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 third quarter results. By now, you should have a copy of the press release.

If you have not received a copy of the press 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, will, believe, potential, continue, predict, target, growth targets, goals, guidance 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'll now turn the call over to Keith.

Thank you, Vic, and good morning, everyone. First, I would like to briefly compare the company's financial results to the consensus estimates.

Consensus sales estimates were $68 million and EPS estimates were $0.35 per share. The company reported sales of $60.7 million and EPS of $0.21 per share representing a shortfall of $0.14 per share from the consensus estimates.

The following 2 items were the principal drivers of the shortfall. First, a sales miss of $7.3 million, which contains the negative FX effect of approximately $2.9 million related to translating sales in foreign currencies, including $2.2 million relating to the Euro less cost of sales and commissions of approximately 50% resulting in an EPS impact of approximately $0.10 per share.

And second, the effect of $1 million in patent litigation fees incurred in July which resulted in a successful jury trial verdict and reduced EPS by $0.04 per share.

I will now continue with the results of the quarter. Sales in the third quarter of 2012 were $60.7 million, a 6.3% decrease from $64.8 million in the third quarter of 2011.

This decrease resulted primarily from a decline in sales of the laser scanner product compared to the quarter ended October 1, 2011, when the company had expanded its manufacturing capacity to meet product demand, which allowed it to increase shipments of the laser scanner to reduce the buildup in the backlog of orders for laser scanners at that time.

On a regional basis, third quarter sales in 2012 in the Americas decreased $200,000 or 0.6% to $24.8 million compared to $25 million in the third quarter of 2011. Sales decreased $4.4 million or 17.3% in Europe to $21 million from $25.4 million in the third quarter of 2011.

A weaker Euro relative to the US dollar on average resulted in lower sales of approximately $2.2 million. The sales denominated in Euros were translated into US dollars.

In Euro terms, sales decreased 8.5% to approximately EUR 16.6 million from EUR 18.2 million in the third quarter of 2011. Sales in the Asia Pacific region increased $500,000 or 3.2% to $14.9 million from $14.4 million in the third quarter of 2011.

The effective changes in foreign exchange rates on total sales was a decrease of approximately $2.9 million in the third quarter of 2012 compared to the third quarter of 2011.

New orders increase 1.3% in the third quarter of 2012 to approximately $61 million compared to approximately $60.2 million in the third quarter of 2011.

On a regional basis, third quarter orders in 2012 in the Americas increased 15.6% to $26.7 million compared to $23.1 million in the third quarter of 2011. Orders in the Asia Pacific region increased 13.8% to $15.7 million compared to $13.8 million in the year ago quarter.

Orders decreased in Europe 20.2% to $18.6 million from $23.3 million in the third quarter of 2011. In Euro terms, orders declined 11.7% to EUR 14.7 million from EUR 16.6 million in the third quarter of 2011.

The top 5 customers by sales volume in the third quarter of 2012 were the US military, BE Aerospace, BMW, Boeing and Bombardier, which represented only 3.3% of sales. The top 10 customers in the third quarter of 2012 represented only 5.9% of our sales, once again indicating our lack of dependence on any one or handful of customers.

Gross profit decreased $4.1 million or 11.2% to $32.3 million in the third quarter 2012 from $36.4 million in the prior year quarter. Our gross margin was 53.2% in the third quarter of 2012 compared to 56.1% in the year-ago quarter primarily due to a decrease in gross margin from product sales to 57.2% in the 3 months ended September 29, 2012 from 60% in the 3 months ended October 1, 2011 as a result of lower average selling prices across the company's major product lines, sales promotions for older model products and additional manufacturing costs related to the introduction of the new vantage laser tracker.

As a percentage of sales, selling expenses increased to 23.3% of sales in the third quarter 2012 compared to 22.7% in the year ago quarter. Selling expenses decreased $500,000 to $14.2 million in the third quarter 2012 from $14.7 million in the third quarter 2011 primarily due to decrease in compensation and commission expenses of $500,000.

As a percentage of sales, administrative expenses increased to 12% of sales in the third quarter of 2012 compared to 9.9% in the third quarter of 2011. Administrative expenses in the third quarter of 2012 increased by $800,000 to $7.2 million from $6.4 million in the third quarter of 2011 primarily as a result of an increase in professional fees related to the patent litigation of $700,000 to $1 million from $300,000 in the third quarter of 2011.

