FARO Technologies Inc (FARO) 2006 Q4 法說會逐字稿

Good morning, everyone, and welcome to FARO Technologies conference call in conjunction with its fourth quarter and fiscal 2006 earnings release. For opening remarks and introductions, I will now turn the call over to Vic Allgeier. Please go ahead.

Thank you, and good morning, everyone. My name is Vic Allgaier of the TTC Group, FARO's Investor Relations firm.

Yesterday after the market closed, FARO released its fiscal fourth quarter results. By now you should have received a copy of the press release. If you have not received a release, please call Darrin Sahler at (407) 333-9911.

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 would like to remind you that in order to help you understand the company and its results, management may make some forward-looking statements during the course of this call. These statements can be identified by words such as 'we expect,' 'we believe,' 'we predict,' 'we target,' 'our growth targets,' 'our goals,' 'our guidance,' and similar words. It is possible that the company's actual results may differ materially from those projected in these forward-looking statements. Important factors that may cause actual results to differ materially are the risk factors set forth in yesterday's press release and in the company's filings with the SEC.

I will now turn the call over to Keith.

Thank you, Vic, and good morning, everyone.

Sales in the fourth quarter of 2006 were $43.9 million, a 27.2% increase from $34.5 million in the fourth quarter of 2005. That brought our 2006 annual sales to $152.4 million, a 21.3% increase from $125.6 million in 2005. New orders grew 43.5% in the fourth quarter of 2006 to approximately $49.8 million compared to $34.7 million in the fourth quarter of 2005. New orders for fiscal 2006 grew 30.8% to $162.4 million from $124.2 million in 2005.

On a regional basis, fourth quarter orders in 2006 in the Americas grew 25.9% to $20.4 million compared to $16.2 million in 2005. Orders increased 103.7% in Europe to $22.2 million from $10.9 million in the fourth quarter of 2005. Orders in the Asia Pacific region declined slightly to $7.2 million compared $7.5 million in our year ago quarter or 4%. Order growth in Asia lagged the other regions for most of 2006 as a result in the change in the management of the region and the sales force during the Company's internal investigation of the Foreign Corrupt Practices Act matter.

On a regional basis, 2006 sales in the Americas grew 12.5% to $62.9 million compared to $55.9 million in 2005. Sales grew 35.6% in Europe to $60.9 million from $44.9 million in 2005. Sales in the Asia Pacific region grew 15.3 % to $28.6 million from $24.8 million in 2005.

The top five customers by sales volume in 2006 were Boeing, which represented 2% of sales, followed by DaimlerChrysler, the United States Air Force, Volkswagen, and Caterpillar. The top ten customers in 2006 represented only 7.2% of our sales, once again, indicating our lack of dependence on any one or a handful of customers.

Our gross margin was 58.8% in the fourth quarter of 2006 compared to 56.6% in the year ago quarter. This increase was due to changes in product mix and resulted in an increase in unit sales of higher margin products. Gross margin in fiscal 2006 was 58.7% compared to 58.1% in 2005.

Selling expenses were 29.2% of sales in the fourth quarter of 2006, down from 33.7% in the year ago quarter. That put our selling expenses at 29.7% of sales for 2006 and 2005. Administrative expenses in 2006 were 16.1% of sales, compared to 12.4% in 2005, primarily as a result of the $6.8 million related to the FCPA matter and patent litigation costs.

Our operating margin was 8.9% in the fourth quarter of 2006, an increase from 2.1% in the year ago quarter, because of the previously mentioned increase in gross margin and lower selling expenses as a percentage of sales for the quarter. For fiscal 2006, our operating margin was 5.4% compared to 8.1% in 2005.

Net income was $3.7 million for the fourth quarter of 2006 compared to $183,000 in the fourth quarter of 2005. Net incomes for fiscal 2006 was $8.2 million, or 5.4% of sales, compared to $8.2 million, or 6.5% of sales in 2005.

