FARO Technologies(US:FARO)2019-02-20 19:30Financial Data and Key Metrics Changes - Total sales for Q4 2018 were $112.8 million, an increase of 6.0% compared to $106.4 million in Q4 2017, primarily driven by higher unit sales across all segments and higher average selling prices [20][31] - New order bookings for Q4 2018 were $122.2 million, up 10.5% from $110.6 million in Q4 2017, supporting the sales force growth strategy [20][21] - Gross margin for Q4 2018 was 57.2%, down 1.1 percentage points from 58.3% in Q4 2017, reflecting the impact of the GSA cumulative sales adjustment [26] - Net income for Q4 2018 was $5.8 million or $0.33 per share, including a $1.0 million income tax benefit and a $3.9 million unfavorable after-tax impact from the GSA matter [29] Business Line Data and Key Metrics Changes - In the 3D manufacturing segment, sales for Q4 2018 were $75.6 million, a 6.6% increase from $70.9 million in the prior year, despite a $3.0 million reduction due to the GSA adjustment [22] - The construction BIM segment saw sales of $26.2 million in Q4 2018, a 1.7% increase from $25.8 million in Q4 2017, but fell short of growth expectations due to weaker demand [23] - Emerging vertical segment sales were $11.0 million in Q4 2018, a 13.7% increase from $9.7 million in the previous year, also impacted by the GSA adjustment [24] Market Data and Key Metrics Changes - The Asia Pacific region experienced a strong performance with approximately 16% year-over-year growth for the full year, particularly in Japan [38] - The automotive market faced disruptions due to plant closures and geographical shifts, while demand in the aerospace sector remained strong [36] Company Strategy and Development Direction - The company aims to continue increasing sales headcount by 15% throughout 2019, focusing on the construction BIM segment and expanding the 3D manufacturing sales headcount [14] - FARO is transitioning all software products to a subscription model to enhance recurring revenue streams, with a focus on maintaining customer relationships [9][10] - The company is committed to achieving a double-digit operating margin by the end of 2019, despite challenges from the GSA matter [34][69] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about achieving sales growth and operational objectives, despite the GSA matter impacting Q4 results [34] - The company is focused on mitigating risks associated with economic disruptions and trade discussions by diversifying across geographies and verticals [54] - Management remains upbeat about overall demand for products, as reflected in the growth achieved in 2018 [37] Other Important Information - The company reported a cumulative sales adjustment of $4.8 million related to the GSA matter, which affected total sales and resulted in an estimated total liability of $5.3 million [12][19] - General and administrative expenses increased by 16.8% in Q4 2018, driven by headcount increases and costs associated with compliance and acquisitions [27][28] Q&A Session Summary Question: What are the fiscal year 2019 targets? - Management remains optimistic about achieving double-digit operating margins by the end of 2019, despite the GSA matter impacting results [34] Question: Are there specific areas of strength or weakness in end markets? - The automotive market is experiencing disruptions, while aerospace demand remains strong; Asia Pacific showed significant growth [36][38] Question: How large is the US government vertical? - Sales to the government represent approximately 3% of total sales, indicating it is not a major revenue driver but compliance is taken seriously [40] Question: What is the outlook for service gross margin improvement? - Management believes achieving a service margin above 50% is sustainable and will positively impact overall gross margin [41] Question: What is the status of the CEO search process? - The search for a new CEO is ongoing, with candidates being interviewed, but no specific timeline has been established [48] Question: How will headcount growth correlate with revenue? - Management expects headcount growth to drive sales growth, with initiatives in place to improve productivity metrics [50][53]