Despite all of the (deserved, accurate) hoopla about reality computing, FARO, one of the leading capture vendors, today announced preliminary results for Q1. Is it a harbinger of things to come or an isolated case? Probably more the former, as currency, regional economics and turmoil in the oil and gas industry set us up for a bit of a rollercoaster ride in Q1. Each PLMish company has different levels of exposure to each threat, so we’ll have to hear specifics before we can reach broader conclusions.
FARO now expects to report revenue of around $70 million for Q1, down 5% from a year ago. That’s a bit of a surprise, since CEO Jay Freeland said as recently as February 26, 2015 that Q1 was supposed to be “typical”, which Wall Street took to mean revenue up 10% or so.
Today, FARO said that there were 3 main reasons for the revenue shortfall:
a decline in the Euro and Yen versus the US Dollar,
weaker demand in Japan as the government released less stimulus funding for manufacturing (remember that FARO also sells metrology equipment), and
weaker demand in Brazil.
One can’t use accounting to change demand, but we can look at how constant currencies affect the revenue that did come in. Excluding the foreign exchange impact, FARO says Q1 revenue would have been up 5% or so over last year.
Mr. Freeland said in prepared remarks that this result “is below our long term mid-teens sales growth goal primarily due to lower metrology unit sales. On a positive note, we are very pleased that the FARO Focus3D laser scanner is expected to report greater than 20% year-over-year unit sales growth, and that our new hand-held Freestyle3D laser scanner has received a strong market reception … [I]n response to our lower than expected first quarter sales and income, we are proactively implementing efficiencies and cost reduction measures without impairing our ability to grow.”
We’ll know more about that, and get a look at the final audited results for Q1, on April 28.
Every company that does business internationally will see some effect of the Euro and Yen vs US Dollar. Companies reporting in Dollars will see lower revenue; companies reporting in Euro and Yen will see higher revenue. It’s not fair, but it is universal. Add to that, the companies in our PLMish universe are affected by whatever is challenging manufacturers in Japan and Brazil; and the AECish ones are also hit by the slowdown in capital spending on oil projects. Every company has different levels of exposure, so how big an effect any of this has on a particular company, we won’t know until more announce results — but it’s a good sign that only FARO* has so far said that Q1 would fall below expectations.
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*Yes, PTC preannounced a couple of weeks ago, but that wasn’t really revenue-related. The company wanted to get the news of its restructuring out of the way, even though revenue was right in the middle of its prior $305 million to $320 million guidance range. PTC will provide more detail on April 29.