I will now briefly discuss a few balance sheet and cash flow items. Cash and short-term investments were $31.5 million at December 31, 2006, compared to $25.8 million at December 31, 2005. Accounts receivable was $42.7 million at December 31, 2006 compared to $28.7 million at December 31, 2005.

Days sales outstanding at December 31, 2006, increased to 102 days compared to 78 days at the end of 2005, primarily as a result of an increase in international sales, which carry longer payment terms. Inventories were $30.7 million at December 31, 2006, compared to $33 million at December 31, 2005. The decline in inventories was primarily due to a reduction in inventories of finished goods and raw materials, offset by an increase in service inventory.

Finally, I'll conclude with some statistics regarding our headcount numbers. We had 641 employees at the end of 2006, a decrease of 23, or 3.5%, from 664 at the end of 2005. Account manager headcount at the end of the year was 123, with 37 account managers in the Americas, 54 account managers in Europe, and 32 account managers in Asia. Geographically, we now have 295 employees in the Americas, 219 employees in Europe, and 127 in the Asia Pacific region.

In totally, I'm pleased with our financial performance in 2006, amidst a very exciting and challenging year. The company is well-positioned to leverage its financial strength in 2007, and we will continue to enhance and refine our operating performance throughout the year.

I will now hand the call over to Jay.

Thanks, Steve.

To say that 2006 was another amazing year for FARO would certainly be an understatement, and looking at our accomplishments in 2006 provides clear evidence of that. Looking first at the markets we serve, they remain as strong today as they were five years ago, and we see continue strength going forward. Every segment we're in, from automotive to machine shops, from aerospace to architecture, is demonstrating continued demand, and our dedicated sales and marketing team continues to execute well in meeting that demand. Needless to say, I'm particularly pleased with our nearly 44% orders growth in Q4, fueled by an incredible triple-digit growth performance by the team in Europe.

Sales to new customers were strong again in 2006, coming in at 55% of total revenue. This remains an important factor in engaging acceptance of our products in the marketplace. We continue to target at least 50% of our annual sales being generated by new customers, and we'll keep that target in place for the foreseeable future. Each new customer who purchases our products represents broader acceptance of the technology and ultimately opens the door for even deeper penetration around the world.

We continued to enhance our technology in 2006, introducing a new low-cost laser scanner to provide an option for customers who want the same reliability as our premium products but don't require the highest accuracy and need a lower cost of ownership. We introduced specific modeling software packages for each of the seven primary vertical markets we serve with the laser scanner, and we also released the latest generation of our own laser scanner software for image capturing and rendering.

We introduced the PowerGAGE, which provides CAD to part analysis capability for the on machine inspection market. The GAGE continues to be our fastest growing product line, and the introduction of the PowerGAGE opened up a whole new set of vertical markets. Finally, we introduced the new generation of our laser tracker providing distance accuracy up to 0.0002" and allowing for a broader end use temperature range.

We launched a new internal initiative in 2006 called the Power of One. The concept is simple. Every employee finds one idea that can generate $2,000 in annual savings for the company, regardless of where that idea comes from. The true goal of the program is not as much a pure cost productivity program but rather a culture change enabler. The focus is getting our global team to constantly challenge the status quo and look for better ways to do what we do as a company. We establish a process for measuring the program, a rewards system for those who participated, and measured the senior leadership team, not on the dollars, but rather on the participation rate of their employees.

In the eight months the program was operational for 2006, over 45% of the global population worked on projects, and we generated over $3 million in savings, which was redeployed to more productive uses or, in some cases, dropped through to the bottom line.

Keith and I spent more time on the road with investors in 2006, and we'll continue to do so in 2007 and beyond. Last year, we participated in several investor conferences and road shows, holding over 100 one-on-ones with both existing investors and potential investors. Last month, I did our first ever road show with European investors, and I find their level of interest in FARO to be very similar to what I see from investors in the U.S. Approximately 40% of our business now occurs in Europe, so it's important that we establish a broader view of the investment community we serve.

