FARO Reports Sales Growth of 25.7% in 2007; Orders Increase 21.8% for 2007

LAKE MARY, Fla., Feb. 13 /PRNewswire-FirstCall/ -- FARO Technologies, Inc. (NASDAQ: FARO) today announced results for the fourth quarter ended December 31, 2007. Net income for the fourth quarter was $8.4 million, or $0.50 per diluted share, an increase of $4.7 million, compared to $3.7 million, or $0.25 per diluted share, in the fourth quarter of 2006. Net income for fiscal 2007 was $18.1 million, or $1.15 per diluted share, compared to $8.2 million, or $0.56 per diluted share for fiscal 2006. Fiscal 2007 results include a charge of $2.65 million, or $0.21 per diluted share, for the estimated fines and penalties that the Company anticipates could be necessary to resolve the previously announced Foreign Corrupt Practices Act ("FCPA") matter with the U.S. Department of Justice ("DOJ") and U.S. Securities and Exchange Commission ("SEC").(1)

Sales for the fourth quarter of 2007 were $59.2 million, an increase of $15.3 million, or 34.9%, from $43.9 million in the fourth quarter of 2006. New order bookings for the fourth quarter of 2007 were $65.4 million, an increase of $15.6 million, or 31.3%, compared to $49.8 million in the year-ago quarter. Fiscal 2007 sales were $191.6 million, an increase of 25.7% compared to fiscal 2006 sales of $152.4 million, slightly above the Company's full-year guidance of 20-25% sales growth. New order bookings for fiscal 2007 were $197.8 million, a 21.8% increase from $162.4 million in fiscal 2006.

"Once again, the FARO team around the world demonstrated its ability to perform," stated Jay Freeland, FARO's President and CEO. "Sales growth for 2007 was above the target range of 20-25% that we have been communicating all year. As always, fourth quarter sales were particularly strong with all three regions growing more than 20%."

Gross margin for the fourth quarter of 2007 was 60.0%, compared to 58.8% in the fourth quarter of 2006. Gross margin increased primarily as the result of an increase in unit sales in product lines with lower unit costs due to continuing productivity improvements. The gross margin for fiscal 2007 was 60.0% compared to 58.7% in fiscal 2006 and within the Company's previously issued guidance of 58% to 60%.

Selling expenses as a percentage of sales decreased to 27.3% in the fourth quarter of 2007 compared to 29.2% in the fourth quarter of 2006. Selling expenses as a percentage of sales for fiscal 2007 were 29.3% compared to 29.7% for fiscal 2006.

General and administrative expenses were 11.8% of sales for the fourth quarter of 2007 compared to 14.2% of sales in the fourth quarter of 2006. General and administrative expenses in the fourth quarter of 2006 included $1.5 million of professional fees related to the Company's Foreign Corrupt Practices Act ("FCPA") matter and its patent litigation. General and administrative expenses were 13.3% of sales in 2007 and included the accrual of $2.65 million for the estimated fines and penalties that could be necessary to resolve the FCPA matter and $1.1 million of professional fees related to the Company's FCPA matter and resolution of the patent litigation. General and administrative expenses were 16.1% of sales in fiscal 2006 and included $6.8 million of professional fees related to the FCPA matter and patent litigation.

Research and development ("R&D") expenses were $3.1 million for the fourth quarter of 2007, up from $1.8 million in the fourth quarter of 2006. R&D expenses for fiscal 2007 were $10.3 million, or 5.4% of sales, an increase of $3.1 million from $7.2 million in fiscal 2006, or 4.7% of sales. The increase was driven primarily by costs associated with the recent launches of the new Quantum FAROArm and Fusion FAROArm product lines.

Operating margin for the fourth quarter of 2007 was 13.8%, compared to 8.8% in the year ago quarter.

Income tax expense was $1.1 million for the fourth quarter of 2007 compared to $0.8 million in the fourth quarter of 2006. The Company's effective tax rate for 2007 increased to 21.5% compared to 16.2% for fiscal 2006 primarily as a result of the increase in non-deductible expenses for U.S. income tax purposes associated with the FCPA matter. The Company's effective income tax rate, excluding the effects of the $2.65 million charge for the estimated fines and penalties associated with the FCPA matter, would have been 17.0%.(2)

Full Year 2008 Sales and Gross Margin Guidance

"2007 was a tremendous year for FARO combining significant growth with great productivity, several new products and fantastic execution. Although there is clearly increased economic pressure globally, particularly in the U.S., we continue to see strong demand for our products. As such, in 2008 we are maintaining our guidance ranges of approximately 20% - 25% top line growth and gross margin of 58% to 60%," Freeland concluded.

