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 first quarter results. By now you should have received a copy of the press release.

If you have not received a release, please call Nancy Setteducati at 407-333-9911. The 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 Securities and Exchange Commission.

I will now turn the call over to Keith.

Thank you, Vic, and good morning, everyone. Sales in the first quarter of 2012 were $65.2 million, a 24.1% increase from $52.6 million in the first quarter of 2011.

On a regional basis, first quarter sales in 2012 in the Americas increased 29.7% to $25.1 million compared to $19.3 million in the first quarter of 2011.

Sales increased 21.2% in Europe to $23 million from $19 million in the first quarter of 2011. And sales in the Asia Pacific region increased 20.4% to $17.1 million from $14.2 million in the first quarter of 2011.

The effective changes in foreign exchange rates on sales was a decrease of $700,000 in the first quarter of 2012 compared to the first quarter of 2011. New orders increased 11.1% in the first quarter of 2012 to approximately $62.1 million compared to approximately $55.9 million in the first quarter of 2011.

On a regional basis, first quarter orders in 2012 in the Americas increased 6.9% to $21.8 million compared to $20.4 million in the first quarter of 2011. Orders increased 6.5% in Europe to $22.8 million from $21.4 million in the first quarter of 2011.

And orders in the Asia Pacific region increased 24.1% to $17.5 million compared to $14.1 million in the year-ago quarter.

The top five customers by sales volume in the first quarter of 2012 were Boeing, PT Smart Mitra Solutions, Changchun [ph] City Star Commerce, IHI Corporation, and General Motors and together represented only 2.6% of our sales. The top 10 customers in the first quarter of 2012 together represented only 4.2% of our sales, once again indicating our lack of dependence on any 1 or a handful of customers.

Our gross margin was 57% in the first quarter of 2012, compared to 57.6% in the year-ago quarter and represents continuing sequential improvement in our product margins over the past 3 quarters of 2011, as a result of both better average selling prices and lower manufacturing costs, with some fluctuations among the product lines during that time period, but having an overall positive trend.

On a quarter-over-quarter basis, gross margin from product sales decreased to 62.3% in the first quarter of 2012 from 63.7% in the first quarter of 2011 as a result of a change in the historical sales mix caused by the increase in the sales of laser scanner product, which currently has a lower gross margin. Gross margin from service revenues was 30% in both periods.

Selling expenses were 24.6% of sales in the first quarter of 2012 compared to 26.9% in the year-ago quarter. Selling expenses increased to $16 million in the first quarter of 2012 from $14.2 million in the first quarter of 2011, primarily as a result of an increase in compensation of $800,000, marketing and advertising cost of $400,000 and travel-related cost of $400,000.

Administrative expenses in the first quarter of 2012 were 10.2% of sales compared to 12.5% of sales in the first quarter of 2011, remaining flat at $6.6 million in each period. Legal and professional fees related to the patent litigation and the FCPA monitor in connection with the DOJ and the SEC settlement were unchanged at approximately 500,000 in each period.

The monitor is currently in the process of performing her follow-up revenue and we expect to incur fees in the range of $500,000 to $750,000 in the second quarter of 2012. The Metris [ph] litigation is also scheduled for a jury trial on July 30, 2012, we expect this will increase our legal fees in the third quarter of 2012, but cannot estimate the impact at this time.

Research and development expenses increased to $4.4 million in the first quarter of 2012 or 6.8% of sales, compared to $3.6 million or 6.9% of sales in the first quarter of 2011. Research and development expenses increased primarily due to an increase in compensation of $500,000.

The operating margin for the first quarter of 2012 increased to 12.9% from 8.2% in the year-ago quarter, primarily as a result of the continuing effects of leveraging the current operating structure.

Other income and expenses net remained flat at income of $100,000 in both periods and represents the effects of changes in foreign exchange rates and the inter-company balances denominated in different currencies.

Income tax expense increased to $1.9 million in the first quarter of 2012 from $1.2 million in the first quarter 2011, primarily as a result of an increase in pretax income. The effective income tax rate decreased to 22.1% in the first quarter of 2012 compared to 26.5% in the first quarter of 2011 and included the reduction in the income tax rates of 5% and 3.5% respectively, related to the tax benefit of the exercise of employee stock options.

Net income increased to $6.7 million or $0.39 per share in the first quarter of 2012, compared to $3.2 million or $0.20 per share in the first quarter of 2011.

I will now move on to a few balance sheet and cash flow items. Cash and short-term investments were $138.6 million at March 31, 2012 compared to $129.5 million at December 31, 2011.

