Avasar_Partners_FARO_Presentation_Dec_15

FARO TECHNOLOGIES INC (“FARO”)
D E C E M B E R 2 0 1 5
AVASAR PARTNERS, LLC.

General Disclaimers
The information contained herein has been prepared solely for illustration and discussion purposes and is not intended to be, nor should it be construed or used as,
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accuracy or completeness of such information.
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AVASAR PARTNERS LLC

Faro’s Road Ahead
“There is only one way to avoid criticism; do nothing, say nothing,
and be nothing.” Aristotle
Avasar’s message to the Board is that Faro is a dynamic company with an incredible set of
capabilities. Do not squander that with mediocre performance. Leverage the considerable
talent of labor and assets to create a much stronger company with enduring franchises. The
time to take decisive action is now. Transform Faro from a Measurement/Documentation
Company to a Measurement and Documentation Solution’s Company. Transform the
Company to a peer leader from a peer laggard. Transform the Company from a boom and
bust cycle to a sustainable, high return and high free-cash flow generation Company.
Avasar believes our targets are highly achievable because what is required is good execution
upon already a good business with secular industry tailwinds.
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Table of Contents
I. Summary Thesis
i. Summary of Faro Technologies
ii. Strong ROI to customers
iii. Why invest in Faro
iv. Avasar’s History with Faro
v. Avasar’s Thesis
vi. Avasar’s roadmap to generate attractive returns
II. Background and History
III. Opportunity – What the incoming CEO must fix
IV. Strategy – Avasar’s advice to the Board and incoming CEO
V. Outcome – Value to shareholders and other stakeholders
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Summary of FARO Technologies (“FARO”)
Leader in Micron level 3D measurement, imaging and analysis. Formed in 1981, FARO
introduced the first articulated Arm measurement technology in 1984. High teens organic
revenue growth rate over the period 2009-2014. ~10% growth over a cycle
Metrology ( Arm, Tracker, ScanArm, Gage, AMP) segment takes highly reliable and accurate
measurements at the micron level; focuses on the Industrial sector with the Arm and Tracker
based product lines. Established leadership with 20+ years of development with great brand
recognition
3 D Documentation & Surveying segment uses laser technology to deliver highly detailed
images of geometries and environments, focuses on the AEC (Architecture, Engineering,
Construction) and Law Enforcement sector with the Scanner based product lines
Services Revenues approaching ~$60mm or 20% of total revenues supports longevity in
business model
Primary markets served include Automotive (35% of total installations), Aerospace (25% of total
installations), AEC, Metalworking & Machining, Energy & Natural Resources, Law Enforcement
Diverse customer base includes 75% small and 25% large firms such as Boeing, GE, Daimler,
GM, Siemens, Deere, Toyota, Caterpillar, Airbus, IR , Others. Top 10 customers < 5%
Global Foot print (sales presence > 30 countries) with R&D, Manufacturing and Sales Services
across the regions. 43% of sales from Americas, 32% from EMEA and 25% from Asia Pacific
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Share Price: $28.86
(12/10/2015)
Market Cap: ~$500
Net Cash: $161M
Revenue (LTM): $330M
EBITDA (LTM): $29M

