Q3 2022 FARO Technologies Inc Earnings Call
Good day, everyone and welcome to the <unk>.
<unk> technologies third quarter 2022 earnings call.
For opening remarks, and introductions I will now turn the call over to Michael scenario at Sapphire Investor Relations. Please go ahead.
Thank you and good afternoon.
With me today from Faro, Michael Burger, Chief Executive Officer, and Alan <unk>, Chief Financial Officer.
Today after market closed the company released its financial results for the third quarter of 2022.
Related press release and Form 10-Q are available on Faros website at Www Dot fervor dot com.
Please note certain statements in this conference call, which are not historical facts may be considered forward looking statements that involve risks and uncertainties.
Some of which are beyond our control and include statements regarding future business results product and technology development customer demand inventory levels, our outlook and financial guidance economic and industry projections or subsequent events.
Various factors could cause actual results to differ materially.
For a more detailed description of these and other risks and uncertainties. Please refer to today's press release, and our annual and quarterly SEC filings.
Forward looking statements reflect our views only as of today and except as required by law, we undertake no obligation to update or revise them.
During today's conference call management will discuss certain financial measures that are not presented in accordance with U S. Generally accepted accounting principles or non-GAAP financial measures.
In the press release, you will find additional disclosures regarding these non-GAAP measures, including reconciliations to comparable GAAP measures.
While not recognized in our GAAP <unk>.
We believe these non-GAAP financial measures provide investors relevant period to period comparisons of core operations.
However, they should not be considered in isolation or as a substitute for a measure of financial performance prepared in accordance with GAAP.
Now I'd like to turn the call over to Michael Burger.
Thank you Mike welcome to our call.
Third quarter demand across our markets remained healthy with revenues of $85 $3 million up approximately 8% year on year.
On a constant currency basis revenue for the quarter was $91 5 million up 14% year on year and 9% sequentially as continued strengthening of the U S dollar adversely impacted our reported revenues.
I am pleased to report that close to 70% of our hardware revenue is now derived from products launched within the last two years compared to approximately 40% of the same in the same time in 2021. This improved hardware fatality index is a strong endorsement of our customer driven product roadmap execution.
<unk>.
In the third quarter cadence of new product introductions continued with the announcement of two new hardware products, the vantage Max laser tracker and the focus core scanner.
Our vantage laser tracker product line historically offered with a probe providing six degrees of freedom has greatly simplified the measurement of complex parts. Our newly released tracker has doubled the probing accuracy of the prior model dramatically increasing the value offered to our three D metrology customer base.
The entry level focus core laser scanner expands the range of potential scanning applications by setting a new price performance watermark that is geared toward key markets, including construction building operations and public safety.
In addition to our internally developed products in September we announced the acquisition of Geos Lan with <unk>.
Business will accelerate our access to both the geospatial and mining markets, primarily through an indirect channel.
We expect this channel will ultimately enable meaningful cross selling opportunities for federal products.
Additionally, they're flexible lower cost handheld mobile mapping device, which leverages, our proprietary simultaneous localization and mapping algorithms closes the gap we have in our mobile mapping portfolio, which is required by both the ACO and public safety market segments.
We do not expect meaningful cannibalization of our current scanner hardware products with the addition of the Geos land portfolio.
In Q3, we augmented our hollow builder product line with video walk, which utilizes the 360 <unk>.
Degree camera video mode to Simon simultaneously capture while walking.
Video walk is significant in that it greatly simplifies dramatically speeds up the capture project and construction progress management workflow.
This feature is currently and customer data.
Barrow now offers the broadest set of therapeutic.
Capture devices and technologies in the market, which allow us to uniquely satisfy customer requirements across the continuum of workflows.
These capture technologies compete based on their ease of use speed to data and accuracy.
This is important as the data generated via these multiple capture technologies provide the foundation for a three dimensional digital reality based SaaS offering which incorporates time as the fourth dimension.
Earlier this year, we launched barrels sphere.
Our new four dimensional digital reality platform.
<unk> provides a central location for users to store view share and analyze reality captured data, allowing construction and operation professionals to benefit from faster site update virtual collaboration and real time feedback.
