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Faro Technologies
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By LiveFromHopkins
November 3, 2008

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Several of the callers were pressing Jay (Freeland, CEO) to buy back company stock but Jay was stubbornly resistant even in the face of some pretty good logic like the price is approaching net working capital. He is just happier having a lot of ammunition in the truck (my words): $100 million in cash - a huge amount given that they are generating cash and the hoard now represents half of annual sales. Jay agreed with a caller who said that even if he keeps to his acquisition rate of 2 this year he would not spend more than $40M, so the caller suggested a buyback of just $20M would encourage all shareholders and institutions and still leave $40M on the table.

FARO recently hired a 3rd party to survey customers who had not purchased but had indicated interest in the product. The result was that less than 5% bought a competitor's product and virtually all said they would continue with the FARO purchase. Jay noted that the 'competitors' drop their prices to make a sale and FARO does not. Gross margin remains strong at 60%+ for the year.

Jay said that order cancellations were not a problem - "there were none".

In response to a couple of questioners regarding controlling expenses, Jay said that they do not intend to cut back on headcount, that there would still be a 16%+ increase in account managers going forward. R&D will continue. Acquisitions will be made - "FARO is a beacon" to many private companies who want to partner with FARO says Jay.

All areas are slowing down purchases even in the face of need. The customers are "panicking", conserving cash and waiting to see what happens in the economy.

FARO however is plowing on growing the sales force in the face of less than 5% market penetration. He gave no indication of slowing sales growth. And as mentioned elsewhere, when the economy comes back it will come roaring back and FARO will be ready. The product pipeline at FARO will continue to produce new and better product. The software package was rewritten completely from the first line of code and is called CAM2Q.

This is the first call where time ran out (1 hour). Usually callers dry up before the hour. So there is lots of interest in FARO - a good sign.

Jay is taking a very long view. He has said this often. He wants to be THE measurement company. I think he will succeed even though we have to go through periods like this and sweat short-term price depressions.

This is certainly not a time to be selling FARO stock. However I am not sure I would add much in here until we see clear light in a report of resumption of 15-20% growth. There are so many other compelling stocks in the dumpster today it would be hard (if not simply unwise) to put fresh money here.

RMPhil