‘In two years, FARO would be different from what it is today’

‘In two years, FARO would be different from what it is today’

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Jay W. Freeland
Jay W. Freeland
President & CEO
FARO Technologies, USA

FARO Technologies aims to be a disruptive company in terms of technology and price. CEO Jay W. Freeland is upbeat about a double-digit growth in the next two years and hints at major acquisitions in coming times.

FARO is a leading laser scanner manufacturer today. How do you see yourself in the market?
We see ourselves as the world leader. Even though none of our competitors declare the number of units sold or their revenues from laser scanners, we are confident that we are the leader by a significant margin; not just in the sales of units but in terms of technology too. We believe we have the best performing units, which are also easy to use and are portable. Even in the price-points we have a significant advantage. We believe our advantages should help us grow further in the future. We recently released a new laser scanner (FARO Laser Scanner Focus3D X 330) that extended the range to 330 metres and added GPS functionality. This product is specifically targeted at the AEC (architecture, engineering and construction) marketplace.

Ever since you took over at FARO, the company has posted very positive results. Would you attribute it to your leadership skill, the people you have brought on board or has the marketplace changed?
I believe it is a combination of leadership and a very talented employee and management team. To be a successful company, strong leadership is a must, but it is not the only factor. Fortunately, our management team has been successful in hiring and retaining many good people throughout the organisation. We have always had a good team and we have continually enhanced and expanded its size in the last 10 years. Additionally, having great products and the technology to go along with it has been a big driver of our growth. I do not think the market has changed much. When you look at the metrology side of the business, it is still very under-penetrated in terms of application needs of the customer. The 3D documentation space is even more under-penetrated.

One of our goals is to be highly disruptive in terms of technology and price. Disruptive companies have always won the market. There are lot of different ways to be disruptive. For instance, the last-generation scanners — before we delivered the first true disruptive scanner FARO Laser Scanner Focus3D in 2010 — were big, expensive, hard to use and difficult to bring on to the field. Focus3D was an instant hit because of the ease of use, portability and price.

To really address the early popularity, we needed to bring price and technology together and expect to continue following this path going forward. We will continue to bring in new technology to simplify operations, reduce price and improve portability.

Leadership at the top, a great team, and a marketplace that is under-penetrated and willing to accept new technology are the three key factors that would contribute to our future success.

What are the current market trends that are shaping your business strategies?
AEC is a huge space which is not properly serviced by laser scanner manufacturers. It should be and will be looked at closely in the future. That is an opportunity of which we intend to take full advantage. The price point is another trend that we continue to drive as we intend to penetrate a vast majority of the market. In order to serve both ends of the market we need products and price points that are attractive. Features such as improved accuracy, range, ease of use, etc., will continue to be the prominent trends. The capturing and utilisation of the data should also become important distinguishing features. These would continue to improve with automated sketching, scanning, etc., so that the product can be used by lesser trained professionals. More and more companies will offer customers the ability to access data from a highly protected cloud network. There are customers who are already doing it. I believe there is going to be a shift in the engagement with data and that laser scanners will be the number one selling product for FARO at some point in the future.

We were assuming it is your highest selling product…
It is currently the second-highest selling product. It goes back and forth between the second and third place in our portfolio. The FaroArm, which is a high-precision measuring tool for the industry, is our number one product. The laser scanners — since the launch of the Focus3D range — very quickly went from being immaterial in our revenue to becoming number- two product over the span of three quarters. However, I am confident it will be number-one at some point in the future based on its growth trajectory and market potential. From a growth perspective, there are other sides of our business that are growing at double-digits as well. If other products were not growing at this pace, laser scanners would have become the top-selling product in a much lesser period.