Accounts receivable was $48.7 million at March 31, 2012 compared to $57.5 million at December 31, 2011. Day sales outstanding at both March 31, 2012 and December 31, 2011 was 58 [ph] days.

Inventories increased to $74.8 million at March 31, 2012 from $67.2 million at December 31, 2011. The increase in inventories was primarily related to an increase in certain raw materials with long lead times, related to the production of the focused laser scanner.

Finally, I’ll conclude with our headcount numbers. We had 911 employees at March 31, 2012 compared to 885 at December 31, 2011, an increase of 26 employees or 2.9%.

Account manager headcount at March 31, 2012 was 164 with 52 account managers in the Americas, 52 account managers in Europe and 60 account managers in Asia. Geographically, we now have 361 employees in the Americas, 306 employees in Europe and 244 employees in the Asia-Pacific region.

I will now hand the call over to Jay.

Thanks, Keith. Sales were close to 25% in the first quarter, a nice way to start the year.

All 3 regions had double-digit gains above 20% with the Americas leading the way at 29%. Gross margin declined slightly quarter-over-quarter, but it increased sequentially from Q4 as we continue to improve pricing and manufacturing cost for certain product lines.

Net income increased more than 100%, demonstrating continued leverage from our operating model.

Orders in the first quarter grew at 11%. Asia had solid double-digit gains with good growth in all of our major markets.

In the Americas there were selected timing issues. Orders that appear to be closing in Q1 were pushed to Q2 and closed.

That resulted in an unusual single-digit orders growth rate in the Americas for Q1.

In Europe we experienced some market softness, also resulting in the single digit orders growth rate, but we expect that to improve through the rest of this year. We made a leadership change in the European sales organization to drive renewed focus on returning Europe to double-digit growth and as discussed in the last earnings call, we’re also adding new account managers and other sales support personnel in each region to help drive our growth.

The focused laser scanner is performing well. We continue to build out the distribution channel, which represented 37% of laser scanner sales in the quarter.

We are also seeing good sell-through from this channel. Approximately 65% of the distributors returned 2 or more times over the last 12 months, with the bulk of the end-customers from those sales coming in the survey and the construction space.

We are experimenting with additional verticals for the laser scanner, looking to identify the best-fit customer needs, as well as the best channels to serve those markets.

In both my letter to the shareholders and this year’s annual report and the Investor Day we held in Lake Mary in February, I talked about the Cambrian explosion at FARO. This program is aimed at accelerating our own R&D activities by leveraging the component level technology and know-how we already posses, to develop new product offerings to address existing and new potential verticals.

The program is off to a nice start with Bernd Becker, our Chief Technology Strategist and Evangelist leading the effort with me. We have set aggressive timelines and the team has already identified several great potential products.

Expect the first of these offerings to be introduced sometime next year.

Many of you asked about the status of the monitor and when she will finish her work at FARO. The monitor started her second and final review a couple of weeks ago, and she will be visiting locations in each of our regions as part of her review.

It will be several weeks before we learn the final results and see her report to the SEC and DOJ. We should be able to discuss the final outcome during the second quarter earnings call.

The Metris patent litigation is scheduled to go to trial on July 30. This is a jury trial and the judge in the case has asked both parties to make one more attempt at settlement prior to the trial's beginning.

However, we’ve had no success in prior attempts, so I believe the trial will go forward. The judge has already ruled that we don’t infringe the first patent in question.

We continue to believe we do not infringe on the second patent, and that the patent is invalid and non-enforceable. We will provide more updates during next quarter’s earnings call.

We feel very good about 2012 and believe that 20% to 25% sales growth remains the right target for our company as we go forward. We are not seeing anything in the market that would indicate this isn’t still the right goal.

We are continuing to drive leverage throughout the operation as we look to further improve our margins and we have a solid pipeline of R&D initiatives in place.

As always, my thanks go out to the FARO team, our customers, suppliers and investors and I’ll now open the call for questions.

A question relative to seasonality; clearly there was a distinct seasonality, historically with -- just in the arm business with kind of 20%, 25%, 25% to 30% of revenues spread across the quarters. With scan involved, do you see that same type of seasonality existing or do you think it will smooth out more because of the scan product line.

Yes, over time I think it will smooth out a little bit, just because of the types of verticals we are selling into don’t appear to have the same type of dynamics that say the manufacturing environment does.

That being said, it’s also a little bit early to tell. I guess the initial data would indicate that’s probably the case, but it is still only a year and a half give or take, a year and 3 quarters, since we introduced that version of the product and the highest volume of the sales really didn’t start occurring until the third quarter of last year when we had worked out all the kinks in the manufacturing process.

So, I think the early data would indicate yes, but it’s probably too early to say that we know exactly how much impact we’ll see.