Obviously my discussion on 2006 would not be complete if I did not mention the 'big three,' as many of our investors have come to call the patent suit, the class action lawsuit, and the Foreign Corrupt Practices Act internal investigation. All of these are serious matters for the company, and rest assured that we treated them as such. However, our team executed through all of it without being distracted and without losing focus on the task at hand. 30% orders growth and nearly 22% shipments growth by themselves are tremendous achievements. Equally strong, in my mind, is generating $8 million in net income, despite spending nearly $7 million in hard cash on these issues.

Our approach to all three of these matters in 2006 also demonstrates our longstanding belief that you always do the right thing regardless of the cost. With respect to the patent suit and class action suit, doing the right thing meant standing up to fight when we know we're right. With respect to the FCPA internal investigation, it meant proactively and openly disclosing the FCPA issue to both the U.S. Department of Justice and the U.S. Securities and Exchange Commission and implementing new policies and procedures designed to prevent similar issues in the future.

Were these easy things to do? Certainly not. But were they the right things to do? Absolutely. You'll see no wavering from our team when it comes to doing the right thing.

Finally, I'd like to wrap up with a discussion about where we're gong as a company. This past November, I had the leadership team from around the world gathered at our annual retreat to prepare for 2007 and beyond. One of the important things coming out of that meeting was creating a mission statement for the company and reconfirming the vision and strategy for achieving that mission. It is important that we start here when discussing the future growth of FARO.

The shared mission for all of FARO's employees is to enable our customers, products, and processes to be the best in the world. That's it -- clear, simple, and easy for everyone to understand. A mission statement should define a company's purpose in life and be broad enough to be applied over time, regardless of how the company evolves.

The vision should describe how the company will achieve its mission. For FARO, our vision is also quite simple -- to be the world-leading three-dimensional measurement company. I take a very broad view of this vision. It's not just manufacturing measurement, and it's not just petrology in the strictest definition of the term. We have already taken steps towards achieving that broader vision through our acquisition of the laser scanner business in 2005. In 2007 and beyond, we will continue to innovate from within, as well as look for additional acquisitions, all of which will fit the broad vision we've defined.

So the question then is what is our strategy for achieving that vision? The answer contains three fundamental objectives. First, we will continue to innovate and deliver market-leading technology solutions and services that give our customers a competitive edge, but they must be easy to sell, easy to build, easy to use, and easy to service, regardless of the innovations and acquisition we pursue. Second, we will operate a fast and flexible corporate structure that supports the strategic paths we pursue. This includes regional business units with global leverage of R&D, quality, sales, and the other functional organizations.

Finally, we're creating a learning organization that thrives on continuous improvement and leveraging best practices. The Power of One program will be a way of life at FARO, not just the flavor of the month initiative. We are passionate about having the best people on the team, and we will support them with both talent development programs and world-class career growth opportunities.

Our growth target for the next several years is 20 to 25%, consistent with our stated goals in 2006 and for 2007. Although it is impossible to predict the future with absolutely certainty, I am confident that we can achieve these targets with the product portfolio that we have in place today. However, that doesn't mean we aren't' looking for acquisitions. We are, and we review the opportunities regularly.

The important thing to remember is that because of our organic growth potential, we don't need to focus on acquiring companies with established revenues just to help us hit our sales forecast. What that really means is we have a case of the 'gotta have its.' We can be selective with the acquisition opportunities we review. Obviously, we'll still look at established companies, but it also gives us the freedom to look at brand new technologies that have minimal or no market penetration but still create a good strategic fit with FARO's vision and possessing strong growth potential.

Our top line guidance for 2007 of 20 to 25% growth is coupled with gross margin guidance of 57 to 59% of sales. We will maintain our practice of guiding for those two numbers only and will, as always, continue to update our progress towards our targets at the end of each quarter.

I'll close by thanking our employees around the world and our investors for their continued interest in and dedication towards FARO's success. This is a company whose employees in every corner of the globe share the same passion for the continued success of this enterprise, and I'm confident that 2007 will be another successful year.