    (1) The Company believes that measuring net income and net income per        diluted share without the impact of the $2.65 million FCPA charge and        the $0.6 million of related tax effects is useful to management and        investors (when presented in conjunction with the comparable GAAP        measure of net income and net income per diluted share) because the        impact of the $2.65 million charge on the Company's tax rate could        otherwise be unclear to investors.  In addition, management refers to        these financial measures to facilitate internal and external        comparisons to the Company's historical operating results.    (2) The Company believes that calculating its effective tax rate without        the impact of the FCPA charge is useful to management and investors        because the impact of the $2.65 million charge on the Company's tax        rate could otherwise be unclear to investors.  In addition, management        refers to the adjusted effective tax rate to facilitate internal and        external comparisons to the Company's historical tax rate.  The        Company's 2007 effective tax rate without the impact of the FCPA        charge would have been calculated in accordance with FIN No. 18.

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 the        financial condition of our customers;     -- 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, but not limited to (i) litigation and        regulatory actions 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) 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, and (xxi) 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 implement 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 of        complying with a wide variety of foreign laws and labor practices;     -- unforeseen developments in our FCPA matter or in complying with the        FCPA in the future;     -- the fact that there is no assurance that the Company's discussions        with the SEC and the DOJ will result in a resolution of the FCPA        matter with either the DOJ or the SEC or that any such resolution, if        reached, may differ from the resolution currently anticipated by the        Company;     -- the fact that predicting when the FCPA matter will be finally resolved        with the SEC and the DOJ is not possible;     -- the fact that the amount of monetary sanctions ultimately paid by the        Company to the SEC and the DOJ in resolving the FCPA matter, whether        imposed on the Company or agreed to by settlement, may exceed the        amount that that has been reserved by the Company;     -- the outcome of the class action securities litigation;     -- higher than expected increases in expenses relating to our Asia        Pacific expansion or our Singapore manufacturing facility;     -- our inability to find less expensive alternatives to stock options to        attract and retain employees;     -- the loss of our Chief Executive Officer, our Chief Technology Officer,        our Chief Financial 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 tax rate and the difficulty predicting the        tax rate on a quarterly and annual basis;     -- the loss of key suppliers and the inability to find sufficient        alternative suppliers in a reasonable period or on commercially        reasonable terms; and     -- 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 16,000 installations and 7,400 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.