The monitor completed its follow-up review and submitted its final report to the SEC and the DOJ on June 29, 2012. The company was notified on October 5, 2012 by the monitor that the SEC and DOJ have ended the monitorship.

The company does not expect to incur further expenses related to the FCPA matter going forward.

Research and development expenses increased to $4.1 million in the third quarter of 2012 or 6.7% of sales compared to $3.6 million or 5.5% of sales in the third quarter of 2011. The increase is primarily related to an increase in compensation expenses of $400,000.

Total operating expenses were $27.3 million for the third quarter of 2012 or 44.9% of sales compared to $26.4 million or 40.8% of sales in the year ago quarter. Operating profit decreased $4.9 million to $5 million in the third quarter of 2012 from $9.9 million in the year ago quarter.

Operating margin for the third quarter of 2012 was 8.3% compared to 15.4% in the year ago quarter. Other income expense net decreased by $800,000 to income of $100,000 in the third quarter of 2012 from expense of $700,000 in the third quarter of 2011 and primarily represents the effect of changes in the foreign exchange rates when the intercompany account balances denominated in different currencies.

Income tax expense decreased to $1.4 million in the third quarter of 2012 compared to $2.8 million in the third quarter 2011 due to a decrease in pre-tax income. The company's effective tax rate for the third quarter of 2012 was 27.8% compared to 30.1% for the third quarter of 2011.

Net income decreased by $2.7 million to $3.7 million or $0.21 per share in the third quarter 2012 from $6.4 million or $0.38 per share in the third quarter of 2011. The number of fully diluted shares outstanding in the third quarter 2012 was $17.1 million compared to $16.8 million in the third quarter of 2011.

I will now briefly discuss a few balance sheet and cash flow items. Cash and short-term investments were $145.5 million at September 29, 2012 compared to $129.5 million at December 31, 2011 and includes $65 million of US treasury bills.

Accounts receivable was $51 million at September 29, 2012 compared to $57.5 million at December 31, 2011. Day sales outstanding at September 29, 2012 increased to 77 days from 68 days at December 31, 2011 primarily as a result of an increase in the collection cycle in Europe.

Inventories increased 5.7 million to 72.9 million at September 29, 2012 from 67.2 million at December 31, 2011. Sequentially, inventories increased 700,000 from June 30, 2012 primarily due to an increase in service and demo inventories offset by a decline in raw material of $2.5 million.

Finally, I'll conclude with some statistics regarding our headcount numbers. We had 961 employees at September 29, 2012 compared to 885 at December 31, 2011, an increase of 76 or 8.6%.

Account manager headcount increased 15% to 184 on September 29, 2012 from 160 at December 31, 2011 with 59 account managers in the Americas, 59 account managers in Europe and 66 account managers in Asia.

Geographically, we now have 380 employees in the Americas, 326 employees in Europe and 255 employees in the Asia Pacific region.

I will now hand the call over to Jay.

Thanks, Keith. Economic uncertainty is creating a challenging business environment around the world.

As has been widely publicized, the European economy has been weak for the last 12 months.

However, economies in the Asia and Americas were also weaker than expected during the most recent quarter. At FARO, orders in Asia and the Americas had moderate double digit growth but Europe suffered a decline of approximately 20%.

Sales across all regions declined about 6% despite strong customer interest. From what we see, we're not experiencing an increased level of deals lost.

However, there appear to be continued delays in getting internal purchase order approvals and in some cases frozen budget as customers wait to see the length and severity of the current economic weakness.

We successfully launched the Vantage Laser Tracker at the beginning of the third quarter. This revolutionary new product is 25% smaller and lighter than our previous version and the comparable version of our primary competitor's product.

It also has improved tracking features, extended range and is water resistant. The list price is about $10,000 higher for this model than the previous model, so we expect to gain moderate margin improvement as a result of sales of the Vantage Tracker.

Customer response has been very positive and so far the Vantage Tracker has met our expectations since launch.

As Keith indicated earlier, sales of demo units of the previous generation tracker model had a negative impact on gross margin in the third quarter but we expect that to stabilize going forward.