Thank you for your attention, and I will now open up the call to questions.

[OPERATOR INSTRUCTIONS]

We'll take our first question from Mark Jordan with A.G. Edwards. Please go ahead.

Good morning, gentlemen. Last year you did estimate what you thought the cost of, for example, your Foreign Corrupt Practices Act litigation would be. I was wondering if you could hazard a guess, number one, what litigation expense might be, or what would determine the range -- what would be the determinants for that range? And I guess, secondly, in relationship to that, under the FCPA, are you doing anything active there? Or is this just dormant until the Department of Justice comes back to you with some form of a settlement? And then secondly, how much did you spend on that last round of -- when you went to trial?

Okay, Mark, I'll address the FCPA item, and then I'll let Keith talk to you the cost items on the other two. With respect to the FCPA, we do see forward motion with both entities, the U.S. Department of Justice and the Securities and Exchange Commission, but at this point, we are mostly in a waiting game to resolve this with them. Obviously, we continue to cooperate, and when we've had questions, we've obviously provided any of the answers that they were looking for, but it is still an item where we can't predict the timetable to finalize it, but we do still see forward motion at this point. It's just we're working with them to get it resolved.

Okay, so should one assume that at this point in time that if there is additional significant funds it would be just the settlement process rather than a processing?

Well, it depends on the progress, how long it takes, but we can anticipate additional legal expenses related to the FCPA issue or, I would imagine, less than $0.5 million.

Okay.

And as far as the patent litigation, in the third -- in the fourth quarter of 2006, we incurred $1.3 million of patent litigation expenses. On a go forward basis, it depends on how lengthy the rest of the appeals process, the retrial. It simply depends on the length of the process.

Okay, and do you have any visibility at all in terms of the Patent Office actions to validate when that gets finalized?

We don't. It's one of those things that, obviously, they're going to work to the timetable that they can support with all the other cases that they're reviewing. Obviously, as we stated in the press release, the -- Hexagon has challenged the ruling by the Patent Office, but we don't know how much time that will take. So obviously, it's very possible the Patent Office will answer Hexagon's challenge after the retrial is over and could, obviously, send the retrial -- any decision in the retrial could send it either direction after the PTO rules, but obviously we still feel like we're in a very good position there, given the Patent Office's decision to invalidate the bulk of that patent in the first place, which is a fairly unusual event.

Right. Looking at the new order growth, you had a really -- a market acceleration in the fourth quarter. I think you -- new orders grew 18% Q2, 19 in Q3, and then 43% in Q4. I guess, two questions -- one, is this a sign of true acceleration in orders? Or is this an anomaly in your mind? And secondly, given the fact that it looks like you've got an increase of about $5.9 million in backlog carrying over to the first quarter, would you normally have a -- well, are you going to have a seasonally stronger first quarter because of that carryover and so we should expect something a little more than 20 to 21% of sales in Q1 of your full year total?

Well, let me talk first to the orders growth piece. Obviously, we are very pleased with that growth in the fourth quarter. This is the proverbial question of is the hockey stick finally here? And you probably know I'm never going to answer that one until I see it for multiple quarters in a row. I do feel like -- there are two things driving that. Number one, there is just the general strength in the market across the board that we talked about.

It is also a factor of the sales and marketing team really executing well. You've got the people that we added in the fourth quarter of 2005 are now really becoming fully productive, given that 12 month learning curve that we have for them, and you have a sales and marketing team that just generally gets better each day with how they approach the customer, the techniques that they use, the return on investment dialog that we're able to have with the customers gets stronger each day, and obviously that's helping a piece of it, as well.

In terms of the impact on the first quarter, I'm not going to say that we have any impact, necessarily, in the first quarter to say that it would change the normalized profile. I'm going to continue to say that on average you'd expect 20% of our sales in the first quarter, 25% in each of the second and third, and then roughly 30%, give or take, in the fourth. I think it's too early to determine if that is going to be any sort of shift just purely because of the increased backlog going into Q1. Obviously it's a possibility.