Okay. Keith, relative to the tax rate, was that a 1 quarter benefit and should we expect a more normalized 27% rate for the balance of the year?

Yes, I think we are going to be in that 27% to 28% rate for the remainder of the year.

Okay, and then a final question, relative to gross margin on product, obviously it was a little bit higher than I was looking for here. Should one assume that that rate is at least sustainable as you gain volume in the second and third quarters?

Well, yes, I think so. I think we talked about it.

It was probably the second quarter when it dipped and then sort of stabilized and Keith and I, both our view is that we’d probably hit sort of the bottom end of the platform at that point and we should start seeing slow progressive improvement and we’ve seen that the last three quarters in a row now. So I think you’d expect to see at least some continued movement upwards and the rate of which obviously depends on a whole variety of factors, product mix and otherwise, but I think we still feel good about slow upper margin -- movement from here.

Jay, I was wondering if we could just talk a little bit more about what you're seeing in Europe. How much of the softness that you referenced is due to the economic environment which we are all hearing about and how much is perhaps still specific to the issues that you’re facing internally with the leadership transition.

I think there’s a little bit of both, plus probably a third factor. So the economic situation, there’s definitely a little bit of pressure there and it's still it’s more -- it’s certainly nothing like we saw in 2009.

There is a general feeling when you talk to the team over here of okay, customers are watching closely what’s happening in Southern Europe. It hasn’t necessarily changed their overall buying patterns.

It may cause some delays, but not with all of the customers either. Some have plowed forward and said, none of that matters to us, we are still moving forward, so that is a piece of it.

For sure a leadership change is beneficial there. As we talked about in the last call, the Managing Director for Europe is no longer with FARO and we are actively engaged with our headhunter to fill that position.

In the meantime I also made the change to the sales leadership. We've put in place an individual who’s been a FARO sales leader and all the way down to account manager over the last 13 years.

So he is very familiar with the product, very familiar with the company, very familiar with the sales process and really understands where the best practices are and I think it will allow us to refocus the team, particularly on the metrology side, which does tie directly into that manufacturing space. So set aside a little bit of softness there.

I think some of that is, we need better execution from our team. And then the third area, there is a little bit of pressure.

It’s just because the laser scanner growth -- if you look at Europe in particular in the last year. The orders growth from the laser scanner in the first quarter was phenomenal.

In total the region grew more than 40% -- or 50% in orders in the first quarter of last year. So you have a little bit of the, not quite the hangover effect from a massive growth in the first quarter of last year, but at least there’s a little bit of normalizing I think there as well because it was such a substantial movement in the first quarter last year.

It’s probably too soon in this leadership transition, but are you seeing any improvement in the profitability of that portion of the business?

On the laser scanner side?

Well, just in the European business, sorry.

Oh sorry, yes. I think we’ll see slow and steady improvement there as well.

I’m actually here again this week, and I think we'll -- again, sort of like the gross margin we are going to see slow and steady improvement as we go through the year. I think the most critical piece here, the refocusing of the sales team, particularly as it relates to the metrology side, which does still carry very, very strong gross margin with it, the improvement there obviously has a pretty quick trickle down effect.

Hey, could you just as a follow-up to that last question, in the Q there is a pretty substantial swing in the operating profit in Europe from a loss to a $2 million plus profit in this quarter. What accounts for that?

Well, I think there is some improved margin and I also think there is a little bit of an improved cost control. There is clearly some leveraging effects that we’ve been experiencing throughout the entire company, but primarily it’s leveraging that European structure and some increases in that gross margin rate.

And a question on -- I want to double back for a second, on the gross profit margin, on the product side. I understand the change year-over-year better than I do sequentially.

So if I look at the gross product margin, our gross margin on products from the fourth quarter to the first quarter on substantially lower sales, we did 150 bps better in gross margin. What’s the mix impact there that’s so substantial?

Well, I don’t think we talked about specifically gross margin by product, but I can tell you that we’ve been making improvements in that product gross margin over the past 3 quarters when we started to introduce the laser scanner. I think in the second quarter of 2011 we are around 61 and we dropped down to 60 and back to 61 again.

But as I said on the call, we’ve been seeing some improvements in the average selling prices and some decreases in our actual unit costs. So I’ve got us to that 62.3% for the products in the first quarter.

Is part of that -- Keith, is part of that -- I think in the fourth quarter you had about 50% of the focused laser scanner went through distribution; you said 37% this quarter. Is that a measurable impact?

Well, that’s true and the impact of the distribution versus direct sales mix on the laser scanner will continue to impact that product margin, because of the discounting effect for the distributors.

