FARO Technologies, Inc.

Good day, everyone, and welcome to the Faro Technologies' first quarter 2024 earnings call. For opening remarks and introductions, I will now turn the call over to Michael Funari at the Sapphire Investor Relations. Please go ahead.

Thank you, and 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 is 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 and uncertainties, some of which are beyond our control and include statements regarding future business results, product technology development, customer demands, inventory levels, our outlook and financial guidance, economic and industry projections, or subsequent events. Various factors could cause actual results to differ materially. 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 file. 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 measures. In the press release, you'll find additional disclosures regarding these non-GAAP measures, including reconciliations to comparable GAAP measures. While not recognized under GAAP, management believes these non-GAAP financial measures provide investors with relevant period comparisons of core operations. However, they should not be considered in isolation or the substitute for a measure of financial performance prepared in accordance with GAAP. Now, I'd like to turn the call over to Peter 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, 9 cents of non-GAAP EPS, which was above the high end of our guidance range, $5.6 million of adjusted EBITDA, and $4.2 million of free cash flow. 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-GAAP 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 from in the forthcoming quarters. 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 with the orders, they tended to be specific to individual customer situations. We remained cautious on the overall near-term outlook in the Asia Pacific region, given the ongoing challenges in the construction market within China. 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. 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 evidence in our first quarter geographical mix. Operationally, we again saw a notable year-over-year improvement in gross margin, along with a positive sequential trend considering our revenue seasonality. 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-GAAP gross margin improved 420 basis points year over year to 51.8%. 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 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 work ahead and is dedicated to delivering on our plans. The adjustments made to our cost structure thus far, evidenced by our first quarter...