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FARO TECHNOLOGIES INC (FARO)·Q1 2025 Earnings Summary

Executive Summary

  • Q1 2025 was solid operationally: revenue of $82.9M at the upper end of guidance, non-GAAP gross margin 57.7% above guidance, and non-GAAP EPS $0.33 above the high end; adjusted EBITDA reached $12.5M (15.0% margin) .
  • Year-over-year revenue declined 1.6%, but margins expanded sharply (GAAP gross margin +560 bps; non-GAAP +590 bps) on supply chain localization and pricing actions, yielding GAAP net income of $0.9M vs. a $(7.3)M loss last year .
  • Management guided Q2 2025 revenue to $79–$87M with non-GAAP gross margin 57.0–58.5% and non-GAAP EPS $0.20–$0.40, while proactively addressing tariff uncertainty via price increases (1% enacted in April) and potential production repatriation .
  • Strategic catalysts: new products (Leap ST in January; Blink in April with ~$1M preorders) and two global partnerships (Topcon launched; metrology OEM to be announced in Q4’25), supporting net orders growth of 6% YoY and backlog build in Q1 .

What Went Well and What Went Wrong

  • What Went Well

    • Non-GAAP gross margin reached 57.7%, above guidance, with sequential improvement vs. a seasonally strong Q4 driven by supply chain localization and price actions; adjusted EBITDA margin rose to 15.0% .
    • Product cycle momentum: Leap ST (late Jan) and Blink (Apr 15) are expanding SAM and driving early orders; refreshed Quantum X arm, Focus scanners, Orbis mobile scanner, CAM2 and Zone software showed strong uptake .
    • Partnerships: Topcon launched its product to customers in April; management expects each partnership to contribute low eight figures annually as channel scale ramps .
    • Quote: “Q1 was an inflection point… net orders… grew by 6% year-over-year… we delivered… $12.5 million of adjusted EBITDA, or 15.0% of revenue” — Peter Lau .

  • What Went Wrong

    • Americas softness (U.S., Mexico, Canada) tied to tariff-related uncertainty; management assumes Q2 hardware market down ~10% YoY as a prudent stance .
    • Revenue down 1.6% YoY; recurring revenue grew modestly, but hardware/software dollars were nearly flat, highlighting macro pressure despite product refresh tailwinds .
    • Free cash flow of $2.24M (down vs. $3.81M in Q1 2024), reflecting higher investment outlays; adjusted free cash flow declined to $3.14M .
    • Analyst concern: cadence and late-quarter hardware behavior amid tariff uncertainty; management is cautious, planning for downside scenarios and preserving profitability .

Financial Results

MetricQ1 2024Q3 2024Q4 2024Q1 2025
Revenue ($USD Millions)$84.244 $82.563 $93.535 $82.863
GAAP EPS ($USD)$(0.38) $(0.02) $(0.05) $0.05
Non-GAAP EPS ($USD)$0.09 $0.21 $0.50 $0.33
Gross Margin % (GAAP)51.4% 55.7% 56.7% 57.0%
Gross Margin % (Non-GAAP)51.8% 56.1% 57.4% 57.7%
Adjusted EBITDA ($USD Millions)$5.566 $8.853 $16.749 $12.466
Adjusted EBITDA Margin %6.6% 10.7% 17.9% 15.0%

Segment breakdown

Metric ($USD Millions)Q1 2024Q3 2024Q4 2024Q1 2025
Hardware$52.616 $50.301 $62.297 $52.589
Software$10.920 $11.159 $11.588 $10.386
Service$20.708 $21.103 $19.650 $19.888
Recurring Revenue$16.717 $17.431 $17.077 $17.299
Recurring Revenue % of Sales19.8% 21.1% 18.3% 20.9%

KPIs and cash metrics

KPIQ1 2024Q3 2024Q4 2024Q1 2025
Cash from Operations ($USD Millions)$6.575 $2.568 $17.274 $5.031
Free Cash Flow ($USD Millions)$3.810 $(0.733) $12.455 $2.237
Adjusted Free Cash Flow ($USD Millions)$4.213 $(0.390) $16.219 $3.142
Net Orders Growth YoY (%)———6%

Geographic revenue mix (Q1 2025 vs. prior year)

RegionQ1 2024 ($M)Q1 2025 ($M)
Americas$37.228 $36.008
EMEA$25.435 $25.108
APAC$21.581 $21.747

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
RevenueQ2 2025N/A$79–$87M New
Gross Margin (GAAP)Q2 2025N/A56.5%–58.0% New
Gross Margin (Non-GAAP)Q2 2025N/A57.0%–58.5% New
Operating Expenses (GAAP)Q2 2025N/A$45.0–$47.0M New
Operating Expenses (Non-GAAP)Q2 2025N/A$38.5–$40.5M New
Diluted EPS (GAAP)Q2 2025N/A$(0.20)–$0.00 New
Diluted EPS (Non-GAAP)Q2 2025N/A$0.20–$0.40 New

Q1 2025 guidance performance vs. guidance

MetricGuidance Range (issued Feb 24, 2025)Actual Q1 2025Outcome
Revenue ($M)$77–$85 $82.9 At upper end
Gross Margin (GAAP)54.5%–56.0% 57.0% Above high end
Gross Margin (Non-GAAP)55.0%–56.5% 57.7% Above high end
Operating Expenses (Non-GAAP) ($M)$38.5–$40.5 $38.5 At low end
Non-GAAP EPS ($)$0.10–$0.30 $0.33 Above high end

