3D measurement and imaging company FARO (NASDAQ: FARO) beat Wall Street’s revenue expectations in Q1 CY2025, but sales fell by 1.6% year on year to $82.86 million. The company expects next quarter’s revenue to be around $83 million, close to analysts’ estimates. Its non-GAAP profit of $0.33 per share was significantly above analysts’ consensus estimates.

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StockStory’s Take

FARO’s first quarter results were shaped by the company’s strategic focus on operational efficiency and new product introductions. Management cited the impact of recently launched hardware and software offerings, such as the Leap ST handheld metrology tool and the Blink scanning solution, as key contributors to performance. CEO Peter Lau emphasized, “We’ve now executed on over 60% of our SAM expansion target,” pointing to the company’s accelerated pace of launches as a differentiator amid market uncertainty.

Looking ahead, FARO’s guidance reflects both caution and confidence. Management acknowledged ongoing uncertainty around global tariffs and macroeconomic conditions, but highlighted a growing backlog and contributions from new partnerships as factors supporting their outlook. CFO Matt Horwath noted that, despite planning for a potential 10% decline in the hardware market, "we have built some backlog in the first quarter that we believe helped solidify our outlook for Q2."

Key Insights from Management’s Remarks

FARO’s management attributed Q1 performance to the execution of its phased strategy, product refreshes, and a focus on mitigating macroeconomic risks. The company’s shift toward higher-margin solutions and new partnerships was central to its operating results.

• Operational efficiency focus: FARO continued its 80:20 operational program, driving year-over-year expansion in non-GAAP gross margins by 590 basis points and improving productivity through supply chain localization.
• Multiple product launches: The company introduced several major products in the last six months, including Quantum X, Focus Range scanners, Orbis Mobile Scanner, Leap ST, and Blink, which management stated have accelerated customer upgrades and contributed to backlog.
• Strategic partnerships: Two global partnership agreements were signed, each expected to add low eight-figure annual revenue. One partnership has already contributed to Q1 orders, with more contributions expected in Q2.
• Geographic mixed trends: While the Americas experienced softness due to tariff-related uncertainty, Europe showed initial signs of strengthening and Asia, notably China, returned to growth after recent declines.
• Tariff mitigation actions: Management outlined contingency plans, including price increases, shifting production, and the possibility of moving U.S.-bound manufacturing to the United States if tariffs are sustained, aiming to minimize gross margin impact.

Drivers of Future Performance

Management’s outlook for the next quarter centers on cautious planning in response to continued macroeconomic and tariff uncertainties, while leveraging recent product launches, backlog, and partnerships to support revenue and profitability.

• Macro and tariff headwinds: The company is preparing for a possible 10% year-over-year decline in the hardware market due to ongoing tariff negotiations and economic challenges, with contingency plans in place to protect margins.
• Product pipeline momentum: Recent launches, such as Leap ST and Blink, are expected to drive incremental revenue and customer adoption, with management anticipating further acceleration as these products gain traction.
• Partnership revenue contributions: Previously announced partnerships are forecast to contribute more meaningfully in the upcoming quarters, helping to offset potential hardware market declines and diversify revenue streams.

Top Analyst Questions

• Jim Ricchiuti (Needham & Company): Asked how FARO is assessing hardware demand given late-quarter orders and customer behavior across geographies. Management explained they are forecasting conservatively, planning for a hardware market decline despite early Q2 trends not indicating a sharp drop yet.
• Jim Ricchiuti (Needham & Company): Inquired about the expected timing and scale of new product contributions to revenue. Management responded that Leap’s impact will accelerate in Q2, and Blink had nearly $1 million in pre-orders, suggesting increasing momentum.
• Greg Palm (Craig-Hallum Capital Group): Sought detail on end-market and geographic demand trends, especially regarding macro uncertainty and tariffs. CEO Lau highlighted cautious behavior in automotive, offset by resilience in general manufacturing and aerospace.
• Greg Palm (Craig-Hallum Capital Group): Asked if the current environment would delay product launches or partnership activity. Management stated that partners may actually accelerate new offerings to drive growth, and no delays are expected.
• Greg Palm (Craig-Hallum Capital Group): Clarified how backlog built in Q1 will influence Q2 revenue. Management indicated they are not relying on backlog shipment, but it provides a buffer if market conditions worsen.

Catalysts in Upcoming Quarters

Over the next quarters, the StockStory team will monitor (1) the pace of adoption and revenue contribution from new products like Leap ST and Blink, (2) the impact and execution of recently signed global partnerships, and (3) management’s ability to offset tariff-related pressures through pricing and supply chain adjustments. Progress on localizing manufacturing and further product launches will be additional indicators of strategic execution.

FARO currently trades at a forward P/E ratio of 38.1×. Should you load up, cash out, or stay put? See for yourself in our free research report.

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