FARO Technologies CEO Discusses Q3 2010 Results – Earnings Call Transcript
FARO Technologies, Inc. (
)
Q3 2010 Earnings Call Transcript
November 4, 2010 11:00 am ET
Executives
Vic Allgeier – IR, TTC Group
Jay Freeland – President and CEO
Keith Bair – SVP and CFO
Analysts
Mark Jordan – Noble Financial
Jim Ricchiuti – Needham & Company
Andy Schopick – Nutmeg Securities
Robert Mason – Robert W. Baird
Sam Pfeifle – SPAR Point Group
Chris King – Stifel Nicolaus
Chuck Murphy – Sidoti and Company
Presentation
Operator
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FARO Technologies, Inc. Q2 2010 Earnings Call Transcript
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FARO Technologies, Inc. Q1 2010 Earnings Call Transcript
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FARO Technologies, Inc. Q3 2009 Earnings Call Transcript
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FARO Technologies Inc. Q2 2009 Earnings Call Transcript
Good morning, everyone and welcome to the FARO Technologies conference call in conjunction with its third quarter 2010 earnings release. For opening remarks and introductions, I will now turn the call over to Vic Allgeier. Please go ahead, sir.
Vic Allgeier
Thank you and good morning everyone. My name is Vic Allgeier, the TTC Group, FARO’s Investor Relations firm. Yesterday after the market closed, FARO released its third quarter results. By now, you should have received a copy of the press release. If you have not received a release, please call Nancy Setteducati at 407- 333-9911. The press release is also available on FARO’s website at www.faro.com.
Representing the company today are Jay Freeland, President and Chief Executive Officer and Keith Bair, Senior Vice President and Chief Financial Officer. Keith and Jay will deliver prepared remarks first, and will then be available for questions.
I would like to remind you that in order to help you understand the company and its results, management may make some forward-looking statements during the course of this call. These statements can be identified by words such as we expect, we believe, we predict, we target, our growth targets, our goals, our guidance and similar words.
It is possible that the company’s actual results may differ materially from those projected in these forward-looking statements. Important factors that may cause actual results to differ materially are the risk factors set forth in yesterday’s press release and in the company’s filings with the SEC.
I will now turn the call over to Keith.
Keith Bair
Thank you, Vic and good morning, everyone. Sales in the third quarter of 2010 were 45.3 million, a 26.8% increase from 35.7 million in the third quarter of 2009. On a regional basis, third quarter sales in 2010 in the Americas increased 3.7 million or 26.9% to 17.4 million compared to 13.7 million in the third quarter 2009. Sales increased 13.8% in Europe to 16.6 million from 14.6 million in the third quarter of 2009. Sales in the Asia Pacific region were up 52.2% to 11.3 million from 7.4 million in the third quarter of 2009.
The effective changes in foreign exchange rates on sales was a decrease of approximately 1.2 million in the third quarter of 2010. New orders increased 30.7% in the third quarter of 2010 to approximately 46.8 million compared to approximately 35.8 million in the third quarter of 2009.
On a regional basis, third quarter orders in 2010 in the Americas increased 34.3% to 18.8 million compared to 14 million in the third quarter of 2009. Orders increased 12.2% in Europe to 15.6 million from 14.8 million in the third quarter of 2009. Orders in the Asia Pacific region increased 62.9% to 11.4 million compared to 7 million in the year ago quarter.
The top five customers by sales volume in the third quarter of 2010 were the US Military, Airbus, Daimler AG, Premium AEROTEC GmbH and Goodyear Tire & Rubber Company and represented only 6.5% of sales. The top 10 customers in the third quarter of 2010 represented only 9.1% of our sales, once again, indicating our lack of dependence on any one or a handful of customers.
Our gross margin was 58.3% in the third quarter of 2010, compared to 54.9% in the year-ago quarter. This increase was primarily due to a change in the sales mix between higher-margin product sales and lower-margin service revenue, resulting from an increase in higher-margin product sales.
As a percentage of sales, selling expenses declined to 25.9% of sales in the third quarter 2010 compared to 32.2% in the year-ago quarter. Selling expenses increased by 200,000 to 11.7 million in the third quarter 2010 from 11.5 million in the third quarter of 2009.
As a percentage of sales, administrative expenses were 15.9% of sales in the third quarter of 2010 compared to 17.2% in the third quarter of 2009. Administrative expenses in the third quarter of 2010 increased by 1 million to 7.2 million from 6.2 million in the third quarter of 2009, primarily as a result of an increase of 800,000 related to the cost of the monitor in connection with the DOJ and SEC settlement, and legal fees related to patent litigation of 400,000, offset by a decrease in compensation of 200,000 due to reduced headcount.
Research and development expenses remained flat at 2.8 million for the third quarter 2010 and 2009. R&D expenses declined to 6.3% of sales in the third quarter of 2009 compared to 7.8% in the prior year period.
Operating margin for the third quarter of 2010 was 6.3% compared to a negative margin of 6.3% in the year-ago quarter, as a result of the previously mentioned increase in sales and gross margin. Net foreign currency transaction gains were 500,000 in the third quarter of 2010 compared to a gain of 200,000 in the third quarter of 2009. Foreign exchange gains and losses resulted in some inter-company transactions and changes in the value of the inter-company account balances denominated from different currencies.
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