And is the 37% of sales in this quarter, does that work higher through the year? Is that what you'd expect in terms of more of that product moving through distribution?

Yes, I think that’s our plan for 2012. We’ll probably end up closer to maybe to 75% sales mix towards distributors, but it’s clearly, the trend is toward more distributor sales rather than direct sales.

I see, okay. And then Jay, I know you don’t really speak to numbers here, but was focused laser scanner sales in Q1, were they higher than Q4?

I don’t know if we’ve actually disclosed that in previous quarters either Rick. Keith, have we given a feel for that in the past?

No, we’ve never actually disclosed any of it.

Yes, what I can say is that we are seeing very good growth there still today and we are seeing good growth in metrology too. Obviously the laser scanner has very, very good growth.

Given that we're kind of making up our own numbers in terms of dollars of sales. Can you just directionally say if they were up?

Were laser scanner sales up?

Yes, sequentially.

Yes, for sure. I’m not going to say - I mean, you have to assume that if there’s growth in the laser scanner, then yes, obviously they are up over last year.

I won’t say by how much, but there’s good growth in the laser scanner.

Okay, and your comment about U.S. orders being delayed, but then closed in the second quarter -- early in the second quarter.

Were those orders skewed towards focused laser scanner or metrology?

It is a little of both, but more heavily skewed towards metrology and it was one of those that the team at sell, they said they really thought those are ready to close. Our normal process would have indicated yes, they would.

The fact that they have closed relatively quickly after that, I think is still a decent indicator of the overall market.

Yes, hi guys and congratulations is due on bringing the revenue beats to the bottom line in the last couple of quarters. Just can you talk a little bit about on the manufacturing side, are you seeing cost reductions in manufacturing?

Is it really the volume leverage that’s lowering the unit cost? Can you go into that a little bit?

Yes, I think it’s probably a little bit of a combination of both on the lower unit prices, as well as primarily though from the lower overhead costs as a result of the increase in the volume.

And can you give us any kind of feel for what happened with ASPs, order of magnitude, price increase. Is it sort of still discovering what the optimal pricing is?

Well, I think on the arm side it’s been holding up fairly well. I think we talked about some of the effects of the increase of the accessories sales on the margins for the arms, and I think we talked about last quarter, we had a slight increase in the average selling price for the laser scanner as a result of the compass [ph] and the height sensor feature being turned on.

Jay, the bookings that you referenced in the Americas that slipped and then subsequently closed in Q2, was that concentrated among a few metrology customers or was it spread out among a number of them?

No, it was pretty spread out. It follows similar to our normal -- when you look at our sales volume in a quarter, that 2% make up the top five and 4.5% make up the top 10, it’s very, very scattered.

It’s not like we have any 1 big deal that we are waiting on. It’s spread across a pretty good group.

Okay. And then just turning to the scanner, where are you in terms of the build-out of the distribution channel?

Does that change -- does the increase begin to accelerate over the next couple of quarters in terms of adding new distributors? It sounds like you’ve got a pretty, fairly aggressive target in terms of what percent of revenues you expect to come from that channel towards the end of the year.

Yes, I’d say we are at least probably 75% of the way there now as it relates to the -- sort of focused on the construction and the surveying space. So I think second quarter, third quarter we get that wrapped up.

There’s always going to be some give and take in that market as we identify -- we may identify a handful of others that we find are good fixes [ph] and obviously if you have some that aren't performing you make some change-outs, but that kind of normalized rate, I think we get there by the end of the third quarter. That being said, as we look for the other potential verticals that we can get into and we’ve started some experiments there, if we find there is a different type of channel, whether it’s distribution or otherwise that is better than trying to run everything through our own people, because our folks don’t have access to that channel.

Use insurance as an example. Our folks don’t really have any access to that channel today.

So as we identify others, we may suddenly say, hey look, the distribution channel is built-out for construction and surveying for now, but here’s a new vertical and the right way to serve it is through a different distribution channel and we are in the process of establishing that now. So we’ll kind of keep everybody posted as that goes, but there may always be some development there as we are looking for new spots to sell.

Are you suggesting that insurance is the next vertical that you’re focusing more attention on with the product?

I won’t say it’s necessarily the next one. It certainly is high on our list of priorities to identify how to get in there.

Because we think there’s a real opportunity there. But, look, we are getting good activity in the process power and pipe or oil and gas segment as you want to call it, and certainly in the manufacturing world today as well.

We got several customers who’ve started using the scanner and they are scanning the facilities and essentially what they are doing is every 6 months they are scanning the facility just to get a new updated 3-D rendering of everything that’s in there. They're not even taking it to CAD, they are just taking the data and storing it, so they have it, and posting that in a -- utilizing FARO webshare on the Internet, so in a secure site so that those facilities can be viewed from anywhere in the world by anybody inside the manufacturer.

