FARO Reports Third Quarter 2009 Results

• Press Release
• Source: FARO Technologies, Inc.
• On 5:00 pm EST, Wednesday November 4, 2009

LAKE MARY, Fla., Nov. 4 /PRNewswire-FirstCall/ -- FARO Technologies, Inc. (Nasdaq: FARO - News) today announced results for the third quarter ended October 3, 2009. Net loss for the third quarter was $1.3 million, or $0.08 per diluted share, a decrease of $3.3 million, compared to net income of $2.0 million, or $0.12 per diluted share, in the third quarter of 2008.

Sales for the third quarter of 2009 decreased $13.4 million, or 27.3%, to $35.7 million from $49.1 million in the third quarter of 2008. New order bookings for the third quarter were $35.8 million, a decrease of $13.4 million, or 27.2%, compared with $49.2 million in the third quarter of 2008.

"Market conditions remain difficult, so we took additional steps in August to reduce our operating costs through one more reduction in force. As a result, I believe we are positioned well for the fourth quarter and beyond," stated Jay Freeland, FARO's President and CEO. "Despite the ongoing market pressure, sales in the third quarter increased slightly over the second quarter of this year. Historically, we see about a 10% sequential decline between these two quarters, and we're starting to see some stability in our customers' operations and end-markets. We also launched the Ion Laser Tracker at the end of the third quarter, our latest generation of technology for large scale measurement. Initial demand for the Ion has been strong, with multiple orders booked within the first two weeks."

Gross margin for the third quarter of 2009 was 54.9%, compared to 59.1% in the third quarter of 2008. Gross margin decreased primarily due to a change in the sales mix between higher margin product sales and lower margin service revenue.

Selling expenses as a percentage of sales increased to 32.2% in the third quarter of 2009 from 31.3% in the third quarter of 2008, primarily as a result of the decline in sales. Selling expenses in the third quarter of 2009 decreased by $3.9 million to $11.5 million.

General and administrative expenses increased to 17.2% of sales for the third quarter of 2009 from 13.5% in the third quarter of 2008. General and administrative expenses in the third quarter of 2009 decreased by $0.5 million to $6.2 million from the third quarter of 2008.

R&D expenses were $2.8 million in the third quarter of 2009, a decrease from $3.2 million in the third quarter of 2008. R&D expenses were 7.8% of sales in the third quarter of 2009 compared to 6.6% of sales in the third quarter of 2008.

The operating loss for the third quarter of 2009 was $2.3 million, a decrease of $4.9 million from an operating profit of $2.6 million in the third quarter of 2008.

Income tax expense decreased by $1.3 million to a benefit of $0.8 million for the third quarter of 2009, from an expense of $0.5 million for the third quarter of 2008 due to a decrease in pretax income. The Company's effective tax rate increased to a benefit of 37.6% for the third quarter of 2009 from an expense of 19.9% in the third quarter of 2008 primarily due to taxable losses in jurisdictions with higher tax rates.

"Despite some of the favorable signs we're starting to see, there is still uncertainty in the marketplace. In response, we have reduced our operating costs substantially without sacrificing our global sales presence. More importantly, we have maintained our spending levels on Research & Development throughout the downturn, so I believe we are positioned to execute well in this environment," Mr. Freeland concluded.

This press release contains forward-looking statements (within the meaning of the Private Securities Litigation Reform Act of 1995) that are subject to risks and uncertainties, such as statements about the future state of the economy, FARO's focus, plans and strategies, its ability to further reduce operating costs, and its future financial condition. Statements that are not historical facts or that describe the Company's plans, objectives, projections, expectations, assumptions, strategies, or goals are forward-looking statements. In addition, words such as "intend," "believe," "will," "expect" and similar expressions or discussions of our strategy or other intentions identify forward-looking statements. Forward-looking statements are not guarantees of future performance and are subject to various known and unknown risks, uncertainties, and other factors that may cause actual results, performances, or achievements to differ materially from future results, performances, or achievements expressed or implied by such forward-looking statements. Consequently, undue reliance should not be placed on these forward-looking statements.

Factors that could cause actual results to differ materially from what is expressed or forecasted in such forward-looking statements include, but are not limited to:

• development by others of new or improved products, processes or technologies that make the Company's products obsolete or less competitive;

• the cyclical nature of the industries of our customers and material adverse changes in customers' access to liquidity and capital;

• further declines or other adverse changes, or lack of improvement, in industries that the Company serves or the domestic and international economies in the regions of the world where the Company operates and other general economic, business, and financing conditions;

• fluctuations in the Company's annual and quarterly operating results and the inability to achieve its financial operating targets;

• risks associated with expanding international operations, such as fluctuations in currency exchange rates, difficulties in staffing and managing foreign operations, political and economic instability, compliance with import and export regulations, and the burdens and potential exposure of complying with a wide variety of U.S. and foreign laws and labor practices;

• other risks detailed in Part I, Item 1A. Risk Factors in the Company's Annual Report on Form 10-K for the year ended December 31, 2008.

