FARO Technologies, Inc. (FARO)
Q2 2010 Earnings Call
August 05, 2010 11:00 am ET
Vic Allgeier - IR
Jay Freeland - CEO
Keith Bair - CFO
Mark Jordan - Noble Financial
Larry Solow - CJS
Richard Eastman - Robert W. Baird
Barry Randall - Crabtree Asset
Previous Statements by FARO
» FARO Technologies, Inc. Q1 2010 Earnings Call Transcript
» FARO Technologies, Inc. Q3 2009 Earnings Call Transcript
» FARO Technologies Inc. Q2 2009 Earnings Call Transcript
Good morning everyone, and welcome to FARO Technologies conference call in conjunction with its second quarter 2010 earnings release. For opening remarks and introductions, I will now turn the call over to Vic Allgeier. Please go ahead, sir.
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 second 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.
Thank you, Vic. And good morning, everyone. Sales in the second quarter of 2010 were $45.7 million, a 32.4% increase from $34.6 million in the second quarter of 2009. On a regional basis, second quarter sales in 2010 in the Americas increased $4.1 million or 33.7% to $16.4 million compared to $12.3 million in the second quarter of 2009. Sales increased 19.9% in Europe to $18.1 million from $15.1 million in the second quarter of 2009. Sales in the Asia-Pacific region increased 56.7% to $11.2 million from $7.2 million in the second quarter of 2009.
The effective changes in foreign exchange rates on sales was a decrease of approximately $1.1 million in the second quarter of 2010 compared to the second quarter of 2009. New orders increased 24% in the second quarter of 2010 to approximately $43.9 million compared to approximately $35.4 million in the second quarter of 2009.
On a regional basis, second quarter orders in 2010 in the Americas increased 22.1% to $14.9 million compared to $12.2 million in the second quarter of 2009. Orders increased 21.2% in Europe to $18.3 million from $15.1 million in the second quarter of 2009. Orders in the Asia-Pacific region increased 32.1% to $10.7 million compared to $8.1 million in the year ago quarter.
The top five customers by sales volume in the second quarter of 2010 were, Advanced Integration Technologies, IHI, Global Tooling Systems, Westinghouse Electric and Daimler AG and represented only 3.3% of sales. The top 10 customers in the first quarter of 2010 represented only 5.5% of our sales, once again, indicating our lack of dependence on any one or a handful of customers.
Our gross margin was 59.3% in the second quarter of 2010, compared to 56.1% 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 decreased to 26.3% of sales in the second quarter of 2010 compared to 35.1% in the year-ago quarter. Selling expenses declined by $100,000 to $12 million in the second quarter of 2010 from $12.1 million in the second quarter of 2009.
As a percentage of sales, administrative expenses were 13.2% of sales in the second quarter of 2010 compared to 17.8% in the second quarter of 2009. Administrative expenses in the second quarter of 2010 decreased by $100,000 to $6 million from $6.1 million in the second quarter of 2009, primarily as a result of a decrease in compensation costs of $200,000 and training and recruiting costs of $100,000, offset by an increase in professional and legal fees of $200,000 primarily related to patent litigation.
Research and development expenses were $3 million for the second quarter of 2010 or 6.6% of sales compared to $3.3 million or 9.5% of sales in the second quarter of 2009. The decrease is primarily related to a decrease in compensation costs and subcontractors’ expenses.
Operating margin for the second quarter of 2010 was 9.9% compared to a negative margin of 10.3% in the year-ago quarter, as a result of the previously mentioned increase in sales and gross margin. Foreign currency transaction losses were $1.8 million in the second quarter of 2010 compared to a gain of $800,000 in the second quarter of 2009, primarily as a result of the effects of the decline in the euro on the value of the intercompany account balances with the company’s European subsidiary.