FARO Technologies, Inc.

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Good day, everyone, and welcome to the Ferro Technologies first quarter 2025 earnings call. For opening remarks and introductions, I will now turn the call over to Michael Finari at Sapphire Investor Relations. Please go ahead.

Thank you. Good morning. With me today from Farrow are Peter Lau, President and Chief Executive Officer, and Matt Horwath, Chief Financial Officer. This morning, the company released its financial results for the first quarter of 2025. The related press release is available on Farrow's website at www.farrow.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 accept, 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'll find additional disclosures regarding these non-GAAP measures, including reconciliations to comparable GAAP measures. While not recognized under GAAP, management believes these non-GAAP financial measures provide investors with 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 Peter Lau.

Thank you, Mike. Good morning and welcome everyone to our call. In the first quarter, we again exceeded all of our targets. Revenue was $82.9 million, which was in the upper end of our guidance range. Non-GAAP gross margins were 57.7%, which was above the high end of our guidance range, and non-GAAP operating expenses were $38.5 million, which was at the low end of our guidance range. As a result, in the first quarter, we generated 33 cents of non-GAAP EPS, which was above the high end of our guidance range, the highest Q1 in our history, and represented the eighth straight quarter of exceeding our expectations. Operating cash flow was again positive in the quarter, representing our sixth straight quarter of operating cash flow generation. During 2024, we spoke at length about the three phases of Farrow's strategy to create shareholder value by focusing on our core business. The first phase was centered around operational excellence to rebuild our financial base and execute a strategic reset to align the company towards a more sustainable winning trajectory. The second phase was to capitalize on the strong operating leverage we built into the business in phase one by focusing on organic growth that is underpinned by high probability, low investment growth factors that are tightly aligned with our core strengths. The third phase of our growth strategy is focused on the outer years. As we continue to strengthen our net cash position, we'll look to make selective, higher risk, higher reward organic and inorganic investments that are within or closely adjacent to our core. With respect to phase one, quite simply, we're accomplishing everything that we set out to do and more. It was another outstanding operating quarter for our team here at Farrell. Our continued commitment to 80-20 within our operations enabled non-GAAP gross margins of 57.7%, expanding 590 basis points year over year, and proudly for us, 25 basis points sequentially above our seasonally strong fourth quarter. $12.5 million of EBITDA in the first quarter represents 840 basis points of year-over-year expansion and an impressive 124% year-over-year growth. At 15% EBITDA margin, we are squarely on pace to meet or exceed our 2025 objectives and our long-term aspirational model. We expect our phase one operational excellence initiatives to remain ongoing, and we continue to identify opportunities to further expand EBITDA and consistently generate positive earnings and cash flow. Our objective is to remain disciplined in our approach to capital allocation and continue to be prudent with cash and cash-based investments. Looking back to 2023 and 2024, our revenue performance was largely dictated by broader market conditions. During that period, we had prioritized our phase one initiatives and strategically reoriented our teams and their activities to take a focused 80-20 approach to seed our phase two organic growth factors. As a reminder, the growth factors we identified during this phase were to refresh our existing portfolio to drive market leadership and customer refresh cycles, to launch new products to increase our addressable opportunity by $800 million in the next three years, and to develop global partnerships to drive further scale and reach for the Ferro business. I'm quite pleased to report that Q1 was an inflection point for our business, as we saw many of these phase two opportunities contribute to our performance. And despite an unforeseen deterioration in the macro in Q1 due to tariff policy, our net orders in the first quarter grew by 6% year over year. We built backlog in the quarter, which gives us more confidence as we continue through the year. From a market perspective, in the first quarter, the underlying market remained similarly difficult to Q4, with incremental deterioration and strengthening between geographies. Overall, Q1 ended in line with what we expected, although the Americas was not as strong as expected, specifically Mexico, Canada, and the United States, as tariff-related uncertainty from the end of January all the way through March persisted. This was partially