We continue to see good demand for the FARO Edge Arm and the attach rate for the V4 Laser Line Probe was above 60%. Due to the economic climate, we ran global promotions on Arms in the third quarter to drive deal closure and we expect to continue to do so in the fourth quarter as well.

These promotions helped drive volume in the business but have also contributed to the decline of gross margin.

A little more than 2 years ago, we launched the current generation FARO Laser Scanner and competitively there is still no viable product to match up against it. I believe that the recently signed agreement with Trimble Navigation is a testament to the strength of this product offering.

As previously announced, FARO signed a deal with Trimble to provide them with a private labeled laser scanner to be offered for sale through their global distribution network.

The new Trimble TX5 became available to the market the first week of October. Although we were previously selling the FARO Focus Laser Scanner through some Trimble distributors, the private label agreement makes our product available to all Trimble distributors globally and allows us to leverage one of the strongest brand names in the construction survey markets today.

We continue to sell the FARO Focus Laser Scanner through other construction and surveying distributors as well as distributors outside that market. In the third quarter, 52% of our laser scanner sales went through the distribution channel.

We also continue to have success selling the FARO Laser Scanner through our own direct sales force in other vertical markets. Manufacturing plants and process and power and pipe facilities are just a couple of the verticals that remain strong for our direct sales team.

Finally, we're also expanding our test to enter new markets, most notably the insurance industry where I’ve just hired a former executive from that space to accelerate our development of the market globally.

Sales to new customers were 35% in the third quarter compared with 43% in the third quarter of last year. As a result of the economic uncertainty discussed earlier, we drove more sales from our existing customer base last quarter as they already understand the ROI generated from FARO's products and, thus, are quicker to get internal financial approval for FARO's offerings.

Sales to new customers remain an important strategic initiative for FARO as it means driving broader global adoption. But the percentage of sales we generate for new customers may continue to be lower than our historical 50/50 target during this period of economic uncertainty.

Our research and development investments continue to be focused on new technology breakthroughs. The Cambrian explosion, as I've named the program for identifying our next generation of initiatives, has led to several exciting new projects that I believe will be quite beneficial to FARO in the coming years.

As one would expect, the timelines for these projects are varied and I will not be providing any details as to what to expect and when. However, I am pleased with the progress we're making.

Operationally, the FARO team is doing well. Costs are controlled with the team investing most of our resources and time to initiatives that are best for driving productivity and growth.

Production volume fully supports customer demand and our reliable customer service remains a competitive advantage in the market. While I'm disappointed with our sales results for the quarter, I am pleased that the team remains focused on the value proposition presented by our products and I do not believe that the sales results for the quarter dictate a significant change to our overall strategy.

Finally, I'll wrap up with a few housekeeping matters. The first is the FCPA monitor.

I'm pleased to report that we have officially heard from the government that the monitor's final report completed at the end of last quarter was accepted and the monitoring process is complete.

Second, in the patency brought against us by Nikon and their predecessor company, we had a successful jury trial which resulted in a ruling in our favor that the patent in question was not valid.

We are waiting to see if there will be an appeal by Nikon but we don't expect to know anything for certain until early next year. Last, I can report that we had no impact on our own operations from tropical storm Sandy.

It is still too early to determine if the storm will have any impact on our customers' operations positive or negative.

Despite the near-term economic challenges we're facing around the world and the impact they've had on orders and sales, the long-term prospects for FARO continue to be strong. As market conditions improve we are well positioned to respond.

We continue to be the world's most trusted source for 3D measurement technology.

Thank you for your attention and I'll now open the call up to questions.

Keith, I wondered maybe first off, could you talk through on the gross margin, maybe give us a sense of how much of the 290 basis point decline came from pricing initiatives versus the additional manufacturing cost? Can you break that out for us?

Yes, typically we wouldn't disclose that. I can tell you that pricing has been a major factor to that decline in the margin and its pricing across all of our product lines.

There was some manufacturing costs relating to the startup of laser tracker up in Pennsylvania but we've gotten through that. But I really can't break out the contribution of lower selling prices versus additional manufacturing costs.

