FARO Technologies (FARO) Q1 2020 Earnings Call Transcript

FARO Technologies (FARO -0.91%)
Q1 2020 Earnings Call
Apr 29, 2020, 8:00 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good morning, everyone, and welcome to the FARO Technologies first-quarter 2020 earnings call. For opening remarks and introductions, I will now turn the call over to Mike Funari at Sapphire investor relations. Please go ahead.

Mike Funari -- Investor Relations

Thank you, and good morning. With me today from FARO are Michael Burger, chief executive officer; and Allen Muhich, chief financial officer. Yesterday, after the close, the company released its financial results for the first quarter of 2020. The related press release and Form 10-Q for the first quarter are available at FARO's website at www.faro.com.

In order to help you better understand the company and its results, management may make forward-looking statements during the course of this call. These statements can be identified by words such as expect, will, believe, anticipate, plan, potential, continue, goal, objective, intend, may and similar words. It is possible 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 set forth in yesterday's press release and in the company's Form 10-K for the year ended December 31st and Form 10-Q for the quarter ended March 31st, 2020.

During today's conference call, management will discuss certain financial measures that are not presented in accordance with GAAP, U.S. generally accepted accounting principles, or non-GAAP financial measures. In the press release, you will find additional disclosures regarding these non-GAAP measures, including reconciliations to compare GAAP measures. While not recognized in our GAAP, management believes these non-GAAP financial measures provide investors with relevant period-to-period comparisons of core operations.

However, they should not be considered in isolation or as a substitute for a measure of financial performance prepared in accordance with GAAP. Now I'd like to turn the call over to Michael.

Michael Burger -- Chief Executive Officer

Thank you, Mike. Good morning, and welcome to our call. Before discussing our first-quarter results, I'd like to take a moment to address the situation we're all currently living in. While countries and organizations around the world work to implement plans to combat the spread of COVID-19, we at FARO have been focused on taking the necessary actions to ensure the safety of our workforce and to minimize the disruption to our customers.

All of our global manufacturing facilities currently remain open. The U.S. government has deemed FARO to be a critical infrastructure industry, and Singapore has granted us an exception to their recent closure mandate. Our facility in Germany has remained open for both manufacturing and customer service operations.

We have used this opportunity to build finished goods inventory as a means to offset future unexpected factory closures. At this time, we are confident that our supply chain, logistics and operations teams will continue to meet our customer shipment requirements while maintaining the highest level of service and support for our customers. In our customer discussions, it is clear that many of the initiatives that require 3D measurement remain active. However, our customers are still trying to understand the extent to which their own businesses will be impacted and how they need to adjust in these uncertain times.

While we have not seen meaningful order cancellations, we have seen a large number of projects being delayed. Within the public safety market, for example, funding often requires public purchasing approvals, which, given the more pressing needs being placed on governments at this time, began to slow in March.Geographically, we've seen business in Europe and the United States slowed fairly dramatically. India has come to a virtual standstill. However, China's recent activity levels have increased.

All indications point to regions continuing to be affected at different times and magnitudes, which will likely lead to intermittent strength and weaknesses across our end markets and to which time conditions normalize. One market that could be particularly hard hit for an extended period of time is aerospace. I should note that historically, aerospace has accounted for about 5 to 7% of FARO's total revenue. Given this uncertainty, as a company, we are focused on managing the aspects of our business within our control and preparing action plans around various demand scenarios, which may emerge.

We are fortunate to have a strong balance sheet and a robust restructuring plan, which was well under way at the time we began to feel the impact of COVID-19. To complement these activities, if the need arises, we also have identified additional options that ensure that we maintain sufficient resources and navigate potential situations as they arise. With the actions announced last quarter and tighter expense control, we believe we can reduce our adjusted quarterly revenue EBITDA breakeven levels to between 58 and $63 million as we enter this September quarter. That said, as an organization, it is important that we remain nimble enough to manage through this fluid time, while at the same time, striking a balance between taking the necessary steps to improve our operating model while making the necessary investments in key growth initiatives.

