Thank you and good morning everyone. My name is Vic Allgeier of the TTC Group, FARO's Investor Relations firm.

Yesterday after the market closed, FARO released its fourth quarter results. By now, you should have received a copy of the press release.

If you have not received the release, please call Nancy Setteducati at (407) 333-9911. Press release is also available on FARO's website at www.faro.com.

Representing the company today are Jay Freeland, President and Chief Executive Officer and Keith Bair, Senior Vice President and Chief Financial Officer. Keith and Jay will deliver prepared remarks first, and will then be available for questions.

I would like to remind you that in order to help you understand the company and its results, management may make some forward-looking statements during the course of this call. These statements can be identified by words such as expect, believe, predict, target, plan, growth targets, goals, guidance, will 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 the risk factors set forth in yesterday's press release and in the company's filings with the SEC.

I will now turn the call over to Keith.

Thank you, Vic and good morning, everyone. Sales in the fourth quarter of 2011 were $77.1 million, a 31.7% increase from $58.5 million in the fourth quarter of 2010.

That brought our 2011 annual sales to $254.2 million, a 32.5% increase from $191.8 million in 2010. On a regional basis, fourth quarter sales in 2011 in the Americas increased 40.4% to $31.3 million compared to $22.3 million in the fourth quarter of 2010.

Sales increased 30.5% in Europe to $31.2 million from $23.9 million in the fourth quarter of 2010. Sales in the Asia-Pacific region increased 18.7% to $14.6 million from $12.3 million in the fourth quarter of 2010.

The effective changes in foreign exchange rates on sales was a decrease of $300,000 in the fourth quarter of 2011 compared to the fourth quarter of 2010.

Comparing year-over-year growth, 2011 sales in the Americas increased 34.7% to $97.5 million from $72.4 million in 2010. Europe sales for 2011 increased 33.2% to $99.6 million from $74.7 million in 2010.

Asia sales increased 27.9% in 2011 to $57.1 million from $44.7 million in 2010. The effective changes in foreign exchange rates on sales was an increase of $7 million in fiscal 2011 compared to fiscal 2010.

New orders increased 14.4% in the fourth quarter of 2011 to approximately $77.1 million compared to approximately $67.4 million in the fourth quarter of 2010. On an annual basis, new orders increased 29.2% to $255.7 million in 2011 from $197.9 million in 2010.

On a regional basis, fourth quarter orders in 2011 in the Americas increased 34.4% to $33.6 million compared to $25 million in the fourth quarter of 2010. Orders decreased 2.1% in Europe to $27.5 million from $28.1 million in the fourth quarter of 2010.

Orders in the Asia-Pacific region increased 11.9% to $16 million compared to $14.3 million in the year ago quarter. Again comparing year-over-year orders growth, new orders in the Americas increased 33.5% to $100.5 million in 2011 from $75.3 million in 2010.

Orders increased 26.3% in Europe to $96.9 million in 2011 compared to $76.7 million in 2010. Orders increased by 27% in Asia in 2011 to $58.3 million from $45.9 million in 2010.

The top 5 customers by sales volume in 2011 were the US military, Airbus, Spirit Aerosystems, G Squared Metric, and Boeing and together represented only 3.6% of sales. The top 10 customers in 2011 together represented only 5.1% of our sales.

Once again indicating our lack of dependence on any one or a handful of customers. Our gross margin was 56.5% in the fourth quarter of 2011 compared to 59% in the year ago quarter and in line with the 56.1% gross margin in Q2 and Q3 of 2011.

Gross margin from product sales decreased to 60.8% in the fourth quarter of 2011 from 64.1% in the fourth quarter of 2010 as a result of the change in the historical sales mix caused by the increase in the sales of the Laser Scanner product which currently has a lower gross margin. Gross margin from service revenues was 30.9% in the fourth quarter of 2011 compared to 31.5% in the fourth quarter of 2010.

Gross margin in fiscal 2011 was 56.5% compared to 59.1% in fiscal 2010. Gross margin from product sales decreased to 61.2% in fiscal 2011 from 65.3% in fiscal 2010, again as a result of a change in the historical sales mix caused by the increase of our Laser Scanner product which currently has a lower gross margin.

Gross margin from service revenues increased to 32.4% in fiscal 2011 compared to 30.9% in fiscal 2010.

Selling expenses were 23.3% of sales in the fourth quarter of 2011 compared to 26.8% in the year ago quarter. Selling expenses increased to $18 million in the fourth quarter of 2011 from $15.7 million in the fourth quarter of 2010 primarily as a result of an increase in compensation of $2.2 million.