Strong ROI to Customers
Large Addressable Market: Faro’s mission statement is to be the most trusted source for 3D measurement technology. By definition 3D
measurement can be applied universally in any industry that requires precise measurement and dimensional analysis. Hence, the addressable market
is large and growing.
Strong Product Efficacy: Faro has created an installed base of 15K customers and 30k installations over more than two decades (on average each
Faro customer has two installations). This base has verified the efficacy of Faro products, which are now clearly documented in customer case studies.
Deep Customer Collaboration: Customers are coming to Faro on a regular basis (add range, speed, reduce size, add software, and drop price/add
value) to collaborate with Company on specific measurement needs, creating a stronger, more defensible relationship. Customers are finding new ways
to measure and scan, creating greater use cases for Faro products.
High ROI: Faro products are highly accurate @ micron levels, priced from $12k-$99k , ROI in < 6 months, and is available for the average user.
Strong Creativity and Efficiency: Faro metrology products can make the most creative designs come to life. It can take a CAD design and replicate
a part from CAD in a few hours, not weeks. They are able to measure organic shapes, its curves with it and build it to the design tolerance that is was
intended for. It can reverse engineer complex parts in minutes or hours, not weeks or months.
Multi Industry Application: Faro scanner products can scan the interior of an Airbus so they know the exact measurements of their interior layouts.
Construction companies can scan the area as they build so they do not deviate from the design intent. Companies like Intel are using their technology to
make sure they keep up-to date records of everything in the manufacturing plant.
Growing Franchise Value: Installed base of customers and use cases has allowed Faro to 1) Grow the current business – sell more ARMs and
Trackers, 2) Extend the core – build new adjacencies such as the ScanARM and Laser Line Probe, 3) Invent a new future – build disruptive technologies
such as by introducing new products at a rapid pace while dropping the price such as the Freestyle, and 4) Building broad long term capability –
building software and service revenues and focus on new capabilities such as optical technology and measuring parts at rapid speeds to create enduring
franchises.
Compelling Product Cycles: New product introductions such as the Laser Scanner in 2010, Faro Edge in 2011, CAM 2 software in 2011, Laser
Tracker in 2013, Freestyle in 2015, among many other product introductions coming in the next 2 years creates a strong tailwind for growth and value
to customers.
Enhanced Value at Lower Prices: Faro drives value by dropping price at a significant rate to open up the market while adding new accessories such
as the Laser Line Probe, which drives up the value to customers and at the same time adding new sources of revenues and profits for the Company.
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Why invest in FARO
Strong set of Assets
Leading share in Metrology and 3D documentation business units
Strong organic growth profile of >10% revenue CAGR over economic cycles; large addressable market
Penetration rate among customers appears modest in both Metrology and particularly in 3D Documentation
Product based barriers of entry driven by long customer acceptance cycles (to prove underlying ROI), tool and software lock in, low cost of
ownership, growth in underlying use case
Significant underlying ROI to customers that use Faro products
Growing services revenues
Products have limited obsolescence risk unless Faro introduces a next generation product
Large pool of talent – Engineers/Scientists, application engineers and support staff, and global footprint
Boom and Bust Cycle
Elevated growth expectations led to bloated cost structure
Unfocused and volatile turnover among senior and rank and file management led to poor employee morale
Unproductive mix between direct and in-direct sales force led to sales force turnover and sales performance per rep
Poor operating leverage and FCF generation
Total shareholder returns follow a boom and bust cycle and below peer (FEI, CGNX, HXGN) and S&P over 3,5,10 year periods.
Change underway
New CEO to be hired
Better execution and refocus on shareholders returns and capital
Attractive Investment
Significantly undervalued at 10X normalized EPS (~$2 EPS with better margins) ex cash and ~6x earnings ( $~3.5 EPS power ) ex cash in three
years
$9 in net cash per share buys them time and gives them flexibility to execute a turnaround
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Avasar’s History with FARO
Prior to 2015 - Strong asset base but poor shareholder returns
Strong assets and customer and industry tailwinds offset by bloated cost structure and poor FCF generation
Elevated growth expectations offset by weak execution
Poor sales productivity
Low employee morale driven by frequent organizational changes
Poor total shareholder returns over the past 3,5,10 year periods on an absolute/relative basis
2011-2015: Shared ideas and thoughts with the current CEO
Avasar has periodically engaged in informal communication via email with outgoing CEO Jay Freeland on topics such as growth
targets, sales productivity, poor leverage and FCF generation, and poor overall total shareholder returns
November 2015: Today Faro is Avasar’s largest investment
Stock price $25-$30 has declined to a multi-year low driven by poor execution and shareholder disapproval of current
management/board, Avasar believes investor skepticism has created a very undervalued security
Current CEO will depart the Company
Sent letter to the Board requiring action to create shareholder value
Board Chairman Simon Raab replied acknowledging our concerns
We believe Faro could be worth $49 per share by YE2016 and $86 per share by 2018
Review strategy towards profitable growth through appropriate CEO and right set of revenue/cost priorities
Hold the Board and Management team accountable
Strategic review to assess grow independently or be part of a larger entity
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Avasar’s Thesis
Strong assets + Large addressable market – but failed to deliver to shareholders
Avasar has studied Faro for the past decade and view its core products and its value to customers favorably. For example, the
portable FaroARM can aid auto manufacturers ensure strict adherence to specifications and can measure key parts before
and after production runs. It delivers high levels of accuracy and repeatability that ensures micron level deviations from the
CAD models. The ROI to customers makes buying a FaroArm a “no brainer”. There are innumerable case studies to prove its
value. Similarly, in the 3D documentation and surveying area, the Faro Laser Scanner can render fast accurate
measurements of complex structures very quickly. For example, retailers can scan and document stores so they can
optimally manage areas with respect to shelf and inventory planning very quickly and efficiently. The point being that the
use case in the metrology and document segments can be applied to innumerable industries and the ROI to customers
remains significant.
Faro has also created competitive advantages along the way, namely 30k product installations among 15k customers creating
a large, healthy installed base of customers among both small and mid-size companies as well as large fortune 500
companies. Service revenues are approaching $60mm annually, which creates the stability and longevity in the business.