In February, we announced several key changes in how we will manage our business in the future. And despite the current world situation, we've made significant progress. Our sales team has responded well to the revised go-to-market strategy. They're excited about the prospect of owning accounts or geographies and being given the opportunity to sell the full breadth of FARO's product line.

We've already seen greater sales alignment and collaboration as we brought our sales team together under one global leader. Further, the current remote working environment has brought other opportunities for how we interact with our customers to the forefront. For years, FARO has invested in web-based demonstration studios that have been underutilized despite efforts to drive adoption. Today, given the forced adoption of all things virtual, our studios utilization has nearly doubled.

We are also having outstanding turnout to web-based customer training sessions that more effectively and efficiently leverage our product expertise. If there is a silver lining for us in this difficult time, it is that these types of activities are becoming ingrained in our culture, which helps us further increase the scalability of our go-to-market approach. On the product front, we recently announced the latest release of our CAM2 software, which is an initial step toward enhancing our software suite and developing a more solutions-based product offering. This latest iteration is an example of utilizing our marketing organization to develop a software experience, which directly addresses our customers' everyday process needs, while lowering their initial investment outlay by offering it on a subscription basis.

Finally, we've worked hard to globalize and centralize some of our back-office processes that are yielding significant improvements at a reduced cost. All of this, combined with careful expense management, enabled our first quarter non-GAAP operating expense of $44.3 million. That was $5 million lower than Q1 2019 and $9 million lower than Q4 2019. This is good progress toward our stated success model.

As we discussed on our last call, our goal is to increase the differentiation and value of our products through our software and solutions strategy. By gaining an increased understanding of the problems our customers are trying to solve, we believe we can more effectively deliver full solutions that meet or exceed these needs. I am optimistic, despite the near-term global challenges, the steps that we are taking will enable FARO to emerge a stronger, more efficient business with a highly scalable financial model. With that, I'll turn the call over to Allen for an overview of our first-quarter financial results.

Allen Muhich -- Chief Financial Officer

Thank you, Michael, and good morning, everyone. First-quarter revenue was 79.5 million, down 15% when compared to 93.6 million in the first quarter of 2019 as a result of the continuing soft demand environment in our served markets and the start of COVID-19 related order pushouts we saw in March. As most of you know, a meaningful amount of our business is conducted in the final month of the quarter. And we were pleasantly surprised with the efforts of our sales team to close business in March resulted in orders that, while softer than typical, held up fairly well given the circumstances.

Product sales were 56.5 million as compared to 71.6 million in Q1 of 2019. This decrease was primarily a result of decreased demand across all our served markets, partially offset by several large deals in our tracker product line within the metrology market, which shipped during the quarter. Service revenue of 23 million was up 1 million when compared to Q1 of 2019, which continues to demonstrate the recurring nature of this revenue stream. New order bookings were 77.9 million for the first quarter of 2020, down 23% as compared with 100.7 million for the first quarter of 2019.

I mentioned on our February conference call that we had received orders late in the fourth quarter of 2019 that we were unable to ship in Q4. Those products shipped in Q1, resulting in a modestly negative book-to-bill. Related to the business transformation actions announced in February, in the first quarter, we incurred 13.7 million in nonrecurring charges that were predominantly for cash severance to be paid affected employees around the globe. As a reminder, we expect to incur 75 to 85 million in total nonrecurring charges associated with the implementation of our plan with nearly 63 million incurred in the last two quarters.

GAAP gross margin was 55.2%, and non-GAAP gross margin was 55.5% for the first quarter of 2020 as compared with 56.9% for the same prior-year period. The reduced gross margin is a result of the overall reduction in revenue, which adversely affected our fixed cost absorption. GAAP operating expenses were 60.4 million and included approximately 13.7 million of the previously mentioned restructuring charges, as well as 2.7 million in acquisition-related intangible amortization and stock compensation expenses. Non-GAAP operating expenses of 44.3 million were 4.6 million lower than Q1 of 2019, as the company benefited from one month of cost savings related to restructuring actions, as well as some prudent steps taken to further reduce our run rate spending given the current demand environment.