In fiscal 2011, selling expenses decreased to 24.4% of sales compared to 26.4% in fiscal 2010. Administrative expenses in the fourth quarter of 2011 were 8.9% of sales compared to 12.5% in the fourth quarter of 2010, decreasing by approximately $400,000 to $6.9 million from $7.3 million in 2010, primarily as a result of the decrease in legal and professional fees of $400,000 related to patent litigation in the FCPA Monitor in connection with the DOJ and SEC settlement.

In fiscal 2011, general and administrative expenses remained flat at $26.8 million representing 10.5% of sales compared to 14% of sales in fiscal 2010. Increases in compensation cost of $1.7 million and increases in recruiting and relocation costs of $300,000 in fiscal 2011 were offset by decreases of $1 million in bad debt expenses, a decrease of $400,000 related to the FCPA Monitor and a decrease in legal and professional fees of $600,000 related to patent litigation.

Research and development expenses increased to $4.2 million in the fourth quarter of 2011 or 5.4% of sales compared to $3.9 million or 6.6% of sales in the fourth quarter of 2010. R&D expenses for fiscal 2011 increased $2.5 million or 19.7% to $15.2 million for the year ended December 31, 2011 from $12.7 million for the year ended December 31, 2010 primarily due to an increase in compensation of $1.9 million, subcontractor expenses of $200,000 and expenses of $400,000 related to the closing and relocation of the R&D facility in Andover, Mass to our existing facility in Kennett Square, PA.

Research and development expenses as a percentage of sales decreased to 6% for the year ended December 31, 2011 from 6.6% for the year ended December 31, 2010.

Operating margin in the fourth quarter of 2011 increased to 16.7% from 10.6% in the year ago quarter primarily as a result of the effects of leveraging the current operating structure. Operating margin for fiscal 2011 increased to 12.9% from 8.8% in fiscal 2010.

Other income and expenses net decreased to an expense of $400,000 in the fourth quarter of 2011 compared to an expense of $1 million in the fourth quarter of 2010, primarily as a result of the decrease in foreign currency losses due to the effects of changes in the foreign exchange rates on the intercompany account balances denominated in different currencies.

On a year to date basis, other income and expense decreased to an expense of $1.2 million in fiscal 2011 compared to an expense of $2.7 million in fiscal 2010, primarily as a result of a decrease in foreign currency losses due to the effects of changes in foreign exchange rates on the intercompany account balances denominated in different currencies. Income tax expense increased to $2.9 million in the fourth quarter of 2011 from $377,000 in the fourth quarter of 2010, primarily as a result of an increase in pre-tax income.

The effective income tax rate was 23.8% in the fourth quarter of 2011 compared to 7.2% in the fourth quarter of 2010 which included the release of a valuation allowance of approximately $1.2 million related to the net operating losses of a subsidiary in Germany in the prior year period. Income tax expense increased to $8.3 million for fiscal 2011 compared to $3.1 million in fiscal 2010, primarily as a result of an increase in pre-tax income.

The company's effective income tax rate for fiscal 2011 was 26.3% compared to 22.1% in fiscal 2010. Net income was $9.5 million or $0.56 per share in the fourth quarter of 2011 compared to $4.8 million or $0.29 per share in the fourth quarter of 2010.

Net income for fiscal 2011 was $23.4 million or $1.39 per share compared to net income of $11.1 million or $0.68 per share in fiscal 2010.

I will now discuss a few balance sheet and cash flow items. Cash and short-term investments were $129.5 million at December 31, 2011 compared to $115.7 million at December 31, 2010.

Accounts receivable was $57.5 million at December 31, 2011 compared to $51.9 million at December 31, 2010. Day sales outstanding at December 31, 2011 decreased to 68 days from 81 days at December 31, 2010 primarily as a result of a reduction in DSOs in Europe.

Inventories increased to $67.2 million at December 31, 2011 from $42 million at December 31, 2010. The increase in inventories was primarily related to an increase in raw materials related to the production of the Focus Laser Scanner.

Finally, I will conclude with some statistics regarding our headcount numbers. We had 885 employees at December 31, 2011 compared to 781 at December 31, 2010, an increase of 104 employees or 13.3%.

Account manager headcount at December 31, 2011 was 160 with 48 account managers in the Americas, 50 account managers in Europe, and 62 account managers in Asia. Geographically, we now have 353 employees in the Americas, 299 employees in Europe, and 233 employees in the Asia-Pacific region.

I will now hand the call over to Jay.

Thank you Keith. We had record results in the fourth quarter and likewise for the full year 2011.

Orders were $256 million, sales were $254 million, and net income was $23 million. Despite feeling some economic pressure around the world, as well as gross margin pressure as we ramped up the Focus Laser Scanner, we still set all time record highs for sales and earnings.

Customer demand for our core products was strong and customer demand for the laser scanner was even stronger. In total, I feel that our 2011 results are a firm indication that our existing operating structure has a great deal of leverage.

The Americas had its best year on record with more than $100 million in orders, making it the first region to achieve that milestone. Substantial orders and sales growth were the direct results of robust demand for our products.