The footprint is global for a Company the size of Faro. It has key manufacturing facilities as well as service centers in key
geographies to support its customer base. R&D approaching $30mm annually supports 156 scientists and technicians that
have spent their entire careers focused on metrology and 3D documentation. They have 800 patents.
The competitive landscape, despite its attractiveness remains healthy where business is won and lost on innovation and
problem solving rather than solely price. Despite these attractive variables in the business, the current share price of ~ $25-
$30, a low of many years with ~$9 net cash per share represents a shareholder base that remains highly critical and
skeptical of the outgoing CEO and current board. In short, Faro has valuable products, strong industry and customer
tailwinds but are overwhelmed by the choices that management has made and the existing board has supported over the
past 11-years.
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Avasar’s Thesis, continued
Faro must make further bold changes
Although the credibility of the board is low given very weak total shareholder returns over the past decade, we believe the
board did make the difficult yet right choice to make important personnel changes and did attempt to drive accountability
over the years via performance measured compensation measures. We believe the board needs to do a lot more to ensure
that Faro can leverage its strong competitive advantages to create sustainable yet strong total shareholder returns. Avasar
recommends specific actions the Board must consider as they conduct a search for a new CEO. Avasar recommends
board hire CEO from Trimble and seek guidance and counsel from peer companies such as FEI and
Allscript’s/Hologic’s on strategy and turnaround.
Avasar’s investment
We strongly believe that Faro’s transformation from a boom and bust EPS and stock price cycle to a management committed
to deliver improved and sustainable total shareholder returns are highly probable. We believe the stock is highly
undervalued at ~10x normalized EPS ex cash at improved and attainable margin levels. The stock is even more undervalued
if we consider productivity actions the Company can implement. There remains considerable value if Faro delivers on what
it can accomplish in the next 2-3 years and Avasar seeks to work with management and the board on that realization. Avasar
expects management to deliver on its commitments and will keep all options open to generate lasting shareholder returns.
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Avasar’s roadmap to $49/share YE2016 and $86/share by 2018
Faro generates significant value for its customers. It is time for that value to accrue to
shareholders as well.
Expand EBITDA margins to at least 15% by year end 2016 and 21% thereafter
Expand Gross-margins to 55% where they were historically, maintain R&D at 8.5% but reduce SG&A to 32%
New CEO must bring cost discipline throughout the Company and create and execute on budgets that drive revenue growth, strong
ROIC and FCF generation
Fix sales rep alignment and compensation to drive productivity in revenue and cost per sales rep and reduce churn
Build partnerships like Trimble and Cognex have done with their distribution and go to market capabilities
Drive FCF generation, deploy cash on BS optimally
Commit to 15-20% FCF margins and tie compensation to those metrics to each and every employee
Once margins and FCF generation have expanded, deploy existing $9 cash per share on strengthening indirect sales force
efficiencies and M&A
Execute on M&A with significant diligence. Build a team around it. The current ad-hoc process appears untenable
Buyback stock and institute a dividend per share (we would counsel not to execute on a buyback during this transition and
certainly not until the new CEO is on board and a strategic plan is executed upon)
Once Company turnaround is well under way execute on a strategic review
Strategic review to assess grow independently or be part of a larger entity
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Background: Metrology Industry Overview
Large addressable market with high single digit organic growth rate
• Increasing CAD/CAM usage
• Quality focus requiring precision measuring
• Enhanced adaptability/flexibility in measurement tools
3D Metrology Growth Driver
• $2 to $3 Billion addressable market size according to FARO managementMarket Size
• Dominant Players: Hexagon and FARO
• Niche Players: Renishaw, Nikon Metrology, Perceptron, Tokyo Boeki
Key Players
• Relatively mature and cyclical in given high industrial exposureMarket Type
• High single digit organic growth rate %Growth rate
• High within Automotive and Aerospace segmentsPenetration
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Background: 3D Documentation Industry Overview
Large Addressable market with significant opportunity for growth
• Demand for rapid detailed accurate data capture across industry segments
3D Documentation Growth
Driver
• $1 to $2 Billion addressable market size according to FARO management within
the AEC and Law enforcement segments. Technology application is diverse and the
market potential could be significantly higher
Market Size
• Dominant Players: Hexagon and FARO
• Other Players: Trimble, Zoller + Frohlich, Riegl, Surphaser
Key Players
• Secular given niche applications across industriesMarket Type
• High single to mid teens growth rate expected through expansion across
industries. 3D scanning industry expected to grow at mid teen rates.Growth rate
• Low penetration across industry verticals offering opportunity for growthPenetration
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Background: Strong Competitive Position
Leading technology position with large installed base
• Products deliver promising ROI averaging five to six months to customersValue to Customer
• 30,000 installations globallyHigh Installed Base
• 15,000 customers world wide
• 63% sales to existing customers
Diverse Customers
• Technology innovator with proprietary R&D centric culture focused on
value add product developmentProduct Innovation
• FARO a dominant player with a market leading portfolio in a near duopoly
in most market segmentsLeading Market Position
• Net Cash of $160 million to invest in organic and inorganic growthStrong Financial Position
• Current $20 EV/share value offers significant upside with strong executionValue for Shareholder
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Background: R&D advantage
R&D knowhow creates completive advantages difficult to replicate
• 30 years of technology innovation through organic and inorganic developmentExperience
• 156 scientists and techniciansTeam
• “the algorithms which is millions of lines of code that drives the device to achieve
the accuracy that you can get is all IP, trade secret protected inside of Lake Mary
or inside Stuttgart depending on the device” CEO said in 2012
• 800 patents registered or pending in the US
Intellectual Property
• Low cost
• Ease of use
• High Precision
Focus
• Recognized by Vogel Business Media (VBM) in 2014 for “Milestone of the Industry”
award. This was based upon FARO’s innovation that started in 1984 with the
development of the first measurement arm and continues more recently with the
recognition for the Focus 3D scanner products.
Recognition
• “We’ve been using FARO technology for over a decade now,” says Randy Minton,
Texas Mold Operation Manager. “I’m sure we’ve saved countless hours of inspection
time and hundreds of thousands of dollars.”
Customer ROI
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Background: Strong Product Portfolio
Price and Range
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Source: FARO Presentation May 12, 2015

