Faro Needham Presentation - January 8 2009
Author: jeffbas (posted on Investors Village board)
A solid, comprehensive They repeated their 5% penetration of a growing $3-5B market opportunity comment.
In the Q&A, they were asked about a protracted downturn relative to 2009. Jay's answer was as follows:
"We believe we can still grow in 2009, but we have also put together scenarios of flat to as bad as minus 20%
... keeping the company profitable in all of those scenarios." I really like a worst case scenario of breakeven.
They will continue to hire sales people, because of the 12-18 month cycle to develop account managers - unless things get really ugly - but very tight operations elsewhere.
Interestingly, they continue to say that the front end of the sales process - leads and demos - is still growing at 20-25%. It is the back end - closings - that has slowed down (as we know already).
They gave the parameters of their long term model again:
Sales growth - 20-25%
Gross Margin - 60-65%
Sales & Mktg - 25%
G & A - 10%
R & D - 5-7%
Tax Rate - 25% or less
To put some numbers to this:
- One year of zero followed by 5 years sales growth of 20%, starting from $200M, is $500M sales in 6 years.
- With 62% GM, 25% S&M, 10% G&A, 6% R&D, 24% taxes, you get $80M after tax income on $500M sales.
- That would be $4.00 per share on the 20M shares that might be outstanding then.
- At a conservative peak P/E of 25, that would give a target price of $100 in maybe half a dozen years. That would be about a 37% compound annual rate of return from $15 on the stock
Unless their long term model is out to lunch, I am very glad they have the buyback in place to take advantage of opportunities that might present themselves that would represent an outstanding long term investment for shareholders.