Our Latin America markets continues to do well, with our new operation in Brazil, contributing to the America's growth. The market in the United States was even was stronger and drove the largest portion of growth in the region.

In addition to top line success, the America's team continues to meet all delivery targets and is the best customer service turnaround times we've have ever had. Both of these are critical factors for our customers in their decision making process, and provide another competitive advantage for FARO.

Asia also had a strong year, despite the natural disasters in Japan in the spring and Thailand in the fall. We experienced minimal disruptions from the earthquake and tsunami in Japan.

But the floods in Thailand had some impact in delaying orders in Q4. However, we are hearing from the local sales teams that the rebuilding process may be creating new opportunities in both countries.

Tightening up the credit markets in China had a minor impact on sales in the fourth quarter, since many of our customers in China use credit facilities for their purchases. But it has not slowed our growth meaningfully.

The overall economy in China is still growing at a relatively substantial rate, and we expect this market will continue to provide significant growth for us.

Europe had a very good sales year, finishing just under the $100 million level. However, we felt moderate pricing pressure and the effects of a somewhat sluggish economy in the fourth quarter.

Despite some headwinds, we continue to believe Europe remains just as much a growth opportunity as the Americas and Asia.

The Focus Laser Scanner had a strong finish to a phenomenal year, culminating with the recognition of being named one of Popular Science Magazines' 100 Most Innovative Products of 2011. It was certainly a nice way to wrap up the year.

We continue to add distributors for the Laser Scanner and expect the process to be completed this year for the surveying space. In 2012, we expect to start to add distribution capacity for other verticals that have established channel networks.

At the beginning of Q4, we turned on 2 embedded features on the Focus but added a compass and height sensor allowing for a small increase in price that met minimal resistance. The combination in the FARO edge arm with the new disruptive laser line probe accessory has been received extremely well.

The fourth quarter was the first quarter when the laser line probe was available for the entire quarter. Our goal for the product was to drive up the attach rate.

Due to its small size, light weight and low price, every arm customer really should have a laser line probe with their kit. Historically, roughly 20% of our customers would buy a laser line probe with their arm.

In the fourth quarter, approximately 60% added a laser line probe. The product provides a long awaited solution for our customers and good margins for FARO.

R&D work is never finished. We have another disrupted product release coming in the first half of 2012.

It completely relate -- replaces an existing product. In concept the disruption is similar to the edge arm.

The primary hardware will be disruptive in form, ease of use in ergonomics, but the price will not move much, if at all. However, there will be accessories that are extremely disruptive, both on the technical level as well as in price, just like we did with the laser line probe for the arm.

This will be another exciting release.

I am also excited about a new approach to R&D that we are pursuing to compliment our more traditional product development and enhancement. We are planning to embark on a new strategic quest to develop many of the requests for new products and applications we have been receiving directly from our customers.

Some of these new products will serve existing customers, some will serve customers in verticals we don't touch at all today. All of them will be disruptive and provide interesting new opportunities for our sales teams.

This will be an exciting and challenging, as we draw on our customers experience to broaden the application base for our products. It's an absolute requirement to ensure FARO stays at the front of the market, way up front.

I'd like to take this opportunity to talk about the promotion of Bernd Becker to the newly created position of Chief Technology Strategist and Evangelist, reporting directly to me. Bernd came to FARO as one of the co-founders of iQvolution, a cutting edge laser scanner company and together with his brother Reinhardt Becker, our current engineering leader for the FARO Laser Scanner Team and co-founder of iQvolution, they created one of the most disruptive products that 3D measurement space has ever seen.

Bernd has long provided the strategic vision and creative force behind the Focus product, and laser scanners in total. In his new role, he will be responsible for driving our broader 3D technology platform strategy as well.

He will be responsible for continuing development of our existing products and more importantly newer products and applications that will provide the next generation of growth opportunities in the continually expanding 3D market. In addition, he will also bring new insights and perspectives, as we evaluate our competition and consider M&A opportunities.

You may have also seen the 8K we filed last night, announcing that Seigy Buss, our Managing Director in Europe since 2005 and Co-Managing Director before that, is stepping down. Seigy joined FARO when we acquired the software company back in 1998.

Since then he has made enormous contributions for FARO, and has provided strong leadership to the team over there. And we are very grateful for his efforts to FARO.

We have a very capable and experienced management team in place to provide for continuity until the position is filled and the search for his replacement is already underway. In the interim, I will have the team in Europe report directly to me.

We feel good about 2012. We have said and continue to say that 20 to 25% sales growth is the right target for our company.

I have not seen anything in the market for 2012 to indicate that this isn't still the right goal. We will be adding new sales personnel to help drive our growth.