As we look to our investment roadmap. We are we are focused on expanding the sphere environment with SaaS applications that unlock the value of the <unk> data captured the Faros best in class capture technologies.
An example of such an application is flatness check flat.
<unk> flatness, which was launched in Q3 is barrels augmented reality application aimed at the concrete industry with.
<unk> Plaza with flatness check concrete finishers can quickly and easily identify out of spec areas that can be fixed prior to concrete pour hardening.
In this environment time, and the accuracy of information is up Dsos.
This application will eliminate expensive post chemo rework that is typical in commercial construction.
In addition, contractors can now easily validate the platinum specification, which can streamline the payment process provide documentation of the work performed while removing potential ambiguity that may exist in the finishing process.
Flatness check which is embedded into the federal sphere ecosystem is the first of its kind and marks the beginning of what will be our rollout of additional applications targeted at eliminating waste simplifying management and improving the profitability of construction projects and facility management initiatives.
Finally in the third quarter, we announced our sphere, <unk> viewer, which leverages. The combination of high end visual technology, Smart navigation photogrammetry and artificial intelligence to provide users with a comprehensive view.
Virtual visual representation of reality overtime.
This capability eliminates the realogy data capture silos and enables a faster and more complete analysis of the data captured in a virtual reality environment by authorized sphere users.
We continue to believe there is a large and growing untapped market.
Faros technology that Leverages, our broad sense.
Broad set of industrial leading capture solutions the market potential for digitizing the physical world is enormous and our ability to acquire the best read.
Dimensional representation of the physical world and to share insights gained from this view across a digitally connected world is the key differentiator for barrel.
As a result over the long term as we execute our strategy. In addition to growing hardware revenue, we expect to realize new recurring software as a service revenue streams that will be accretive to our corporate gross margins, while increasing the competitive barriers to entry across our entire portfolio, which in turn will make a stick.
Year, with our current and future customer base.
To physically demonstrate our <unk> digital reality vision and our efforts to transform construction workflows. We're excited to announce that we will be hosting an analyst day in March of 2023 in New York City.
More details will follow in the coming months.
I'll now turn the call over to Alan to provide an overview of our third quarter financial results.
Thank you Michael and good afternoon, everyone.
Third quarter revenue of $85 3 million was up approximately 8% compared with the third quarter of 2021 with.
With roughly 60% of our revenue impacted by U S. Dollar FX rates, our third quarter revenue on a constant currency basis was $91 5 million up 14% year on year.
Driving this result was primarily the increase in demand for both our focus premium scanner and quantum Max scan arm, particularly in the Americas, where year to date revenue was up 10% compared to last year.
On an actual currency basis, when compared to last year third quarter hardware revenue.
$54 9 million was up 17% and is a strong leading indicator of the reaction customers are having to our updated product offerings.
Software revenue of $10 6 million was down 4% and service revenue of $19 8 million was down 7%.
Recurring revenue of $16 6 million was up 2% when compared to Q3 of 2021.
As we discussed last quarter and in addition to the effect of the strengthening U S dollar.
Have begun to see a modest flattening of overall software revenue as we convert customer purchases the previously perpetual licenses to subscription.
On the service revenue the lower hardware unit volume in 2020, and 2021 compared to prior years.
Have reduced the installed base of products eligible for our service offerings, which when combined with a meaningful product quality enhancements. We've made over the last 18 months, while improving our customer experience has resulted in continued lower service revenue.
GAAP gross margin was 57% and non-GAAP gross margin was 51% for the third quarter of 2022.
Our global footprint for both customer revenue and internal operating expenses results in a relatively effective natural hedge that has limited the overall year to date profitability impact of the recent an unprecedented FX changes.
That said continued strengthening of U S. Dollar exchange rates have adversely impacted reported gross margins by over 300 basis points when compared to the success model. We set in early 2020.
And while favorable material costs have predominantly been offset by recent price increases until FX rates revert to historical levels, we expect to operate below our targeted gross margin range.
non-GAAP operating loss was 800000 in the third quarter of 2022 compared to a profit of 100000 in the third quarter of 2021.