Forward-looking statements in this release represent the Company's judgment as of the date of this release. The Company undertakes no obligation to update publicly any forward-looking statements, whether as a result of new information, future events, or otherwise.

About FARO

With approximately 20,000 installations and 9,500 customers globally, FARO Technologies, Inc. designs, develops, and markets portable, computerized measurement and imaging devices and software used to create digital models -- or to perform evaluations against an existing model -- for anything requiring highly detailed 3-D measurements, including part and assembly inspection, factory planning and asset documentation, as well as specialized applications ranging from surveying, recreating accident sites and crime scenes to digitally preserving historical sites.

FARO's technology increases productivity by dramatically reducing the amount of on-site measuring time, and the various industry-specific software packages enable users to process and present their results quickly and more effectively.

Principal products include the world's best-selling portable measurement arm -- the FaroArm; the world's best-selling laser tracker -- the FARO Laser Tracker X and Xi; the FARO Laser ScanArm; FARO Photon Laser Scanners; the FARO Gage, Gage-PLUS and PowerGAGE; and the CAM2 Q family of advanced CAD-based measurement and reporting software. FARO Technologies is ISO-9001 certified and ISO-17025 laboratory registered.

                     FARO TECHNOLOGIES, INC. AND SUBSIDIARIES
                       CONSOLIDATED STATEMENTS OF OPERATIONS
                                    (UNAUDITED)

                            Three Months Ended          Nine Months Ended
                            -------------------         ------------------


    (in thousands,
     except share and
     per share data)     Oct 3, 2009  Sep 27, 2008  Oct 3, 2009  Sep 27, 2008
    -----------------    -----------  ------------  -----------  ------------
    SALES
        Product              $27,876       $41,100      $79,292      $131,019
        Service                7,837         7,995       22,385        21,915
                               -----         -----       ------        ------
        Total Sales           35,713        49,095      101,677       152,934
                              ------        ------      -------       -------
    COST OF SALES
        Product               11,261        14,223       30,647        43,804
        Service                4,850         5,863       15,805        16,176
                               -----         -----       ------        ------
        Total Cost of
         Sales (exclusive
         of depreciation
         and amortization,
         shown separately
         below)               16,111        20,086       46,452        59,980
                              ------        ------       ------        ------
    GROSS PROFIT              19,602        29,009       55,225        92,954

    OPERATING EXPENSES:
        Selling               11,482        15,382       36,434        46,886
        General and
         administrative        6,158         6,614       18,591        19,274
        Depreciation and
         amortization          1,410         1,158        4,090         3,293
        Research and
         development           2,802         3,237        9,566         9,122
                               -----         -----        -----         -----
        Total operating
         expenses             21,852        26,391       68,681        78,575
                              ------        ------       ------        ------
    (LOSS) INCOME FROM
     OPERATIONS               (2,250)        2,618      (13,456)       14,379
                              ------         -----      -------        ------
    OTHER (INCOME) EXPENSE
        Interest income          (31)         (547)        (225)       (1,624)
        Other (income)
         expense, net           (183)          652         (359)          834
        Interest expense           3             2            9           450
                                 ---           ---          ---           ---
    (LOSS) INCOME BEFORE
     INCOME TAX (BENEFIT)
     EXPENSE                  (2,039)        2,511      (12,881)       14,719
    INCOME TAX (BENEFIT)
     EXPENSE                    (766)          500       (2,919)        2,965
                                ----           ---       ------         -----
    NET (LOSS) INCOME        $(1,273)       $2,011      $(9,962)      $11,754
                             -------        ------      -------       -------
    NET (LOSS) INCOME
     PER SHARE - BASIC        $(0.08)        $0.12       $(0.62)        $0.71
                              ------         -----       ------         -----

    NET (LOSS) INCOME
     PER SHARE - DILUTED      $(0.08)        $0.12       $(0.62)        $0.70
                              ------         -----       ------         -----

    Weighted average
     shares - Basic       16,093,759    16,637,497   16,131,680    16,624,784
                          ----------    ----------   ----------    ----------

    Weighted average
     shares - Diluted     16,093,759    16,731,064   16,131,680    16,751,679
                          ----------    ----------   ----------    ----------