Background: Strong Product Portfolio
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Price point varies from ~$12/13k to $99k, creating significant price/value to customer but challenges
remain to convince in-direct distributors to sell low priced capex related products
FARO PRODUCT MIX
HARDWARE PRICE
REVENUE
(%)
DIRECT
SALES (%)
APPLICATION
ARM 50 37% 95% CAD inspection, Reverse engineering, Machine calibration
Scan ARM 70 20% 95% Inspection, point cloud to CAD comparison, rapid prototyping
Scanner 50 17% 45% Scan complex structures, crime scenes, supply facilities and other
Tracker 99 13% 95% Large part inspection
Gage 15 5% 95% Inspections, Dimension analysis
Imager 45 5% 95% Non contact inspection
Freestyle 13 3% 45% AEC, accident reconstruction, forensics
SOFTWARE CAM, SCENE, CLOUD Ports data from tool for analysis
Source: Avasar Estimates based upon due diligence and company comments

Background: Strong Position
Global Presence
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Global Presence while generating ~$300mm+ in sales
Source: FARO Presentation May 12, 2015

Background: Deep Customer Collaborations
Customer Case Studies
• http://www.faro.com/en-us/news-events/case-
studies/2013/08/23/buyken-metal-gains-speed-consistency-and-accuracy-
using-a-faroarm
Buyken Metal Gains Speed, Consistency,
and Accuracy using FaroArm
•
•http://www.faro.com/en-us/news-events/case-
studies/2013/08/23/applying-3d-metrology-in-qa-and-reverse-engineering-
with-andretti-autosport
Applying 3D Metrology in QA and Reverse
Engineering with Andretti Autosport
• http://www.faro.com/en-us/news-events/case-studies/2013/07/16/arj-
recommends-the-faro-edge-scanarm-as-the-way-of-the-future
ARJ Recommends the FARO Edge ScanArm
as the Way of the Future
• http://www.faro.com/en-us/news-events/case-studies/2013/06/26/callies-
performance-stays-ahead-of-the-competition-using-faroarms
Callies Performance Stays Ahead of the
Competition Using FaroArms
studies/2013/04/09/Mollenhauer
Restoration Made Easy with the Focus3D
Laser Scanner
studies/2013/01/03/WVU
Digitally Documenting the Most Populated
“City” in West Virginia
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Opportunity - New CEO Must Fix:
Strong revenue growth but well below goals
Faro’s ambitious growth targets are commendable but it has come at the expense of unproductive
growth in costs. We urge the Board to find a stronger balance between growth in revenues and
expenses. Faro has grown revenues at ~10% CAGR over the long-term , good organic growth but hardly
at the rate of 20% to 30% the CEO has touted over the years.
*LTM Q3 2015; Source: Company filings, ADVFN, and Avasar calculations
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0
50
100
150
200
250
300
350
400
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015*
FARO Revenue ($M)

Gross Margins trending lower
GM% has declined considerable since 2005. Some can be attributed to the 20% of sales derived from
Laser Scanner scales, which goes through distribution. However, margins are trending lower and
there is no evidence that OI% have benefited from this change in mix. The new Company CEO must
review each cost item including purchasing, manufacturing, cost of components and do so over the
entire footprint. The Company must create stronger shared services where Europe and Asia can
benefit from the value residing in the US.
*LTM Q3-2015; Source: Company filings, ADVFN, and Avasar calculations
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50%
52%
54%
56%
58%
60%
62%
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015*
FARO Gross Margin (%)

Re-examine Aggressive growth
R&D has grown significantly since 2011 despite the CEO’s assertion in 2012 that the range should be
closer to the 7% range, creating doubts on the robustness of financial planning/budgeting. R&D
spending is wise to maintain value to their customers but the Company can do more to spend wisely
and build a much more robust financial planning and budgeting function.
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0%
1%
2%
3%
4%
5%
6%
7%
8%
9%
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015*
FARO R&D Expense as % of Revenue (%)

No operating leverage in 2011-15 period
Faro’s new CEO has a remarkable opportunity to cut costs in SG&A, which has shown no leverage since
2011 even as revenues have grown. We urge management to analyze each cost item, create efficiencies
and reduce costs.
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0%
5%
10%
15%
20%
25%
30%
35%
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015*
FARO Selling Expense as % of Revenue (%)

High G&A Cost
General and Administrative expenses are high given the GM% and other OPEX line items. This line
item can be cut and should be the new CEO’s priority. We believe G&A should be cut 20% without
adversely impacting the infrastructure of the business. New CEO should and can find efficiencies in
this line item.
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0%
2%
4%
6%
8%
10%
12%
14%
16%
18%
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015*
FARO G&A Expense as % of Revenue (%)

Cost Structure
Despite solid revenue growth, EBITDA growth has followed two pathways, 1) it has been volatile, 2)
since 2011 growth has been trending lower except for 2014. There has been a breakdown in the
revenue cost matrix since 2011 and we are unsure what exact strategic decisions that have caused it but
the new incoming CEO must undertake a complete review of the cost structure and implement specific
changes.
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-10
0
10
20
30
40
50
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015*
FARO EBITDA ($M)

Reverse declining margins
EBITDA margin has declined from 2011 levels because operating expense has grown at a much faster
clip. This trend must reverse.
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-5%
0%
5%
10%
15%
20%
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015*
FARO EBITDA Margin (%)

Volatile Earnings
EPS growth has followed a classic boom and bust cycle and has been flattish and trending lower since
2011.
*2015 analyst consensus estimates; Source: Company filings, Market Watch, ADVFN, and Avasar calculations
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-1.0
-0.5
0.0
0.5
1.0
1.5
2.0
2.5
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015*
FARO EPS ($)