We'll continue to spend aggressively on R&D and will continue to drive leverage to the rest of the operation as we look to further improve our margins. 2011 was a great year, and I expect 2012 will be a great year as well.

The core operation is functioning extremely well and we are embarking on the brand new approach to R&D that will help fuel continued high growth in the future. It's a good time to be in this space and even a better time to be at FARO.

As always I would like to thank the FARO team for their passion, dedication and execution, as well as our customers, suppliers and investors. I am looking forward to see many of you during our Investor Conference next week in Lake Mary, and I will now open up the call for questions.

Jay and Keith, I jumped off briefly, so you may have touched on this in your overview, but just in terms of the sluggishness that you noted in the press release in Europe. I wondered if you could just elaborate on that, if you could say what countries and perhaps what markets, and how have things tracked in Europe thus far in the March quarter?

And I won't talk a lot about the first quarter, because we try not to forecast too deeply into any of the individual quarters. What I will say is that, it was served [ph] across the board.

I think there was just a general -- everything was happening through a macro economic standpoint. It was certainly wasn't a pause.

We obviously had decent volume in the quarter. It just wasn't a whole lot of growth, so I think we saw that as across most of the verticals that are here.

We had a little bit of impact obviously Germany in particular is still a big piece of what we do in Europe. As we look at 2012, like I said we haven't seen anything yet that would indicate we shouldn't have sort of our normalized growth rates in 2012, and that sort of spread across all of the quarters, generally speaking.

And so I'll sort of leave it at that, I think, look there is a little bit of economic pressure here, we've seen it over each of the last 4, 5, 6 quarters. So yes we felt it a little bit more in Q4, I am actually over here right now when you talk to the team at the moment they still all feel very good about where we are headed here in 2012 though.

Jay, just looking at new products we will put the focus in the mix, it is still clearly a new product. Is there a way for you to aggregate the new products and talk in terms of Q4 and say what percent of the revenues came from these products?

Well, again I'll do it generally speaking I'll say that a decent chunk comes from new products because the Edge Arm is brand new in 2011, brand new as of -- sort of the middle of the second quarter there with the LLP being released in the middle, laser line probe in the middle of the third quarter, so we consider all of our arm sales then in Q4 to be new product. Obviously, the laser scanner I still consider to be new product as well.

Laser scanner is still number 2 in terms of sales volume, Arm is still number one, obviously the laser scanner moved to number 2 happened earlier in 2012 when it overtook our previous number 2 which was the laser tracker. So, if you look it at that way and say that a decent chunk of the sales in Q4 were from new products even though one of those the arm itself selling in the verticals that are obviously not new for us.

The laser scanner for sure is selling into some new verticals that we weren't in a year ago or 2 years ago.

And last question, just as looking at the edge. How would you characterize the reception to the product versus similar generation launches for other arm products, has it been stronger in line?

Yes. I'd say, it is the strongest one since I have been here relative to the Arm, the feature sets people in noticing the most are not surprisingly, number one the touch screen interface, we are getting a lot of feedbacks from customers that say, one of the great things about the Edge is if I don't need to compare them to the CAD model and there are plenty of measurement applications where you do not need to compare against the CAD model.

You can take that arm wherever you want, not have the laptop sitting there near the machine tool or on the tool or anywhere else and just use the touch screen to take your measurement. So, that has been received extremely well.

We're definitely getting feedback the customers notice just through the ergonomic profile has improved. We took a lot of the weight out of the hand and pushed it further backwards into the arm and into the counter balances that back down stream in the Arm itself and then for sure and when you look at the attach rate going from 20% up to 60% in a single quarter.

The feedback on the laser line probe has been extremely, extremely positive. It is interesting, it is not the most accurate laser line probe on the market.

It is pretty darn close and it is certainly accurate enough. The form factor and the ease of use, the price point, all of those things make it the, in my opinion certainly, I guess the feedback we're getting from customers is the most compelling solution that's out there.

Could you just speak Jay, maybe give us some sense of how the Laser Scanner fared in the quarter from a sales perspective. We know in the third quarter that you took some backlog down there, but were the fourth quarter sales of the scanner above or below the third quarter?

I won't say specifically above or below third quarter, they certainly were similar to what we saw in all the previous quarters. In terms of the volume and the expectation that we had we certainly have increased what our expectations are for that product going into 2012 year based on the success of CAD so far.

Q4 was one of those periods that we said, look we will watch it this closely because you have many of the distributors now have products in hand so as shipments went out there was a potential to see a lull as distributors started then putting the product in the market place actually demonstrating them and so forth and I certainly would not say that we saw a lull. So what you have now are distributors getting comfortable with the product.

They have had it in the hands for a full quarter to demonstrate it to customers. We are definitely seeing sell through, we're not at a point where I'll talk about the percentage of sell through, but at the end of Q3 I think what I had said relative to sell through is that I can't say its a trend yet, but the data was meaningful and the data was positive in a meaningful way.