And these are customers that are buying the 3D scanner, not using an outside service to come in and do it?

Correct. That being said, there’s probably some who will decide to do it from outside service, maybe some of the smaller ones, but you know at the price point and the ease use, particularly if you are not doing anything to bring it to CAD, anybody can take a scan, pull out the SD card and upload it to the web.

I mean that’s about as easy as it gets.

And then just given the ASP of the product, it sounds like this would be one per facility.

It depends on the size of the facility. It could be one per, you could have a couple in each facility and they want to have a backup just in case.

You may have a pool of them and you have got a team of folks who roam facility to facility, that’s probably less likely. It’s more likely you’ve got a facility manager who has 1 of 2 onsite and they engage the project again every 6 months.

Okay and I wonder if we could just talk a little bit about the strength that you are seeing in Asia. Where is it coming from; perhaps which countries and which verticals?

Yes, well all of the verticals are pretty well represented when you look at the numbers. For us the big 3 countries remain Japan, China and India.

What I will say is that China is still, it’s sort of like their GDP rate. It’s mildly noticeable, though it's not dramatic in terms of the impact on our business.

But the pressure on the commercial credit side, there is still a little bit of pressure there. We have a lot of customers in China who need those facilities, because the bulk of our sales in China are 100% upfront or close.

So they use the credit facility to get the cash, to be able to make the sale. There has definitely been tightness there over the last 2 quarters, Q4 and Q1 and it did cause a little bit of slowdown in China, but like I said, it's sort of like the GDP rate.

If they are running at 160 miles an hour, now they are at 150 miles an hour, either way they are going well over the speed limit.

But the booking strength, you showed the strongest strength in bookings in the Asia-Pacific region. Where was that coming from and was that both metrology and scanner?

Yes, it is from -- all the countries are growing well, but the big 3 are all contributing fairly equally. I can’t say that 1 versus the other has dramatically improved that growth rate, and it is very good across both metrology and laser scanner.

Was there a significant uptick in Japan, just in light of what happened a year ago?

Yes, I can’t say there was, not necessarily as it related to what happened a year ago, because we saw a little bit of impact from that last year, but actually not a lot. So I can’t say that yes, we had a massive upswing in the orders growth rate, because they were so low in the first quarter of last year, because that really wasn’t the case either.

Jay, back again. Hey just 2 things, on the focus laser scanner product line again, was the book-to-bill in the quarter greater than 1 on that product?

I don’t think we disclosed the specific book-to-bill by product. Keith, do you want to talk about that?

Yes, we typically don’t provide basically either sales by product line or orders by product line.

Okay, so without asking for a number again, how did the tracker sales perform in the quarter? I mean were they kind of in keeping with metrology growth rate, I mean arm growth rate or -- just as you categorize it.

Yes, again I don’t think…

Okay. And then just this last quarter -- a last question, how do you feel about the backlog Jay at the present level?

I mean is it going to kind of stick around this level?

Yes, I mean I think it’s probably close. Obviously the book-to-bill is a little bit lighter than we usually see this quarter.

But going forward we still think roughly 1 is the right book-to-bill for us and it has varied we understand as much as 5 or 6 points in a quarter, over the last few quarters, particularly Q3 last year when we started -- finally started shipping all the laser scanners out as we got all the kinks out of production process. But generally speaking, I think kind of 1 to 1 is the right ratio and the overall volume of backlog in this range give or take is probably right.

Seems like you are going to be adding some headcount, at least account managers -- it appears -- in Europe. Just in general how should we think about headcount going forward.

You’ve talked in the past Jay that it's becoming more challenging to get out in front of customers with the number of account managers you have right now. Where do you see that going?

The adds will actually be in all 3 regions, not just in Europe. We’ve had some adds -- a mild number of adds in the first quarter.

We had some replacements here and there in the first quarter as well. My target is generally speaking still you would expect kind of a high teens percentage year-over-year in terms of the growth in account managers.

That is to keep pace with the anticipated growth and to help drive the current year growth as well. So I think that’s still the right target for the company.

This plan that we have in place certainly reflect that and if you look at the openings that we have out there, I think it matches that as well.

And where are you putting more of the new resources of the 3 regions?

Generally speaking the emphasis is on metrology, given that we are building out a pretty decent sales channel on the construction and surveying side for the laser scanner. That being said, if we identified a really solid market for the laser scanner that would be best served by FARO personnel then we would probably add to the account manager base of the FARO personnel, but we haven’t seen quite the same necessity there at this point like we have on the metrology side, where there is real opportunity.

