FARO Earnings Call Transcriptbeta

Operator::

Vic Allgeier: Representing the company today are Jay Freeland, President and Chief Executive Officer, and Keith Bair, Senior Vice President and Chief Financial Officer, Keith and Jay will deliver prepared remarks first, and will then be available for questions. Representing the company today are Jay Freeland, President and Chief Executive Officer, and Keith Bair, Senior Vice President and Chief Financial Officer, Keith and Jay will deliver prepared remarks first, and will then be available for questions. Representing the company today are Jay Freeland, President and Chief Executive Officer, and Keith Bair, Senior Vice President and Chief Financial Officer, Keith and Jay will deliver prepared remarks first, and will then be available for questions. Representing the company today are Jay Freeland, President and Chief Executive Officer, and Keith Bair, Senior Vice President and Chief Financial Officer, Keith and Jay will deliver prepared remarks first, and will then be available for questions. Representing the company today are Jay Freeland, President and Chief Executive Officer, and Keith Bair, Senior Vice President and Chief Financial Officer, Keith and Jay will deliver prepared remarks first, and will then be available for questions. I will now turn the call over the Keith. I will now turn the call over the Keith. I will now turn the call over the Keith.

Keith Bair: Operating margin for the first quarter of 2008 was 8.5% compared to 8.6% in the year ago quarter as a result of the previously mentioned increase in gross margin, offset by slightly higher selling and administrative expenses. The first quarter of 2008 also included an accrual for interest expense of approximately $400,000 associated with the company’s FCPA resolution. I will now hand the call over to Jay. I will now hand the call over to Jay. I will now hand the call over to Jay.

Jay Freeland: There are significant opportunities we have identified from an R&D standpoint to change the game and how the technology is applied and I look forward to providing additional updates as we go forward. There are significant opportunities we have identified from an R&D standpoint to change the game and how the technology is applied and I look forward to providing additional updates as we go forward. There are significant opportunities we have identified from an R&D standpoint to change the game and how the technology is applied and I look forward to providing additional updates as we go forward.

Operator::

(::

Mark Jordan - Noble Financial: Good morning Jay.

Jay Freeland: Morning.

Mark Jordan - Noble Financial::

Jay Freeland::

Mark Jordan - Noble Financial::

Jay Freeland::

Mark Jordan - Noble Financial::

Jay Freeland::

Mark Jordan - Noble Financial: Okay, and could you give us some sense, you mentioned that this will have a negative drag on performance, clearly you will be more in a startup remote R&D-type mode. Could you tell us what incremental R&D this might require over the next, through ‘08 and ‘09?

Jay Freeland::

Mark Jordan - Noble Financial::

Jay Freeland::

Mark Jordan - Noble Financial: Does this cannibalize your -- any of your existing products or is this truly complimentary?

Jay Freeland::

Mark Jordan - Noble Financial: Is this a similar technology to what Metris does, I guess it’s a UK company?

Jay Freeland::

Mark Jordan - Noble Financial: Okay, so you think you have a real technological leadership or barrier here?

Jay Freeland: I really do, and in particular again, it’s the accuracy associated with it that makes a significant difference from many of the others that are our there that are no where close.

Mark Jordan - Noble Financial::

Jay Freeland: No question.

Mark Jordan - Noble Financial::

Jay Freeland: Thanks Mark.

Operator: We’ll move next to the site of Rob Mason of R. W. Baird.

Rob Mason - R. W. Baird::

Jay Freeland::

Rob Mason - R. W. Baird::

Jay Freeland::

Rob Mason - R. W. Baird: Was it in any particular industry sectors that you noticed that being pronounced?

Jay Freeland: Can’t say there are any sectors that were more visible than others.

Rob Mason - R. W. Baird::

Jay Freeland::

Rob Mason - R. W. Baird: Okay. And then just to the extent that your shipments -- you had some shipments that got requested for later deliveries, did the Easter holiday have any impact in, mainly thinking Europe there?

Jay Freeland::

Rob Mason - R. W. Baird: Okay. And then just on the FCPA situation, sounds like we are nearing closure there, are you confident that the reserve that you took last year is adequate to cover the penalty that will be due?

Jay Freeland::

Rob Mason - R. W. Baird::

Jay Freeland: Obviously it runs length of patents and you have got a combination of patents that have been there for awhile as well as patents that run, you know, just given the apps on that are pending obviously it’s going to run quite a long time so it’s tied to the length of the patent.