Earnings Call Themes & Trends

TopicPrevious Mentions (Q3 2024)Previous Mentions (Q4 2024)Current Period (Q1 2025)Trend
AI/technology/product initiativesProduct refresh momentum: Quantum X arm, Focus Premium Max, Orbis mobile; drove margin improvement CAM2 software update; Leap ST launch planned; refreshed portfolios; outlined SAM expansion Leap ST launched; Blink introduced with ~$1M preorders; seven major launches in six months Accelerating
Supply chain localizationCost improvements supporting GM expansion Operational excellence (80/20) drove margin gains; FX headwinds noted Localization continued to deliver incremental benefits to GM; price increases enacted Improving
Tariffs/macroChoppy demand; softness in APAC; cautious outlook Cautious market outlook; discretionary CapEx scrutiny Detailed tariff playbook: 1% price increase in April; potential US repatriation; $9–$10M GM impact at 36% reciprocal tariff; demand pacing flat YoY early Q2 Risk elevated but mitigated
Product performance and adoptionBack-to-back double-digit adj. EBITDA margins; refreshed lineup Non-GAAP GM 57.4% at high end; $0.50 non-GAAP EPS Non-GAAP GM 57.7% above guidance; non-GAAP EPS $0.33 above guidance high Improving
Regional trendsAPAC softness; Americas/EMEA mixed Americas stable post-election; Europe cautious; Asia soft Americas weaker on tariff uncertainty; Europe strengthening; China turning a corner Mixed
Partnerships/channel scale—Topcon agreement; metrology OEM to be announced Q4’25 Topcon product launched to customers in April; both partnerships contributing orders Q2 Ramping
R&D execution—CAM2 enhancements enabling unified data workflows CAM2 and Zone updates launched; Blink software-led workflow on Sphere XG Ongoing

Management Commentary

  • Strategic execution: “We’re very pleased with our strong start… Q1 was an inflection point… net orders… grew by 6% YoY… $12.5 million of adjusted EBITDA, or 15.0% of revenue, surpassing our forecasts” — Peter Lau .
  • Margin drivers: “We continued to see year-over-year productivity gains driven by our ongoing supply chain localization efforts as well as nominal contributions from price increases launched at the start of the year” — CFO Matt Horwath .
  • New products: “Leap ST… exceeded our expectations… Blink… automates… delivering insights through our Sphere XG cloud platform… early reception has exceeded expectations with close to $1 million in preorders” — Peter Lau .
  • Tariff playbook: “A 36% reciprocal tariff on Thailand… about a $9 million impact to gross margin… total impact… $10 million… we would expect to cover the full impact with a low single-digit price increase… enacted a 1% price increase in April” — Peter Lau .
  • Localization option: “We believe we can stand up localized manufacturing in the United States in less than 6 months with minimal to no investment” — Peter Lau .

Q&A Highlights

  • Hardware trajectory and quarter-end cadence: Management is cautious but sees early Q2 pacing better than Q1; assuming hardware down ~10% YoY is prudence, not current run-rate, with potential upside to the higher half of Q2 guidance if trends hold .
  • New products tailwind timing: Leap had limited Q1 time; acceleration expected in Q2; Blink launched mid-April with ~$1M preorders, contributing to Q2 and beyond .
  • Partnerships: Topcon launch underway; metrology OEM announcement planned for Q4’25; partnerships not expected to be delayed by macro, may even accelerate in down markets .
  • Macro/tariffs: Americas softness and auto sector uncertainty; management monitoring demand elasticity and discount controls, with multiple scenarios to preserve earnings and cash .

Estimates Context

  • Wall Street consensus via S&P Global was unavailable for FARO this quarter due to a CIQ mapping issue, so direct beat/miss vs. Street could not be assessed. Values would normally be retrieved from S&P Global.
  • Relative to company guidance, results were decisively stronger: non-GAAP EPS $0.33 vs. $0.10–$0.30 guided, non-GAAP gross margin 57.7% vs. 55.0–56.5%, and revenue at the upper end ($82.9M vs. $77–$85M) — indicative of potential upward estimate revisions to margins and EPS if sustained .

Key Takeaways for Investors

  • Margin expansion is the core story: localization and pricing drove non-GAAP GM to 57.7% and adjusted EBITDA margin to 15.0%; continued focus suggests durability through Q2 despite macro uncertainty .
  • Product cycle should underpin organic growth: Leap ST and Blink expand SAM with strong early demand; refreshed hardware/software portfolio and Sphere XG workflows broaden use-cases and customer access .
  • Partnerships increase distribution leverage: Topcon is live, with low eight-figure annual contribution potential; metrology OEM to broaden reach in late 2025; backlog built in Q1 supports near-term visibility .
  • Tariff mitigation is actionable: price increases (1% enacted) and potential US repatriation within ~6 months, plus Latin America shipping changes reduce tariff base; management expects low elasticity given product ROI .
  • Near-term setup: Q2 guide implies nominal YoY growth at midpoint with margins resilient; if hardware declines moderate vs. the down ~10% assumption, upside within the range is plausible .
  • Cash discipline intact: operating cash flow positive in Q1 and six consecutive quarters of OCF generation; liquidity strong ($102.6M cash and short-term investments) .
  • Watch narrative drivers: sustained margin outperformance, product adoption rates, and partnership revenue realization are likely stock catalysts; tariff policy outcomes and Americas demand cadence are key risk variables .