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 Laser Scanner LS; the FARO Gage, Gage-PLUS and PowerGAGE; and the CAM2 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 INCOME                                 (UNAUDITED)                                 Three Months Ended          Year Ended    (in thousands, except    share and per share data)     Dec 31,     Dec 31,     Dec 31,    Dec 31,                                    2007       2006        2007        2006    SALES                         $59,228     $43,942    $191,617    $152,405    COST OF SALES (exclusive     of depreciation and     amortization, shown     separately below)             23,700      18,125      76,574      62,947    GROSS PROFIT                   35,528      25,817     115,043      89,458    OPERATING EXPENSES:      Selling                      16,183      12,824      56,134      45,282      General and administrative    7,012       6,258      25,508      24,554      Depreciation and       amortization                 1,021       1,039       4,034       4,135      Research and development      3,127       1,838      10,256       7,228      Total operating expenses     27,343      21,959      95,932      81,199    INCOME FROM OPERATIONS          8,185       3,858      19,111       8,259    OTHER (INCOME) EXPENSE      Interest income                (854)       (227)     (2,036)       (743)      Other (income) expense, net    (471)       (351)     (1,898)       (790)      Interest expense                  2           8           9          16    INCOME BEFORE INCOME TAX        9,508       4,428      23,036       9,776    INCOME TAX EXPENSE              1,104         770       4,943       1,580    NET INCOME                     $8,404      $3,658     $18,093      $8,196    NET INCOME PER SHARE - BASIC    $0.51       $0.25       $1.17       $0.57    NET INCOME PER SHARE -     DILUTED                        $0.50       $0.25       $1.15       $0.56    Weighted average shares -     Basic                     16,584,477  14,426,478  15,443,259  14,397,050    Weighted average shares -     Diluted                   16,777,426  14,610,555  15,722,215  14,560,331                   FARO TECHNOLOGIES, INC. AND SUBSIDIARIES                         CONSOLIDATED BALANCE SHEETS                                 (UNAUDITED)                                                December 31,      December 31,    (in thousands, except share data)               2007              2006    ASSETS    Current Assets:      Cash and cash equivalents                    $25,798           $15,689      Short-term investments                        77,375            15,790      Accounts receivable, net                      54,767            42,706      Inventories                                   29,100            23,429      Deferred income taxes, net                     2,841             1,845      Prepaid expenses and other current assets      6,719             3,222        Total current assets                       196,600           102,681    Property and Equipment:      Machinery and equipment                       12,895             9,131      Furniture and fixtures                         5,008             3,988      Leasehold improvements                         3,296             2,615        Property and equipment at cost              21,199            15,734      Less: accumulated depreciation and       amortization                                (13,672)           (8,889)      Property and equipment, net                    7,527             6,845    Goodwill                                        19,117            17,266    Intangible assets, net                           5,970             6,221    Service Inventory                               10,865             7,278    Deferred income taxes, net                       3,460             3,985    Total Assets                                  $243,539          $144,276    LIABILITIES AND SHAREHOLDERS' EQUITY    Current Liabilities:      Accounts payable                             $12,450           $11,182      Accrued liabilities                           17,989            10,379      Income taxes payable                           2,266             2,151      Current portion of unearned service       revenues                                      8,594             4,569      Customer deposits                                337               618      Current portion of long-term debt and       obligations under capital leases                 18                90        Total current liabilities                   41,654            28,989    Unearned service revenues - less     current portion                                 6,091             2,917    Deferred tax liability, net                      1,073             1,200    Long-term debt and obligations under     capital leases - less current portion             222               115    Total Liabilities                               49,040            33,221    Commitments and contingencies    Shareholders' Equity:      Common stock - par value $.001,       50,000,000 shares authorized;       16,700,966 and 14,586,402 issued;       16,644,052 and 14,464,715       outstanding, respectively                        17                14      Additional paid-in-capital                   146,489            85,160      Retained earnings                             43,546            25,452      Accumulated other comprehensive income (loss)  4,598               580      Common stock in treasury, at cost -       40,000 shares                                  (151)             (151)    Total Shareholders' Equity                     194,499           111,055    Total Liabilities and Shareholders' Equity    $243,539          $144,276                    FARO TECHNOLOGIES, INC. AND SUBSIDIARIES                      CONSOLIDATED STATEMENTS OF CASH FLOWS                                   (UNAUDITED)                                                     Year Ended December 31,    (in thousands)                                   2007              2006    CASH FLOWS FROM:    OPERATING ACTIVITIES:      Net income                                   $18,093            $8,196      Adjustments to reconcile net income       to net cash provided by (used in)       operating activities:        Depreciation and amortization                4,034             4,135        Amortization of stock options and         restricted stock units                      1,216               401        Provision for bad debts                        373               230        Deferred income tax (benefit) expense         (464)               20    Change in operating assets and liabilities:    Decrease (increase) in:      Accounts receivable                           (9,121)          (12,173)      Inventories                                   (7,265)            2,804      Prepaid expenses and other current assets     (3,208)             (933)      Income tax (benefit) expense from       exercise of stock options                      (963)             (102)    Increase (decrease) in:      Accounts payable and accrued liabilities       9,884             3,062      Income taxes payable                           1,278               526      Customer deposits                               (269)              399      Unearned service revenues                      8,007             3,189      Net cash provided by (used in)       operating activities                         21,595             9,754    INVESTING ACTIVITIES:      Acquisition of iQVolution      Purchases of property and equipment           (2,930)           (3,357)      Payments for intangible assets                  (359)             (820)      (Purchases of) proceeds from short-       term investments                            (61,585)              700        Net cash used in investing activities      (64,874)           (3,477)    FINANCING ACTIVITIES:      Payments of capital leases                       (92)             (204)      Income tax benefit (expense) from       exercise of stock options                       963               102      Proceeds from issuance of stock, net          58,421               361        Net cash provided by financing activities   59,292               259    EFFECT OF EXCHANGE RATE CHANGES ON     CASH AND CASH EQUIVALENTS                      (5,904)             (125)    INCREASE (DECREASE) IN CASH AND CASH     EQUIVALENTS                                    10,109             6,411    CASH AND CASH EQUIVALENTS, BEGINNING     OF PERIOD                                      15,689             9,278    CASH AND CASH EQUIVALENTS, END OF PERIOD       $25,798           $15,689