Strategy of ‘‘let’s build now and revenues will eventually come’’
Sales engineers have grown as a % of the mix and that supports strength. But we believe there is an
imbalance in the comp structure which has created higher churn and as such believe the sales force is
unproductive.
Source: Company filings, ADVFN, and Avasar calculations
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0
200
400
600
800
1,000
1,200
1,400
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
FARO Employee Mix
Sales Engg Production R&D Admin Customer Service

Declining Productivity
The new CEO must find ways to boost this metric in-order to build a stronger franchise.
*LTMQ3-2015; Source: Company filings, ADVFN, and Avasar calculations
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0
50
100
150
200
250
300
350
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015*
FARO Revenue per Employee ($'000)

Poor Sales Engineer Productivity
Unproductive sales force has created a downdraft in revenues per sales engineer. This must reverse
for the Company to build leverage in the model. One area of improvement is for the CEO to fix the
compensation structure among its sales reps. A stronger distribution channel is also required. The
Company can learn from Cognex and Trimble where their distribution channel is much more
productive.
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0
100
200
300
400
500
600
700
800
900
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
FARO Revenue per Sales Engineer ($'000)

Poor Customer Facing Employee Productivity
Again, we think much can be done to boost this if key partnerships are aligned.
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0
100
200
300
400
500
600
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
FARO Revenue per Sales Engineer & Customer Service Rep
($'000)

Declining EBITDA per employee
Poor balance between revenue growth and profits and that matrix needs to be
reexamined.
*LTMQ3-2015; Source: Company filings, ADVFN, and Avasar calculations
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-10
0
10
20
30
40
50
60
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015*
FARO EBITDA per Employee ($'000)

Lacks Scale but profits could be higher
Faro’s largest competitor Hexagon is >6x bigger than Faro but that does not preclude
company from improving margins at the current revenue run-rate. We believe key
partnerships will support stronger revenue growth, which will compliment a more
robust M&A strategy.
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0
500
1,000
1,500
2,000
2,500
3,000
3,500
FARO GSIG XCRA CGNX RSTI MTSC IIVI IPGP MKSI COHR FEIC TRMB HXGN
Revenue ($M)

Attractive GM% reflects value but must stabilize/grow/capitalize
Significant ROI to end customer allows Faro to generate attractive Gross-Margins .
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0%
10%
20%
30%
40%
50%
60%
70%
80%
CGNX HXGN FARO IPGP TRMB FEIC XCRA MKSI GSIG MTSC COHR RSTI IIVI
Gross Margin %

Bloated Cost Structure must be addressed
Elevated SG&A reflect poor execution and wrong revenue/cost priorities
35
AVASAR PARTNERS LLC
0%
5%
10%
15%
20%
25%
30%
35%
40%
IPGP MKSI COHR RSTI IIVI XCRA FEIC GSIG MTSC TRMB HXGN CGNX FARO
SG&A as % of Revenue

R&D growing yet middle of the peer group
Company must bring efficiencies elsewhere to spend aggressively on R&D, however
clearly they do not have an advantage in this category compared to other companies
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AVASAR PARTNERS LLC
0%
2%
4%
6%
8%
10%
12%
14%
16%
18%
MTSC IIVI IPGP GSIG FARO MKSI RSTI COHR HXGN FEIC CGNX TRMB XCRA
R&D as % of Revenue

Growth/Profitability lags peer group
Despite aggressive growth targets Faro lags peer group in profitability
CGNX (Cognex) is a leader in machine vision systems and FEI sells microscopy instruments that provide images at micro, nano, picometer
scales. Product lines are different but the attributes and customer value characteristics are similar. Hexagon is a direct competitor but it
has many other product lines alongside Metrology.
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AVASAR PARTNERS LLC
REVENUE ($ M) 2007 LTM 2015 GROWTH %
CGNX 226 482 114%
HEXAGON (MEUR) 1,577 2,972 88%
FARO 192 330 72%
FEIC 593 923 56%
EBITDA MARGIN % 2007 LTM 2015 EBITDA GROWTH %
CGNX 17% 31% 287%
HEXAGON 22% 29% 150%
FEIC 12% 18% 137%
FARO 13% 9% 20%

Productivity lags peer group
Bloated costs and in-efficiencies leads to significant underperformance relative to
peers
*LTM to Q32015; Source: Company filings, ADVFN, and Avasar calculations
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AVASAR PARTNERS LLC
Rev per employee ($'000) 2007 LTM 2015 GROWTH %
CGNX 290 367 27%
HEXAGON (EUR'000) 174 188 8%
FEIC 344 335 -3%
FARO 270 253 -6%
EBITDA per employee ($'000) 2007 LTM 2015 GROWTH %
CGNX 49 114 130%
FEIC 41 61 48%
HEXAGON (EUR'000) 38 55 43%
FARO 34 22 -35%

Revenue growth lags peer group
Faro’s CEO has touted their strong revenue growth, which we view favorably, but Faro still lags the
peer group
39
AVASAR PARTNERS LLC
0
500
1,000
1,500
2,000
2,500
3,000
3,500
0
200
400
600
800
1,000
1,200
2007 2008 2009 2010 2011 2012 2013 2014 2015*
**EURMillion
$Million
Revenues
CGNX FEIC FARO Hexagon**