Adjusted EBITDA was $2 million or two 3% of revenue.
Our GAAP net loss was $6 3 million or <unk> 34 per share. Our non-GAAP net income was approximately 550000 or <unk> <unk> per share for the third quarter of 2022 compared to a loss of approximately 120000 or <unk> <unk> per share in Q3 2021.
I should note that included in our non-GAAP financial results with a $1 $5 million gain recognized in other income and expense that was primarily due to the remeasurement of U S. Dollar bank balances held by our foreign legal entities.
Our cash balance at the end of the quarter was 49 million with no debt.
Put it in our cash consumption during the quarter was approximately $31 million for the acquisition of <unk> as well as $7 million of timing related increases in prepaid and accounts receivable.
Additionally, we incurred $3 million in cash restructuring payments associated with our German manufacturing transition and nearly $4 million, resulting from the revaluation of foreign currency held on our balance sheet.
I should also note that while we have sold a meaningful amount of raw material inventory to sanmina nearly $13 million of receivables due from our partner remained outstanding as of quarter end.
Majority of which has now been collected in October .
We remain focused on reducing overall working capital levels with improvements expected in 2023.
I also want to remind you that we are consolidated into our balance sheet. The Geo Slam operations, and therefore trend information may be skewed.
Moving onto guidance in the fourth quarter, we expect revenue of between 99 and $107 million, which assumes a constant exchange rate from current levels.
But the U S dollar were to further strengthened during the remainder of the quarter. We would again experience a headwind to reported revenue levels. We expect non-GAAP earnings per share of between 25 and <unk> 45.
In closing notwithstanding the recessionary concerns in the macro environment. We're excited about the momentum in our business for our near term opportunities and remain committed and optimistic about executing on the long term vision, we have for generating shareholder value from customers' digital lives and the world's physical objects.
At the same time, we are actively monitoring demand signals to ensure alignment with spending levels and will adjust should warrant should future conditions warrant.
Pace of our product announcements, both hardware and software are accelerating and we expect to continue providing increasing levels of value from for the Virtualized model to our customers throughout 2023 wells.
We look forward to sharing our progress with progress with you in the future.
Concludes our prepared remarks at this time, we'd be pleased to take any of your questions.
At this time, if you would like to ask a quick question.
Question. Please press the star and one on your Touchtone phone.
Hey, withdraw your question at any time by pressing star two.
Once again for your questions that is star one.
First to Tim.
<unk> with Needham <unk> Company. Please go ahead.
Hi, Good afternoon. This is actually Chris on for Jim.
Thanks for taking the questions.
With the rise in interest rates and economic uncertainty there's been some commentary from the U S real estate industry, indicating a potential slowing of investment in new construction could you talk about how much exposure ferro has to ground up versus brownfield and existing property building.
Operations and maintenance.
That's a great question.
We have traditionally been very strong and the general contractor space and there is a mix between new building.
And remodel a restructuring in buildings.
So your actual exposure is probably.
Quantify it for you, but I would imagine that many of in fact this afternoon.
<unk> with a general contractor, who is very much focused on.
Roundup and they're pivoting toward remodel.
And it seems that that's kind of a trend I think.
So it's really hard for me to quantify what we think the exposure is for ground up but I do believe that many are actually pivoting in our applications and products are applicable to either.
So.
Time will tell as it relates to what the net effect is but we've been relatively pleased how resilient, particularly in North America and Asia.
<unk> business has been.
Got it that's helpful. Thank you.
And with the restructuring substantially complete could you talk about some of the other levers you have to adjust cost structure in the event of a potential recession.
Well sure I mean, we.
As you can tell but based on the activity that we just demonstrated in their prepared remarks. We are we have Lynn leaned very much forward.
And the R&D side of the world in the RMB, both hardware and software and certainly.
It was warranted we could slow that we are still very much focused on moving our supply chain to southeast Asia, which will beginning to see but really hasnt taken pullback.
And then of course.
Continuing to replace open reqs as they appear as what were currently doing but certainly we would be able to slow that.
Replacement rigs.
As time goes on.
Mentally.
There are probably some other moving pieces that we haven't talked about publicly but I think we do have some levers certainly the COVID-19 environment has.