offset by the underlying economy in Europe strengthening, and we started to turn the corner with a return to growth in Asia, and in China in particular. Matt will talk more about how we see Q2 playing out when we explain guidance in just a few minutes. The other offset was our phase two growth factors. We've had a very busy six months in terms of our product refresh initiatives. As we discussed last quarter, we had three major releases in the fourth quarter. a new and improved arm with Quantum X, making it the most accurate arm in the market, the focus range of scanners, which have the longest range on the market, and our Orvis mobile scanner with the best SLAM and data quality on the market. In addition, in the first quarter, we had two major software launches with CAM2, our leading metrology software, and Zone, our leading public safety software. All of these launches are seeing strong early traction. driving revenue gains, accelerating customer upgrades, and contributing to our first quarter performance. The positive uptake we've seen thus far reinforces our conviction that product refreshes are an important lever in both defending and expanding our market position. Moving to our initiatives to expand the addressable opportunity that Farrow serves. In late January, we successfully launched LeapST to the market, and the receptivity has exceeded our expectations. In February and March, our teams generated meaningful revenue from this handheld metrology tool, and the pipeline of opportunities that we've created so far has exceeded our expectations. We look forward to converting those opportunities into revenue in the coming quarters. Building on the leap momentum, last week, we launched Ferro Blink to the market, a groundbreaking software-led solution with a scanner and 360-degree camera combination designed to democratize the global scanning market. Blink automates the complex process of capturing 3D models and delivering insights through our SphereXG cloud platform with just the touch of a button. Blink delivers high-quality scans and insights without requiring the expertise of an experienced operator, which can take years to acquire. The Blink solution will be sold by us as a hardware and a software bundle, and so far the response has been fantastic. Ahead of the April 15th launch, we began global training with our sellers and our global channel network, while also conducting private demonstrations for select end users under NDA, and the early reception has exceeded expectations with close to $1 million in pre-orders ahead of the launch. We're one year into our three-year journey, but with Leap and Blink, we have now executed on over 60% of our SAM expansion targets. With a revamped new product strategy and our expectation of more launches in the coming quarters and years ahead, we feel really good about the pace of our product launches and the receptivity they're gaining in the market. To help put our new product launch cadence into perspective, between our core refresh initiatives and our SAM expansion strategy, we've now had seven major product launches in the last six months. That's more than we did over almost five of the previous years combined. It's a clear testament to our strategy of strengthening our core and how applying 80-20 principles is allowing us to deliver more impactful solutions in a more efficient manner. We will continue to stay committed to accelerating innovation and investing in solutions growth. Finally, our partnership growth vector continues to show great promise. As we discussed in our last earnings call, in January we signed two major global partnership agreements, each expected to contribute low-aid figures in revenue on an annual basis. In the first quarter, one of those partnerships has already begun to contribute to our orders and revenue, with both partnerships expected to contribute to our order book in the second quarter. The partnership on our digital reality solutions is off and running, with the TopCon product being launched to their customers in April. As a reminder, the Metrology partnership and product launch is not yet publicly announced, and we don't expect that partner to announce until the fourth quarter of this year. But moving forward, we're actively managing a handful of other promising new partnership opportunities, in addition to expansion of more solution into the existing partnerships. We hope to announce either another new meaningful partnership or a meaningful expansion to an existing partnership still this year. We feel comfortable that we've established appropriate swim lanes with these partnerships and expect them all to be win-win scenarios for all parties. With respect to phase two, we're accomplishing everything that we set out to do across all three growth vectors with more opportunities still to come in our pipeline. Before turning the call over to Matt, I want to address the topic currently on everyone's mind, tariffs, and the expected impacts we believe that tariff policy will have on Farrow's business. I want to start by reminding folks about a few key points related to Farrow. First, Farrow's