I'll say that has continued to improve the number of the distributors that are out there that are actually demonstrating sell through is increasing so all of those are good signs and positive signs. We get another quarter or 2 here in 2012, we probably will be able to give a little more specific data on that, but it is good sell through and so as a result I think we're going to see the growth we're expecting out of it in 2012.

Do you feel that I can kind of do my own math on what the calendar year sales of the scanner were, but do you feel that that product line starts to look from a growth rate perspective similar to core products as you move forward and the base is bigger.

Yes. Obviously I don't think it will be a quite the same growth rate just because it was coming off such a ridiculously low installed based going into 2011.

That being said I do believe the Laser Scanner has the opportunity to outsell the other products on a percentage basis. So, when we say look we do expect 20% to 25% growth across all of the product line for sure if there is one that had the potential for upside beyond that it certainly is the laser scanner because even though we have a larger installed base, it is still a varying product and it is being received really well in the market place.

We've now turned into an annual event at the 3-D documentation conference. Lastly we had it in Europe, we just had it in the Americas a couple of weeks ago and we had close to 300 participants at the conference who are all focused on how to use the Laser Scanner and how to -- either they are using for their own purposes inside their company or using it as a service provider, but the feedback we received during that session and we've gotten multiple rounds of feedback since then has indicated that this market is real and we barely sort of scraped the surface on where that product can go from a sales standpoint.

Okay, just one last question Jay, how should we model or think about the product gross margin as we move into and through '12, calendar '12? We started off calendar '11 at a pretty good rate, 3D Focus kind of built, maybe put some pressure there, we improved the margins, but can we make continued progress off of the fourth quarter product gross margin or are you optimistic enough to say that we can make progress off of all of calendar '11s gross margin on the product side?

Rick, this is Keith, I think first of all we don't give guidance with regards to margin, but I can say that, I think we are making quite a few modifications with regards to the manufacturing of the Focus, I think our margins from the manufacturing, pure manufacturing cost standpoint should improve. However, to the extent that we continue to add new distributors, not only for the surveying market, but for other markets as Jay mentioned in his call.

I think depending on that mix that could have an impact on the margin. But again, we expect that to fall to the operating margin.

So, I think, I wouldn't expect any degregation in the actual product cost.

So, okay, that's helpful and we saw progress in the fourth quarter so, again this is probably more of a mix issue going forward than it is a production cost issue?

That's right.

Question for Keith on the tax rate in the fourth quarter, you had the lowest tax rate of the year, could you talk about how that was generated and could you give us some thoughts relative to the upcoming year of what kind of rate we should be assuming?

Yes, in the fourth as you know tax rates are typically projected for the entire year and there were some true up adjustments in Q4. I think going forward for 2012, I would expect the rate to be very much in line with the 26% to 28% rate that we have been using for fiscal 2011.

We did get some benefit from some option exercises in 2011, but I think the 26% to 28% range is probably a good target for 2012.

Okay. Secondly, Asia Pacific's fourth quarter sales were flat, you didn't see as you saw in your other geographies your normal seasonal uptick, was there a specific reason in that market for that sort of flat sequential performances despite the fact that, you were, you had made some additions to the rep base there?

Yes, I mean, I don't think there is any reason to for us to be concerned about what the volume looks like going into 2012, that is number one. When you look at the fourth quarter in Asia, the couple of things that we mentioned before, in particular in Thailand the issue that was playing there, it did definitely have some impact on us in Q4, not just in Thailand, but we also have customers in Japan who had momentary sort of pauses as they got themselves pulled together after the disaster there, which did affect many of their plants.

And Thailand though, though we don't talk about it a lot for FARO, it is one of the bigger countries in our portfolio from a sales standpoint. So, the team there, as indicated they definitely seen what appears to be I guess more opportunities now going into 2012.

Customers are restarting and they have actually, they are doing more things than we had originally planned on for 2012. So that's a good thing.

But outside of that, I wouldn't read anything into the Asia number in Q4 from a concern standpoint. We certainly feel pretty good about where we are at going into Q1 and the rest of the year.

Okay. Final question, relative, you made, Jay you made a comment about making investments in your sales force in the upcoming year, I think you increased your rep base little over 8% this year, moving into 2012 to support the 20% to 25% overall revenue growth rate, what kind of increase in terms of headcount for sales reps do you think you will have to put in place?

Yes, without giving the specific number, it will be anywhere between low teens to high teens from a percentage increase standpoint. And it really depends on the timing of finding the right people, they will be mostly focused on the Metrology side of the business.

So I really think, -- we will have a few adds on the Laser Scanner side, but we are obviously doing a lot there with the distribution network at the moment. There is definite opportunity in uncovered territory or territories where there is opportunity to dive deeper with more people in place, we have definitely seen that now from market demand standpoint.