Rob Mason - R. W. Baird::

Jay Freeland::

Rob Mason - R. W. Baird::

Jay Freeland: Thanks, Rob.

Operator: We’ll move next to the site of Mr. Jeff Basch.

Jeff Basch: Hi, Jay.

Jay Freeland: Jeff.

Jeff Basch::

Jay Freeland::

Jeff Basch: But then, you apparently did build backlog by another million in the first quarter, since orders were a million more than sales.

Jay Freeland::

Jeff Basch::

Jay Freeland::

Jeff Basch::

Jay Freeland::

Jeff Basch: Okay thanks.

Jay Freeland: Thanks Jeff.

Operator: (Operator Instructions). We will move next to the site of Mr. Rick D’Auteuil of Columbia Management.

Richard D’Auteuil - Columbia Management::

Jay Freeland: I won’t confirm that they did or did not go out in April but our track record has always been whatever backlog we had at the end of the previous quarter is gone the first month of the next quarter.

Richard D’Auteuil - Columbia Management::

Jay Freeland: Yes, I’m going to let Keith talk to that because it’s an important question that we obviously have looked a lot at to make sure we have the safety and security we’re looking for there, so Keith why don’t you talk to that one.

Keith Bair::

Richard D’Auteuil - Columbia Management: Okay the put feature allows you to sell them back at par?

Keith Bair: Yes.

Richard D’Auteuil - Columbia Management::

Keith Bair: That’s right.

Jay Freeland::

Keith Bair: That’s right.

Richard D’Auteuil - Columbia Management::

Keith Bair::

Jay Freeland::

Richard D’Auteuil - Columbia Management::

Keith Bair: Yes, it was a little higher.

Richard D’Auteuil - Columbia Management::

Jay Freeland: Thanks, Rick.

Operator::

Fredric Russell::

Keith Bair: Well.

Jay Freeland: Go ahead.

Keith Bair::

Fredric Russell::

Keith Bair: And certainly you should not read it as complacent either. I mean obviously we actively review this and mange it on a regular basis. We have looked at it recently and we do still feel that, that is still a comfortable position for us to be in.

Fredric Russell: Okay. I have no questions, except that to say that there is no risk, doesn’t suggest a great deal of intel -- respect for the intelligence of our shareholders.

Keith Bair: Now I don’t think we said there’s no risk, there’s risk in everything we do obviously. We are trying to minimize risk and I didn’t say we were trying to get it in the absolute safest spot. The goal is to have it safe and to have the minimal risk we possibly can. We don’t -- obviously everything in life has risk and certainly these are the, they are in the same boat.

Fredric Russell: I have no other questions. Thank you.

Operator: We have a follow-up question from Mark Jordan with Noble Financial).

Mark Jordan - Noble Financial: Good morning again, I guess I, Jay I’m curious as to you know how you are going to market this and what specific marketing resources you are going to put behind the Dimensional product line in 2008?

Jay Freeland: Yes. Surely the existing product line is what we anticipate selling in 2008. Given, that we have exposure to it already in many of our -- in some or our costumer accounts that we are already in, and then we have great coverage out there. The intent is not to set up a separate sales force. It is our intent to utilize the guys that we already have out there to make sure they are trained and up to speed on the capability of the product. From a marketing standpoint it will be focused on where we see the best applications, certainly not every one of applications -- every one of our customers is not a perfect fit for it. We are going to do some cherry picking and going after the ones that we think have the best opportunity first. Because also some of that is part of the learning process when we discern from a customer standpoint how they are using it, what the needs are, we can start sharing and we have some that we are very close to that under NDA we can start sharing ideas on where it goes. That helps feed the R&D process as well. And that’s why I said earlier that we don’t anticipate having any significant impact at least this year on certainly either on the top line or gross margin line either. Because, yes, I think we will get some sales of the product in 2008. It won’t be material to the results but it will be material to how it helps drive some of the development activity going forward.

Mark Jordan - Noble Financial: And just initially you said you were going to focus on specific applications, where have, where do you think are the hot points for this product today?

Jay Freeland::

Mark Jordan - Noble Financial: Final question. Just what would be an ASP of one of the 5000?

Jay Freeland::

Mark Jordan - Noble Financial: Thank you.

Operator: And we have a follow-up question from Mr. Jeff Basch.

Jeff Basch::

Jay Freeland::

Jeff Basch::

Operator::

Jay Freeland::

Operator::