business model is attractive in that approximately one-third of our revenue comes from software and localized services which are not affected by tariffs. Second, FARO has extremely high contribution margins, so we believe the effect of tariffs on our cost of goods sold is manageable. And third, only approximately 40% of our revenue runs to the United States. As most of you know, we manufacture all of our hardware in Thailand. In terms of the direct impact of tariffs, the rough framework would be revenue multiplied by the percent of our business that's hardware, multiplied by the percent of cost of goods sold in our contribution margin, multiplied by the percent of our business shipped to the United States, multiplied by the percent tariff rate for Thailand. To put it in absolute dollars, a 36% reciprocal tariff on Thailand at our current revenue has about a $9 million impact to gross margin. If we then add some of the accessories we source from other countries, the total impact comes to $10 million or 2.9% of our 2024 revenue. If the final reciprocal tariff rate on Thailand remains 36%, we would expect to cover the full impact with a low single digit price increase. In the near term, Given the 10% blanket tariff currently in place, in early April, we enacted a 1% price increase to cover the impact as we await the conclusion of negotiations. While we're unsure now of the final outcome post-negotiations, we've already analyzed our business. We have the infrastructure in place to go live with a price increase within two days once we know the final rate. In terms of our ability to pass a long price, we generally feel positive about it as our products are high tech at a relatively low capital equipment price point, which results in low price elasticity. With that said, we'll continue to monitor the health of the market and review our discount rates daily to control potential price leakage. Additionally, as I spoke about on the Q4 earnings call, we're actively assessing the option to repatriate US-bound portion of our production to the US in a strategic move to mitigate long-term exposure. As a reminder, we already have 11 localized service centers around the world that service our installed base equipment daily. Because we service our products, all of these centers already have all of the necessary equipment to manufacture and test our products, and we believe we can stand up localized manufacturing in the United States in less than six months with minimal to no investment. Once tariff rates are finalized, within a week we'll be able to complete our modeling on items like tariffs and shipping costs on components between various countries that determine the economic viability of localization. Remember, though, this would be in addition to the price increase that we intend to execute to fully offset the gross margin dollar impact. Furthermore, we're already taking action where possible. As an example, today we ship all of our goods for sales in Latin America through the United States, and we're working with Sammina to change that process. Sandmina will ship directly to our entities in Latin America, further reducing our tariff base from 40% of revenue to approximately 30% of revenue, which will reduce the total impact of tariffs. Again, this will be in addition to the price increase to fully offset the gross margin impact. Last, we'll continue to monitor the broader demand environment. So far, in its early days in Q2, But so far, demand is outpacing Q1 and approximately flat to the prior year. As our products are lower capital cost solutions and often required to run customers' facilities, we believe the near-term demand impacts of the broader macro may be more muted for us than larger capital projects like building new product lines. Nevertheless, we've evaluated several demand sensitivities and already have cost reduction plans in place to preserve cash and profitability for each of these scenarios. In summary, we have plans in place ready to execute once we have clarity on the final tariff rates and believe we're well prepared to continue to create the kind of shareholder that you've come to expect from us across multiple different scenarios in the short term. Looking further ahead, we believe that tariffs may become a net positive for our business. as companies accelerate near-shoring initiatives and look to diversify their supply chains. Overall, we feel very well prepared for multiple direct and indirect tariffs related to scenarios, and we're extremely pleased with how we've started 2025. All metrics exceeded our expectations, And we're beginning to see the results of the groundwork laid on our phase two growth factors through new product introductions and expanded strategic partnerships. With even more opportunities in the pipeline, we're confident in the strength of our strategy, our operating model, our business model, and our ability to drive continued shareholder value and above market revenue growth. With that, I'm going to turn the call over to Matt to provide an overview of our first quarter financial results and an in-depth second quarter outlook.