So those heads will tend to be focused on that area more than on the Laser Scanner side.

Two quick questions, I think the first one is going back to the gross margins of the Focus Laser Scanner, I think you have said historically, that over time despite using the InRed [ph] channel, do you expect the gross margins of that product to come up to the historical corporate average? Now, is that still the case that over time you can get the costs out or is it increasing volume you can actually get it there?

And not in terms of one quarter or 2, but if that's the case, how many quarters will it take to get there?

You are right, I think we have always said that and our long term model, we are going to -- we are targeting the 60% to 65% gross margin and I think over the long term, I don't think I can nail down if it is going to be one or 2 more quarters before you see that regardless of the distribution mix for the Laser Scanner product that you are going to see gross margins kind of in that range. I think typically what we are emphasizing is cost reductions on the bottom side and cost reductions on the labor and overhead side.

I think to the extent that the distribution mix, not just in the surveying industry, but in the insurance and forensics and in the other markets that we are targeting depends on the distribution mix of those channels as well. But, over the longer term 2 or 3 year targets, we are still targeting that 60% to 65% overall gross margin.

For the product which should mean that your average gross margins for the overall company should rise up to beyond to reach the same or beyond what you have delivered historically as a peak?

Well, I think without getting into specific product margins, I think that we have always talked about that the order of the margins with the Arm being the highest, I think quite a bit for the Laser Scanner is going to depend on the distribution mix, but the 60% to 65% gross margin has been one of our long standing targets and I think that, I am not going to put a specific number of quarters but, clearly that is still an achievable goal for us.

Got it, and then just need your gross margins for the services side, even that appeared to have come under pressure in 2011, what is driving that?

Well, we just opened a facility in Brazil that primarily has the biggest impact, there are lot of upfront costs related to getting that service center started up. So, I think you will start to see those margins improve a little bit.

Got it and then the Focus Laser Scanner, has there, last quarter you said there hadn't really been a meaningful competitive response. Have you seen any other change in the competitive behavior from the competitors that you face in that market?

We have not seen anything yet. I would continue to say that obviously we expect something at some point, but we haven't seen anything and it has been pretty quiet.

Right and then the last question would be, just looking at the verticals that you serve, you gave us some very good geographic color about what happened in Thailand and some of the slowdown in Europe, but in terms of verticals, are you seeing any change in increased spending or reduced spending by the set of 4 key verticals that you have historically, not necessarily the new vertical on the survey side, but when you look at automotive, you look at aerospace and you look at some of the other verticals you are looking at, is there any vertical where we can actually expect an acceleration rather than deceleration against more difficult comparisons?

Yes, I think, it is just one way to look at it, since we historically haven't talked about the impact from each individual vertical, but what I would say is, number one we still don't necessarily need the verticals to be growing for us to grow. We still are a heavy productivity play in even the kind of the primary 4 that we have always sold into in the industrial world.

From a macro perspective what we are definitely seeing is that, in the Americas we are definitely seeing an increase in spending for sure, even beyond where they were before. In Asia, same thing, although the location [ph] has been growing their spending on a pretty regular basis now for a while.

Europe, I think is the one spot where the spending growth may not be as much as it was, it may even be flat for a while, but again, even though it may be flat on the spending side, we still feel confident about 2012 because that hasn't historically been a driver of our own growth because there is this focus on productivity and there is definitely still CapEx money available at all the different verticals we sell into, particularly the big 4 verticals. In order to improve their own productivity they got money to spend on technology just not people and we're definitely still seeing that.

Yes, I am sorry back for a second. Jay or Keith, did you see any cancellations in the quarter for inventory purposes or anything else at distributors or just in the market?

And the reason I am asking is the backlog number seems like it should be a bit higher relative to the fourth quarter order and sales performance?

I can't say we have seen anything meaningful, I mean we always have a few cancellations here and there, we had a few cancellations from distributors where they may have ordered a couple too many out of the gate and they are getting themselves ramped up. But nothing that would be material or meaningful from my perspective to the backlog or to the quarter.

And then, just a last question. Jay could you just explain, you made some comments around this new approach on R&D and we have, -- this is, let us say the title was new technology strategist and evangelist or something, Bernd Becker, but is that -- is this new approach, is it targeted at driving more TARR [ph] , more new technology, new research or what exactly are you putting the emphasis on there?

So for Bernd's role and the part that I get excited about is, first let me backtrack for second, we obviously, I think we got it pretty good and demonstrate the track record of being disruptive in the products that are already inside the portfolio and that doesn't change. The teams are already working on the next gen, the next disruptive gen even for the products that we already have in-house.

The piece where I want to take advantage of sort of the strength that we have from a technology perspective, from an engineering perspective, from a brain power perspective, and from a market presence perspective starts looking at other 3 dimensional measurement technologies that belong in the portfolio that we may not have there today. And so, there is a couple of ways to look at that, one is the market presence side or the market strength side.

