Good morning, everyone, and welcome to FARO Technologies’ Fourth Quarter and Fiscal Year 2018 Earnings Release Conference Call. For opening remarks and introductions, I will now turn the call over to Chief Financial Officer, Bob Seidel. Please go ahead..

Thank you, and good morning, everyone. Yesterday after the market closed, we released our preliminary fourth quarter and fiscal year 2018 financial results. The financial information included in this call is preliminary as the company has not yet issued its audited financial statements and they differ from those results.

The press release is available on FARO’s website at www.faro.com. I would like to remind you that in order to help you understand the company and its result; management may make some forward-looking statements during the course of this call.

These statements can be identified by words, such as expect, will, believe, anticipate, plan, potential, continue, goals, objective, intent, may 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 set forth in yesterday’s press release and in the company’s Form 10-K for the year ended December 31, 2017 and Form 10-Q for the quarters ended March 31, 2018.

During the fourth quarter of 2018, we changed the name of our former 3D factory reporting segment to 3D manufacturing in order to better align with its focused applications and end markets. I will now turn the call over to Simon to provide an update for our business initiatives and afterwards will return with a review of our financial results.

After our prepared remarks, we will open the call for questions. .

Thanks, Bob, and good morning, everyone. We’ve made great progress in achieving our sales growth and operating margin objectives discussed here. In 2018, we delivered 425 million in new order bookings of 12.8% year-over-year and surpassing the $400 million mark in annual sales for the first time in our history.

We achieved double digit year-over-year sales growth in both 2017 and ’18. In addition, we took actions to improve our sales force efficiency throughout the year.

After hitting a low at 698,000 per dollar per FTE in sales in the first quarter of 2018 because of the aggressive sales force expansion, our trailing 12 months orders per sales FTE increased through 2018 to finish at 710,000 in the fourth quarter.

At the start of 2017, we outlined an aggressive sales headcount investment strategy to increase our sales force at mid-teens year-over-year growth rate. We aim to expand our channel to market by investing in the growth of our sales footprint across our new vertical markets and geographies.

We increased our sales headcount at this rate in both 2017 and ’18. Our sales headcount increased by 197 people or 37% from the end of 2016 to the end of 2018, focused initially on staffing our emerging verticals. We made progress in improving service margin in 2018, especially in the second half of the year.

Our service margin is an important to an increase in the overall growth margin. Every aspect of our service business was examined to streamline processes, incorporate engineering support on service repair processes and incorporate technology to better manage our customer calls without sacrificing customer satisfaction.

We are working on more initiatives to continue our increases to increase our service margin through our 50% plus objective from our trailing three year average of 44.3% and achieve 48.6% gross margin in Q4 of 2018. Recurring revenues are an important of establishing a profitable growth platform.

Service revenues are one of the two counts FARO is pursuing to develop its recurring revenue stream. Service revenues were approximately 93 million or 23% of sales in 2018 and are derived from the support of our installed base.

We’ve opened a new mobile service platform in 2018 called FARONow! providing real-time relationships with all our users and already have over 14,500 registered users on this essential portal.

The portal provides all the tools to manage users FARO solutions including warranty and services, software licenses and provides a direct path for communicating important news to our customer base. Recurring revenues from software subscriptions is our second major initiative to drive a recurring revenue base.

FARO is moving aggressively to continuous deployment of all its software products and consistent with worldwide trends in software delivery, all software products are being converted to subscription only.

This ensures that all users will be on the latest product ensuring reliability and productivity for the client and a regular relationship management of all FARO customers. FARO considers its installed base of users as one of its most important assets and intends to pursue every available tool to improve those relationships and drive customer loyalty.

Sales through existing customer represent 79% of 2018 sale underlying the importance of this operating principle.

Since returning as CEO over three years ago, my top priority was to reinforce FARO as the technology leader in 3D measurement and imaging solutions in our chosen verticals, while also upgrading every operational system and globally harmonizing operations.