What sets you apart from your competitors in this market? What is the secret behind the lower pricing?
Price is one factor that sets us apart. If all of the tactical changes we made to the device — to make it smaller and easier to use — would have been done without keeping the cost of manufacturing low, we would not have captured the market. It took us a lot of time to bring the price point down. When we acquired iQvolution, the plans were already in place for what later became the Focus3D scanner. Although the founders of the company had a vision of the product, they were not in a position to develop it. We looked at several laser scanning companies between 2002 and 2004 before settling on iQvolution. It took us a lot of creativity and work in the engineering phase to not only cut the cost but also cut the product’s size and weight. Now you can put a FARO laser scanner in a backpack and go. It is truly meant to be used in the field. Our goal is to make the best technology and offer it at the best price point.

FARO has always been best in serving its customers as a problem solving and product development organisation. As we grew, we kept on becoming more aggressive and attacking in the AEC and forensic space. This attitude is an integral part of our culture and will continue to be our approach going forward.

What verticals you are focusing on other than AEC?
We are highly focused on law enforcement and forensics. We are focused on spatial applications and are taking proactive steps to expand it. A lot of our customers are using our products for facility management, asset management, layout, etc. We also have customers in energy, and oil and gas sectors. Each segment by itself provides substantial opportunity for growth. The laser scanner alone is not going to replace all other equipment. AEC should be at least a billion-dollar opportunity, if all the problems are solved the right way. Nobody is there 100% yet. FARO believes forensics is a $400-million market opportunity. We have not been able to put a value yet to other industrial segments and are currently doing research on these markets to understand the customers, usage and the right technology they require.

Which are the geographies that interest you?
There is tremendous opportunity in the developed countries like the US, Germany, France, UK, Japan and China. We have a significant presence in China. A lot of our activities are clustered around the eastern sea board there. We believe China will provide us great experience. We are also seeing good opportunities in the Middle East market. Western Europe and North America, which were the traditional growth markets, will also continue to expand through new applications and markets.

Do you agree that the growing interest in 3D visualisation is said to have changed the laser scanning market?
Many government agencies and insurance companies are looking for 3D models of the properties that they are looking to insure. For instance, in the AEC sector in developed countries, much of it is not about new construction but developing a 3D model of an existing building, which may be used for facility planning, emergency planning, etc. We know that many facilities after construction do not match the actual blueprint. Therefore, 3D scanning can also be used as a starting point for redesigning building space. 3D technology has definitely developed and over the last couple of years, people have started thinking in three-dimensions. This has been a major driving factor in the laser scanning market.

Do you see laser scanning becoming a standard tool in the AEC market in the coming days?
Yes. It will not only be used in AEC but in significantly large number of other applications in the next two to three years. Some of the projects that are underway at FARO should be key enablers in this process. In forensics, it is going to be a more standard tool. It is being effectively used in court cases, and is becoming an accepted technology in proving a crime or moving violation. We expect lawyers, accident investigators, police, etc., will start using this technology more and more. The gaming industry too has started using this technology. EA Sports used our laser scanners to scan all the football stadiums for their NCAA football version this year to give gamers the look and feel of the well-known football grounds. In the field heritage preservation, we have seen customers in Rome scanning all the important artefacts.

While these are smaller market opportunities, each time somebody in the unexplored markets uses the equipment, it opens the eyes of a few other markets as well.

There is a trend in the larger geospatial industry towards complementing each other’s technologies and marketplaces instead of competing with each other. How do you see this happening?
It is important that technologies complement each other since we are trying to displace the existing technology with the newer ones. There is a huge gap between the applications for laser scanning which are used today, versus applications which should be used. We are confident that we should be able to achieve this. A laser scanner is not the only tool available but we will soon see that more and more industries will start adopting it as it makes the task easier. I would like every police officer to have a laser scanner. While this may be unrealistic, what is not unrealistic is the thought that at least each police district should have enough laser scanners to adequately serve their communities.

Has FARO been involved in such business partnerships?
We have been, but more from the sales perspective. That does not necessarily mean that our products are perfectly complementing their products. That was not necessarily the goal either. We have worked with Trimble and Topcon. With Topcon we had a distributor-to-distributor regional agreement, and with Trimble we had a global agreement for reselling our FARO Laser Scanner Focus3D, which was privately labelled for Trimble as a TX5 unit. We have not reached any definitive agreement for the new Focus3D X 330 or X 130. We are aggressively selling these products through our own channel and distributors. It is less about trying to set up a structure that is complementary and more about accessing the customer and solving their problems.