Okay. Final question, if you look back at '04, you had a 15% operating margin, which was obviously a nice level vis-à-vis where we've been the last year or two. What would it take to get back to that level? I mean, is it just continuing to grow the company to leverage the operating expense base and the elimination of litigation? And could you hit that at a run rate basis by the end of '07 here? Or might that be something that could be achievable in '08?

I won't predict when we'll hit it, Mark, obviously. We really will stick to the predications at top line and gross margin only. You're correct on two out of the three driving it, which is, obviously, just purely sales growth and eliminating many of the one time-type expenditures that we saw in 2006. The third driver certainly is continued leverage of the sales force. The more they sell, the more the variable portion of the cost equation kicks in and the leverage -- and that is getting leverage out of that team specifically.

Okay, and finally then, the headcount was obviously down year-over-year, which is -- helps obviously on the leveraging front. What are you goals for '07 relative to absolute headcount?

I think, certainly, you're going to see some increases. To see it come in at 7 or 8% type of increase is probably realistic to expect at this point. We do have a very controlled process internally for adding heads. They need to be a good, strategic fit, or a tactical fit. We obviously put a lot of credence on the sales and marketing side to make sure that we are putting people in the right places to continue capturing that market strength that we see out there. And then we only added -- obviously, there's a little bit of variability in the production side as growth increases. And on the base cost side, we are extraordinarily selective on where we add there, because that is one of the key areas that you should always be getting leverage in any type of growth environment.

Thanks, Jay, Keith.

Thanks, Mark.

We'll take our next question from Rob Mason with R.W. Baird.

Okay, Jay, sticking with the leverage theme, as I look at your sales and marketing expenses in the quarter as a percent of sales, they were up sequentially. Given that we had higher sales base to work from, I'm a little -- that was a little bit higher than we expected. What were the drivers behind that higher sales and marketing spend, again, as a percent of sales?

Yes, there were two key drives in the fourth quarter, specifically. One was tradeshows in Europe, specifically. We participated in over ten tradeshows just in the fourth quarter, which was a combination of some demand for Q4 and also lining things up going into Q1 and Q2. We also had some very specific marketing programs that were not inconsequential dollar-wise related to the laser scanner. One of the things we had done during the course of this year was not only staff that team, but we actually -- we staffed in a few different locations to make sure we had the right people as we learned more and more about how to sell the product. And once we had all the right people on the bus, then we wanted to make sure we put the right marketing programs behind it. And it really was -- it was those two pieces that drove it up in the fourth quarter.

If you looked at the variables pieces of just the account managers and the inside sales people that support it, that was sequentially down percentage-wise, and I know we don't split that out in raw dollars for everybody, but I can tell you that the variable piece was down sequentially. It was the marketing piece based on our decision to push forward with those two items.

Okay, would that be a level, the marketing piece, is that a level that you would expect to maintain?

I think from a -- where the marketing piece from a percentage standpoint, it's probably -- you'll see a little bit of fluctuation quarter-to-quarter, depending on the activities. It will come down a little bit, go back up a little bit. I think generally speaking that's probably a decent level for now. We will still continue to see leverage of the variable side of the equation. Obviously when you talk about 20 to 25% growth in 2007, you're going to see sales leverage coming out of the account managers and the ISSs that support that growth.

Okay, and then on the account manager front, you mentioned end of year headcount at 123. Is that correct?

Yes, that's correct.

If I look at -- if my math is correct, you're down 20 from the third quarter?

Yes.

And what drove that?

Mostly timing of -- we had some departures. As we've talked about before, particularly on the account manager side, we've had, at times, turnover that can be as high as 20%, most of it -- given that we have a highly leveraging variable comp plan where people are paid pure commission in all of our regions, that does tend to drive a slightly higher turnover number than you might see in the, say, anybody who's in the base cost side of the business. So you've got the timing of some of those folks coming out and backfilling. The backfills still take a little bit of time. It is a very tight labor market, and we do tend to be very selective in adding the right individuals to the team to make sure that we have the best shot at success going right out of the gate with them.