We first focused on getting our new next generation primary platform products to market with urgency. We redesigned our entire product development process from drawing board to customer, so that it is consistent and repeatable process facilitating our new product, drumbeat.

In 2018, we introduced 14 new products even after a highly active new product development effort in 2017. To be the technology leader, we must have a world class new product development process instilled in the organization and fueled by an entrepreneurial spirit.

Each function made strides to better leverage information technology in order to streamline its processes and become more efficient as sales continue to grow at mid-teens rates. We started our FARO Best! lean initiative to focus every employee on operational pinpoints and their elimination.

Since 2002, we have sold products and related services to the US government under the General Services Administration or GSA contracts. Unfortunately, of late in the fourth quarter of 2018, during an internal review, we preliminarily determined that we may have over charged the government under these contracts.

Sales to the government under the contracts represent only 3.5% of our total sales for 2019 or ’18 rather. Nevertheless, we take our GSA contract compliance responsibilities very seriously. We reported the potential non-compliance of the GSA in its Office of Inspector General on February 14, 2019.

As a result of our preliminary review for the fourth quarter of 2018, we reduced our total sales by $4.8 million estimated cumulative sales adjustment, represented of the last six years of estimated overcharges to the government under the contracts. We engaged outside counsel to assist us through the reporting enquiries and remediation process.

After market closed yesterday, we filed an 8-K to more fully describe the matter and potential financial risk to the company as we worked a resolution. Until this matter is fully resolved, we will bear legal and related costs in connection with the government’s review of this matter.

We believe that FARO’s strong balance sheet and serious compliance mindset will allow us to affectively resolve this GSA matter.

We intend to resolve this matter while sustaining our double digit sales growth, high gross margin and product development and our continued mission to achieve double digit operating margin by the fourth quarter of this year.

Excluding the GSA matter, we achieved a strong operating margin in Q4 providing a strong directional indicator that our operating income goals are within reach. We plan to continue our sales growth by increasing our sales headcount by 15% linearly by quarter throughout 2019, similar to 2018.

The sales headcount additions will be focused on our construction BIM segment in order to pursue the growth in this market. We’ll also expand our 3D manufacturing sales headcount to support our expanding product portfolio and continue to grow the public safety and 3D design verticals as our product line in these two emerging verticals matures.

We continue to drive our gross margins towards our goal of 60% plus. Research and development has a strong emphasis on software development with over 12 applications supported by approximately 50% of our R&D headcount. High margin software sales and recurring subscription revenue will increasingly contribute to our product gross margin.

Our continued lean initiative institutionalized as FARO Best! is further contributing to our reduction in the operational and product cost in order to meet our gross margin objectives.

As I communicated in the last quarters’ earnings call our 2019 spending plan in marketing, general, administrative and research and development are budgeted to remain consistent with 2018. However, we may see higher general and administrative expenses with the recent announcement of our CEO succession and the GSA matter.

But we will be vigilant to maintain the base spending at near 2018 levels. I appreciate the support of our FARO global team in executing our vision to reorganize the company by verticals and establish new R&D processes to ensure FARO’s continued role as a technology leader in 3D measurement and imaging solutions.

I plan to continue to drive the business towards our 2019 operational objectives until I had the reigns of CEO to my successor.

We deeply appreciate the patience of our shareholders and the hard work of our employees around the world, and I’m proud of our accomplishments over the past three years and look forward for continued growth and a smooth leadership transition. I’ll now turn the call over to Bob. .

Thank you, Simon. As explained in yesterdays ‘earnings press release and Simon’s prepared remarks to account for the GSA matter, we reduced our total sales by 4.8 million at an estimated cumulative six year sales adjustment in the fourth quarter of 2018.

In addition for the fourth quarter of 2018, we recorded 0.5 million of imputed interest related to the GSA cumulative sales adjustment, which increased other expense and resulted in an estimated total liability of 5.3 million for the GSA matter.