And now that you've got the promotions on some of the older and demo products, is that pretty much cleared through the inventory channel? Do you feel that the inventory is in the state you would like it to be?

Certainly as it relates -- it’s Jay, Zach -- as it relates to the demo trackers, I think we're pretty close. We have a few left in Europe that still haven't been moved but otherwise it's pretty close.

The promotions that we're running from a product standpoint, which did drive some of the lower pricing certainly we expect to do that in Q4. We probably will push it as the economic uncertainty persists, we will continue to do that.

It does help customers close the transactions. When we've had previous downturns, we've been able to successfully push promotions like this and then return to our normalized pricing as the environment improves, so we would expect to be able to do the same thing again coming out of this one whenever the market improves.

Sales were obviously quite a bit lower than the order rates that we saw in 2Q. The orders this quarter were much softer than what we saw then as well.

Are you guys seeing cancellations of orders or could you talk maybe through what's going on there and if you're seeing any changes in purchasing patterns so far in 4Q?

It certainly is not due to order cancellations. We always as a company have had relatively few that ever occur, mostly because we tend to book and ship.

We don't carry a ton of backlog one quarter to the next. No doubt though we are seeing a slowdown in the purchasing process.

It's taking -- as the sales guys will tell you, their phrase for it is it's taking them an awfully long time to get paper completed. So when you look at the numbers, not surprisingly, Europe continues to be very, very difficult.

Asia and the Americas mid-double digit growth there is not bad but not what we would normally expect and they are the ones typically in the Americas where we saw the slowing of the entire process. I would expect that we'll continue to see that here for awhile.

Again, as long as the economic uncertainty persists I think we're in a state where we're going to continue to have the same sort of impact from our customers where the demand is good. There's no question they have the need for the product and you do eventually get it over the goal line definitely quicker with existing customers because they already understand the ROI than, say, new customers who are taking their first crack at the ROI and need to take a little bit of a leap that they're going to get there.

So I think we're going to continue to see that for a while here while the market is in turmoil.

I guess, Jay, I wanted to ask the ASP question inside of gross margin a little bit differently. So I guess it seems like a rather rare impact with you guys as pricing is typically not an issue within gross margin.

So my question is I think your largest competitor has had a product refresh over the past few quarters and these products appear to be more competitive. I'm wondering if that is impacting the results and if this competitor refresh is actually a driver of you discounting or some of the promotions you have both with your arm and your broader product portfolio.

Yes, I would say it's not due to competitive product refresh. I think the competitive products out there, obviously we think they’re good.

I don't think they have necessarily changed dramatically relative to the competitive position versus FARO's products and we look at them head to head across all the product lines. It is definitely driven by the economic environment.

You know that our primary competitor is always a fairly large percentage below us when it comes to pricing deals, at least 10 points, sometimes 15% to 20% lower, so there's a little bit of us pushing the needle there to help move paper across the goal line with our customers where we know they want FARO but we do know it's going to take a little more right now to get the deal done. And from a customer perspective, what we're hearing a lot is when they have the budget they're getting a lot of pressure from higher up the food chain, so to speak, to drive every last penny out of whatever it is they're buying.

And in some cases we have definitely seen where the budget gets frozen, where the finance team or whoever it is who has control of the budget team inside the company says, “You know what, the budgets may not be gone but it's frozen for the next quarter and we've got to see what's going on. It's frozen for the next 2 quarters.

We need to see what else happens in our industry.” So our response is much more to helping alleviate that issue than anything else.

And I guess, Keith, on the gross margin side, the last time we saw gross margins reported as low happened to be a cyclical low in March 2009 and you saw a very nice sequential snapback. I think we have some different dynamics here this time with the Vantage Laser Tracker still going through the yield curve production and you do have the mix of distribution versus direct sales on the laser scanner.

But how should we think about gross margin? How should we think about that metric moving back into a normalized 55% to 60% type of range and how quickly do you think we could see a snapback or with the way you're talking about pricing in ASPs and the macro environment?

Is there another leg down before we move up?

Yes, I think we're past the manufacturing startup costs related to the new Vantage Laser Tracker. I think that was a one-time event and that's behind us.