Okay, so as you look at your sales guidance for '07 of 20 to 25%, what would be, generally speaking, the account manager population that underpins that?

Well, I won't give a specific growth target for the account managers by themself. I -- generally speaking, we're going to add 7 to 8%, maybe even 9%, to the headcount in total, and obviously, we put more effort into adding on the sales and marketing side where we can really pick up additional account coverage. So you might see a slightly higher rate on the sales and marketing side than you would in some of the other areas.

Okay, and then just a couple of housekeeping items. Could you give us the FX impact in Q4 both, I guess, at the sales and EBIT or EPS line?

Yes, I'll let Keith talk to that one.

In Q4 it was less than 1% in Q4, and for the entire year it was not even measurable.

Okay, less than 1 -- well, positive, though, in Q4?

Yes.

Okay. And then do you have a DSO target for '07 given that that is up so substantially year-over-year? Is that just a function -- I mean, are we content that that's going to stay at that level? Or will there be some movement to try to bring that downward irrespective of our sales mix?

Yes, as Europe becomes -- and Asia becomes a bigger percentage of our total sales mix, you're going to see that DSO probably in the 90 to 95 day range. I think it's a little bit higher, because it's just how our sales occur throughout the quarter, especially in the month of December. But we're shooting for roughly the 90 to 95 range.

Okay, thank you.

Thanks, Rob.

We'll take our next question from [Jim Bradshaw] with [Bayers Capital Management].

Good morning.

Good morning, Jim.

I was wondering if you could speak a little bit about the pressure on -- any pricing pressure on any of your products.

Generally speaking, I see this right now as I think pricing is favorable for the company at the moment. Given that the return on investment is so rapid on most of our products -- I mean, it's not uncommon to see a return on investment for an Arm being six or seven weeks. I mean, it's not the norm, obviously, but it's not uncommon either, and maybe 11 to 12 weeks on the laser tracker. Even if the return on investment takes you upwards of nine to ten months to a year, it's still fairly easy to have the dialog with our customers about what that value is that they bring. And so the dialog tends to be more focused on what the product can do for the customer in reducing crap, reducing rework.

I won't say that there's not price pressure, obviously, in the marketplace, generally speaking. I mean, we do have a competitor out there that's pushing their product around the world, also. But we tend to be fairly focused. Our sales team, obviously, they're all 100% variable comp. So their desire to move on price a whole lot is fairly minimal, because it's coming straight out of their pocket on the commission side. And again, given that most of our customers now do see the value in the product and the return on investment that they can get, that there tends to be a little less pressure on it from that regard.

Okay, how much leeway do you give the sales folks on price?

The team in the field has up to 10%. Anything above that has to come back to headquarters.

Okay, and then relative to the fairly large difference in orders and sales growth, is that to do, again, with the Europe and Asia stuff and the DSOs going up and that kind of thing?

No, I mean, I think the biggest difference is you have -- part of our cycle, obviously, is heavily, like many CapEx companies, you do a lot of your sales the last two weeks of a quarter. You know, the last month of the quarter can be as much as 50% of the entire quarter's sales, and most of that's occurring the last two weeks. What we also see in many cases is -- and we saw this particularly, actually in the Americas was probably the lead driver on this -- is customers placed the order, but then they don't have demand for the equipment until mid to late January, and that does drive, artificially, some backlog.

So it's not necessarily an issue of being able to deliver, because we do build to a forecast, and we've got the ability to deliver. In some cases we can ship it the same day when the order comes in. It's mostly defined by the customer saying, 'I want to place the order now, but I'm not going to need it until January.' And obviously, our goal is to serve the customer with whatever their needs are.

Okay, and lastly, do you see anything capacity-wise going into '07?

In terms of constraints on our own capacity?

Yes.