This estimated liability is based on our preliminary review as of the day at yesterday’s earnings press release. Total sales were 112.8 million for the fourth quarter of 2018, an increase of 6.0%, as compared with 106.4 million for the fourth quarter of 2017.

Our sales increase was primarily driven by higher unit sales across all segments, higher average selling prices in our 3D manufacturing and reporting segment and total service revenue growth partially offset by the GSA cumulative sales adjustment.

New order bookings were 122.2 million for the fourth quarter of 2018, an increase of 10.5% as compared with 110.6 million for the fourth quarter of 2017.

With our trailing 12 months, new order bookings of 425.3 million and sales full time experience or FTE headcount at 599, our trailing 12 months orders per sales FTE metric was approximately 710,000, up 4,000 from the third quarter of 2018. Our trailing 12 months sales FTE increased by 13.0% from 530 at the end of 2017 to 599 at the end of 2018.

Our new order bookings year-over-year growth of 12.8% for 2018 provides support for our sales force growth strategy. Our historical trailing 12 months order per sales FTE by quarter is disclosed as supplemental data in yesterdays’ earnings press release.

In our 3D manufacturing segment, sales for the fourth quarter of 2018 was 75.6 million, an increase of 6.6% compared with 70.9 million for the same prior year period. We recorded a 3.0 million reduction to sales in this segment for the quarter related to the GSA cumulative sales adjustment.

The sales increases are mostly driven by an increase in unit sales, higher average selling prices and service revenue growth. In our construction BIM segment, sales for the fourth quarter of 2018 were 26.2 million, an increase of 1.7% compared with 25.8 million for the fourth quarter of 2017.

Our construction BIM sales fell short of our growth expectations for the quarter, reflecting weaker demand from our Americas and European customers, as well as chronic sales and exchanges and higher demo sales.

We remain positive on the long term growth expectations of this segment, as we continue to expand our product offerings and increase our sales headcount in 2019. In our emerging vertical segment, sales for the fourth quarter of 2018 were 11.0 million, an increase of 13.7% compared with 9.7 million for the fourth quarter of last year.

We recorded a 1.6 million reduction in sales in this segment for the quarter related to the GSA cumulative sales adjustment. The sales increase was primarily due to higher unit sales reflecting our expanded product portfolio and dedicated sales headcount investments.

Gross margin was 57.2% for the fourth quarter of 2018, down 1.1 percentage points as compared with 58.3% for the fourth quarter of 2017, reflecting higher average selling prices in our 3D manufacturing segment and improved service margin which were more than offset by the effects of the GSA cumulative sales adjustment.

Selling and marketing expenses were 30.8 million for the fourth quarter of 2018 and increase to 7.3% compared with 28.7 million for the fourth quarter of 2017. Selling and marketing expenses grew at approximately half the rate of new order bookings, demonstrating improved sales leverage.

This increase was driven mostly by our strategic investment in sales headcount and higher sales commissions due to our sales growth. Selling and marketing expenses as a percentage of sales were 27.3% for the fourth quarter of 2018, as compared with 26.9% for the same prior year period.

At the end of the fourth quarter of 2018, our ending sales takeout was 733, an increase of 102 or 16.2% compared with 631 at the end of the fourth quarter of 2017. General and administrative expenses for the fourth quarter of 2018 were 12.8 million, an increase of 16.8% compared with 10.9 million for the fourth quarter last year.

This increase was driven mainly by an increase in headcount and administrative expenses related to our recent acquisitions as well as cost associated with implementing the European Unions’ General Data Protection Regulation.

As a percentage of sales, general and administrative expenses were 11.3% for the fourth quarter of 2018, as compared with 10.3% for the same prior year period. For the fiscal year of 2018, general and administrative expenses as a percentage of sales decreased by 0.3 percentage points to 11.8% as compared with prior year.

