Good afternoon. My name is Candice and I will be your conference operator today. At this time, I would like to welcome everyone to GSI Group 2012 Fourth Quarter Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After our speakers' remarks, there will be a question-and-answer session. (Operator Instructions). Thank you. Mr. Robert Buckley, CFO, you may begin your conference.

Thank you very much. Good afternoon, everyone, and welcome to GSI Group's fourth quarter and full year 2012 earnings conference call. With me on the call is John Roush, Chief Executive Officer of GSI Group. If you've not received a copy of our earnings press release, you may get one from the Investor Relations section of our website at www.gsig.com. Please note this call is being webcast live and will be achieved on our website. Before we begin the call, we need to remind everyone of the Safe Harbor for forward-looking statements that we've outlined in our earnings press release issued earlier this afternoon and also those in our SEC filings. We may make some comments today both in our prepared remarks and in our responses to questions that may include forward-looking statements. These involve inherent assumptions with known and unknown risk and other factors that could cause our future results to differ materially from our current expectations. Any forward-looking statement made today represents our view only as of today. We disclaim any obligation to update forward-looking statements in the future even if our estimates change. You should not rely on any of today's forward-looking statements as representing our views as of any date after today. During the call, we will be referring to certain non-GAAP financial measures. A reconciliation of the non-GAAP financial measures we plan to use during this call to the most directly comparable GAAP measure is available as of an attachment to our earnings press release. To the extent that we use non-GAAP financial measures during this call that are not reconciled to GAAP measures in the earnings press release, we will provide reconciliations promptly on the Investor Relations section of our website at www.gsig.com. I'm now pleased to introduce Chief Executive Officer of GSI Group, John Roush.

Thank you, Robert. Good afternoon, everybody, and welcome to our call and we appreciate your continued interest in GSI. So as I reflect on 2012, I'm really extremely proud of the company's progress relative to our aggressive agenda of change and improvement that we outlined for the year. The fact that the progress we've accomplished during the year of weaker and more challenging market conditions resulted in a financial performance that I would say is less impressive than we would have preferred, but it in no way diminishes what our team accomplished and in fact, it makes it even more impressive. In the past 12 months, we have successfully implemented our 12x12 consolidation program, build a talented, experienced and highly capable management team, upgraded numerous systems, processes, infrastructure and controls around the company. We completed the divesture of two of our systems businesses; that would be Control Laser and Baublys. And we believe we're close to completing the final divestiture which is Semiconductor Systems. We also took two important strategic steps during the year. One, we worked with an outside industry expert firm and completed an exhaustive market study of the medical component space to map out medical acquisition opportunities. And then we closed on amended and extended a $125 million credit agreement with a group of six Tier 1 banks led by Bank of America, which closed in December. These two steps enabled us to increase our acquisition capacity, reduce costs, improve the terms on our agreement and put us in a strong position to complete the acquisition of NDS Surgical Imaging in mid-January, an $82.5 million transaction. So all in all, 2012 was a year of significant transformation for GSI. We accomplished a great deal. As I did mention, the progress was accomplished against a backdrop of a…

Thank you, John. I'll now provide some additional details on the fourth quarter and full year 2012 results. During the fourth quarter of 2012, GSI generated revenue of 66.4 million, an increase of 1.4% from 65.5 million in the fourth quarter of 2011. Excluding the impact of foreign exchange, which was negative, revenue was up 2%. For the full year 2012, GSI generated revenue of 271.5 million, down 10.8% from 304.3 million in the same period a year ago. Excluding the impact of foreign exchange, which was positive 1.2, full year revenue declined 9.6%. Included in revenue for the full year of 2011 was 8.1 million of net revenue that had been deferred under multiple-element arrangements delivered over multiple periods and entered in prior to the adoption of ASU 2009-13. Turning to our segments, sales of our laser product segment for the fourth quarter of 2012 increased nearly 6% to 27.8 million compared to 26.3 million a year ago. This was primarily due to growth in our CO2 lasers and our fiber lasers, partially offset by decline in our specialty laser business line which serves the scientific market. On a full year basis, sales of our laser product segment decreased 4.2% to 108.2 million compared to 112.9 million one year ago. Sales decreased by 4.7 million or 4.2% primarily due to a decline in sales in our specialty lasers which were adversely impacted by delays and government spending in the scientific laser market and for removing a few of the ultrafast laser models from the market to improve their product quality and profitability. This decrease was partially offset by a significant sales volume growth in our fiber lasers and increase in sales volume on our sealed CO2 lasers. Sales of Precision Motion and Technologies segment for the fourth quarter of…

(Operator Instructions). Your first question comes from Lee Jagoda with CJS Securities. Your line is now open.

