenue generation.
Speaker Change: Yeah, I mean, I think for us it was.
Speaker Change: Orders that came in.
Speaker Change: It wasn't like we meant to build backlog, we sometimes when orders come in late it's hard to react.
Speaker Change: When you're when you forecast aren't perfect and you've got a lot of different configurations for your products you kind of you kind of react to the best that you can.
Speaker Change: From a from a demand standpoint.
Speaker Change: We see the second quarter again off to a decent start.
Speaker Change: But again, we're forecasting that and so our view on backlog as is.
Speaker Change: It's we're not counting on shipping down the backlog.
Speaker Change: Implicit in our guide is a one to one one to one book to Bill.
Speaker Change: But.
Speaker Change: If things take a turn for the worst we did build a little bit of backlog in and as Matt said in the comments it helps solidify.
Speaker Change: Our outlook on Q2, even if <unk>.
Speaker Change: Even if the market deteriorates, a little more than what we're already expecting.
Speaker Change: Yes, Okay, and just last one in terms of the partnership so it sounds like.
Speaker Change: Our product is already launched with top Con I was one of the things on my mind was just the environment. We're in with the uncertainty does it.
Speaker Change: Delay any of the product launches or partnerships, but it doesn't sound like that's the case. So maybe you can just confirm that in.
Speaker Change: Yeah.
Speaker Change: I'll leave it there.
Speaker Change: Yeah, No. That's a good question and I think you know what.
Speaker Change: I don't necessarily of course. The first question you would ask yourself is does it delay, but when you when you step back and think about it in times like these.
Speaker Change: Our partners are delivering more new products to their partners it becomes a growth opportunity for them and so as they think about it as a growth opportunity and as we think about it from expanding the partnership we actually think maybe.
Speaker Change: Down market would accelerate.
Speaker Change: The desire of our partners to deliver more new products to their customers and so.
Speaker Change: We'll see how these things go again, we want to be thoughtful and measured around the partnerships make sure that we have the right swim lanes make sure that they are win wins for for all partners, but in an environment like this I generally tend to think that most companies would say more products launch to their customers as a net good thing Greg.
Greg Palm: Yeah, that's a good point, okay I will leave it there thanks.
Greg Palm: Okay. Thanks very much.
Peter: Thank you and it appears that we have no further questions. At this time I will now turn the program back to Peter <unk> for closing remarks.
Speaker Change: Good. Thank you so look on behalf of all of our colleagues at Ferro I want to thank all of you for your interest <unk>.
Speaker Change: Despite a really challenging market, we continue to exceed our targets in all areas.
Speaker Change: We're very excited about our progress our first quarter performance demonstrates the operational leverage that we've already built into the business with gross margins operating expenses profitability and cash flow. All tracking ahead of plan. Our success. So far gives us confidence as we continue to execute on the organic growth initiatives and the <unk>.
Speaker Change: Orders ahead that we believe will be in a position to unlock short and long term shareholder value. We look forward to sharing more about our progress and execution in the quarters ahead. This concludes our call today. Thank you very much again for your interest in Ferro.
Speaker Change: Thank you.
Speaker Change: This concludes today's presentation. Thank you for your participation you may disconnect at any time.
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