Feb 13 - FARO Q4 Sales Down 5% to $56M, Finishes FY08 Up 9% to $209M

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FARO Q4 Sales Down 5% to $56M, Finishes FY08 Up 9% to $209M

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LAKE MARY, FL, Feb 13, 2009 - FARO Technologies, Inc. (Nasdaq: FARO) today announced results for the fourth quarter ended December 31, 2008. Net income for the fourth quarter was $2.2 million, or $0.13 per diluted share, a decrease of $6.2 million, compared to $8.4 million, or $0.50 per diluted share in the fourth quarter of 2007. Net income for fiscal 2008 was $14.0 million, or $0.83 per diluted share, compared to $18.1 million, or $1.15 per diluted share.

Sales for the fourth quarter of 2008 were $56.3 million, a decrease of $2.9 million, or 4.9%, from $59.2 million in the fourth quarter of 2007. New order bookings for the fourth quarter were $56.4 million, a decrease of $9.0 million, or 13.8%, compared with $65.4 million in the fourth quarter of 2007. Fiscal 2008 sales were $209.2 million, an increase of 9.2% compared to 2007 sales of $191.6 million. New order bookings for fiscal 2008 were $211.3 million, a 6.8% increase from $197.8 million in fiscal 2007.

"2008 was a difficult year for most companies and that directly impacted FARO," stated Jay Freeland, FARO's President & CEO. "The second half of the year was particularly tough for us across all three regions. There was good customer interest in our products. However, global economic weakness caused significant delays in our customers' decision-making processes as they reviewed their capital equipment needs."

Gross margin for the fourth quarter of 2008 was 57.3%, compared to 60.0% in the fourth quarter of 2007. Gross margin decreased primarily as the result of lower product sales which carry high gross margins. As a result, service costs as a percentage of sales had a larger impact than in previous quarters. The gross margin for fiscal 2008 was 59.8% compared to 60.0% in fiscal 2007.

Selling expenses as a percentage of sales increased to 28.6% in the fourth quarter of 2008 from 27.3% in the fourth quarter of 2007 primarily as a result of the decline in sales. Selling expenses in the fourth quarter of 2008 remained relatively flat, decreasing by $0.1 million to $16.1 million. Selling expenses as a percentage of sales for fiscal 2008 were 30.1% compared to 29.3% in fiscal 2007.

General and administrative expenses increased to 12.2% of sales for the fourth quarter of 2008 from 11.8% in the fourth quarter of 2007. General and administrative expenses in the fourth quarter of 2008 declined by $0.1 million to $6.9 million. General and administrative expenses were 12.5% of sales for fiscal 2008 compared to 13.3% in fiscal 2007.

R&D expenses were $3.5 million in the fourth quarter of 2008, an increase from $3.1 million in the fourth quarter of 2007. R&D expenses for fiscal 2008 were $12.6 million, or 6.0% of sales, an increase of $2.3 million from $10.3 million in fiscal 2007, or 5.4% of sales. The increase in spending was tied to new product development of existing platforms and establishing the R&D Center of Excellence in Cambridge for the Company's new 3D Imaging technology.

Operating margin for the fourth quarter of 2008 decreased to 8.1% from 13.8% in the fourth quarter of 2007. Operating margin for fiscal 2008 was 9.1% compared to 10.0% in fiscal 2007.

Income tax expense increased by $0.3 million to $1.4 million for the fourth quarter of 2008 from $1.1 million for the fourth quarter of 2007. The Company's effective tax rate increased to 24.0% for 2008 from 21.5% in 2007 due to an increase in income in higher tax jurisdictions.

"As previously announced, we do not plan to issue specific guidance in 2009. Based on current economic conditions, we expect 2009 to be extremely challenging. It is possible that we will experience sales declines during this global recession. The Company has taken and will continue taking appropriate actions which reflect the ongoing business climate," Freeland concluded.


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

                                   Three Months Ended        Year Ended
    (in thousands, except
    share and per share data)      Dec 31,     Dec 31,    Dec 31,     Dec 31,
                                    2008        2007       2008        2007
    SALES                         $56,315     $59,228    $209,249    $191,617
    COST OF SALES (exclusive
     of depreciation and
     amortization, shown
     separately below)             24,043      23,700      84,023      76,574
    GROSS PROFIT                   32,272      35,528     125,226     115,043

    OPERATING EXPENSES:
       Selling                     16,130      16,183      63,015      56,134
       General and administrative   6,870       7,012      26,144      25,508
       Depreciation and
        amortization                1,211       1,021       4,505       4,034
       Research and development     3,502       3,127      12,625      10,256
       Total operating expenses    27,713      27,343     106,289      95,932
    INCOME FROM OPERATIONS          4,559       8,185      18,937      19,111