Research and development expenses were 10.3 million for the fourth quarter of 2018, an increase of 16.9% compared with 8.8 million for the fourth quarter of 2017. This increase is mainly driven by higher engineering headcount related to our acquisitions and activities to accelerate our new product development.

Research and development expenses as a percentage of sales were 9.2% for the fourth quarter of 2018, as compared with 8.3% for the fourth quarter of 2017. For fiscal year 2017 and 2018, research and development expenses as a percentage of sales remained unchanged at 9.8%.

Our net income of 5.8 million or $0.33 per share for the fourth quarter of 2018 included a 1.0 million income tax benefit related to the finalizing of our transition tax under the US Tax Cuts and Jobs Act of 2017 and a 3.9 million unfavorable after tax impact of its GSA matter.

In conclusion, as we drive the business towards our long term financial objectives, we look at our fiscal year of 2018 performance as an important helpful measure of our progress. I would like to highlight our performance on several key operational metrics for our fiscal year 2018.

New order bookings were 425.3 million for 2018, up 12.8% year-over-year, consistent with our trailing 12 months sales FTE with year-over-year increase of 13%. Ending sales headcount increased by 102 or 16.2% consistent with our objective at the start of the year.

Our trailing 12 months orders per sales FTE ended 2018 at 710,000, driving upwards after reaching a low point of 698,000 in the first quarter. Sales were 403.6 million for 2018, up 11.8% year-over-year for a second consecutive year of double digit sales growth. Gross margin was 56.6% for 2018, consistent with prior year.

At the end of 2018, we maintained our strong balance sheet with cash and short term investments of 133.6 million of which 77.5 million was held by foreign subsidiaries and no debts. We greatly appreciate the support of our shareholders and the hard work of our employees around the world.

Thank you for your attendance on today’s call, and we will now open the call for questions through the start of market trading. .

[Operator Instructions] And we will take our first question from Greg Palm with Craig-Hallum Capital Group. Please go ahead..

Simon obviously congrats on your career here at FARO and obviously the most recent turnaround of the company, I know you’ll be missed. Maybe just curious you mentioned those operational objectives and I know you’ve had some pretty lofty fiscal year ’19 targets out there.

Once your comfort level in the company been able to get those or at least exit the year with a pathway for fiscal year ’20, I’m not sure if you can give us any color on that. .

Well I can by doing some of the calculations which expects you to do. I mean it was really unfortunate to have this GSA matter to cloud what were otherwise an incredible year and an incredible accomplishment. If you back that out, there’s about $0.22 of that GSA adjustment.

So we feel that the approximately $0.50 indicates that we are in a position to go after that double digit operating margin by the end of 2019. And although the little incremental fixes that are being made at every level, the devil’s in the details are all finally coming together to produce that kind of profit margin.

So, I’m still very upbeat on 2019 goals. .

And as it relates to the quarter specifically from an end market and geographic standpoint, any areas of strength or weakness that you want to call out? I know you gave a little bit of a color on mid-term, more looking for sort of specific end markets in geographic areas. .

Well as you probably heard there’s a lot of noise in the automotive markets, there are plants being closed and there are geographical movements, we hear things like that we are going to China and other matters of that type.

So there is some disruptive activity, there’s also a lot of new smaller manufacturers coming in, for example in to the electric car market. So that could be compensated for in some way.

There is a tremendous demand in the aerospace worldwide, but there’s also consolidation and changes as Airbus as you heard is getting rid of one of its (inaudible), its Jumbo and I think that we’re going to see pluses and minuses in different parts of the world.

There’s a lot of economic disruption because of the trade conversations that are going on, so that’s having temporary impacts on different markets and different places. But in general we’re very upbeat the overall demand for the product continues and it’s reflected in our growth in the year. .