                     FARO TECHNOLOGIES, INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS

                                                     October 3,   December 31,
    (in thousands, except share data)                   2009          2008
    ---------------------------------                   ----          ----
    ASSETS                                           Unaudited
    Current Assets:
      Cash and cash equivalents                        $27,401       $23,494
      Short-term investments                            64,979        81,965
      Accounts receivable, net                          35,697        49,713
      Inventories                                       28,212        33,444
      Deferred income taxes, net                         4,541         5,581
      Prepaid expenses and other current assets         12,225         7,879
                                                        ------         -----
        Total current assets                           173,055       202,076
                                                       -------       -------
    Property and Equipment:
      Machinery and equipment                           19,557        22,685
      Furniture and fixtures                             5,250         4,099
      Leasehold improvements                             9,399         3,956
                                                         -----         -----
          Property and equipment at cost                34,206        30,740
      Less: accumulated depreciation and amortization  (19,800)      (16,604)
                                                       -------       -------
          Property and equipment, net                   14,406        14,136
                                                        ------        ------
    Goodwill                                            19,822        18,951
    Intangible assets, net                               8,199         8,580
    Service inventory                                   12,751        12,843
    Deferred income taxes, net                           1,909         2,728
                                                         -----         -----
    Total Assets                                      $230,142      $259,314
                                                      --------      --------
    LIABILITIES AND SHAREHOLDERS' EQUITY
    Current Liabilities:
      Accounts payable                                  $5,460       $10,813
      Accrued liabilities                                8,368        14,032
      Income taxes payable                                   -         1,988
      Current portion of unearned service revenues      11,551        11,501
      Customer deposits                                    626           425
      Current portion of obligations under capital
       leases                                               27            87
                                                           ---           ---
          Total current liabilities                     26,032        38,846
    Unearned service revenues - less current portion     5,591         6,772
    Deferred tax liability, net                          1,152         1,107
    Obligations under capital leases - less
     current portion                                       285           281
                                                           ---           ---
    Total Liabilities                                   33,060        47,006
                                                        ------        ------

    Shareholders' Equity:
      Common stock - par value $.001, 50,000,000
       shares authorized; 16,793,289 and 16,741,488
       issued; 16,102,331 and 16,658,552
       outstanding, respectively                            17            17
      Additional paid-in-capital                       151,487       149,298
      Retained earnings                                 47,537        57,497
      Accumulated other comprehensive income             7,116         5,742
      Common stock in treasury, at cost - 680,235
       and 55,808 shares, respectively                  (9,075)         (246)
                                                        ------          ----
    Total Shareholders' Equity                         197,082       212,308
                                                       -------       -------
    Total Liabilities and Shareholders' Equity        $230,142      $259,314
                                                      --------      --------



                     FARO TECHNOLOGIES, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (UNAUDITED)

                                                  Nine Months Ended
                                                  -----------------

    (in thousands)                         October 3, 2009  September 27, 2008
    --------------                         ---------------  ------------------
    CASH FLOWS FROM:
    OPERATING ACTIVITIES:
      Net (loss) income                          $(9,962)            $11,754
      Adjustments to reconcile net (loss)
       income to net cash provided by
       operating activities:
        Depreciation and amortization              4,090               3,293
        Compensation for stock options
         and restricted stock units                1,827               1,686
        Provision for bad debts                      961                 446
        Deferred income tax expense
         (benefit)                                 1,919              (1,575)
    Change in operating assets and
     liabilities:
      Decrease (increase) in:
        Accounts receivable                       14,040               9,198
        Inventories                                6,202              (9,681)
        Prepaid expenses and other
         current assets                           (4,234)             (2,369)
        Income tax benefit from
         exercise of stock options                    (2)                (45)
      Increase (decrease) in:
        Accounts payable and accrued
         liabilities                             (11,220)             (7,654)
        Income taxes payable                      (1,965)               (771)
        Customer deposits                            186                 (11)
        Unearned service revenues                 (1,490)              2,671
                                                  ------               -----
            Net cash provided by operating
             activities                              352               6,942
                                                     ---               -----

    INVESTING ACTIVITIES:
      Purchases of property and equipment         (2,919)             (4,377)
      Payments for intangible assets                (504)             (3,584)
      Purchases of short-term investments        (64,979)             (4,995)
      Proceeds from sales of short-term
       investments                                81,965                   -
                                                  ------                 ---
            Net cash provided by (used in)
             investing activities                 13,563             (12,956)
                                                  ------             -------

     FINANCING ACTIVITIES:
      Payments on capital leases                     (55)                (68)
      Income tax benefit from exercise
       of stock options                                2                  45
      Repurchases of common stock                 (8,829)                  -
      Proceeds from issuance of stock, net            45                 128
                                                     ---                 ---
            Net cash  (used in) provided by
             financing activities                 (8,837)                105
                                                  ------                 ---

    EFFECT OF EXCHANGE RATE CHANGES ON
     CASH AND CASH EQUIVALENTS                    (1,171)                271
                                                  ------                 ---

    INCREASE (DECREASE) IN CASH AND
     CASH EQUIVALENTS                              3,907              (5,638)

    CASH AND CASH EQUIVALENTS, BEGINNING
     OF PERIOD                                    23,494              25,798
                                                  ------              ------

    CASH AND CASH EQUIVALENTS, END OF
     PERIOD                                      $27,401             $20,160
                                                 =======             =======

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