GAAP operating loss was 16.6 million for the first quarter of 2020 as compared with operating income of $400,000 for the first quarter of 2019 as a result of the lower demand environment. Adjusted EBITDA was 3.1 million or 4% of sales. Our GAAP net loss was 14.8 million or $0.84 per share. Our non-GAAP net loss was $400,000 or $0.02 per share for the first-quarter 2020 compared to non-GAAP earnings of $0.20 per share in Q1 2019.

We continue to maintain a strong capital structure with a cash balance of $173.2 million and no debt. In the first quarter of 2020, we generated 14.7 million in cash, primarily driven by collections of outstanding receivables. As Michael mentioned, while visibility into the demand environment from our customers remains limited, we are confident the restructuring efforts outlined in February together with tighter expense controls, will enable us to achieve breakeven adjusted EBITDA on 58 to 63 million of revenue. This concludes our prepared remarks at this time, and we'd be pleased to take any of your questions.

Questions & Answers:

Operator

[Operator instructions] We'll go first to Jim Ricchiuti from Needham and Company. Please go ahead.

Jim Ricchiuti -- Needham and Company -- Analyst

Thank you, good morning. By the way, thanks for the color on the aerospace. I'm wondering Michael or Allen, if you might be able to give us some sense as to the automotive exposure, just given the concerns folks have in that segment of the market. What does that represent roughly?

Michael Burger -- Chief Executive Officer

We actually haven't publicly stated that, Jim. It's -- I would imagine it's probably a bit bigger than the aerospace segment, but I don't have an actual number in front of me, so I'm not going to quote. But I will say that we've actually had relatively positive impact or news recently from some of our automotive customers. And yes, I think we're all concerned about the end demand market on them, but it does look like, particularly Europe and China, looks like factories are coming back to work and some of the projects that we're involved in still look like they're on track.

So it's relatively positive news, unlike aerospace, which doesn't -- we're not getting any of that indication whatsoever today.

Jim Ricchiuti -- Needham and Company -- Analyst

OK. And that actually ties into the next question, Michael. You alluded to some project delays. I think we understand public safety in the public safety market.

But within that metrology business, the factory floor business, where are you seeing some project delays? And is there any color you have -- first month of the quarter is tough, but I'm just, in terms of any color on bookings.

Michael Burger -- Chief Executive Officer

Well, I think we track very diligently and very often our -- what we call our funnel, which is the opportunities that our salespeople have identified that potentially will close within the quarter. And our funnel, as we mentioned in the script, we've seen some project delays. We've seen very few project cancellations. To answer your first question around the metrology market, we have seen actually some pricing strength as it relates to the opportunities that exist.

Our funnel is not growing, but it is -- and it is getting pushed out because I think a lot of the companies that we've been dealing with, frankly, just don't know what to expect. But I think Allen mentioned in his portion, we saw really good traction on our tracker, which actually is relatively new for us. And it looks like that may continue into the first quarter and that, or into the second quarter. And that's primarily metrology.

Jim Ricchiuti -- Needham and Company -- Analyst

OK, thanks I'll jump back in the queue. Thank you.

Michael Burger -- Chief Executive Officer

Thank you, Jim.

Operator

We will go next to Andrew DeGasperi with Berenberg. Please go ahead.

Andrew DeGasperi -- Berenberg Bank -- Analyst

Good morning and thanks for taking my question. I guess, maybe first, I know you highlighted metrology and public safety markets. Can you maybe tell us how the construction vertical is doing from the laser scanner Construction BIM perspective?