Hi. Good afternoon.

Hi, Lee. How are you doing?

Good. So prior to announcing the divestitures and the recent acquisition, there were a number of businesses that were highly cyclical and contributed to significant quarterly volatility. If I look at the current portfolio, are there businesses or product lines in particular that may have been depressed for some time that could see some volatility on the upturn when they rebound?

Sure. It's a good question, Lee. I mean the areas, we do have a number of them that meet that definition and I think you've seen in public statements, we often point to the Westwind spindles business because it has, I think, the most severe cycle being down 19 million year-over-year. So it certainly would be one that if the printed circuit board drilling business kind of picks up, you would see some lift there. You do have some significant portion of the MicroE encoders business that's tied into the data storage, disk drive tracking writing application. We have some lithography and other microelectronics applications. Wire bonding is part of the MicroE business. So that will be one. You'd also be looking and saying, it has some cycles in there. It's currently at a relatively low revenue run rate based on data storage being quite slow right now. So there could be some pickup there. Cambridge Technology, which is our scanning business, has some exposure in there. It's a smaller percentage, but it does feed into laser via [whole] drilling and a few other microelectronics-related. So, to the extent this PCB, printed circuit board and semiconductor capital equipment space really starts to pick up, those businesses would accelerate. We also see this general -- I would say it's an industrial kind of thing where China's very inconsistent. January was strong and then February was terrible and March is looking more like February. And so that's affecting actually kind of a little bit different set of business. That's really more around our JK and Synrad laser businesses and color measurements. So those are the areas where you have either the cyclicality of the volatility is tied into microelectronics or industrial capital. So that's what I'd be looking for the lift, if we got it.

Okay, great. And then you mentioned that you decreased your forecast for NDS, so what is the new NDS forecast? Or said maybe a different way, how much of the decrease in forecast came from the core business versus the acquisition?

If you do an apples-to-apples comparison, the NDS specific reduction in the guidance is less than half of it on a revenue basis.

And what about EBITDA basis?

Corresponding. It's sort of -- because the revenue and the EBITDA are kind of in proportion on a contribution margin basis. So what we didn't do yet is say, we're going to go like take a bunch of costs out. It's sort of more on a flow-through basis. And there maybe additional cost actions that we would like at probably not as much in the NDS business, but we'd look elsewhere. So you'd see a similar proportion.

Okay. And one more question, I'll hop back in queue. Just, Robert, your view of CapEx for 2013, can you split that maintenance and growth?

It probably will flow around the $6 million to $7 million range again. We've historically -- 50% of that has been focused around IT investments and the other 50% has been focused around investments in the business itself. We've finished off on a much lower number. I think that just represents continuing investment in IT. As we look into 2013, it's probably a little bit of a larger mix going into growth platforms and that's largely because we're beginning to now ramp up our fiber laser business has grown. It's still going to require some additional capital. So it's probably in the 60-40 range now.

Okay, great. Thanks very much.

Thanks, Lee.

Your next question comes from Jim Richiutti with Needham & Company. Your line is now open.

Hi, Jim. Jim Richiutti - Needham & Company, LLC: Hi, John. A question -- just follow-up on the NDS, I'm not completely clear. I believe when you announced the acquisition, you said it would potentially contribute about 80 million, I believe. And what I'm wondering is, are you now looking at something in the order of 75 or a little bit less from that?

I would say between 75 and 80 would be the full year rate there. Jim Richiutti - Needham & Company, LLC: Okay, got it.

We try to be conservative but it looks like it's going to be even a little softer than that. So, like, call it somewhere between 75 and 80 without putting too fine a point on it is the current forecast. Jim Richiutti - Needham & Company, LLC: Got it. And you mentioned that there was the potential that they may lose a customer in Europe in OEM. Can you…?