We do not. 2007 capacity-wise looks strong around the world.

Okay, when do you think you may end up having to expand then?

I think the nearest term would be in Lake Mary, specifically, where we produce the Arm product today for both distribution direct to the U.S., as well as we provide components to Switzerland and Singapore for distribution over there. I think we're still, from an absolute demand standpoint, it could go at least a couple of years. It really will depend on what we want to do strategically with the location in Lake Mary. I mean, we don't run double shift -- second shift anywhere around the world. So even if you came into a capacity constraint, the easy answer, which is never the best one, but you could always go to second shift, if you had to, and open your capacity again just by doing that. So we do have a lot of flexibility there.

Okay, great. Thanks for your time.

Thank you.

We'll take our next question from [John Emrich] with [Ironworks Capital].

Thanks a lot. Two unrelated questions, if I could ask them separately. One, I know you want to just guide to revenue and gross margin, but I believe sometime in the last few months there was kind of a fundamental change to the better in the outlook for your tax rate. Could you just provide us some color on the tax rate for '07 versus '06?

Sure, in the third quarter of '06, we received a favorable tax holiday from the Singapore government for a period of four years a 0% rate, and that's retroactive to January 1, 2006. That's primarily the largest driver. We also have a very favorable tax rate in Switzerland, and those two are primarily the largest drivers of the low tax rate in '07 -- in '06 and going forward into '07.

So is the right number 20% for next year?

Yes, I think that's a fairly good number to use.

And the second question was the -- two parts to it -- the $1.5 million combined for patent litigation and FCPA expense, could you break it out how much was patent litigation and how much was the China issue?

Sure. $200,000 was the China issue, and $1.3 was the patent.

And lastly, just because I'm doing this from a hotel room, I missed you commentary on the outlook for those two expenses, just kind of broadly speaking, in the coming quarters.

Well, the litigation, it depends on the speed of the retrial and if there's any appeals or anything like that, but I would expect it could be roughly $1 million. As far as the FCPA is concerned, I expect it to be less than $1 million, probably about $0.5 million.

And that's for what -- for '07?

Yes.

For the full year?

Yes.

Gotcha, perfect. Thank you very much.

Thanks, John.

And we'll take our next question from Jed Dorsheimer with Canaccord Adams.

Hi, thanks. First question is, Jay, composition of bookings, is that pretty consistent with the sales? And then second question -- I'm going through a tunnel here, so I might lose you -- with respect to the [inaudible] ramp, do you start to see any [technical difficulty]?

I'm sorry, Jed. We did lose you on the very end of that question.

I'm sorry, Jed. I think we may have just lost him. Operator, he'll probably call back in.

Okay, we'll take our next question from [Jeff Bass], who is a private investor.

Good morning, Jay.

Hey, Jeff.

I have two questions. Asia Pacific seems to be plateaued at the moment with both -- with sales productivity per employee and for account manager below your company average. Do you see that changing for the better in the near term or not?

Yes, I do see it changing for the better. Near term hard to say. It will be a work in progress throughout 2007. No question there. The sales team is clearly the least experienced in terms of time with FARO than the rest of the world. I mean, when you look at what we have in Asia, the bulk of that team has still been there less than a year, barring a few mainstays have been around for several years. So some of it is still product education.

Some of it is the sales process is a little different in Asia, and so we've had to make some modifications there to reflect culturally the way you need to approach the sales process. And a lot of it is just the training. We've gone through a significant revamp in product training for that sales team. We went through a new course in negotiating training with that team just over the last four weeks, and so I think it's a work in progress. It'll be both near term and long term, Jeff, that you'll see -- and it won't be a giant movement, I think, from an increase in productivity. It will be steady throughout the year and in through 2008, as well.

And with respect to laser scanner, you indicated the U.S., the special programs, marketing programs in the fourth quarter, do you still have the confidence you used to have on the large longer-term potential of that product?