    OTHER (INCOME) EXPENSE
       Interest income               (546)       (854)     (2,170)     (2,036)
       Other (income) expense, net  1,460        (471)      2,295      (1,898)
       Interest expense                 2           2         452           9

    INCOME BEFORE INCOME TAX        3,643       9,508      18,360      23,036

    INCOME TAX EXPENSE              1,443       1,104       4,408       4,943

    NET INCOME                     $2,200      $8,404     $13,952     $18,093

    NET INCOME PER SHARE -
     BASIC                          $0.13       $0.51       $0.84       $1.17

    NET INCOME PER SHARE -
     DILUTED                        $0.13       $0.50       $0.83       $1.15


    Weighted average shares -
     Basic                     16,654,910  16,584,477  16,632,608  15,443,259

    Weighted average shares -
     Diluted                   16,702,090  16,777,426  16,734,403  15,722,215




                     FARO TECHNOLOGIES, INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                                  (UNAUDITED)

                                                  December 31,   December 31,
    (in thousands, except share data)                 2008          2007
    ASSETS
    Current Assets:
      Cash and cash equivalents                      $23,494        $25,798
      Short-term investments                          81,965         77,375
      Accounts receivable, net                        49,713         54,767
       Inventories                                    33,444         29,100
       Deferred income taxes, net                      6,459          2,841
      Prepaid expenses and other current assets        7,879          6,719
         Total current assets                        202,954        196,600
    Property and Equipment:
       Machinery and equipment                        22,685         12,895
       Furniture and fixtures                          4,099          5,008
       Leasehold improvements                          3,956          3,296
          Property and equipment at cost              30,740         21,199
       Less: accumulated depreciation and
        amortization                                 (16,604)       (13,672)
          Property and equipment, net                 14,136          7,527
    Goodwill                                          18,951         19,117
    Intangible assets, net                             8,580          5,970
    Service inventory                                 12,843         10,865
    Deferred income taxes, net                         1,850          3,460
    Total Assets                                    $259,314       $243,539
    LIABILITIES AND SHAREHOLDERS' EQUITY
    Current Liabilities:
       Accounts payable                              $10,813        $12,450
       Accrued liabilities                            14,032         17,989
       Income taxes payable                            1,988          2,266
       Current portion of unearned service revenues   11,501          8,594
       Customer deposits                                 425            337
       Current portion of obligations under
        capital leases                                    87             18
         Total current liabilities                    38,846         41,654
    Unearned service revenues - less current portion   6,772          6,091
    Deferred tax liability, net                        1,107          1,073
    Obligations under capital leases -
     less current portion                                281            222
    Total Liabilities                                 47,006         49,040

    Commitments and contingencies

    Shareholders' Equity:

       Common stock - par value $.001, 50,000,000
        shares authorized; 16,741,488 and 16,700,966
        issued; 16,654,988 and 16,604,052 outstanding,
        respectively                                      17             17
       Additional paid-in-capital                    149,298        146,489
       Retained earnings                              57,497         43,545
       Accumulated other comprehensive income          5,742          4,599
       Common stock in treasury, at cost -
        55,808 shares                                   (246)          (151)
    Total Shareholders' Equity                       212,308        194,499
    Total Liabilities and Shareholders' Equity      $259,314       $243,539



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

                                                    Year Ended December 31,
    (in thousands)                                  2008              2007
    CASH FLOWS FROM:
    OPERATING ACTIVITIES:
     Net income                                   $13,952           $18,093
     Adjustments to reconcile net income to net
      cash (used in) provided by
      operating activities:
      Depreciation and amortization                 4,505             4,034
      Amortization of stock options and
       restricted stock units                       2,237             1,216
      Provision for bad debts                       1,092               373
      Deferred income tax benefit                  (1,972)             (464)
    Change in operating assets and liabilities:
     Decrease (increase) in:
      Accounts receivable                           2,993            (9,121)
      Inventories                                  (6,429)           (7,265)
      Prepaid expenses and other current assets    (1,187)           (3,208)
      Income tax benefit from exercise of stock
       options                                        (45)             (963)
    Increase (decrease) in:
      Accounts payable and accrued liabilities     (5,317)            9,884
      Income taxes payable                           (355)            1,278
      Customer deposits                                82              (269)
      Unearned service revenues                     3,710             8,007
      Net cash provided by operating activities    13,266            21,595