The distribution mix and laser scanner, I think that's somewhat of a variable especially after signing the Trimble agreement. That may increase the percentage through the distribution channel which could impact the gross margin, again, benefitting the operating margin.

But to the extent that we still face some headwinds with regards to selling prices and discounting, that’s going to go the other way on the margin. I don't want to give any guidance with regards to is it 55%, 56%?

But I think quite frankly the manufacturing costs are certainly well behind us.

Yes.

And then I guess just one more on the revenue outlook. You discussed the macro, Jay.

You discussed some I guess order push outs or difficulty or I guess hesitancy to close orders. But given this macro overlay, how should we think about 4Q seasonality?

I would assume that clearly this is not going to be a typical 4Q as far as an uptick but do you still anticipate a decent sequential ramp in revenue?

Yes, we certainly would expect to see some of the normal fourth quarter budget flush, that “use it or lose it” mentality. The indications point that direction but you're right.

The question is how extreme will it be compared to previous years when you're in a decent market environment? That's a real hard one to predict.

Like I said, the customer interest is there. The growth rates on leads and demos are very strong.

The feedback during the demos is very positive in terms of the understanding of the technology, the belief of what the technology can do. It's the actually getting the transaction done, which of course is really the only part that ultimately matters.

That's the part that's a little difficult. So yes, I would expect to see for sure some of the fourth quarter pickup that we normally get.

We don't have a good feel for would it be as high as it normally is or will it be a little bit lower? It's a little too early to tell in the quarter at this point.

I guess would it be reasonable to think if I go back to the worst of times, December 2008, you still put up 15% sequential growth in 4Q. Is that fair that that should be the worst case scenario?

It's really hard to say. I think in 2008 you're right.

We were headed into the ‘09 skid and you're right, still put up 15% sequential, so it's not a bad comparison. I don't want it to sound like a comparison to '08 leading into '09 though because '09 was so brutal.

I don't want anybody to walk away with a feeling that we anticipate 2013 looking like 2009. But it's not a bad comparison that, yes, because that was a pretty rough quarter.

It was October that a lot of people sort of hit the light switch and went away for a while. So it's probably not a bad comparison.

Keith, just a quick question, was there any FX impact in Asia Pac on orders or sales?

Yes, within Asia as well as within the Americas there's various countries and the effects go different ways. But there was some impact in both the Asia Pacific region and the Americas region.

Don't forget we have Brazil and Mexico in the Americas region.

Well, the total FX impact on sales in Europe was $2.2 million.

Right.

And was the total for the company $2.9 million? Did I get that right?

Yes.

And then Jay, just a couple questions, if you would, could you just maybe characterize the sales for the 3D focus scanner in the quarter. I know we had the difficult compare year-over-year but if we just think about sequentially in 3D focus, were sales greater in the third quarter than they were in the second?

We don't talk about sales by individual product lines in any given quarter. What I'll say is that the demand is still there.

We've had a transition obviously here to Trimble. Is it fair to say that some of the Trimble distributors, once we announced the agreements and you had to wait about a month for the product to become available to get into their hands, is it possible that there was some holding at that point because they were waiting for the new Trimble product?

Yes, we had a little bit of that. Was it significantly impactful to the quarter?

To be fair, it wasn't probably significantly impactful but there was some of that.

And you had mentioned in your prepared commentary that the focused laser scanner sales were down year-over-year, against -- you had this inventory flush or backlog flush last year in the third quarter. So again, down year-over-year, but up sequentially?

Or you won’t go there.

I’m not going to say whether it was up sequentially or not. For sure, as you know, the third quarter last year we had this boom when we finally released a couple quarters' worth of orders backlog in a single shot.

Could you just maybe define where we are in the Trimble agreement? We do have the products available.

Have we -- I guess you said as of October 1, so there were no orders in the third quarter. Are we taking orders now for that product?

Yes and yes. So no orders in the third quarter of the Trimble product only because it wasn't officially available yet.

There were orders through Trimble distributors in the third quarter of the original FARO product for sure and, yes, it is fully available for both order and shipment at this point. That occurred the first week of October.

Is the -- I noticed in one of the articles that you were commented in or quoted in that you have a similar agreement with Topcon. Is that similar in that the FARO product's being branded there or you summon the regular FARO product?