Profitability lags peer group
The performance divergence in EBITDA is striking among its peer group and we do not see
anything structural that prevents Faro from moving into the top tier in profitability among its peer
group. As a case study, Faro should study FEI, which turned around the Company and boosted
profits at a very attractive rate. The market rewarded the Company with a sharply higher valuation
multiple despite lower revenue growth relative to Faro.
40
AVASAR PARTNERS LLC
-10%
-5%
0%
5%
10%
15%
20%
25%
30%
35%
2007 2008 2009 2010 2011 2012 2013 2014 2015*
EBITDA Margin %
Hexagon CGNX FEIC FARO

Cash conversion lags peer group
From the chart below, Faro lags its peer group on each and every metric. Faro spends the least
amount of R&D as a % of sales compared to its peers. Despite that, Faro generates high GM%.
reflecting strong value, but it is unable to generate attractive EBITDA margins relative to peers,
likely driven by poorer execution and inefficiencies. More alarming is that EBITDA margin of 12%
are being converted to a modest 7% in OCF, reflecting very poor working capital management. The
new CEO must address issues of scale, productivity and working capital management.
41
AVASAR PARTNERS LLC
Cumulative 2005-14
TRMB
($M)
CGNX
($M)
FEIC
($M)
FARO
($M)
Revenue 15,055 2,877 6,912 2,180
R&D Spend 1,826 385 766 145
EBITDA 2,693 728 1,026 251
CFO (Cash from Operations) 2,291 726 861 142
R&D Spend as % of Cum. Revenue 12% 13% 11% 7%
EBITDA Margin % 18% 25% 15% 12%
CFO as % of Cum. Revenue 15% 25% 12% 7%

Valuation metrics lag peer group
Faro can trade at a 15-17x EBITDA multiple if margins expand to 18% similar to FEI, and build a
steady state margin profile of min ~15%.
Source: Company filings , Market Watch, Avasar calculations
42
AVASAR PARTNERS LLC
CGNX ($M)
HEXAGON
(MEUR)
FEIC ($M) FARO ($M)
Revenue (LTM) 482 2,972 923 330
EBITDA (LTM) 149 871 169 29
EBITDA Margin % 31% 29% 18% 9%
EPS (CY Analyst est. in $ & EUR) 1.18 1.45 2.92 0.57
Share Price ($ & EUR) 37 35 79 30
Market Cap 3,150 11,781 3,280 520
Net Debt/(Cash) (593) 1,667 (452) (161)
EV 2,557 13,448 2,828 359
Price/Sales (x) 7 4 4 2
EV/EBITDA (x) 17 15 17 12
P/E (x) 31 24 27 53

Poor fundamentals equals poor shareholder returns
43
AVASAR PARTNERS LLC
Company FARO FEIC CGNX HEXA.B
Return % 18.75% 188.31% 201.15% 246.62%
Source: Google Finance

Boom and Bust share price despite revenue growth
44
AVASAR PARTNERS LLC
CEO steps down
November 2015
Poor Execution equates to Poor Shareholder Returns. Despite growth in sales, CEO departs
company at a similar market cap than when he began.
Source: Google finance price
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FARO Share Price ($)
CEO appointed
December 2006
Secondary Offering:
$34/share August 2007
CEO Comments: $1Bn
Revenue in 7yrs
March 2012

Opportunity - Time to reshape Board
Stable but stagnant Board
Stronger execution requires new thinking. Dr. Raab has been a member since its founding.
The newest board member has been with the Company since 2009 and the lead director, Mr.
Cole has been with the Company since 2000. We acknowledge the board did attempt to drive
accountability on the issues we have outlined, yet over the past decade, total returns to
shareholders has been un-attractive. Faro must not execute a similar strategy and expect a
different outcome. Faro must drive positive change.
Source: FARO company filings
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AVASAR PARTNERS LLC
Name Director Since Term Expires
Simon Raab (Chairman & Co founder) 1982 2018
Stephen R Cole 2000 2017
John Caldwell 2002 2016
Jay W Freeland (CEO) 2006 2017
Marvin R Sambur 2007 2017
John Donofrio 2008 2016
Lynn Brubaker 2009 2018

Balance growth with profitability
CEO had ambitious goals but lack of details and process prevented its fruition
CEO comments at 2012 investor day: “The 60% to 65% gross margin, the 18% to 23% operating margin,
yes, I think we can develop new products that solve new problems, at a price point that nobody else can deliver and
still have that kind of margin that comes with it. I am certain of that. And the destination is reached, the $1 billion in
seven years, you will get there in seven years, maybe sooner, I say, if I said maybe because Keith will jump out of his
chair anything other than maybe on that.”
Current Reality: No sustainable road map to achieve targets
Source: FARO company filings and comments
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AVASAR PARTNERS LLC
FARO: REALITY LTM Q3-2015
Revenue ($M) 330
Gross margin % 53%
EBITDA Margin % 9%
FARO: COMPANY TARGETS
Annual Sales Growth % 20% to 25%
Gross Margin % 60% to 65%
Operating Margin % 18% to 23%