Challenged us to be able to be very flexible as it relates to our cost structure and I think we've demonstrated that 2020.
If we have to knock on wood I'm sure we could reenact it again, but right now we are cautiously optimistic about the demand environment.
But we read the same things you are doing.
Terrific.
Thanks very much.
Youre welcome.
Yeah.
And we'll take our next question from Greg Palm with Craig Hallum Capital Group. Please go ahead.
Yes, thanks for taking the questions I wanted to follow up on that last bit of thinking there I.
I think when we when we last talked.
You were starting to see a little bit of momentum, especially on the new product side of things and I'm just kind of curious as you look back on the quarter end.
Maybe what youre seeing in October and the pipeline I mean any change in behavior at your customers that makes you less confident or more confident about the end of year.
Wanted to dig in a little bit more if we could sure that's a great question.
As you know we tend to our business tends to kind of crescendo to the end of the year is.
Q4 is typically are our big quarter as it relates to revenue and we have seen.
Our.
<unk> funnel continue to build which is again I think bodes well for us.
As we mentioned that the percent of.
Revenue. This represented by new products continues to grow it grew 10% quarter on quarter. So the adoption of our new products I think has put us in good stead.
There is noise in China, and I think everybody's talked about all the all the earnings that I've listened to everyone's talking about concern regarding China, China Lockdowns, that's always a concern for us.
Thank you.
Europe seems to be slower than it has been traditionally that's been made up for us by the strength in North America as Alan alluded to.
So I think the mix in terms of where the business has changed a bit.
And we have not seen a dramatic change.
Historically, both in terms of funnel opportunities.
<unk>.
And segment segment demand <unk> still seems to be quite strong.
We've seen a lot of strength this last quarter in public safety, which was a very nice surprise and AUC in general in North America, and Asia has been strong, but Europe continues to lag and that Hasnt changed Snappers couple of quarters. So I think our mix of business has changed a bit Greg and we have nothing right now that says hey.
We're concerned about Q4.
I think just to maybe add on a little bit and I think we said in our prepared remarks as well, but the fact that hardware revenue grew on an actual currency basis, 17% year on year in the third quarter really ample.
Amplify some of the comments that we've made around our roadmap and I think demonstrates that there is traction with the customers and the customers are appreciating some of the new differentiated features that we have as Michael indicated we don't see yet softening in the fourth quarter, but we read the same news that everybody else reads.
Gotcha.
We're watching it but right now we feel pretty good heading into the fourth quarter.
Yes makes sense.
Shifting gears to G O Slam now thats.
It's been a couple months curious if you can give us any feedback.
On that specifically and I don't know did you did you give us what contribution was in the quarter and what your expectations are for Q4 as well.
<unk>.
I'll, let you know.
Right.
I don't think we broke it out but we did not correct yeah. So.
So.
Overall, we continue to be really impressed with the team. It's a very focused group of guys and girls.
Honestly, we have been pleasantly surprised at the level of technology and where they are in their roadmaps.
Theyre very aggressive, which we love.
I'm also quite excited by the way they go to market and I think Greg we've talked in previous worlds or in previous quarters around trying to grow our share of distributed power business through distribution and these guys are pretty much 100% through distribution. So I think we have a lot to learn there and perhaps leverage.
So so far so good very excited about what what they bring in terms of access to two markets that we really don't have much position and I think taking their product into our markets is where we think that there's some real upside obviously thats not happened yet.
We just closed the deal, but we're we're working on taking Geo slam products into our traditional markets, which we think particularly in AUC in public safety, there's real demand for.
Got it.
In terms of the contribution or Michael's right, we did not actually communicate what the contribution was in Q1.
Gives me in the third quarter, nor what our expectations are for the fourth quarter, but just as a reminder, in our release announcing them. We indicated that they did 14 5 million pounds in the 12 months ending March 31, and about 18% EBITDA.
That's pretty good performance.
We've now added into our our results.
Yeah, and so are you any reason why you wouldn't expect that full sort of run rate performance on a quarterly basis going forward.