Michael Burger -- Chief Executive Officer

Yes. I think if you look at where regionally, we were very strong in the construction world, we're very strong in Europe, followed by North America and then in Asia. And I think the construction industry in general has been hit pretty hard in Europe. However, we're now -- I think we're all getting indications that Europe is coming back to work slowly.

We're obviously not in that situation in the United States. So I think the scanner business was hit relatively, probably the hardest of all of our market segments, by virtue of our strength in Europe, which was hit really hard by COVID and then followed by the United States. I think it is encouraging that Europe is going back to work, and there is talk now in the United States that construction sites will be allowed to proceed. I think public safety, which is also a participant in the scanner business, I think that's going to be a little longer because I just don't think it's a priority in most government and certainly police stations around certainly North America and Europe.

So I think the scanner business was probably the hardest hit, although we are seeing signs that the construction business is coming back.

Andrew DeGasperi -- Berenberg Bank -- Analyst

That's helpful. And then on the CAM2 software release, I know it's only been a few weeks since you've essentially released that. I'm just wondering how was; a, customers have received that; and b, I mean, do you have any other plans for the rest of the year in terms of releasing new subscription-type software from -- for any of the verticals that you currently serve?

Michael Burger -- Chief Executive Officer

The way -- I think it is too early to really give you feedback on -- obviously, we worked with customers through the definition of what CAM2 needed -- the next version needed to look like. And as I mentioned in our script, our marketing organization was intimately involved in talking to targeted customers. And so the feedback has been very positive from them. I think it's a bit early to talk about the general market reception of it, but we're encouraged.

And the answer to your second question is absolutely, we will continue to be very prolific in our software offerings. And as you know, once a software suite is out there, it's constant updates. And so we're in that mode. We're on that treadmill, if you will.

So we expect that other key projects or key software platforms will continue to be updated. And actually, we have a very busy new product release calendar for 2020. And we are, I'm proud to say that we have actually, I don't believe that we're going to miss a beat in that regard. So I'm encouraged by our ability to work remotely and still collaborate.

Andrew DeGasperi -- Berenberg Bank -- Analyst

Yes. And following up on that, I mean, just generally, the sales process, given the current environment, I mean, how has that changed relative to previously? I mean, are you -- is this -- obviously, you're probably doing a lot of virtual. But I guess can you maybe like elaborate a little more, like how are the salespeople approaching that from this stage?

Michael Burger -- Chief Executive Officer

Well, yes, of course, yes. I mean, it's a dramatic change, clearly. And we -- many customers in the beginning of March started basically waiving us off from actually visiting facilities. And I think now that is probably the standard, if not the rule.

Clearly, I think, toward the middle of March, third week in March, I think companies began to be much more approachable and much more available, frankly, because I think everybody was trying to figure out exactly what this looked like, right? So -- but our sales guys were very diligent. We know who our customers are, we have made contact. I don't think it's as easy as it used to be clearly because you're calling people's cellphones, etc., or writing emails and saying, "Hey, can you call me back?" So I think that process has been probably a little bit belabored, but as I mentioned, our web studios, in which we can do virtual product demos, has literally doubled in terms of the numbers of demos that were -- or the number of appointments that we have in our web studios. Also, I think we are -- we have enabled many of our selling -- our salespeople to actually be able to do demonstrations in their homes.

And so that has, I think, enabled a different approach. But I think where we're finding probably the most success is really in some of these web-based training and frankly, even YouTube. We're doing a lot of YouTube with a huge response on product demonstrations. And so it has changed dramatically, Andrew.

I think what is exciting about it, I believe, is that when things do kind of go back to normal, we are not going to lose this baggage tricks that we have been developing here. And I actually think it makes us much more efficient. Being able to do web-based demos earlier in the sales cycle, we have now data that says it actually helps the success rate. So we're trying to figure out where this is going to end up.

But I'm very proud of our sales guys, and they're extremely tenacious. And as Allen mentioned, we were pleasantly surprised with where we are despite kind of the situation that we're in.