And on that metrology side, are you adding more to the base in the Americas and Asia-Pacific. Where are more of the resources going?

They actually will be pretty evenly split across the 3 regions. We have the concept of splitting territories when you get to a point where at a certain sales volume it becomes very difficult for the account manager to maintain growth in sales, because of those constraints on how may demos per month, the closing rate, all of those, the things that we have historically talked about.

So it's really in all 3 regions where you’re at a point where you are starting to spilt territories again and because there is so much activity in 1 potential territory.

Okay. Are you seeing any benefit yet, at least meaningful material benefit, from the initiatives you have underway in Latin America?

Well, we are seeing a little bit of a benefit. I think given that it's just a smaller region relative to the bulk of the Americas today, it will be a while before I think it has a meaningful several points type of impact on the Americas growth rate.

But we are seeing good growth down there. All the indications certainly are clear that going direct and adding some more people down there to tackle particularly the Brazilian market have been all the right calls and certainly doing the same in Mexico last year was the right call too.

Okay and just last question from me, but just looking at the Americas and I’m just wondering if there is any color you can give us on the verticals that have -- are exhibiting good growth at the moment or perhaps softening in the metrology area.

Yes, I can’t say I won’t pick out any relative to the growth side of it, because it's pretty well spread. Let me give one exception that there is -- and this won’t be a shock I guess, but there is definitely some pressure on anything tied to the government.

So the military installations that we sold to, any of the government agencies that we’ve sold to, the combination of election year and some of the tightness in budgets as they’ve tried to cramp them down a little bit -- I suspect we’ll have some pressure there. It's not like sales have completely stopped, but I think we'll have pressure on that side, at least through the end of the election cycle.

Just wanted to dig into -- I think in the past couple of calls you talked about introducing new products and maybe the timing around those and I know you use the word disruptive. Maybe you can give us an update on anything meaningful that’s in the near term?

Sure. We have 1 in the near term that is extremely meaningful.

It will be -- I’ve continued -- all I say is soon, because I don’t want to disrupt the market before the product is ready to disrupt the market. It is coming soon.

The 1 -- and we have talked about this openly -- it is the laser tracker, and it is a substantial change to the existing tracker that we have today, so that’s coming relatively soon. I’ll just say it that way.

Certainly it is a 2012 product and generally speaking, it should be out. We have said in the past that it should be out by the time we get to end of the first half, give or take, yes, it's in that ballpark.

So when you look at the existing portfolio, they’ve all had now when you include that 1, that will be a massive change over for all of them over the last 24 months. As we look forward, we will continue to sort of revitalize and refresh the existing products.

There is still opportunity there, particularly on laser scanner, but also on arm and on tracker too. But part of the focus of the Cambrian Explosion as we've called it within FARO is to identify ways to be equally disruptive with other products.

There are -- we have customers asking on a regular basis, particularly in the manufacturing side, could you do X or could you Y or could you do Z, and as you look at the core technology that we have, there is probably the opportunity to serve some of those needs by cross pollination and so forth of the existing technology we have in FARO. So that initiative is extremely important to the go forward and will have a substantial amount of our own time will be spent on that, now that we’ve got this complete sort of portfolio refresh out there into the marketplace.

So just digging into the laser tracker, when you introduced the laser scanner, you not only gained share. I guess there is obvious cannibalization of your existing solutions.

So you gained share and you also extended to new potential or new end markets. How would you characterize the tracker?

Clearly you are going to cannibalize your existing -- I assume you are expecting share gain. Does it also have the opportunity to extend to new markets?

Yes and yes certainly to the first 2 points there. As it relates to the new markets, it's possible.

I think it could open up - there are very specific applications and areas for a laser tracker. It's certainly within the types of customers we sell to.

It may open up more applications inside those customers, that I believe for sure. Does it get us into a vertical that we are not deeply penetrated into yet?

It's possible, but again the market for the laser tracker is a little bit more narrow than say the market for the laser scanner, which has this substantial potential.

Hi, just a quick follow-up. How much of the product is booked and shipped in the quarter and is that changing much with the increase in laser scanner sales through distribution?

Typically most of the sales in the quarter are booked and convert in the same quarter. If you look at any 1 quarter, maybe we have sort of 4 weeks’ worth of backlog going into the quarter and it may not be the full 4 weeks’ worth of sales that occur in that time period, but it's typically about that.