Has that expanded at all?

It is the regular FARO product, so Trimble is the only player where we have the private label product today. Topcon distributors continue to be active in the marketplace with the FARO product and we would continue to have it be the FARO laser scanner product.

I just want to jump back one second on Trimble. Is that product going to Trimble distribution with their software or with yours?

It's with ours. It's -- I’m sorry; it's with theirs.

It is obviously based on our software. The bulk of it is our software and then there is a both on the device itself and then in the FARO Scene Software, there's a layer on top that more closely resembles the workflows that Trimble customers are used to seeing.

And so that becomes the drive. That's the difference between what our software looks like and what the software with the TX5 looks like.

And do you load that then or do they?

We do all of it. Yes, we have the production and calibration for everything.

Jay, would you talk a little bit about the size of this channel, what it does for you in terms of the focus? How much does it expand your channel?

I won't say the exact percentage because we never disclosed how many specific Trimble distributors we had signed up before. What I can say is that it does expand it by a decent percentage because though we had Trimble distributors signed up, we did not have all of them around the world.

Trimble has a very wide reach, very strong in the Americas and Europe and fairly strong in Asia from a reach standpoint and getting stronger. So this makes the units or the device available to all of those distributors whereas previously it was a smaller subset of the distributors that we had actually signed up and we're doing business with.

You mentioned that you brought on somebody to focus on the insurance vertical. How should we think about that in terms of going to market?

What's the strategy and is that something you see as a potential meaningful contributor in 2013 for focus?

It's probably too early to say whether it would be meaningful or not. The strategy is as follows.

The person was a senior exec in the insurance world and actually had been a partner level employee at one of the Big Six at the time and so has actually very good high level contact in segments in the industrial world as well. So the strategy is twofold.

Specific to insurance, it's to understand the need in the marketplace to understand where is the right spot to sell into and help develop those relationships. I've known the individual for the last 6 months before hiring them.

The appearance is at least from the outset is that the buying would be much more centralized. It will probably be much more relationship driven and will create a much higher level in the organization that what we're used to say in the manufacturing world where we're selling down at the individual plant level.

And so this is an opportunity to really test that and see what that process looks like and also to identify and help. This person will not do it on their own at this point but there are some technical elements of understanding what does the workflow need to look like to perfectly match how the insurance world thinks, operates, et cetera, so it's a combination of both of those.

And then quite frankly, the other side of it is given that they are a relationship builder and that's a chunk of what they've done in certainly the last few years of their career at the higher level is also leverage where those investor relationships are, build relationships within some of the investor accounts at a much higher level than what we have today and try to develop benefit for FARO in that regard, including the possibility of getting purchase decisions pushed higher up inside the organization that would then be supported by FARO's current existing account managers and that team.

Maybe to switch gears for a second. Europe, we all know about the macro issues but you've had your own internal issues in Europe, so to what extent is that 17% year-on-year decline in revenues in Europe.

Do you attribute that all to macro or is it also some fallout from just the changes you've had within the European organization? And where do you stand with that now?

So I'll go in the same order that we're asked. Number one, the bulk of it is the economy at this point.

We -- all of the changes have occurred -- the big changes have occurred over there. We have our normalized turnover and I’d call our normalized turnover in the account manager ranks in this quarter but no different from what you would see in any of the 2 regions, any of the other 2 regions either.

So that part's behind us. We do have a real -- it's an economic -- all of it in Europe right now is really slow.

It's Germany. It's France -- not quite as bad in the UK but it's there in the U.K.

It's across Southern Europe, which is a smaller percentage of our sales by far but it's there too. And so there is just a -- it's every country that we sell into in Europe right now.

I can't say any of them are really strong. I could say the UK is moderately strong and moderate may not be the right adjective but it’s the best I've got.

So as where do we stand today on all the changes and I hit part of that. Those are sort of complete.

As we had announced, we do have a new managing director hired and he starts the first week of January. I think he will be a really strong add to the team.

He has tremendous experience outside of FARO but in the industrial world. He is a physics person by origin who grew into the operating side of the business world, so he gets the technology at a pretty core level but also understands the applicability of it in the manufacturing world and the ROI that's associated with it.