Didn’t it worry you that a Focus scanner wearing Trimble or Topcon colours would have given you head-to-head competition?
When Trimble was marketing the TX5, there were some instances where Topcon and Trimble had a head-to-head competition. But if you look at how their distribution network is spread across the world, each has got strength in different regions. However, there were places where there would have been an overlap. Going forward, for Focus3D X 330 and X 130, if we decide against working with Trimble on a global level, and instead work only at a distributor level, we should have a much better ability to steer the product away from head-to-head competition.

What according to you has been the biggest breakthrough in terms of technology in this market?
We are only focused on the terrestrial laser scanning processes and products since we feel that airborne has limited application. Taking spatial technology and merging it with speed, accuracy, image clarity and the form factor such as size, weight and integrated touch-screen has been the biggest breakthroughs in terms of market adoption. In addition, we continue to improve the products and the price points. Price points are tricky because there have been significant advancements in technology that we have made. For instance, there are lots of technical changes that we have made in the optics and the structural design.

FARO has been the driving force behind the movement in laser scanning marketplace. Even if you compare all our competitive products, they do not have the same size, features and price point advantages. If we had not taken the first step of introducing a disruptive technology like Focus3D and taken the next steps. I think laser scanning would still continue to be an interesting market but would have been predominantly limited to its early adopters. Keeping in mind the changes that would come with the products that are in the developments stages at FARO, I am confident those products will take the marketplace into a much broader bell-curve. It is all about access and getting it into the hands of the masses versus the smaller niche market.

Diversification is a buzzword these days with companies. Is FARO planning to diversify in terms of its product offerings or does it plan to stick to its core strength and continue innovating around that?
When we think about diversification, it starts with our vision, which is to be the world’s most trusted source in 3D measurement. Outside the 3D measurement market, we feel that there is a significant lower likelihood of diversification for us. But never say never.

That being said, the umbrella that we are currently functioning under is huge. Are there other technologies and innovative products under this umbrella that we are open to acquire or develop? We have been very open about the fact that we have been aggressively looking at potential acquisitions over the last year and half now. We have a large amount of cash on the balance sheet and zero debt, which means we have great flexibility to target acquisitions regardless of their size. If the technology fits in the umbrella and is potentially disruptive or problem solving, or complementary to something that we are doing — even if they have not developed the revenue stream yet. In the past, we have acquired companies which were in the early stages of developing a technology and helped them to complete those projects. My view is that it is not a matter of ”if” but a matter of “when”. If it’s 3D measurement, imaging or realisation, we will be interested in diversifying.

What innovations can we expect from FARO in the coming months?
We plan to do more work in the field of optical technologies. For example, there are few applications where customers would like to use optical technology but nobody is serving the market in the right way yet. There is a lot of focus from R&D or acquisition standpoint for optical technologies, which can be potentially applied in scanning as well. There is a lot on the software side, whether it is application layers that help improve the ease of use or solving the problem for the customer. There are some core underlined software opportunities focused at continued improvement in performance.

Where do you see FARO in two to five years from now?
We are highly confident about our ability to continuously grow our revenue in double-digits every year going forward, even without acquisitions. If we have acquisitions, we should or could accelerate that growth profile. In two years time, I expect FARO will be different from what we are today because we are not how we used to be two years ago. We have continued to grow and evolve and further penetrate in all market segments. We are fairly confident that we will be a billion-dollar revenue company in the future; we already have a market cap that is around a billion dollars. Whether that will take five years is hard to say but we expect it to be there before 10 years. And if we have inorganic growth through acquisitions, we might be there much sooner. In five years, I fully expect you will see us as a significantly bigger player in the AEC space. Not just in the niche applications but in much larger application uses too.