Andrew DeGasperi -- Berenberg Bank -- Analyst

That's very helpful. Thanks, I'll jump back in.

Michael Burger -- Chief Executive Officer

Thank you, Andrew.

Operator

We will go next to Richard Eastman with Baird.

Richard Eastman -- Robert W. Baird and Company -- Analyst

Yes, good morning. Is it possible that you could toss a little bit of color around the geographic revenue declines? I think you kind of touched on EMEA being maybe more heavily weighted toward the construction market with the scanner product. I'm curious what -- how the metrology business did there when you're talking about the industrial metrology business, and maybe some thoughts around the cadence in North America, as well as EMEA as we head into and we're into the second quarter here.

Michael Burger -- Chief Executive Officer

Well, I think it's funny. My visual of how this looks from a regional perspective is effectively three sign waves out of phase, right? We saw negative sign waves. So we saw a huge drop in Asia first. China kind of went down hard and then followed by Japan and South Korea.

So -- and that was kind of the beginning. Europe was second and certainly, North America was third. And I think so if you look at that in terms of phase, where we are now in the cycle is we're beginning to feel comfortable about China's activities. We're seeing some strength and if nothing else firming of forecast coming out of Asia Pacific, with two big exceptions.

I think Japan goes kind of up and down, and they're kind of all over the place, frankly, as it relates to what they're trying to do. And clearly, India is shut down hard. So with those two exceptions, Asia look -- we're beginning to see strength in Asia.As it relates to Europe, where we are in that phase is that we're beginning to smell, and it just sounds like things are -- the activity is coming up. We're seeing that Germany is releasing and allowing smaller companies to go back to work.

And frankly, that's a big part of -- we have very large customers, but we also have a large grouping of mid- to small-sized customers. And so that's good news for us. So I think where they're in the cycle is they've bottomed out, and it looks like we're seeing signs that they're beginning to ramp. I think North America was the last to go down and frankly, probably -- we're probably still kind of on the bottom here.

I think we're bouncing along the bottom, if I was to use that analogy. And we're hearing signs by state, as we all are, of people trying to open up, etc. But I don't think that has a direct correlation to a lot of businesses and getting back to normal. Certainly, I think the smaller businesses will come back before some of the larger businesses.

And so what impact that has on revenue will be interesting. If you were to overlay that conversation with our three markets, I would argue that metrology was hit, but I think probably not as hard as the construction and scanner business. And public safety went down really hard. And I think, for obvious reasons.

But again, if you look at the size of these businesses, metrology for us is our largest business, and I think this is why we were pleasantly surprised with where we ended up in the quarter despite effectively having a free fall in March, followed by the construction business and then public safety. I hope that answers your question.

Allen Muhich -- Chief Financial Officer

The only thing that I would add, and you can see this in the numbers is the geographic mix of our bookings and revenue remained relatively steady with history. And so I think Michael is exactly right in terms of the sign waves, and it just happened that within the quarter, it balanced -- they're balancing themselves out as they ebb and flow. And we end up similar to where we've traditionally been.

Michael Burger -- Chief Executive Officer

Yes. I would guess, and I don't know how you feel about this, but I would imagine that that's going to change pretty dramatically in Q2, that mix, geography mix.

Allen Muhich -- Chief Financial Officer

I suspect that's correct, yes.

Richard Eastman -- Robert W. Baird and Company -- Analyst

And then again, given the cadence here and kind of a typical conversion rate of your orders to revenue, obviously, we're seeing some deferrals there. So again, second quarter, when you're thinking about your revenue and your planning, it would -- would your confidence level be relatively high that the second quarter -- your second quarter, FARO second-quarter revenue number would be a bottom? I mean is this revenue number --

Michael Burger -- Chief Executive Officer

Honestly, giving any kind of forward indication right now is literally suicide. I mean, I certainly hope -- how is that?