This is Bob. One of the high points for us though this year has been really our Asia Pacific region has done very well. It is about 16% year-over-year growth for the full year, and a very strong Q4. Japan was strong for us and certainly as Simon indicated about the trade discussions that you see going on in the market.

We’re still at a very strong Q4 and APAC for Asia Pacific region. So certainly that was a strong point for us. .

Our next question will come from Ben Rose with Battle Road Research. Please go ahead..

Want to start off with a few questions, could you talk about perhaps how large the US government vertical is overall in the context of the business?.

So we sell to the GSA contract through a couple of schedules, one relating to the public safety and one relating primarily to the industrial 3D manufacturing segment. As we indicated, total sales between those two schedules are approximately 3% of 2018 sales.

So, they are important, we take our compliance extremely seriously, however as you can tell they don’t represent a huge piece of our sales. .

And with regard to the services gross margin and improvement during the quarter, which was quite impressive.

How sustainable/capable of being improved is that as we move in to the rest of 2019?.

We absolutely believe that it’s all starting to come together. We think that the 50% plus is definitely achievable.

As you know the services represents around 23% of our sales, so any four point increase in service margin is a one point to the company gross margin, and it will definitely (inaudible) we think it’s sustainable and actually beyond the short term of 50 plus. So, we are quite upbeat about that. .

Our next question will come from Hendi Susanto with G Research. Please go ahead..

First question is with regard to the GSA matter reduction of 4.8 million in sales, may I inquire what the split between products and services? And I think you may have mentioned that in with segment reduction and quantified that when you talk about segments, but I think I missed that..

Sure. So first of all on the segment side, it was $3 million reduction to sales in our 3D manufacturing, 1.6 million reduction to sales in the emerging verticals, primarily related to the public safety vertical there and then also 0.2 million in our construction BIM segment. So 3.2, 1.6 equals to 4.8.

Then in terms of – so overall for that kind of frames it. In terms of product service split, very consistent with the rest of our business, you know about 75-25 spilt. We do not disclose specific numbers there, but it should be consistent with the rest of our normal business. .

And then Simon I have a question, I think you did lot of M&A during your recent leadership, and I’m wondering whether you would focus on integrating and then developing new products from acquisitions or whether you’re still actively looking for M&A in 2019?.

Well, we have the challenge that we’ve committed to trying to keep the 2018 expenses fairly flat, but that should not change our or 2019 expenses flat to 2018. But that shouldn’t change the momentum and the drumbeat that we also wanted to sustain around M&A.

So we do have an active plan to continue our M&A activities, but there are still holes in our product line particularly in emerging verticals that we think need addressing. But I think it would be reasonable to expect slight reduction in the activity in 2019 as we consolidate and take advantage of the acquisitions of 2018.

But I want to make the point that the M&A drumbeat is to continue. .

And then one last question from me, Simon you talked in the past about expansion in to 3D machine vision, and how should we expect 3D machine vision development and the initial dips in 2019?.

Well in 2019 I think you’re going to start to see a very clear marketing effort around the new sensors that we’ve introduced. We have the new Photonics vertical plus we have new sensors that we’ve introduced from the other research departments that we believe will make a contribution through integrators.

And so you’ll see a much higher profile for these standalone sensors and the sensor market for us. And these are the primary contributors to the 3G solutions efforts that we have in place. .

Our next question will come from Richard Eastman with Baird. Please go ahead..

Could I quickly ask just on that front, where is the search processes, and maybe is there a timeline related to that? I mean would you be – you and the Board be most comfortable if there was a new CEO in place by mid-year or what’s just the thought process around that search process?.

We are in the process. There are candidates being interviewed and reviewed and there is no – we can’t give any assurance as to when that will happen in the year, but I expect it to happen sometime in 2019. .

And then just a question around the headcount, I think you had mentioned the sales headcount target would be 15% of the 733. So I think that’s headcount additions of the 733 at year end would put you at about 843 I think that’s the straightaway math there.