So still the bulk of what we do in any given quarter converts in the same quarter and that’s why it was so important last year to really get the production cycle roped down on the laser scanner, so that we could support that. In some respects it could even be -- the demands could be even quicker there on the laser scanner side, because if a distributor moves a unit they are going to want their replacement unit back on the shelf, probably quicker than a metrology customer who says, hey, I don’t need it for a couple more weeks, so go ahead and ship it in a couple of weeks.

First question, with the changes that you made in Europe, were there any unusual one-time type of expenses, severance or otherwise, that were incurred during the first quarter?

There was nothing material in the first quarter. I think we may be booking something in the second quarter after we have all of the agreements in place.

Okay. And Jay, I’m wounding if you could comment any more in terms of some of the changes that you’ve been making in Europe, just to give us an idea perhaps of some of the things that you’ve been able to enact at this point and things that we can look forward to in the future there.

Yes, I think the biggest focus has been 1, just overall leadership change and obviously one of those roles, still the Managing Director role is not filled yet. So that’s still a void that’s being managed by me for the moment, which is driving quite a bit of time in Europe, which isn’t a bad thing actually.

Focus number 1 beyond that was on the sales side. Okay, let's get into the pipeline, let's see where the transactions are, why aren’t you -- if you've got it marked at 70% to close, why isn’t it closing?

And do you have any 80s that fell off the table? And okay, let's look at all of the ones sitting at 30% and 40%, some of those must be at 60% and 70% right now.

Where is the focus on driving those and who is looking at that tactically day in and day out? Some of it is strategic, but some of that is very tactical, and it really takes a certain type of sales leader to spend a huge portion of their time doing that, and so that’s what drove the sales change there, the sales position, the sales leadership change in Europe.

Being tight on the budgets, certainly some of that was already in the works. There was clear knowledge already across the whole team that they needed to bring things back under control.

I think does it help that I’m the one looking over it on a more detailed sort of daily basis, probably, but some of it I think the team was already working on. That for me is important, but not nearly as important as that sales side.

I mean sales obviously drive the entire model and the market in Europe is just as good as the market in the Americas for all of the products and there is no reason they shouldn’t be on a normalized basis, always growing at the same rate that the Americas is, at the same type of profitability, at the same types of gross margins, the same types of operating margins. So those are the types of things that I’ve been focused on, and will continue to focus on until we get the new person in the slot and we get them integrated and adjusted to FARO culture.

I was wondering if you could also comment a little bit in terms of an update on the edge [indiscernible] roll out, particularly the laser line probe adoption rates. Early on those adoption rates seemed to be pretty favorable, could you give us an update on how that has progressed?

Yes, they’ve remained equally favorable. I don’t know if you’ve seen it, if I could say there is a meaningful adjustment upwards from the pickup rate in the first quarter compared to the fourth.

I mean the fourth quarter was already getting in the 75% range and then in a couple of spots it was higher than that. That’s probably a sort of a normalized rate for a while until we see more and more applications.

What we really need are curious customers that took the laser line probe, who never took one before. Here are the applications they started using it for, build up some of those case studies and start giving that around to the remainder who aren’t making the adoption to the laser line probe.

I still don’t think we’ll ever get to a 100% of arms being sold with one. Could be get to 85% to 90%, yes, I think that’s a possibility if you have the right applications, you could sure real use for the device for those who don’t understand maybe how to use it when they first see it.

Okay and then the final question on the laser scanner, with the percentage of sales going through distribution, that hasn’t come down from where it was in the fourth quarter. Is that a sign that perhaps some of the other end markets that you’ve talked about, insurance, forensics, manufacturing, etcetera.

So should we look at that as perhaps an indicator that those markets are starting to take off a little bit for you or how would you evaluate how some of those second, third level markets that you’ve been going after have been developing.

Yes, I think that there is some indication of that. I would pull insurance off of that list that you went through right now, but the others, we have a very good laser scanner sales team in place today, who cover all of the markets outside of sort of construction and surveying at the moment, so they’ve made good progress there.

I think you have a little bit, also you’ve got this distribution base that have their units finally and they have started selling them, and they are finding and identifying who are the best customers to go after and place them with, so, could that have caused a little bit of slow down Q1 and expect it to come up again in Q2, Q3, yes that’s probably a little bit of that also. I can’t say it's meaningful, but there's probably a little bit of that.

Okay and then finally, if you can quantify it at all, you talk about the orders that have slipped out of Q1 in to early Q2 out of the North American marketplace. Just to get a sense of the magnitude, that we would have been looking at a double-digit type of order growth rate conceivably for the North American market or where -- if you can quantify it all, what magnitude of that timing issue?

Yes, I won’t put a specific number on it, but it certainly would have been well up into the double digits.