Richard Eastman -- Robert W. Baird and Company -- Analyst

Yes. That's fair. Just -- you made a comment, though, around, and I was kind of casually linking this to, but you made a comment around your EBITDA breakeven level. I think -- and I'm kind of asking me if you could just repeat the time line, but you had mentioned that a revenue level of 58 to 63 million would be kind of your EBITDA or adjusted EBITDA breakeven level going forward.

Did you suggest that that would be in place by September?

Michael Burger -- Chief Executive Officer

Yes.

Allen Muhich -- Chief Financial Officer

Yes, we did.

Richard Eastman -- Robert W. Baird and Company -- Analyst

OK. OK. All right. And that's timing of all the restructuring activities, and you'll feel pretty good about by the end of September having most of that cost accounted for.

Michael Burger -- Chief Executive Officer

Well, I think what Allen said is it's going to be feathered in through Q2 and Q3. And so -- but the actions have been taken, the write-offs have occurred, right? We've had the conversation. So everybody kind of knows what the model looks like. But I think the timing of the restructuring, the actions that we took in February, while I think motivations were different, right, our objective was to clean up our P&L.

The timing couldn't have been more better planned. And I think it -- and the fact that we've actually taken a lot of the cost -- a lot of the headcount that was needed to go, that's occurred with one exception, which is in Europe, where because of regulatory approvals, we've had to do that. And so that will actually affect -- that should happen during this quarter. And so I think at the end of this quarter, coming into the September quarter, we should be pretty much -- we'll be a lot cleaner from a P&L perspective than we were at the end of Q1.

Allen Muhich -- Chief Financial Officer

Just one quick add. You're going to go through and do your modeling, and you'll try to determine exactly kind of what does that mean and what each one of the components within the financial statements look like, and you'll end up with an operating expense level that is less than what we ultimately articulated last quarter. And I just want to be clear that that's not where we think the new norm is, but it's something we believe we can manage our way through during this downtime through deferring certain investments and deferring certain expenses. But again, don't think that that's the long-term expense level, that's more of -- through this short-term situation we find ourselves in prudently managing our capital.

Richard Eastman -- Robert W. Baird and Company -- Analyst

I see. OK. OK. A good thought.

And then just a last question. Can you talk a little bit about the web process to your sales process? Are you approaching that as just basically that generating more qualified leads? And is the process established enough that you have any confidence or thought around the conversion rate of these web-based sales demos?

Michael Burger -- Chief Executive Officer

Yes, very much so. Yes and yes. We've made a relatively sizable investment over many years in building a number of web studios around the world. And we have data that suggests that if a web demo is done through the -- or within the sales cycle, typically, the way it works is in a normal sense, opportunities are found.

Our selling and application teams basically engage with the customer. We do a web demo that basically allows them to see the function of the product. Then we try to schedule an in-house demo where we actually do a demonstration on their product, what they will be using the tool for. And that -- and we find that when we go through that process of web demo and then physical demo, that our conversion rate is much higher.

Now that was under the normal circumstance. In today's world, obviously, doing physical demos on-site are no longer possible. So our customers are pulling us to have more access to our web studios, as well as webinars, as well as online training, and all of these things that, frankly, we've enabled over multiple years, but we've had relatively low adoption rate. I think, as I said in the script, I mean, the silver lining here is the fact that I think the new norm or at least certainly it legitimized a lot of these capabilities that we have with our customers.

And I think our objective as a company is to continue to actually push those as a methodology of doing, as you just asked as a methodology of qualifying leads and also, I think it helps us in the closure process. So we don't see these things going away post COVID, but it's -- we don't really know what the new normal is going to look like yet. So I think our customers would love to have us in the facilities. And we're still going to have to go do that.

But we're really -- I'm excited by the fact that we have this capability, and we're able to kind of -- we're still able to sell.

Richard Eastman -- Robert W. Baird and Company -- Analyst

Gotcha, yeah OK. Nice to have I guess right now. OK, yeah, thank you.