And if the FTE equivalent is like 85% of that, then maybe FTE would be again similarly 15% or 16%. But the question that I might have for you is, would the 710 number, so the orders per FTE, would you expect to drive some productivity on that number the overall FTE number or would you be pleased if the 710 order per FTE number held.

How are you kind of viewing the productivity there in addition to the ads?.

Well we would not be satisfied with 710. We have many initiatives underway to increase that number. In fact that’s our primary leverage on sales growth. If we can increase that number you get the leverage times the 500 or 600 people at the FTE level. So it’s extremely important that we improve that number.

We were happy to get bounce off the bottom with all the hiring as we mentioned in the Q1 of ’18 and then come back. It has been as high as 780 and actually its much higher in some of the different vertical.

We don’t provide sales per FTE by segments, but I can tell you that there’s substance of variation and room for improvement particularly in the emerging verticals. .

I guess my thought is that if I just look at the FTE number and I assume that 710,000 orders per and then use a full year average, I probably get something in the neighborhood of 8% growth in orders just off of the FTE ads and so this is the balance that’s double digit, balance comes then from that productivity gain. .

If you take the 710 times the FTE and you increase the FTE by mid-teens, you’re going to get a mid-teens growth rate. Now, you could exceed mid-teens if you can get the 710 up. So any improvement in the 710 would be bonus on mid-teens sales growth that comes just from headcount is the way I would look at it. .

Do you feel that given some of the soft spots that you had flagged and maybe all that are visible or whether it’s the PMI numbers, whether its auto, whether EMEA or China.

Do you feel that the headcount growth will correlate; FTE growth will correlate kind of one for one or is the macro challenge picked up some here? Anything in the fourth quarter that you saw, the cadence of orders or anything that would suggest that macro might be a strong headwind to your FTE kind of projections to revenue?.

We’ve managed the risk of that eventuality by being in all the geographies and in multiple verticals. So you could have a little bit of up and down in one region and other, and so we started to mitigate that substantively that geographical as well industrial mix.

A lot of the headcount additions would be in the fastest growing verticals like BEM as well as the emerging, so that mitigates that risk too because we have such low penetration in those verticals, so I would expect that growth still to be realized there?.

I think you’ve probably heard this from other companies as well, certainly we report on a GAAP basis on translating to you at (inaudible) or foreign currencies.

We had a headwind of about 2% on our sales with effects in the fourth quarter and depending on what happened to different markets around the world, whether its India, whether its UK, we could face some translational pressure on our topline, similar kind of what you’ve heard from other Fortune 500 companies over the past few weeks as well as we move in to ’19..

Good point and I would think most of that would be in the first half. And then just --..

Rick I’m sorry, we’ve kind of limit the question. You’re welcome to drop back in on the queue and then we’re happy to take more of your questions. Forgive me for interrupting. .

Our next question will come from Andrew DeGasperi with Berenberg. Please go ahead. .

I guess my first one, you mentioned subscription revenue and you have a target of trying to grow that.

I’m just curious to know, do you have particular target in terms of exactly how much of installed base that it has, it’s not the subscription and what do you think is achievable target in the medium term?.

It’s a great question; I actually don’t have the number for you on the actual component or the subscription. As you know we were selling packages and so we have to be careful as we transition from upgrade sales of software to a subscription model because you can influence your revenue.

So every new software that we introduce in ’17 and ’18 has been introduced at a subscription level and then what we are doing we’re converting the existing sales of packages of software to a subscription level and we’re trying to do it in a systematic way so that we don’t disrupt overall revenues.

Remember also that, that’s somewhat mitigated by the fact that we have a large installed base. So as we convert, we can go in to the installed base and convert them to a subscription base to get them up to speed. I expect a very substantive element in the next 12 to 18 months be converted to subscription at all levels.

I wish I could be more definitive about the number, but it’s really hard to estimate. .