We have customers who are asking us on a regular basis, can you do X? Can you do Y?

Can you do Z? And we say, No we don't have that in the portfolio today.

But, we internally have some of the capability to do that. And I will get to that in a second, or we don't have the capability to do it and we need to get more focused on our M&A approach to how we would put our hands around some of that.

And one example I have used in the past, it is the one I will keep talking about, just to stay consistent is, if you look manufacturing plant, if you have automated measurement needs we don't do that today. However, we certainly have the capability to create that.

So where Bernd comes into play is number one, working with me to strategize what are those additional opportunities? What are those additional verticals?

What are the additional technologies? Number 2, with the engineering teams looking at it and saying, hey look, inside each of our core products there are series of subsystems which have significant intellectual property or application that I or both within them that it configured differently and managed differently across the spectrum could actually provide different solutions for the customer base.

And then, the third would be and if we don't have the ability to generate some new products out of that, then let's recycle ourselves again on the M&A front and see what else is missing there. So, it is a put in a much more what I call concrete, thoughtful and aggressive approach towards that to take advantage of look, we are on a nice growth curve right now, we have got a lot of cash in the bank as we frequently talked about and we are now frequently asked about again.

And, we have this tremendous amount of expertise that is developed over the last 4 to 5 years in the 3D space, which is being applied in fairly specific methods and ways today and all of those products and methods that we have today have significant growth potential going forward. All the products should still grow 20% to 25% like I talked about earlier.

But, this is a chance to leverage that strength and that capability into something much bigger, much broader and potentially provide even greater growth opportunity as we go forward. And so, that's how we look at it.

We will talk a little bit more about it during the investor meeting next week for sure and some thoughts on the approach, I will talk a little bit about how I have coined that and the phrase I have given it and the theme behind it for the entire to rally the whole company behind it which I have done now, throughout all the different [indiscernible] in the meeting and so forth. It is going to be, in my opinion, it is going to be pretty exciting and pretty aggressive and it definably has some transformative potential here for the company, much further beyond what we already are today.

Yes 2 questions, the first one is the mix of new customers relative to existing customers in the quarter?

The new customers for the quarter is about 44% new for the quarter and it is about, I guess it averaged about 42% for the year.

Right, so now when we look at that, do we see a trend, I think the target for the company until a couple of years ago was that you wanted 50% new customers and 50% existing customers, is that going to change now? Do you feel that the penetration levels are at a point where we can expect this current mix to be the ongoing mix?

No, I think it is going to continue to shift towards new again, Ajit. And the primary driver for that is number one, on the Metrology side I do still believe we should be targeting a 50-50 split.

The importance being that the more customers who are using our product line [ph] today, the better the opportunity for them, so the hockey stick of growth to continue or to replicate itself or even improve the, how steep the curve is, because, the more standard the technology becomes, the better the opportunity for a pull so it is not just us pushing. And then on the Laser Scanner side obviously I expect the customer base there to be heavily slanted towards new customers for quite some period of time until we have gotten ourselves into that space.

So in some respects, and we probably at some point are going to split this out, didn't look at it as a blended average to be meaningful probably against the split between here's what we are doing on the Metrology side, here is what we are doing on the Laser Scanner side. It is not quite meaningful enough to do it yet, but arguably you could see the Laser Scanner being 75% or 80% new and 20ish% existing and I am just throwing order magnitude out there.

You could be like that for some period of time here because the market is that brand new for us and that wide open.

Got it, and then on the R&D Side, I know you are going to provide us more color, but the way to think about it for an income statements and modeling it right now the changes, usually when you increase investments in R&D there is a lag time between stepped up investments and then getting returns. So are the changes that you are proposing on the income statement, do they actually involve an increase in the short run in the budget for the R&D as a percentage of revenues or in absolute level or stepped up level of investment, how do we think about that in terms of our modeling our operating leverage over the next couple of years?

Yes, so the target has always been to be somewhere between 5% and 7% of sales and with the exception of '09 when sales had the dip obviously, we have been within that range and there has been periods of time when we were much closer to the 5% range and in periods of time when were a little bit higher in it. I still believe that the right range for the company, we may run at the high end of that range for a while.

Is it possible you could run a little bit over the 7% for a while? Yes, it is possible.

It really depends on momentum and as some of these products develop with the momentum that we push to get them into the market place, that being said, we do still expect to get continued sort of meaningful though steady improvement on the operating margin side too. So, even if we did dip a little bit above or grow a little bit above the normalized range, we would still expect to be able to see some, at least stable if not continued improvement on the operating margin side while we did it.

I think we can actually do both and accomplish what I want to do here on this the new leap on the R&D side.