And the other nice element is that though he is a German and has worked for German companies his whole life, the last 4 years he's been running the Americas division of a German company based over here in the U.S., so he has had a full flavor taste of that cultural aspect and that side of how companies work in the United States, which I think is a real benefit when he assumes the role over there. So that side of it I think we're fairly well positioned and we feel good about all the changes and where we're at there.

Keith, maybe one question if I may, final question, G&A expense, do we think about that legal expense as going away for the most part in this quarter? Do we see G&A look more like Q1 levels going forward?

Well, I think it’s not over until it's over. Nikon has an option to appeal.

If there is an appeal, there will be additional legal fees. But what the timeline is, it can extend out to 2013.

I wouldn't expect the legal fees to be $1 million as they were in Q3 and it all depends on the sequence of events with regards to their appeal.

Putting that aside, at least in the near term, there should be, as we think about your G&A expense -- it looks like -- and I don't want to put words in your mouth -- it looks like it gets somewhere closer to that -- where you were in the early part of the year.

I don't want to provide specific guidance. All I can tell you is that we don't expect that legal fee to be anywhere close to that $1 million number in Q4.

And the R&D sequential decline in R&D, anything unusual associated with that just in terms of -- I assume that has something to do with the development efforts being behind you with Tracker and where do you see R&D? Can you give us any sense on how that expense goes going forward?

I don't see any material changes in that. A lot of it is related to some of the R&D materials that we use in product development and that fluctuates from quarter to quarter.

Most of the R&D expense is people or it's professional fees or subcontractors that we use for certain specialties. But I don't really see a material change going forward in that number.

I guess very quickly, in terms of customer growth, did you guys talk about the growth rate for new customers for the quarter?

We didn't talk about the growth rates. Actual sales from new customers was 35% which compared to the third quarter of last year we are at 43%.

The bulk of that is driven by the economic environment. What we've seen is existing customers, they already understand the ROI of FARO products and it is their process for getting purchase approvals internally is a little bit faster than new customers where it's the first time they're taking a leap with the technology.

Do you guys not plan to maybe provide a number or just…

A number, I'm sorry, what, of total customers?

Yes, new customers for the quarter in terms of growth.

We normally don't go specific by quarter by new.

Yes, I think when there is a material change we'll update that number.

Jumping onto the Trimble relationship, what is the expected length of the relationship? Also, I think you guys said something about it has a positive effect on the ASPs?

Is that something that you expect moving forward?

The life is as long as both parties still like the agreement, obviously. We've got segmented terms, expected periods of time, but we would expect this to run for years potentially, so that's the anticipation going in.

It's a true partnership in that regard. We don't expect necessarily higher selling prices related to the laser scanner that Trimble sells.

We have similar discounts to Trimble as from a distributor standpoint that we have with many of our other distributors. And as the volume grows, we'll get a little bit higher but not necessarily substantially different to the point where it would make massive changes to gross margin.

It would make some changes as the volume goes up but then we're getting all of the incremental faults around the out margin lines. There is a huge benefit on the out margin percentage.

And maybe where you might have caught me say it is we do have a higher price on the laser tracker, which is not obviously the Trimble product. The new laser tracker, though, the list price is about $10,000 higher than the previous generation, so we do expect some improved gross margin on that side.

I guess this is reasonable to assume that there will be milestones set for the relationship.

Milestones from what regard? In terms of volume or in terms of …

Just in terms of the agreement. Would you guys be meaning to meet some expectations and milestones in terms of sales or even volume?

Yes, we haven't disclosed the details of it. Obviously there are expectations from both sides of what we bring to the table but we haven't actually disclosed what those look like in any detail.

Jay, I was curious, you have launched a large number of new products in terms of new feature sets and the like and I understand pricing or promotions has been traditionally the easiest way to get deals closed. Is there anything else from a sales perspective that you can help improve closure rates?

In the near term, unfortunately, I do think the promotions we're running have been the most effective way to do so. The products and the feature sets are great.

The new products -- the customer response has been really good. The size of the tracker, some of the new tracking functionalities, the range, all of those have been very well received by the marketplace.

