What: Shares of specialty 3D scanning company FARO Technologies (NASDAQ:FARO) closed down nearly 31% on Wednesday, following a disappointing third-quarter earnings report it released after the market closed on Tuesday. The company also announced that its CEO of 11 years, Jay Freeland, will be stepping down once a replacement is found.
So what: FARO's third-quarter revenue declined by nearly 12% year over year to $72.5 million, translating to a loss of $0.05 per share on a GAAP basis and a net profit of $0.38 per share on a non-GAAP basis. Prior to the release, the Wall Street consensus was for FARO to generate $83.8 million in revenue and earn $0.29 per share on a non-GAAP basis.
According to management, FARO's results reflected a slowdown in capital spending around the world, in regions like China, Japan, and Brazil, and in key industries like architecture, engineering, and construction. Compared to last year, FARO's third-quarter gross margins compressed from 56% to 48.1%, driven by lower-than-expected year-to-date sales and increased costs associated with new product introductions.
In light of the weakened capital spending environment, FARO has opted to reduce its workforce of 1,300 by 8% and implement further cost-cutting measures. Additionally, FARO announced that it's expanding its share repurchase program from $30 million to $50 million.
Now what: With a large earnings miss, uncertainty surrounding the capital spending environment, and the challenge of finding a new CEO, investors appear to be discounting FARO's future growth prospects today. Until there's more clarity on these fronts, shares could remain under pressure.