    INVESTING ACTIVITIES:
      Purchases of property and equipment          (9,705)           (2,930)
      Payments for intangible assets               (3,766)             (359)
      Purchases of short-term investments          (4,590)          (61,585)
        Net cash used in investing activities     (18,061)          (64,874)

    FINANCING ACTIVITIES:
      Payments of capital leases                      (11)              (92)
      Income tax benefit from exercise of
       stock options                                   45               963
      Purchases of Stock                              (95)              -
      Proceeds from issuance of stock, net             92            58,421
        Net cash provided by financing activities      31            59,292

    EFFECT OF EXCHANGE RATE CHANGES ON
     CASH AND CASH EQUIVALENTS                      2,460            (5,904)

    (DECREASE) INCREASE IN CASH AND CASH
     EQUIVALENTS                                   (2,304)           10,109

    CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 25,798            15,689

    CASH AND CASH EQUIVALENTS, END OF PERIOD      $23,494           $25,798

SOURCE FARO Technologies, Inc.

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 our plans, objectives, projections, expectations, assumptions, strategies, or future events. 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 "may," "believes," "anticipates," "expects," "intends," "plans," "seeks," "estimates," "will," "should," "could," "projects," "forecast," "target," "goal," and similar expressions or discussions of our strategy or other intentions identify forward-looking statements. Other written or oral statements, which constitute forward-looking statements, also may be made by the Company from time to time. 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 forward-looking statements include, but are not limited to:

our inability to further penetrate our customer base;
development by others of new or improved products, processes or technologies that make our products obsolete or less competitive;
our inability to maintain our technological advantage by developing new products and enhancing our existing products;
our inability to successfully identify and acquire target companies or achieve expected benefits from acquisitions that are consummated;
the cyclical nature of the industries of our customers and material adverse changes in our customers' access to liquidity and capital;
a slowdown or other adverse changes 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;
the fact that the market potential for the CAM2 market and the potential adoption rate for our products are difficult to quantify and predict;
the inability to protect our patents and other proprietary rights in the United States and foreign countries;
fluctuations in our annual and quarterly operating results and the inability to achieve our financial operating targets as a result of a number of factors including, without limitation (i) litigation and regulatory action brought against us, (ii) quality issues with our products, (iii) excess or obsolete inventory, (iv) raw material price fluctuations, (v) expansion of our manufacturing capability and other inflationary pressures, (vi) the size and timing of customer orders, (vii) the amount of time that it takes to fulfill orders and ship our products, (viii) the length of our sales cycle to new customers and the time and expense incurred in further penetrating our existing customer base, (ix) increases in operating expenses required for product development and new product, marketing, (x) costs associated with new product introductions, such as product development, marketing, assembly line start-up costs and low introductory period production volumes, (xi) the timing and market acceptance of new products and product enhancements, (xii) customer order deferrals in anticipation of new products and product enhancements, (xiii) our success in expanding our sales and marketing programs, (xiv) start-up costs associated with opening new sales offices outside of the United States, (xv) fluctuations in revenue without proportionate adjustments in fixed costs, (xvi) the efficiencies achieved in managing inventories and fixed assets, (xvii) investments in potential acquisitions or strategic sales, product or other initiatives, (xviii) shrinkage or other inventory losses due to product obsolescence, scrap or material price changes, (xix) adverse changes in the manufacturing industry and general economic conditions, (xx) compliance with government regulations including health, safety, and environmental matters, (xxi) the ultimate costs of the Company's monitoring obligations in respect of the Foreign Corrupt Practices Act ("FCPA") matter; and (xxii) other factors noted herein;
changes in gross margins due to changing product mix of products sold and the different gross margins on different products;
our inability to successfully maintain the requirements of Restriction of use of Hazardous Substances ("RoHS") and Waste Electrical and Electronic Equipment ("WEEE") compliance into our products;
the inability of our products to displace traditional measurement devices and attain broad market acceptance;
the impact of competitive products and pricing in the CAM2 market and the broader market for measurement and inspection devices;
the effects of increased competition as a result of recent consolidation in the CAM2 market;
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;
the loss of our Chief Executive Officer or other key personnel;
difficulties in recruiting research and development engineers, and application engineers;
the failure to effectively manage our growth;
variations in the effective income tax rate and the difficulty in predicting the tax rate on a quarterly and annual basis; and
the loss of key suppliers and the inability to find sufficient alternative suppliers in a reasonable period or on commercially reasonable terms.
the other risks detailed in the Company's Annual Report on Form 10-K and other filings from time to time with the Securities and Exchange Commission.

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 19,000 installations and 9,000 customers globally, FARO Technologies, Inc. designs, develops, and markets portable, computerized measurement 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.

For more information, visit www.faro.com.

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