No reason, we would expect it and I think as we continue to bring the companies together and are able to move their products more through our channels to our customers said I think we expect to see some nice increases, but that's probably not for the next six months to nine months. So yeah.
Yeah, I mean I.
I guess, just maybe circling back to my initial question.
If you exclude.
That quarterly amount.
The.
Call it $4 million.
The sequential increase from what you reported in Q3 that the guide at the midpoint.
Is is definitely less maybe quite a bit less than what you normally see sequentially. So I'm just trying to.
Tie that out and just see if it's conservatism versus something else I mean, you've got a little bit of FX headwinds.
On a full quarter relative to Q3, but anything else that I'm missing or we should be aware about.
No I don't believe.
Yeah, I don't think so I don't know.
I don't believe so I think.
We are trying to be conservative in the context of.
Under.
Under committing and over delivering and frankly we've.
We've been burned in the past and so we are approaching most of these quarters.
All quarters, very conservatively, but I think.
It's early days would you use for him and what we what we don't really have as history in their forecasting model and so it's really hard to kind of take that to the street, we need to learn that a bit but I think.
If history holds true for them I think we'll be in a good and a good place.
Okay, Great Alright, best of luck going forward. Thanks.
Thanks, Greg I appreciate your interest thanks, Greg.
And we'll take our next question is from Rob Mason with Baird.
Please go ahead.
Hi, Thank you hi, everyone.
I'll just stick on Geos.
I'll just stick on Geo Slam a moment since that product does go exclusively through the channel and Youre, primarily direct is how do you feel about where they are channel inventories are is that as they come into the organization are those.
Right sized I guess at the moment.
Actually we had a review today I think we've got some questions about their model as it relates to how they manage that channel in terms of inventory.
My understanding from the review is that they.
They do not ask their channel to hold a great deal of inventory.
They manufacture very much like Ferro does which is.
I'm not a long lead time basically.
Managed to ship.
So.
From a lead time perspective, they are pretty much from stock.
And their channel doesn't basically have a great deal of inventory. So I think I don't think theres a huge liability there in terms of channel inventory that I'm aware of.
Okay.
And then Michael if you could just.
Provide a little bit of color about.
What differentiates <unk> in the marketplace, you mentioned interest where they have some strength some of their end markets, but how did they go about obtaining those in.
Versus the competition.
We kind of categorize standing in the <unk>.
Maybe three or four different buckets.
We are on the bleeding edge. The pinnacle, if you will in terms of accuracy and with that accuracy comes some conditions, which means that as your scanner you need to set up a fixed tripod.
<unk>.
Do the scan move the tripod et cetera, et cetera, with that you get this amazing accuracy that is made for who we are.
What mobile mapping in the Slammer algorithm does is it allows you to actually instead of setting up a tripod you can literally walk with the scanner through the facility or through the crime scene or through the through the mine or whatever whatever the application is without actually having to stop and actually set up a tripod as it.
Result, you can scan a specific area much quicker.
<unk> side. However is that you don't get that bleeding edge accuracy that you get with our traditional scanning methodology.
That in some applications is good enough and so we were not participating in some of those applications where.
The time constraint was too high and frankly, there is a cost structure associated with that as well to get that leading edge accuracy, you need to spend 50 to $60 to $70000 per scanner, where <unk> has a lower price point lower accuracy, but much faster and so for certain workflows.
For example, drone flight.
It's actually ideal and we were not we were not participating in that market. So that's.
That's an example of kind of how we looked at it we were internally developing a mobile mapping solution and when <unk> came along.
The make buy analysis was such and frankly from a software perspective their capabilities were such that we felt that it was much it was a much better deal to purchase versus to build and so the decision.
Okay.
Helpful.
Just real quick I guess could you walk through some of your major verticals and just how they are performing at the moment I know aerospace has been strong you mentioned.
Little bit of an inflection in public safety I'm curious, maybe what catalyze that if we can identify.
Let's say, it's a really good question.
The public safety is such a fragmented market and.
And we've had we've had a lot of success in North America recently, we've had some real success in Europe , which.
In fact, I will tell you one of the opportunities that we closed.
It literally took two years to close so the sales cycle and public safety is much much longer I think.