Yes, I sure do. I still, obviously -- I'm still a little disappointed in the growth we've achieved so far, though I have tried to modify my view and realize that one is way back in the early-adopter phase, unlike the rest of our products. However, the long-term opportunity for that product is still substantial. I'm still 100% confident with the decision we made to get into that business, and I'm 100% confident with our decision to purchase that specific type of technology based on the speed with which it delivers its results.

I have something not related. I'll lay out another one. I was sort of intrigued by your remark about acquisitions, that it sounds as if you might have a focus on the companies that might add new technologies. In a general sense, do you feel comfortable with the completeness of the package you offer the measuring market at this time and any acquisition you make in the, let's say, the small new company area might be just like a fill in type of thing? Or do you feel that in XYZ area you really need to pick up something?

Yes. No, I feel 100% confident in the portfolio we have today. I feel that we have the best portfolio out there in terms of the total available package to any customer, and when you look at the suite of products, I believe our customers would feel the same way as well, so when I look at the new technologies, for me, it's looking at areas to continue expanding the profile versus enhancing something that we're already doing. And that's kind of the exciting part, and I do feel very confident that the existing portfolio can deliver that 20 to 25% growth over the next several years. And so that does give us that ability to look at some of the others to help do the expansion piece beyond what we do inside the normal portfolio.

Okay, thanks a lot.

Thanks, Jeff.

We'll take our next from [Bruce Jenkins] with [Sparpoint Research].

Thanks. Jay, can you give us any color on how you feel the laser scanning business is growing compared with the market there?

Well, we don't do any disclosures by product line in terms of actual number of units or percentage-wise in terms of growth percentage. So I'll tell you that we, obviously, have significant growth in the laser scanner, but that is a factor of both adding sales people and the fact that it's coming off of a much lower install base than the rest of our products, but we don't disclose any of our growth or our unit sales by product line.

Thanks.

[OPERATOR INSTRUCTIONS]

We'll take our next question from [Josh Farabou] with Canaccord Adams.

Hi, guys. I'm calling in for Jed. Two questions -- in the automotive segment, are there significant follow on orders? Or are the sales from that division coming from new customers or new orders there?

We're seeing the same strength there that we've always seen, which is a god thing. We do get a lot of questions, obviously, about the fact that we still have roughly 35% of our sales come from automotive at any given time. And what we're seeing -- there's two different things there that drive that. Number one is even when there is some difficulty in their industry, this is still, obviously, a productivity tool, and so the purchasing decision process may take a little bit longer, because they might no have the same CapEx freedom that they had say a year ago, if you took a company like a Ford. Let's just use that as the example. But they are still looking for ways to save money, and because we're already inside the facility, it's recognized as a productivity tool, and the time is spent looking for how to redeploy it elsewhere.

The other factor that you get is obviously now that we are really fully a global company, even when you have a little bit of difficulty, say there's some struggle in the U.S. market, if you were to experience that to the point where you felt it, which we are not feeling it, you'd have the offsetting effects of being eyeballs deep in Volkswagen or BMW -- both of them shot the lights out there year -- or eyeballs deep inside of a Toyota, too. So you get the balancing effect, as well.

Okay, and lastly, is the geographic composition of your bookings similar to that of that actual sales?

They are pretty similar, yes. I mean, you might see a percentage point here and there, but it's not like there's a dramatic swing in one versus the other.

Okay, that's it from me. I'll pass it on.

Thanks, Josh.

It appears that we have no further questions at this time. I will now turn the call back over the Jay Freeland.

Very good. Well, I just -- I want to thank everybody again for your participation today. I'd like to thank the entire team around the world for just an outstanding 2006. As a team we managed through a very trying and exciting year, and as I stated earlier in my remarks, the whole team did it without missing a beat. And I can assure the rest of the individuals on the phone and our investment community that you'll see the same passion and vigor in execution in 2007. And we look for another exciting year. So thanks for the participation, and we'll talk to you on the next call.

This concludes today's teleconference. You may disconnect at any time. Thank you, and have a great day.