Geo Week News

November 4, 2013

FARO posts 38% earnings growth for Q3


CEO Freeland says ‘concerns over longevity of the technology we’re examining’ keeps firm searching for acquisitions

FARO Technologies, Inc. has reported a 38 percent jump in third quarter net income to $5 million, or $0.29 per share, on $68.2 million in revenue, a 12 percent increase.

The Lake Mary, Fla.-based 3D imaging hardware and software manufacturer said in a securities filing last week for the third quarter ended Sept. 28 that revenue growth “continues to be impacted by global economic softness, although all regions are showing positive signs of improvement.”

For instance, FARO CEO Jay Freeland described in a conference call with analysts that the availability of financing in China and India as continuing to be “a struggle and economic conditions in both countries generally speaking remain weak.”

Still, FARO’s third quarter sales, and particularly earnings, handily beat analysts expectations. Shares of the company soared 17 percent Thursday after the third quarter results were released. The stock continued its ascent Friday to a 52-week high of $52.21.

Q3 margins up for FARO

Gross margins for the third quarter came in at 56.9 percent, up 3.7 percent compared to the third quarter of 2012, primarily due to lower manufacturing costs and improved pricing for laser trackers, but still offset by lower overall average selling prices, Bair said on the conference call.

Third quarter operating margin increased to 11.1 percent, compared to 8.3 percent in the third quarter of 2012, mainly due to staffing costs and related expenses of $4.1 million in its sales and marketing and R&D groups, which was partially offset by lower legal and professional fees of about $1 million.

Sales by revenue stream

FARO’s third quarter product sales in the third quarter increased 11.6 percent to $55 million for the three months ended Sept. 28 compared to the same period in 2012. Service revenue in the third quarter jumped by 15 percent to $13.2 million, primarily due to an increase in warranty revenue.

New order bookings for the third quarter of 2013 were $63.4 million, an increase of 3.9 percent from the same period last year. FARO manages and reports its global sales in three regions: the Americas, Europe/Africa and Asia/Pacific.

Sales by region

In the nine months ended Sept. 29: 

  • 41.8 percent of sales were in the Americas compared to 39.2 percent in the same period last year
  • 33 percent were in the Europe/Africa region compared to 34.9 percent in the first nine months of 2012
  • 25.2 percent of sales were in the Asia/Pacific region compared to 25.9 percent in the same period last year

Third quarter sales by region


  • Q3 sales in the Americas region increased 20 percent, due in part to improved demand for the Vantage laser tracker, to $29.8 million for the quarter
  • Product sales in the Americas region increased 22.6 percent to $24.2 million
  • Service revenue in the Americas region increased 10 percent to $5.6 million, primarily due to an increase in warranty revenue


  • Sales for Q3 in the Europe/Africa region were $21.5 million for the quarter, up 2.3 percent
  • Product sales in the Europe/Africa region decreased 2.8 percent to $16.4 million
  • Service revenue in the Europe/Africa region increased 23.4 percent to $5.1 million, primarily due to an increase in warranty revenue


  • Sales in the Asia/Pacific region for the quarter increaesed 6.7 percent to $16.9 million
  • Product sales in the Asia/Pacific region decreased 13.9 percent to $14.4 million
  • Service revenue in the Asia/Pacific region increased 10.7 percent to $2.5 million

Q3 sales of new orders sales by region: 

  • Americas – New orders in the third quarters fell 3.4 percent in the Americas to $25.8 million
  • Europe/Africa – New orders grew 16.1 percent to $21.6 million
  • Asia/Pacific – New orders in the third quarter grew just 1.9 percent to $16 million

FARO’s top five sales customers in the third quarter were the U.S. military, Beechcraft Corp., Porsche AG, Dimensional Engineering and Major Tool & Machine, representing just 2.4 percent of sales, FARO CFO Keith Bair said in a conference call with analysts to discuss the quarterly results. The top 10 customers during the quarter represented just 3.7 percent.

Two product launches during the quarter: FARO’s next generation Laser Line Probe with increased speed and data density and its next generation laser scanner, the X330. Freeland also said FARO accelerated R&D spending in the third quarter.

Searching for acquisitions

FARO’s cash and cash equivalents increased by $23.7 million to $116.9 million as of Sept. 28. Add in short-term investments, including $65 million of U.S. Treasury bills as of Sept. 28, and FARO’s cash balance is $181.9 million. A hefty sum for a company in acquisition mode.

“This [$181.9 million] gives us plenty of flexibility,” Freeland said during the conference call on Oct. 31. “We continue to look at acquisitions that could enhance our business strategically. However, concerns over longevity of the technology we’re examining, combined with high valuation expectations keep us in the search phase at this point.”

For example, Freeland said FARO investigated acquiring portable 3D scanner manufacturer Creaform, Inc., “from both a technology standpoint and a fixed standpoint,” but decided to take a pass.

“We didn’t feel like that was the right place for FARO. We’ve known the technology for a long time. We just think there are different ways to solve the problems so to speak for our customers,” Freeland said during the conference call with analysts, according to a transcript from Seeking Alpha.

Quebec-based Creaform was acquired late last month for $120 million by AMETEK, Inc., a publicly traded, global manufacturer of electronic instruments and electro-mechanical devices with annual sales of $3.6 billion.

FARO designs, manufactures, markets and supports portable, software-driven, 3D measurement and imaging systems used in a broad range of manufacturing, industrial, building construction and forensic applications. Most of the company’s revenue is derived from sales if its FaroArm, FARO Laser ScanArm, FARO Gage, FARO Laser Tracker and FARO Focus3D measurement equipment, and their related software for CAD-based inspection and/or factory-level statistical process control, and high-density surveying. FARO also sells one- and three-year extended warranties and training and technology consulting services for its products and receives royalties from licensing agreements for its historical medical technology and recognizes the revenue from these royalties as licensees use the technology.

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