So public safety has been a.
A bright spot for us, albeit a relatively small market.
<unk> continues to be a position of strength for us both in North America and Asia.
And I'll say the same about.
You see in general with the exception of Europe , Europe overall continues to be weaker than we have historically seen.
<unk>.
Anecdotally it by market it seems that.
Demand continues to be pushed it's not that.
Lost more than we have in fact are.
Have traditionally in fact, our closure rate.
It is effectively flat with where we were a year ago in Europe . So the opportunities are there theyre just continue to get pushed and we're not sure that.
I don't believe that it is a fair situation, we actually believe that it.
It's a macroeconomic situation.
Okay understand.
Got it.
Very good.
I'll hop back in queue. Thank you.
Thank you Rob.
And once again for your questions that is star one will pause a moment to allow further questions to queue.
And we'll move next to Andrew <unk>.
Barry with Byrne burn capital markets. Please go ahead.
Okay.
Hi, This is Stephanie on for Andrew We did this theory or question.
<unk> two subscriptions in that.
When do you think that will wrap up and when you think the margin benefit could emerge.
Yes.
Well, we actually think this is a several year process.
We have we have begun this process in earnest over a year ago and I think with.
Excitement and I think some success, sometimes as you as we've talked about.
Recurring revenue now is up to about 16% of the total which is which is quite positive but I believe this is probably a two to two and a half year slog as we can as we convert.
<unk> into a SaaS revenue stream and I think.
Yeah.
We're well on our way, but I think it's a couple of years.
Thanks.
Oh do you have anything to add.
No I guess, the only thing I would add Michael.
We have a relatively minor amount of perpetual license revenue that is converting and so that conversion will take a couple of years that you referenced at the same time, we have additional subscription initiatives, that's going to be driving new SaaS revenue streams and so the conversion of our existing revenue will take a bit of time.
Ramp up of additional revenue streams that are focused on solving customers' problems with a three dimensional data that they're gathering from our hardware devices will continue to ramp over the next couple of years as well and so I think that optic.
Optically it will feel less than the conversion time that Michael just.
<unk> articulated on the specific question.
I'll give you a little of what we make.
Right exactly what we've said historically is that we.
We'd like to be in a position or we expect to be in a position where 25% of our revenue is recurring in nature.
And we believe that we ought to be there by the end of 2024 ish, that's kind of internally and externally what we've said.
Yeah.
Yeah.
Thanks that helpful.
Youre welcome.
And we'll take our last question from Ben Rose Battle Road Research. Please go ahead.
Yes, Thank you for taking my questions and good evening.
Could you review the geographic mix during the quarter.
Sure.
Two so in the quarter, we actually had.
Let's see if I got the numbers here right. So roughly about 45% of the revenue came out of the Americas.
Roughly 27% of that came out of EMEA.
And 28% of that came out of the Asia Pacific region.
And when you looked at it from a growth standpoint on an actual currency basis. So again, some of the European and Asia Pacific.
Geographies, we will have a bit of.
Muted growth, but the Americas was up 14% year on year, which again contribute to some of the.
Optimism that we have and I think that the team there has done a nice job of growing that business on a year to date basis I think we indicated 10% during the first three quarters of the year Asia Pacific up 9% in the quarter and then EMEA was down 3%, but EMEA is going to be again is going to happen.
The broadest impact from the strengthening U S dollar.
Okay.
China in particular within Asia Pacific has done a very nice job of spot.
Really conveying the value of our products and.
Ramping with customer set.
And I'm sorry, thank you for giving the year over year growth.
What was China.
Was China above the 9% growth for.
The entire region.
Yes.
Okay.
And so you do you feel like you were.
We're able to avert a lot of the lockdown.
<unk> that we've heard coming coming out of the coming out of the region.
So far.
But so far yes.
Okay.
[laughter].
With also curious could we get an update on thin Sanmina you mentioned.
What was going on in terms of a receivable issue at the end of the quarter, but just in general.
Basically all of your product products being manufactured there at this point or whats the status.
So we are we have.
<unk> completed the transition to Sanmina.
They are.
Forming two expectations they've done a fantastic job of actually keep.