Consistent underperformance
Despite Boards right expectations poor process and implementations led to poor
shareholder returns.
*Cash from operations after capex
Source: FARO Proxy filings
47
AVASAR PARTNERS LLC
MANAGEMENT INCENTIVE PERFORMANCE TARGET METRICS
Gross Margin % 2011 2012 2013 2014
Target 58.90% 58.40% 58.00% 56.30%
Actual 56.50% 54.70% 55.50% 55.30%
Over/(Under)Perform -2.40% -3.70% -2.50% -1.00%
Cash from Operations ($M) 2011 2012* 2013 2014
Target 12.60 19.60 42.20 6.10
Actual 3.10 22.70 34.30 -24.40
Over/(Under)Perform -9.50 3.10 -7.90 -30.50

Sales force in flux
Wrong priorities and execution between direct and in-direct leads to poor performance.
Faro has been in business since 1980 and has a leading installed base of products. Why
have they been unable to better monetize this valuable installed base?
Current Model of Direct Selling - CEO comments at FARO Investor Meeting, March 9, 2012:
“We wanted to grow sales 20% to 25% in total, the actual sales dollars. To generate that the account manager side
probably needs to grow in the high teens to keep pace because there is -- when you think about the process today it's
still pretty missionary. It takes an account manager going on site doing the demo, he's there all day, closing the deal
and then moving to the next one. So a really good account manager can do 12 -- maybe 15 demos in a month. And if
that person did 15 in a month that means they're on the road basically every single day of the week except the
weekends. So they're home in the weekend and then they hit the road again. So even if they close every single
deal, which they don't, at some point you'd have to keep adding account managers just by the
nature of you need to demo every single sale. Even repeat customers want you to come back because they
want to look at the plant and say, tell me where I should go next or show me how it work on this machine so actually
it's still a day out of that person's time.”
Former Account Manager comments: “Great technology in a growing market. Solid and generous benefits.
Great team members and coworkers. Team members really care about each other and try to help out where they
can. Sales positions are 100% commission-based, and mid and upper management dice up territories that cut into
one's ability to make the #'s as initially agreed. Lots of hours to put in to have any success.” [Source: Comments
on July 6, 2015 on www.glassdoor.com]
48
AVASAR PARTNERS LLC

Significant employee turnover
Abrupt organization changes reflects poorly on execution
Current model of disruptive changes with poor results:
CEO Departure 2015: CEO announced to step down per company filings on November 3, 2015.
Work Force Reduction 2015: CEO comment on the Q3-2015 earnings call - “we will reduce the size of our
workforce immediately without sacrificing the long-term strategic position of the company. The total reduction will
be approximately 8% globally.”
CFO Departure 2015: CFO departure announced in a company filing on March 20, 2015. The CFO left after
just one year due to personal and other reasons.
Management turnover 2013 - 14: “CEO Jay Freeland and the board initiated upper-level turnover aimed
at bringing different skill sets into the organization. The managing directors in two of three regions, NorAm (mid
2013) and Europe (late 2014), plus some personnel below the MD level, have been changed out. A General Counsel
was hired, bringing the role in-house (early 2014). A new CFO was hired (early 2014).” [Source: Oppenheimer Initiation
report Dec 17, 2014]
49
AVASAR PARTNERS LLC

Turnaround Strategy: Focus on few priorities
50
AVASAR PARTNERS LLC
• Additions/changes to the Board to represent shareholder interest
• Board members with expertise in manufacturing, sales, turnaround
Board Accountability
• Make a smart and strategic hireHire CEO
• Reach out to key customers to build confidence
• Reach out to investors and build a case for a turnaround
Re-establish credibility
• We counsel management to defer until new CEO comes on boardCapital Allocation
• Once turnaround gains steam, conduct a review to grow independently
or within a larger entityStrategic Review

Turnaround Strategy: Roadmap for Board/CEO
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AVASAR PARTNERS LLC
• Seek counsel from CEO of Allscripts and Hologic’s on genesis of turnaround
• Allscripts – Major turnaround by CEO Paul Black post an underinvested
technology platform
• Hologic – Major turnaround by CEO Stephen Macmillan post an ill-timed
and expensive acquisition
• Hire CEO from Trimble, Cognex, Zebra, Autodesk, Danaher, or Hexagon
Board
• Build strategy and financial plan (strong budgeting and cost analysis)
• Layout plan to investors
• Seek guidance where required
New CEO
• Re-establish employee moralBoost Moral
• Build track record of execution and managing expectationsRestore Revenue/EPS growth
• Layout opportunity and strengths
• Be open and realistic with plans
• Meet and beat expectations
Execute with Transparency

Turnaround Strategy: CEO qualities
Board should look for the following qualities in the CEO
CEO must have a strong focus on total shareholder returns that are sustainable. She/He
must have expertise in manufacturing, sales, managing and creating partnerships,
building distribution networks.
Execution: Proven history of strong execution
Industry knowledge: Ability to build partnerships, JV’s Globally
Sales process expertise: Experience with managing direct and in-direct sales force
Restructuring experience: Create a sustainable business model with appropriate cost structure
Entrepreneurial drive: Improve employee moral and productivity
Shareholder value: Track record of creating shareholder value
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AVASAR PARTNERS LLC