But it is a difficult environment in terms of getting deals done. Unfortunately, in the near-term I think the promotions are the best way to continue to drive volume in the company to get deeper penetrated in their existing accounts, get them using the technology, get them excited by it so that when we pull out of the economic mess it also -- the fact that we do have stronger, new products, better feature sets, et cetera, I think it will enhance our ability to bring the prices back up off the promotional level and back to our normalized levels.

Have you seen anything from an account manager standpoint? You mentioned turnover in Europe is on target with what you had seen historically.

Anything else from Asia or Americas where you can hydrate [ph] talent to improve closure rates?

The biggest way to do it is as new people get further settled into the seat and they get 9 months, 12 months into the role. So when you look at it I think -- Keith, correct me if I'm wrong -- but we have 24 new account managers I think since the start of the year, give or take.

So you've got a group out there some of whom are now heading into their ninth month, 10th month and you have a chunk who are just heading into their second and third month. The close rates of the senior people are fairly consistent.

Even in this environment, the close rate -- I think we normalized a little bit of to where they're at, so it's fairly consistent. It's a little bit lower than you'd like and that's driving some of the pressure on quarters.

But then with new sales people, they do improve for sure, even in this environment. They do -- you see improvement at the 3-month mark, the 6-month, the 9-month as they come up to speed and some are between 9 and 12, they sort of hit their stride and get close to the close rates of the senior team and that helps improve a little bit overall.

My last question relates to inventory. You had mentioned that you're demo inventory is running in line with what you had hoped in terms of the target.

Is there anything out there from an inventory standpoint that you are concerned from either availability and/or just too much of it?

Not right now. We actually got a little bit ahead of ourselves on the laser scanner raw material last year and we've been burning that down as planned.

But I think that current field continues to see that decline in the raw material as we burn through that raw material for the laser scanner product but there's really nothing else out there.

Just wanted to ask one more about Trimble. Can you give us just a little bit more flavor for the short and long-term potential for that partnership?

Is it a nice but modest positive or is it a game changer for the scanner?

I'll preface this by saying obviously it's definitely too early to tell but we see it as a potential game changer. The 2 factors that go into that -- one is just the overall reach of Trimble and the depth of relationship they have in the construction survey in space.

They have a very dedicated, for lack of a better word, customer base who really believe in, live with and use the Trimble products day in and day out to drive their own businesses, so they're really dependent upon the strength of that technology and the strength of that company. So that's a -- there's a real benefit that goes with that of being tied into and associated with it.

And then of course the fact that it is a product that is still new to that space, has the potential to be very disruptive to that space and having the name like Trimble behind it to push it in the marketplace. I think both of those make us feel -- and we felt that even before the agreement was signed.

We had talked about a potential partnership there well before even then. It's a -- I think it makes for a real growth opportunity within FARO, within one of our own existing products for sure.

And are they putting much marketing muscle behind it? Longer term, what percentage of your laser scanner sales do you see being Trimble related?

It's hard to predict what percent could come through Trimble. Could it be a substantial percentage for the -- substantially it's not going to be 80%.

Could it be 30% of our laser scanner sales? Yes, it's possible.

They're a big enough network around the world to do that. The more diverse we get with the other verticals we sell into, obviously that would pull that, scale that back a little bit in general, even just construction survey in general, not just specific to Trimble.

But it's a real opportunity in that regard. The -- I'm sorry I went blank on the…

The marketing.

The marketing, yes, we've seen good marketing behind it already. They had units, multiple units on their booth at launch.

I've seen multiple ads already in the marketplace, including even an email that came in this morning from an independent group. I popped it open and there was a Trimble ad right in the upper right corner of it talking about the new TX5 products.

So I think we're seeing a good start there. Before we take the next question, I do want to clarify.

I was thinking about my dialogue with Patrick from earlier in the call. The question about 15% sequential Q3 over Q4 back in 2008 and is that a good yardstick to use as a possibility in Q3 to Q4 in 2012, I do just want to clarify, number one, that is not guidance.

Is it a yardstick? Yes.

Could it be higher than that? Absolutely.

Again, I want to make sure everybody’s clear that Q4 has that kind of dynamic but I don’t want everybody to immediately take 15% off this quarter and say Jay said it. Now we're ready if there are other questions.

Thank you very much, everybody. Look forward to updating you at the end of Q4.