In 2018 we really had a minimal subscription revenue just because the products that we started with were some of our new or smaller of volume products that you really see kind of got shift more in the ’19..

And as a follow-up, just on the GSA matter, I know it’s still in the first stages and its preliminary in terms of the amount, but since we’re not too familiar with it, just curious to know has the government normally access on this and if so could it be proportional to the amount that was overcharged? Just if you can give us a little bit more color on that?.

Clearly as you pointed out it’s way too early to comment, but there can be as much as trouble damages depending on the issues that’s related to that.

We believe that we have done a good job explaining to the government and we’ll explain further to the government how we should not be assessed for those, but I think that’s really very much a function of the way the government reviews the case it’s hard to estimate. .

And after the market close we did an assignment indicated to have an 8-K, those kind of gives you some more background to our investors as point of potential risk, you may want to read that again. .

Our next question is a follow-up from Greg Palm with Craig-Hallum Capital. Please go ahead..

I want to go back to the FTE comment, because the growth in FTE at least by my [efforts] is tracked well below your actual sales and headcount growth over the past year.

So I guess if you plan on growing headcount by 15% this year, what you envision the corresponding growth rate at FTE?.

I’m not sure I understand the comment because when you say tracked well below, I mean as we said in our prepared comments we were approximately 13% at growth in the FTE headcount which tracked very well with the 12.8% in the new orders growth. Yes, it’s true that we – the actual headcount went up by 16.5%.

So there’s correlation and as was indicated by another caller, if you took about 0.85 of the FTE for the raw headcount you would get an idea of the FTE headcount. We do have deal with the turnover which is high around the world in the sales category, but we’ve been able to sustain generally a reasonable increase in the FTE headcount. .

I guess my comment was you had something along the lines of if we grow FTE by mid-teens at a similar rate to the headcount that would equate to a mid-teens growth rate, but I guess by math FTE didn’t grow anywhere near 15% this past year, may be I’m confused. .

If I take a look at the trailing 12 months sales of the FTE headcount which kind of correlates to what goes in to the calculation of our trailing 12 months orders for FTE, we were up 13% at 599 versus the 530, 599 of trailing 12 months FTE headcount in Q4 ’18 versus 530 in ’17.

One of the things that we’re certainly working on though is really on the retention side so that we are as we increase that headcount we are retaining more people in correlation kind of that Rick talked about between any sales headcount and sales FTE stays at a pretty high rate. But that would kind of be around my comments. .

Construction BIM, I know your large competitor, they’ve got some new products in that arena.

So curious if the weaker segment sales were at all competitively driven rather than just macro driven which is what I think your comments said?.

One of the pieces in that business for last year it was a very tough comp for us in Q4. We grew 47% last Q4, so certainly that was a tough comp. But then also I would say is we’re very much focused on trying to move some of our aged X series equipment which reduces our ASP or average selling price.

But certainly like it has been they enter the market with a new product and really what I would say how it affects us is more from the standpoint of having to go out to our customers and doing demo looks more – may be another demo to show our product is different from theirs.

But I would say it was more macro driven, sales mix driven and a tough comp from prior year. .

Our next question is also a follow-up from Andrew DeGasperi with Berenberg. .

I just wanted to ask a point of clarification, the operating margin with double digit target that assume the G&A expense going up for the CEO search and the GSA matter?.

No. On the operating margins being double digits we look to get there in to the fourth quarter, so our fourth quarter of ’19 being at double digits mid-teens level.

Really what we had (inaudible) was holding our G&A and other expenses such as marking R&D at 2018 levels outside of that as headwinds to our G&A would be the CEO search and any GSA counsellor or other cost. So that was not factored in. .

And there are no further questions at this time. So I’ll turn it back to the speakers for closing remarks. .

Thank you all for your attention today, and we look forward to an exciting 2019. Thank you again. .

This does conclude today’s program. Thank you for your participation. You may now disconnect..