Michael Burger -- Chief Executive Officer

You're welcome. Thank you.

Operator

[Operator instructions] And we'll go next to Jim Ricchiuti with Needham & Company.

Jim Ricchiuti -- Needham and Company -- Analyst

Just wondering if you're seeing any change in the competitor behavior in this environment? And to what extent you feel maybe just as it relates to web studios? Maybe you can also remind us how many of these you have and the extent to which that might provide a little bit of a competitive advantage? Or maybe some of your major competitors have moved in this direction as well in recent years.

Michael Burger -- Chief Executive Officer

Well, actually, I'm not aware of our competitors having invested in web studio. I've not actually heard that. I think anecdotally, what we're hearing from our competitors is we've got one large competitor that seems to have shut down their factories and is close to depleting their inventory, which I think is a huge opportunity for us, and we're all over that. As it relates to the number of web studios, I believe we have 23 globally.

And actually, that number has gone up pretty dramatically as we've enabled several of our regional salespeople to have a studio capability in their home. And so it's kind of a grassroots effect. But from a professional studio, professional quality studio, we've got 23.

Jim Ricchiuti -- Needham and Company -- Analyst

Got it. And as far as, Michael, getting in front of the -- as you've tried to execute on this new go-to-market strategy, obviously, you put this together before all this happened. And I guess I'm trying to take a step back and say, OK, is this -- you appear to be a little better positioned and you're further along on this restructuring. But does this make the go-to-market strategy a little bit how -- much more challenging does it make it, I guess, as well?

Michael Burger -- Chief Executive Officer

Yes. I actually think it makes it easier for us. I know this sounds -- it makes it easier because frankly, everybody in the world has been reset, right? We're all focused now on how do we actually virtually get to our customers. And so I think this situation has allowed -- so our customers have had to reset their expectations on how to deal and who to deal with.

And so -- and how to deal with them. And so we're kind of now all at a level playing field. And COVID did that for us. So the fact that we have now clearly identified who owns what accounts, we've clearly identified that our salespeople own the entire portfolio.

We are now a singular point of contact to each customer. And while I think in a normal sense, that could add some confusion and frankly and concern and risk, I think it actually helps solidify our situation in that we now have a single point of contact. We know who owns the account. They know who owns it from FARO.

And I think it's streamlined and actually it has synced the process. So I'm very encouraged, Jim, and I -- fingers crossed, I think it's working.

Jim Ricchiuti -- Needham and Company -- Analyst

OK. Thanks a lot.

Michael Burger -- Chief Executive Officer

Thank you, Jim.

Operator

[Operator instructions] We'll go next to Greg Palm with Craig-Hallum Capital. Please go ahead.

Greg Palm -- Craig-Hallum Capital Group -- Analyst

Yeah, great thanks. Hey Michael, hey Allen. I hope you guys are well here. A little bit of commentary, I know about sort of the quarter, but how is the quarter tracking pre COVID? Any anecdotal commentary on order trends, January, February, maybe the early part of March.

I'm not sure if there's any way to quantify activity pre COVID versus maybe the last few weeks, which sounds like it was a pretty significant disruption.

Michael Burger -- Chief Executive Officer

Not really -- I think everything was pretty normal. I think we felt like we were marching to a positive quarter. And I think what we saw, and as you know, the way our backlog builds through the quarter, it really is heavily weighted toward the last four weeks of the quarter, actually probably three weeks of the quarter. And so when COVID hit in earnest, which I would argue is probably the first week in March is when it really began to get weird.

I think we started working from home in the first week in March. And I think the rest of the -- certainly the United States began working from home in March. And Europe was already going there, and China was down. So we began to kind of see some softening.

We saw some pushing of opportunities. But as I said in our script, we have not seen large cancellations. What we're seeing is in talking to our customers, yes, we still want this, yes, we need it. Yes, we're going to buy it.