Thank you, Peter, and good morning, everyone. First quarter revenue of $82.9 million was down 2% versus prior year. Geographically, the Americas and European regions were down 3% and 1%, respectively, while in the Asia-Pacific region, we experienced growth of 1%. On a constant currency basis, revenue was up year over year for the first time since Q2 2023, and as Peter alluded to, we built some backlog in the first quarter. Gap gross margin was 57%, and non-gap gross margin was 57.7% for the first quarter of 2025 compared to 51.8% in 2024. In the first quarter, 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. As a result, non-GAAP gross margin increased over 25 basis points sequentially versus our seasonally strong Q4 and marked the highest quarterly level since 2018. GAAP operating expenses were $43.4 million and included $4.4 million in acquisition-related intangible amortization and stock compensation expenses and $513,000 in restructuring and other costs. Non-GAAP operating expense of $38.5 million was down $2.2 million from Q1 last year as we continue to realize productivity improvements and a benefit from the restructuring program implemented in Q4 of last year. As a reminder, regarding our restructuring program, it is our intention to reinvest some of those savings in higher growth regions throughout 2025. Partially offsetting this, we will continue to look for productivity opportunities. GAAP operating income was $3.8 million in the first quarter of 2025, compared with an operating loss of $5.3 million in the first quarter of 2024. Non-GAAP operating income was $9.3 million in the first quarter of 2025 compared to $3 million in the first quarter of 2024. Adjusted EBITDA was $12.5 million, or 15% of sales, compared to $5.6 million in the first quarter of 2024. Our gap net income was $906,000, or 5 cents per share. Our non-gap net income was $6.4 million, or 33 cents per share, for the first quarter of 2025, compared to approximately $1.7 million, or 9 cents per share, in Q1 2024. Our cash and short-term investment balance at the end of the quarter was $102.6 million, up $3.9 million sequentially. During the quarter, we continued to execute on our collections and working capital initiatives, and based on current market conditions, we expect positive adjusted free cash flow for 2025. It is clear that the broader macro environment remains choppy. In Q1, we saw softness in the Americas region, largely due to the uncertainty around tariff policy, which we expect to continue and ultimately affect other regions across the world. I want to provide more details than normal to our Q2 guidance given the current environment. Given the current uncertainty around the ongoing tariff policy discussions, we expect to see the market continue to worsen in Q2. From a guidance perspective, we are assuming that the market for our hardware revenue to be down 10% year over year. We expect our operating expense to rise at current foreign exchange rates, and we expect there to be some negative impact of tariff costs in our gross margins. However, we have a lot of opportunities resulting from the strong strategic execution Peter discussed earlier. From a top-line perspective, we expect a normal mid-single-digit increase in seasonality from Q1 to Q2, independent of the broader macro environment. We have our previously announced partnerships that will contribute to Q2 revenue. We are forecasting an acceleration from leap that we launched in late January, and we launched blank last week, and receptivity has been very strong. We have the seven new product refreshes that we launched over the last six months, and we expect foreign exchange to be a tailwind to revenue at current rates. Additionally, we implemented an incremental 1% price increase in April. And as Peter mentioned, we have an attractive business model that has approximately one-third in reoccurring revenue from our software and service businesses that provides us with good visibility and high confidence into a meaningful portion of our revenue. In addition to those tailwinds, we have built some backlog in the first quarter that we believe helps solidify our outlook for Q2. From a gross margin standpoint, we have our localization program continuing to deliver incremental benefits, the January and April price increases, and benefits from current foreign exchange rates versus Q1. On top of that, as Peter described, we're taking immediate action and planning in this uncertain environment. Given the long list of puts and takes, we believe it's prudent to remain thoughtful and measured as we set expectations. With regards to revenue, we expect that the 10% year-over-year decline in the hardware market will be largely offset by the normal seasonality and contributions from our growth initiatives. As a result, at present foreign exchange rates, we expect second quarter revenue of between $79 million and $87 million, which represents a nominal year-over-year growth rate at the midpoint. At those revenue levels, and given our strong Q1 operating baseline and the puts and takes I just outlined, corresponding non-GAAP gross margin between 57% and 58.5%, and non-GAAP operating expenses of between $38.5 million and $40.5 million. When taken together, we would expect non-GAAP earnings per share ranging from $0.20 per share to $0.40 per share for second quarter profitability. This concludes our prepared remarks, and at this time, we'd be pleased to take your questions.

