Some notes on the conference call today.
The formal presentation was lead by Keith Bair who ran some number detail that will show up in the 10K I expect. Nothing was particularly remarkable to me except that the EU grew 48% in 4Q versus 22% in the US.
AP was up 30.1%. For the year it was EU:+28%, US:+27% and AP 16.7%.
[My take: Clearly, Asia Pacific has a way to go - not too
shabby but shows the reason for a new leader there.]
Top 10 customers represent just 5.8% of sales.
Gross Margin of 60% in 4Q was a result of cost control, keeping unit cost down.
Operating margin in 4Q was 13.8% versus 10% for 2007 and 5.4% for 2006.
780 employees end of 07 vs 641 end of 06. US=366, EU=255, AP=159
149 account managers: US=53, EU=51, AP=45
Productivity of account managers is $1.3M vs. $850K in 2006.
New/Existing customers: 52%/48% - goal is half each.
This is still an early penetration story. New product orders are excellent.
Regarding buying a company: 'We are patient buyers" and we want a good fit business-wise and culture-wise.
Power of One program - each employee to contribute a $2K savings idea - this year 90% participation vs 45%. Yield this year $6M vs $3M in 06.
This program is important for culture as well as cost savings.
Legal: very close to close of FCPA. On class action: insurance will cover defense.
Guidance 20-25% growth with 58-60% margin for 2008. We still see positive signals everywhere despite some macro econ downsides.
End of company remarks (17 minutes) - QA follows:
Mark Jordan - Novel (?)
1) what are selling expense goals? Jay: 25% long term at least by 09. We will add reps and marketing types.
2) R&D: Plateau? Track with growth? Jay: 5-7% going forward.
3) Tax rate? Keith: 18-22% forward
4) Cash flow minus $5M? Keith: forex adjustment.
Jeff Bass (also called Jeff Bash by operator)
1) Was there any holdback of orders? $ exchange issues? Such a great quarter! Jay: No. 4th quarter is characterized by use-it-or-lose-it attitudes of buyers who have to spend their budgets. Re fx: pricing is local to country.
2) Why not lower guidance because of softening economy? Jay: We don't see it. We talk to customers, we are still under penetrated, no slow down in the productivity field, China and India are booming. EU and US are OK. Industrial growth has been forecast at 1.9% for 5 years. We are 10 times that.
3) Multiple orders: are you seeing more? (referring to famous hockey-stick wish): Jay: Not meaningfully. Some customers consistently reorder and reorder.
4) Why is Lucent's FCPA case different? FARO got same fine but LU is much bigger, more egregious, etc. Jay: can't talk too much about it, we have looked at LU case. Big difference is that our case involved cash payments.
1) Difference in nature of customer problems this year? for example is small business up? - Jay: not big change smaller customers are up though, one man shop becoming frequent Gage sale.
2) Gage cost? Jay: $23K plus accessories. compared to hand tools, you are always replacing hand tools so there is expenditure of several K $ each year. But with Gage, no problems like that. And one man shops are often required to buy Gage just to stay in business - ie they may have to provide 100% inspection results
to their customer.
3) What is payoff? [pay back of investment in FARO equip] Jay: less than 2-3 years typical. Arm 5-6 months often. Tracker 9-12 months although we saw a payback in 2 SHIFTS on an assembly line.
4) Catalyst to accelerate growth? Jay: if any, I visualize that FARO will be a standard fixture in all manufacturing in the world. It is just a modern requirement.
5) Pick an industry to watch for growth? Jay: all of them are applicable.
6) I have 100K shares and want to visit. Jay: just call and we'll set something up.
Richard Eastman (?)
1) Dynamic of new products in 4Q results? Jay: New products are very promising but not significant to 4Q results.
2) Is ASP (avg selling prices) changing on new product lines? Jay: Quantum is more expensive because it is more accurate, Fusion cheaper cuz less accurate. So no pricing drift.
3) Scanner contribution? Jay: Not material but I look forward to more takeup. Is early. Tracker is big.
4) Backlog? Jay: it should stay the same as sales roughly. 2 weeks is OK.
5) Currency effect? Jay: 3.5% of sales. 5% in 4Q.
Jeff Bass (again) Following up in the one man shop comment, is this not a flag that if economy has problems that these little shops will
have problems? Jay: the one-man shops are not a big enough piece to change Qtr or Year guidance. [this seemed to amaze Jeff - well if not amazement then a bit of surprise - for the good!].
Fred Russell (again): I want Jeff Bash's phone number, can you give me? Jay: check the boards, you will find Jeff posting.
End of QA - nor more questions: 46 minutes. Jay rethanks FARO team and investors.
Questions welcome as always,
Some notes on the conference call today.