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.
Is now the time to buy FARO? Find out in our full research report (it’s free).
FARO (FARO) Q1 CY2025 Highlights:
- Revenue: $82.86 million vs analyst estimates of $80.25 million (1.6% year-on-year decline, 3.3% beat)
- Adjusted EPS: $0.33 vs analyst estimates of $0.16 (significant beat)
- Adjusted EBITDA: $12.47 million vs analyst estimates of $7.78 million (15% margin, 60.2% beat)
- Revenue Guidance for Q2 CY2025 is $83 million at the midpoint, roughly in line with what analysts were expecting
- Adjusted EPS guidance for Q2 CY2025 is $0.30 at the midpoint, above analyst estimates of $0.20
- Operating Margin: 4.7%, up from -6.3% in the same quarter last year
- Free Cash Flow Margin: 2.7%, down from 6.2% in the same quarter last year
- Market Capitalization: $813.5 million
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.
Our Favorite Stocks Right Now
The market surged in 2024 and reached record highs after Donald Trump’s presidential victory in November, but questions about new economic policies are adding much uncertainty for 2025.
While the crowd speculates what might happen next, we’re homing in on the companies that can succeed regardless of the political or macroeconomic environment. Put yourself in the driver’s seat and build a durable portfolio by checking out our Top 5 Growth Stocks for this month. This is a curated list of our High Quality stocks that have generated a market-beating return of 176% over the last five years.
Stocks that made our list in 2020 include now familiar names such as Nvidia (+1,545% between March 2020 and March 2025) as well as under-the-radar businesses like the once-micro-cap company Tecnoglass (+1,754% five-year return). Find your next big winner with StockStory today.