We just don't know when yet. We don't know when we're coming back to work. We don't know when we come back to work, what the demand environment will be. And so it's just clear -- I mean, we have less visibility today than we do in a normal situation, which is not great, as you know already, Greg.

So it -- so we're very reticent to kind of make any commitments around revenue run rates or -- but I -- but the positive thing, and I think this is why we've mentioned it in our script, that we're not seeing people shutting down and saying, we don't need -- we're not going to buy this product this year. That has not actually happened in large scale. There's been a couple of smaller guys saying, "Hey, we don't even know if we're coming back" that kind of thing. But our typical run rate repeat business, we have no reason to believe that's not going to be bought.

Greg Palm -- Craig-Hallum Capital Group -- Analyst

Yes, that makes sense. Around that, what is your sense for customer budgets? I mean, just in terms of how much has been pushed out or delayed versus reduced versus all out canceled? I mean, do you have any feel as you talk to your sales force?

Michael Burger -- Chief Executive Officer

No, we don't. It's hard to quantify. Again, if you overlay, we've got 15,000 customers on a three-year cycle, right? So it's a huge customer base. And it's hard to quantify kind of in buckets because it is so diverse.

I think because it's so diverse, that's a reason that our business has been as stable as it has been. And I think in this situation, that's a very positive thing because we sell across -- we kind of group it in three big markets. But the reality is our customers pretty much map probably 90% into those three big buckets. So we've got good coverage.

I think the metrology business will be the first to come back, just because it is our largest business, and it's spread over probably the largest customer base. I think that's followed by the construction world as the construction and architectural firms come back online, which I think is imminent. And certainly, it's coming back in Asia. It's a lot of noise in Europe already.

And state by state, they're talking about allowing construction crews to start again. And then I think public safety will be last just because I don't think it's a high priority for most of the governments today.

Greg Palm -- Craig-Hallum Capital Group -- Analyst

OK. And just to be clear, if you look back on the first-quarter performance, did you see any negative impact from the implementation of the strategic plan in terms of the headcount reductions? Or was there anything external, whether that was production issues or supply chain impacts, anything that was -- that maybe you can quantify an impact versus just a very soft and challenging macro that got worse?

Michael Burger -- Chief Executive Officer

No. No, I don't think our restructuring had any implication on our Q1 results. If anything, they were positive in the context of our cost structure. I think taking -- I don't believe that we walked away from opportunities because of a miscue in the selling organization or we -- from an operations perspective, I think we're operating probably better than we ever have as a company.

And so I'm very encouraged by -- we've got a new operations leader. And he's really done a fantastic job basically getting us very much focused on kind of the basics. I will say, and it was a line in the script, but I think it's important to point out that we, in addition to building for Q2, we have also made the investment to invest in at least a quarter's worth of inventory on finished goods. In other words, converting a lot of the raw materials that we already have into finished goods because, of course, you never really know what's going to happen to a particular factory or a particular location.

And so we think that that will actually bode very well for us. Again, as things begin to normalize, there could be a surge in demand, and we need to be ready -- we do not want manufacturing to be the short straw there. So -- and it was a risk, but we kept our factories busy, and we've used this kind of slowing to actually build inventory.

Greg Palm -- Craig-Hallum Capital Group -- Analyst

Yup, it seems like the prudent thing to do. All right, thanks for the color and good luck going forward.

Michael Burger -- Chief Executive Officer

Thank you, sir. Appreciate it.

Operator

[Operator signoff]

Michael Burger -- Chief Executive Officer

Thank you.

Duration: 49 minutes

Call participants:

Mike Funari -- Investor Relations

Michael Burger -- Chief Executive Officer

Allen Muhich -- Chief Financial Officer

Jim Ricchiuti -- Needham and Company -- Analyst

Andrew DeGasperi -- Berenberg Bank -- Analyst

Richard Eastman -- Robert W. Baird and Company -- Analyst

Greg Palm -- Craig-Hallum Capital Group -- Analyst

More FARO analysis

All earnings call transcripts