Turnaround Strategy: Become a solutions company
We believe a new strategy of partnerships like Trimble has achieved is the right path for the
new CEO to undertake. Similarly, Hexagon competes with a total value/solution basis versus
Faro’s hardware sale with some added software. Faro must execute on a new sales and go to
market strategy and as such the new CEO must have valuable experience in that endeavor. Faro
sale must be company wide not factory specific or department specific. Faro sells a solution not
an ARM or a Scanner? Faro must transform itself from just a Measurement Company to a
Measurement Solution’s Company.
Faro: Describes itself as a Measurement Company. Faro sells ARM and its variants and Scanner and its
variants and software.
Trimble: Describes itself as a solutions company selling into large industries such as Construction,
Agriculture, Geospatial, etc. Company is not selling merely point products, they are selling Point Solutions,
Process Solutions, and Enterprise Solutions. Moreover, each solution is supported by shared resources,
common platforms, and Enabling Technologies.
Hexagon: Describes itself as a Technology Solutions Provider. Hexagon is a leading global provider of
information technologies that drive productivity and quality across the geospatial and industrial enterprise
applications.
53
AVASAR PARTNERS LLC

Turnaround Strategy: CEO priorities
CEO must focus on few key items to improve performance
Execution: Achieve realistic targets with a sustainable road map
Enhance Sales Productivity:
Reassess Direct Sales Model and 100% Commission Incentive plan
Leverage relationships through the 15k customer and 30k installation base globally
Build Partnerships: Replicate Trimble’s distribution and partnership model, which are key competitive
advantages. Trimble has key partnerships established with manufacturers such as CAT in construction, Paccar
in truck, CNH in farm equipment. We urge management to build strong partnerships with industrial
companies as well as key suppliers to forge partnerships that can accelerate growth and innovation for the
Company.
Profitable Growth: Improve margins and free cash flow generation
Establish Entrepreneurial Culture and Improve Employee Moral:
Drive decision making through focus on profitable growth and cash generation
Align incentive structure towards achieving sustainable profitable growth
Accountability: Focus on shareholder value creation
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AVASAR PARTNERS LLC

Turnaround Strategy: CEO Day 1 priorities
CEO must focus on the following key items
1. Financial Targets:
1) Stabilize Gross-Margins to ~55%-56%: Find efficiencies across the board in purchasing, supply chain,
shared services, component costs, etc.
2) Maintain R&D spend as % of revenue at ~8%-9% to sustain competitive edge
3) Reduce SG&A expense as % of revenue to ~30%-32%:
Cut Selling expenses: Reduce churn in sales engineers by rebalancing compensation, tie compensation to short-term
and medium-term goals
Cut G&A expenses: There is no need for G&A to be at such elevated levels as a % of sales
2. Financial outcome: Company can boost EBITDA margins to ~15% at the current revenue run rate on a steady
state basis
55
AVASAR PARTNERS LLC

Turnaround Strategy: Improve productivity
CEO must implement cost and ROIC discipline through rank and file
56
AVASAR PARTNERS LLC
Source: FARO company filings and Avasar estimates
FARO 2007 LTM 2015 Growth OPPORTUNITY
Revenue ($M) 192 330 72% $ 500 ++
EBITDA Margin % 13% 9% 20% 20% ++
Revenue per employee ($'000) 246 270 10% Productivity ++
EBITDA per employee ($'000) 31 24 -23% Productivity ++

Turnaround Strategy: Improve LT Margins
CEO must implement cost and ROIC discipline through rank and file
57
AVASAR PARTNERS LLC
Faro can increase steady state margins at current revenue run-rate to ~15%. The heavy-lifting
comes from an expansion to 21%, which we believe is driven by revenues rising to $500M from
$300M today and margins expanding driven by the following bridge seen below. The business
model has significant leverage if the new CEO alongside a focused board demands higher
productivity, fixes its sales organizations and builds strong partnerships and JV’s.
Source: FARO company filings and Avasar estimates
9%
21%
-1%4%
9%
0%
5%
10%
15%
20%
25%
EBITDA Margin %
LTM Q3-2015
GM
Expansion
R&D
Increase
SG&A
Productivity
EBITDA Margin %
2019E
FARO EBITDA Margin Bridge

Outcome: Value to shareholders
58
AVASAR PARTNERS LLC
Faro offers tremendous value to shareholders through effective execution.
Source: Company filings and Avasar estimates
FARO 2007 LTM 2015 2016F 2017F 2018F 2019F
Margin
Expansion
Profitable
Growth
Profitable
Growth
Profitable
Growth
Revenue ($M) 192 330 350 394 444 500
Gross margin % 61% 53% 55% 56% 57% 57.0%
R&D % of sales 5% 8% 9% 8.5% 8.8% 9.0%
SG&A % of sales 43% 36% 32% 30% 28% 27.0%
EBITDA Margin % 13% 9% 15% 18% 20% 21%
EBITDA 24 29 51 69 88 105
EPS ($) 0.87 1.99 2.75 3.54 4.27
EV - Enterprise Value ($M) 339 634 896 1,183 1,469
Net Cash ($M) 161 212 250 301 365
Market Cap ($M) 500 846 1,146 1,484 1,833
Equity Value/share 29 49 66 86 106
Equity value upside 69% 129% 197% 267%
EV to EBITDA Multiple (times) 12 12.5 13.0 13.5 14.0

Avasar Contact Details
59
AVASAR PARTNERS LLC
• Avasar Partners LLCINVESTMENT MANAGER
• 1745 Broadway, 17th Floor, New York, NY 10019ADDRESS
• 1-646-216-9890TELEPHONE
• skapoor@avasarpartners.comEMAIL

Avasar_Partners_FARO_Presentation_Dec_15

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