Keeping up with us.
We are now effectively completely out of manufacturing.
We still have brake fix and some testing operations in place manufacturing is now.
100% relocated into pilots.
And we've had.
I think.
A really great experience in terms of both quality and output.
And frankly, they are gearing up for Q4 is as we've talked about for Q4 is as our large quarter and we expect.
We're very confident we'll be able to deliver everything.
That's the <unk>.
Market desires through Q4 BSI.
And then just a question regarding <unk>.
You did mentioned the strength from the quantum arm product.
And.
Could you go into maybe a little bit more depth in terms of kind of.
Discrete manufacturing verticals that you are serving with.
With your metrology products.
I think we've seen aerospace.
Aerospace continues and you know they've been struggling to keep up here for the last several quarters and we don't see that changing automotive in the automotive supply chain has been extremely strong.
We've seen a lot of interest, particularly in.
Battery manufacturers for the EV side of that that supply chain.
And we've been relatively successful in penetrating some of the new EV actual body in white applications. So.
Automotive continues to be relatively strong in North America automotive in Europe is relatively weak in automotive in Japan.
It was pretty much nonexistent for us so.
Way down from where it has been traditionally.
Okay.
For <unk>.
Okay.
And.
Alan You had mentioned you had mentioned bringing over.
The potential impact of bringing over the expense base from Geo Geo Slim.
Could you maybe just clarify your thinking on the.
The impact in Q4 and going forward.
Yeah, So we have.
We had about a month of their expense structure within our third quarter performance. So some of it is already baked in I think when you work through the profitability of the guidance that we provided given our.
Given our traditional gross margin improvement that as as revenue increases, which again I think they would fit very nicely into from them from a margin perspective.
That youll see that the fourth quarter expenses are expected to be a couple million dollars higher than they were in the third quarter again as you work through your model.
Some of that would be Geos clan base. Some of it would be other timing related items cause as revenue increases we have some incremental commissions, that's probably the best way to articulate it I guess.
Right.
And then and then finally on the cash balance I understand there was a lot of.
Cash for the.
Acquisition and some other items.
Where do you see that cash balance.
Being perhaps over the course of the next year or is this.
Is there a sort of a certain level.
Below which you would prefer not to go at this point.
Maybe just.
Some elaboration on your thinking about that.
Yes, I think Michael chime in but I think the cash balance that we reported here at the end of the third quarter I'm, just a little bit below $50 million, we wouldn't like to not see it go below that.
We outlined a couple of things that should enable us to improve that cash balance one of them is the receivable balance I think you've made it used the word issue I just wanted to be clear, it's not an issue. It was just timing of payments.
Sure.
Prepared remarks it was.
We predominantly selected that here in October we also had some timing related payments associated with some.
Our insurance premiums and some other software packages come due in our third quarter and so those dollars went out and we'll come back to us. So I think we by and large we'll see.
Cash balance to increase as we navigate them and with the fourth quarter showing some level of profitability given the higher revenue levels again, I think we will see an uptick in our cash balances were comfortable where we are but we'd like to see it go too much lower than what we just reported in the third quarter.
Okay.
And then finally just.
Quickly on <unk>.
<unk> slim.
Hum.
Michael is it your intent to operate GTO Slam is sort of a separate.
Entity at this point or how does it get incorporated into the larger <unk>.
Arrow.
Structure well.
As it relates to the channel will continue to operate that separately.
As we've got.
Clearly different separate customer base et cetera, So the channel will be.
Managed separately, but ultimately we will integrate engineering organizations into the marketing organizations into Faro proper.
So into our core business and I expect that that will be done by mid year.
Okay.
Okay. Thanks, a lot.
Thank you Ben I appreciate it thank you.
And this does conclude the Q&A portion of the call I'd now like to turn it back to Michael Berger for any closing remarks.
We appreciate everybody's attention and we are as you can tell I'm quite excited about where we're at.
And look forward to actually giving you an update on our Q4 and our year end.
Year end performance, we appreciate everybody's attention.
<unk>.
This does conclude today's program. Thank you for your participation you may disconnect at any time and have a wonderful evening.
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