Let me just push that last question a little bit further. It sounds like, Jay, from your comments that the emphasis on R&D in the next year would push R&D as a percent of sales above where it was this past year, which was I guess 6.0%?

Yes, well it could be higher than 6.0%, it's possible. Do I think we can do it within that typical 5% to 7% range, I still believe that is possible to do.

And if for some reason we felt the need to push even higher above that, at that point I would talk openly about it and give some good reason for it. But I actually still think we can keep within that normal, probably the high side of the range, but the normalized range still -- even though that may mean a slight increase in the actual spending dollars, it would still be within the range that we have come to expect.

Okay. Finally, you did mention repeated questions on your cash position and I guess it continues to grow, I know historically stated that you want to maintain a large cash position so that you could make an acquisition if there is a technology out there you needed to buy.

When is an up cash enough and when do you see or is there a point at which you might look at doing other things with your cash other than just holding it for a potential acquisition?

Yes. I know the answer will drive everybody crazy.

I cannot tell you when I think enough cash is enough or when we might do anything special with it. I still believe there are investment opportunities for us out there that are on the technology side that are the best use, an application for that cash for the future growth and benefit for the company and ultimately the shareholders versus anything in the nearer term.

It is easy to say now because we are sitting at $130 million and I think it is a lot of cash. If we are sitting on $500 million I think we'd have maybe a different dialog, but I can't say that to even the threshold either.

I think as a technology company, as a high growth company as we continue to look to grow and even accelerate that growth, you want to have enough cash available to be really flexible and move really fast when you need to. And certainly, I think the $130 million is high, I don't think it is absurd or unusual relative to the size of the company, or given the types of growth plans that we have and the types of things that I think we can still do.

Okay. Final question, relative to the Monitor, is that still -- or you still have one more event and what might be the cost of timing of wrapping up that experience?

Yes, we have a one final report that is scheduled for the second quarter of this year and I think it really could depend, I think we are estimating roughly about $750,000 to $1 million.

Yes. So when you look at your order growth rates these past couple of quarters, on a year-over-year basis, as well as on a sequential basis, there has been a very significant moderation against tougher comparisons and as the channel for the new product, the Focus Laser Scanner product also starts -- start lapping the initial channel sales.

So could you give us some color as to from this mid teens to low teens growth right now year-over-year, what gives you confidence now then the overall economy is -- or you have more difficult comparisons on the back? What gives you confidence you can see a 20% to 25% growth as the business model, especially for 2012 you mentioned you expect it to be within the moderate range, what gives you that confidence?

Yes. Let me add a tiny bit more color then and a little more tactical color to go with it then.

So, number one, we do see at least 2 of our -- the 2 primary regions out of the 3, Americas and Asia, we see actually good economic sort of development there for sure. I think the situation is much better in the Americas going into 2012 than it was going into 2011, we definitely see that day-in and day-out, we see customers spending more again.

In Asia, even though we have had these tiny blips here and there, overall the region and the health there looks good, even including today Japanese industrial output was better than expected. We still see good signs there.

No question about it. Europe for sure there is a little bit of pressure.

I think it's moderate, the best. Yes, there is a little bit of this [indiscernible] mentality in Q4.

That being said, I don't think that lasts in 2012 either. Tactically, a few other things just to think about, number one, we do have more and more distributors coming online, it will become more productive for us on the laser scanner side.

So as we add new ones, that will help drive some moderate growth. And as you have the existing ones getting comfortable with their product and they actually start selling through, we do see good growth coming from those folks once they are established.

The pattern is definitely there. On the metrology side, the part of business that really focuses on the industrial world, we have taken some additional steps.

Number one, obviously from a headcount standpoint, we are going to increase the rate of add this year compared to the last year. And there is a definite correlation for sure, as you add heads you get revenue and income out of them, even though it takes them a little while to ramp up, it is not like they aren't selling right out of the gate.

So, they start generating sales, and their run rate will continue to improve. We had actually also done a couple of things on the leadership side, to get additional focus on the metrology business.

So to use an example here in Europe, we actually have now a sales leader that is dedicated just to the industrial measurement and the metrology side of the business, and a separate one that will manage that laser scanner distribution network in channel and the account managers on that side, because the markets really are kind of different, the focus is pretty different. And we want to make sure that we are maintaining this 20%, 25% minimum growth rate on all side of the equations.

So putting that additional focus there will help that. And you're going to see, not necessarily the exact same pattern in the other 2 regions, but we have done additional things in the other 2 regions as well, to give similar sort of measured impact, or the ability to measure the impact even greater on the metrology side that will drive that growth in those 2 regions as well.

So all of those different things and you are positive steps didn't give us sort of some comfort that we should be able to see that growth rate.

Thanks everybody for your time and attention today. Like I said I look forward seeing most of you next week at the investor conference in Lake Mary.

Thanks very much.