Thank you. And at this time, if you would like to ask a question, please press the star and 1 on your telephone keypad. You may remove yourself from the queue at any time by pressing star 2. Once again, that is star and 1 to ask a question. And your first question comes from the line of Jim Ricciuti with Needham & Company. Please go ahead.

Thanks. Good morning. Just a question as to how you're thinking about the hardware business shaping up for Q2. And I guess where I'm going with this is historically, Farrow has gotten a larger slug of revenues late in the quarter. And so when we think about what occurred in Q1, have you enough information and data to get you comfortable with that kind of a scenario? Because I'm trying to understand, you know, what you're seeing from customers across your major verticals and also, if you could, where you're seeing more noticeable changes in tone or expectations.

Yeah, Jim, thanks for the question. And I think You know, just going back to Q1, and you're right, historically we see a lot of bookings and billings at the end of the quarter, and we saw that in March of this year. And we mentioned that we saw it, you know, specifically in the U.S. and Mexico and Canada. But despite that, right, despite the deterioration, which we didn't see, you know, we feel pretty good about our phase two growth factors. And, you know, it was really able to help us offset, you know, Q1. So as we cycle into Q2, as I mentioned the prepared comments, you know, so far, and it's early days in April, we're seeing about what we saw last year. And frankly, we're quite a bit ahead of what we saw, you know, our pacing in Q1. And so out of an abundance of caution, as Matt talked about in the guide, what we're seeing so far does not correlate to a down 10% in the hardware market. But relative to our guide, we assumed a down 10 hardware market, even though we're not seeing that you know, quite yet in April in Q2. And so, you know, if we continue on the pace that we're going and we don't see the downturn, you know, we think that the opportunity then would be, you know, against the guidance to be, you know, closer to the higher half of that guidance range. But again, you know, cautionary, we want to make sure that we don't stick our head in the sand and we're prepared for a downturn in the hardware market. in case it does show up like it did show up in, you know, in Q1, the Americas. And so from that perspective, we feel generally pretty comfortable with the guide. And I mean, I think in terms of what we're seeing is, you know, cautious optimism, I think, around the world, you know, that deals are going to get done. But we are seeing, like we saw in Q1, some people, you know, delay purchases. And again, that's okay, because we've built that really into the calculus for our second quarter guide.

Got it. Thanks for that. With respect to new products and the potential for that to be a tailwind for you guys, are you thinking more along the lines of that being a bigger tailwind, all else being equal on the macro side, in the second half as opposed to Q2? I guess where I'm going with this is how much of a tailwind is it in Q2, in the quarter we're in right now?

Yeah, no, no, it's a good question, Jim. And just as a reminder, right, we launched two of the new products, the new opportunity expansion products. LEAP happened in late January. And obviously, there's some time that it takes to get our teams enabled and customers demoing those products. And so, you know, with LEAP, we only really had two months in the first quarter, not all three months. And then if you throw in another four to six weeks of, you know, kind of, you know, getting up to speed, we really didn't see a lot from leap in q1 or as much as we would expect then cycling into q2 and then again in early q2 on april 15th we launched blink and and uh we've revamped our our product launch process such that we're in a position now to be under nda to be you know really kind of um um enabling our salespeople and our partners and end users. And we got close to a million dollars of pre-orders from Blink before we even launched it. So we feel that although Leap contributed to Q1 in a somewhat meaningful way, we expect acceleration from Leap and new Blink and thus our new products kind of as we cycle into Q2 and hopefully then for the rest of the year. Got it. Thank you, guys. Thanks Jim.

And once again, if you would like to ask a question, please press the star and one on your telephone keypad now. And you will have your next question from Greg Palm with Craig Hallam Capital Group. Please go ahead.

Yeah, thanks. You know, I'd like to I think I'm getting sick of congratulating you guys, but, you know, what you've been able to accomplish over the last, you know, call it year has been, you know, simply incredible. So job well done. Congrats.

Thank you, Greg. Good to hear you.

I'd like to just dig in a little bit more in kind of what you're seeing here and out there. And I'm not sure if we can just break it apart from kind of the core business and new products, but everybody's worried about the macro environment and tariffs and slowdown and what. And it doesn't sound like you're necessarily seeing any change in behavior, but just, you know, give us a little bit more like, you know, by end market, by product line, by geography, just exactly what you're seeing out there. Maybe that's a good place to start.