Just a couple of follow-ups. One of the things that has -- is a little, has been a little bit of a headwind is the gross margin -- the product gross margin and a lot of it sort of blamed on the laser scanner mix and the fact that it's all distribution to some extent.

It seems in the past that you were holding out for that not to be a long-term dilutive to the margin mix. At one point we were coming up the learning curve on it, it feels like by now you should have tackled those issues.

What’s sort of the update on, your thoughts on what the long-term margin scenario should be there?

Well, I think that longer term we are still targeting that 60% to 65% percent range for our total gross margin and clearly we are going to be getting most of that up-tick from the product side, not the services side. So I think longer term there is still quite a bit of room for improvement on that laser scanner product.

In the near team what you’re seeing Rick is, certainly the manufacturing cost level has stabilized and then slowly started declining to your point. Here the learning curve is accomplished.

The team is there. They started getting units out in Q3, they had really successful production in Q4, very successful production again in Q1.

So you are at what you see, sort of your normalized, okay you’ve got natural product run rate that is stable, moving and growing in conjunction with the product. So those are all good things and you do have some price improvement given the price increase that we made going into the fourth quarter as we added those new features, the nice thing being that all of the features, the hardware was already in the device, it just wasn’t turned on.

So all of that should be dropping through to gross margin, which it is. Then the go forward is, look, are there some efficiency gains still on production, for sure, labor side, process side and material side too.

As we continue to improve the volume, we find better or different sources or even just better leverage with the existing sources. All of those will help and then the other part of it, which we’ve always been pretty good at is as we come out with next revisions and next generations of the product, the engineering team is always looking for ways to chop out more cost, that becomes unnecessary either through technology or otherwise.

Okay, so there is still come confidence that has a path improvement from here.

Yes absolutely.

Okay, and then during the downturn, we had seen the sales cycle extended, forget about laser scanners, because they weren’t part of the mix with the new product, but has it contracted back to normal levels now in the recovery?

It certainly seems to have been in all of the reasons, yes.

Two questions, one the headcount growth; I did hear you say you expect it to grow mid-teens. Is that a gross number or a net number?

Well I’m not sure I know the difference between gross and net on the question. Do you mean in total or are you talking about after replacements as well?

Yes, after replacements.

Yes, we would look specific to the account manager side, not for the entire organization, but specific to the account manager and the related sales support, that should be a net number. So after replacing, or backfilling those who come out, it should be anywhere from lower teens to high teens, depending on the timing of finding the right people and so forth -- this is one of the roles that we’ll wait it out till we find the right person versus putting the wrong one in, because they will fail miserably.

Okay and then just on productivity or sales per account manager, if you back out distribution sales now as that channel grows, is the productivity of the account manager or sales per account manager rising at the same rate of sales growth right now?

Yes, particularly the last -- if you look at 2010 and then 2011, the account manager side for metrology was relatively flat. It increased a little bit but not a ton.

So it certainly was growing at or better than the growth rate on the metrology side. We have gotten to a point as we started nearing the tail end of 2011 that the productivity probably is not sustainable because of the capacity constraint on the number on the demos they can do in a month and the number of deals that we will close out of that.

You start getting to a point where there is probably not a whole lot more tailwind behind it and that sort of drove this, okay, we need to start splitting territories again. You've got territories screaming for more activity, but cannot be physically managed by the 1 account manager that covers that area or the 2 that cover that area.

So where are you in that cycle of splitting territories and just the distribution channel driving the growth rate versus the productivity increases and the account managers?

Yes, we are seeing the growth across all of them, there were some account manager adds in the first quarter. All of the territories that we are going to split has been identified and that’s been put out there and communicated and so then the filling of those roles is a portion of the way there.

We probably still have at least two thirds of it to go as you look through the rest of the year here.

And is that an annual process where you identify the territories that need to be split, or is this an ongoing process? I’m just trying to understand -- is this a start/stop process or one that’s continuous?

Yes, what we try to do is, we identify as you're tailing up at the end of the year, you identity where the opportunities are to split the territories, and get those in place, and then you try to spread the hiring through the course of the year. Now if you’ve got a little bit of acceleration at any one given quarter, that’s purely timing of finding really good people suddenly and you bring them in.

But ideally the adds come through the course of the year at a relatively steady state and then you try to identify where the best splits are, kind of near the end of the year as we are going through the budgeting process.

Okay and final question, so it is simplistically to say that distribution right now is growing above the 24% growth rate of revenue this quarter and productivity or account manager productivity is growing at some rate less than that.

I’m not going to split it that specifically, but what I’ll say is that we are getting good growth out of both channels there.

Okay, very good. Thanks everybody for joining today and we’ll talk to you all again at the end of the second quarter.