Yeah, yeah, Greg, it's a good question. And again, you know, we, you know, we're, we saw it, we did see it in Q1. And, you know, particularly in the first quarter, You know, in places like Mexico, Canada, and then, you know, towards the end of the quarter, more so in the United States. And, you know, if you kind of think through that and then back through the timeline of some of the tariff announcements, Canada and Mexico were almost immediate, you know, at the end of January. And we saw a slowdown. And then obviously with some of the auto and the steel-related tariffs, you know, we kind of saw it begin to accelerate in, you know, in March. And I think for us, our biggest end market is just general manufacturing, and that seems to be holding in there fairly well. Aerospace and defense, for us, seems to be holding in there fairly well. Automotive, of course, there's a lot of I would say uncertainty in automotive. And, you know, so we're seeing not just the big autos, but some of this, you know, the associated supply chains, the tier twos and the tier threes, you know, really just kind of taking a careful and a cautious approach to, you know, you know, to the uncertainty and what could be the future. And look, I think at this point, there's a lot of hope, I would say, that the tariffs are going to be largely negotiated and there's going to be a good outcome in these 90 days. But again, for Matt and I, hope's not a strategy, right? And so, you know, we are expecting or we are forecasting or we are planning for 10% hardware down market in Q2, despite the fact that we, and again, it's early days in April. We haven't seen it yet, okay? But there's definitely a possibility that it happens. And so, you know, we're planning for that. And look, as it gets As it potentially gets worse from here, as we talked about, we're already looking at strategies to repatriate some of our production, move around our global supply chain such that we're shipping direct to Latin America. We've got a couple of sensitivities on demand and what we would do from a cost standpoint to continue to deliver positive cash flow and you know, and earnings. And so, you know, look, I would say at this point right now, anything can happen, and we're planning for anything to happen in a bunch of different scenarios. And, you know, we'll look to continue to what I would say, you know, Germany is a good example of You know, automotive hasn't been strong there the last couple years, and we've pivoted a lot of our sales activities to, you know, defense and aerospace and general manufacturing, and we had a good result doing that in the first quarter. And so, you know, we'll continue to look for the pockets of the market that are strong and pivot our demand generation and our sales efforts, you know, into we'll follow the money both from an end market standpoint but also from a geographic standpoint.

Yep. I think we can all appreciate the prudent approach in this time. I'm curious as it relates to the order growth. I just want to make sure I'm clear on this. Was it a lot of you know, sort of last minute, you know, revenue? Was it building more of a backlog for second half deliveries? Because you obviously didn't, you know, the book to bill over one, you know, and it doesn't imply like you're going to ship it in Q2. So I'm just kind of curious where those orders are going to fall in terms of the revenue generation.

Yeah, I mean, I think, you know, for us it was, you know, orders that came in. You know, it wasn't like we meant to build backlog. We, you know, sometimes when orders come in late, it's hard to react. You know, when your forecasts aren't perfect and you've got a lot of different configurations for your products, you know, you kind of react the best that you can. You know, from a demand standpoint, you know, we see the second quarter, again, off to a decent start. You know, but again, we're forecasting that. And so, you know, our view on backlog is, you know, we're not counting on shipping down the backlog. We're, you know, implicit in our guide as a one-to-one book to bill. But, you know, if things take a turn for the worse, we did build a little bit of backlog. And as Matt said in the comments, it helps solidify, you know, kind of our outlook on Q2, even if the market deteriorates a little more than what we're already expecting.

Yep. Okay. And just last one in terms of the partnership. So it sounds like, you know, a product has already launched with Topcon. I was, you know, one of the things on my mind was just the environment we're in with the uncertainty. Does it, you know, delay any of the product launches or partnerships, but it doesn't sound like that's the case. So maybe you can just confirm that and yeah, I'll leave it there.

Yeah, no, that's a good, it's a good question. And I think, you know, Of course, the first question you would ask yourself is, does it delay? But when you step back and think about it, in times like these, if our partners are delivering more new products to their partners, it becomes a growth opportunity for them. And so as they think about it as a growth opportunity and as we think about it from expanding the partnership, we actually think maybe a down market would accelerate the desire of our partners to deliver more new products to their customers. And so, you know, we'll see how these things go. Again, we want to be thoughtful and measured around the partnerships. Make sure that we have the right swim lanes. Make sure that they're win-wins for, you know, for all partners. But, you know, in an environment like this, I generally tend to think that most companies would say more products launched to their customers is a net good thing, Greg.

Yeah, that's a good point. Okay, I will leave it there. Thanks.

Okay.

Thanks very much.

Thank you. And it appears that we have no further questions at this time. I will now turn the program back to Peter Lau for closing remarks.

Good. Thank you. So, look, on behalf of all of our colleagues at Ferro, I want to thank all of you for your interest. Despite a really challenging market, we continue to exceed our targets in all areas, and we're very excited about our progress. Our first quarter performance demonstrates the operational leverage that we've already built into the business. with gross margins, operating expenses, profitability, and cash flow all tracking ahead of plan. Our success so far gives us confidence as we continue to execute on the organic growth initiatives in the quarters ahead that we believe will be in a position to unlock short and long-term shareholder value. We look forward to sharing more about our progress and execution in the quarters ahead. This concludes our call today. Thank you very much again for your interest in FARO.

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