No, lose share within a customers and not… Jim Richiutti - Needham & Company, LLC: I'm sorry, okay. Thank you.

No loss of customers in an entirety, but we did get some communication from a customer in Europe that they would be cutting back our share, okay. And like this is very recent news. We haven't had yet the chance to fully meet with that customer and run it to ground. But we sort of took that into account in reducing our estimates. So in a way, it almost becomes an opportunity for us than if we can mitigate some of that because we already factored that into our -- that late breaking news into our guidance. But it was not a complete loss of a customer. It was a reduced share position effectively and some sort of… Jim Richiutti - Needham & Company, LLC: Thank you for clarifying it.

…some sort of dual sourcing type of initiative. Jim Richiutti - Needham & Company, LLC: What is your sense, John, just in terms of the medical business in broad terms? I mean it's clearly seeing some impact from some of the macro forces that are going on out there. Can you give us any sense as to whether you think this is going to be continuing over the balance of the year? You don't have a lot of experience with NDS, but more experience with the medical printer business. What's your sense about the rest of the year?

Well, customers are telling us and it's a very consistent message from the NDS side of it to the printer side and we actually have some medical business just in our MicroE encoders and then in our scanning business, we do a lot of retinal scanning applications. So we have like a cross-section of these different equipments out there and what we're seeing is that the U.S. is the major issue with the headwinds. And where there's an opportunity is in the emerging markets. That's still relatively strong. So if you're relying on the U.S., you're going to struggle, okay? And I think that's a little bit the issue that we're -- a lot of the arguments around our acquisition of NDS is we have good infrastructure. In the emerging markets, we have full, well-equipped offices, we have the space for demo labs and space to house and ramp up sales channels in these territories that NDS does not have. And so the hope is that we can counter the softness in the U.S. over time by going more aggressively at the emerging markets. Jim Richiutti - Needham & Company, LLC: Got it.

I think the U.S. trend -- I mean obviously, there is an effort in the U.S. to try and get after the overall healthcare spending, but the procedure growth is there, right? So there's an effort to try to spend less money. A lot of it appears to be from some of the industry forums that we're sitting in on now and what you're hearing from the hospital, administrators and CEOs in the like is, the reimbursement environment is a mystery right now. There's just a lack of clarity in what the Medicaid and Medicare is going to be. And therefore people don't want to spend money on equipment. And then the equipment OEMs pays the tax. We actually have some of the tax ourselves, but for the most part our customers' pays the tax. So if you say our customer is an OEM, an endoscopic OEM, they are caught a little bit in the middle because their customer doesn't have money and they are facing a greater tax. So they're trying to defer purchasing of our components at least temporarily. Sooner or later that gets outstripped by the procedures. So, I mean, with more people need to have this laparoscopies procedures or whatever, eventually the equipment has to be there. So, we think it's sort of a more near-term dynamic that ultimately we're looking at this a little bit longer term and we think it's a good place to be. Jim Richiutti - Needham & Company, LLC: Got it. Scanning solutions showing -- look like you're showing very good growth in this area with Cambridge business. Is it at the point where the scanning solutions portion is meaningful? I think the growth you cited was 40% up in the quarter. You expect this year to be up 30%. Has it become a meaningful part of their business?

Yeah, we don't really parse it that finely in a certain sense that we -- and frankly we don't want to let everyone know exactly how big we are and where we're getting that business. But it is becoming -- it's a minority of the overall scanning business, the solutions business, but it's an increasing part. And we also have a mirrors business, so that you have the galvo component business and then solutions in mirrors and other things. It's becoming a more meaningful minority and it is sort of driving the growth of that business. We would rather -- it always is the case. You realize that when we sell a scanning solution, we tend very often to be cannibalizing our own components business because now we recognize the sale of the module rather than the sale of the individual galvos. But we'd much rather have that, so -- I mean it just gives us -- it brings us closer to the application. We're solving more of the problem for the customer and we're getting more involved in the overall parameters and I think it's a better place to be. Jim Richiutti - Needham & Company, LLC: Last question from me. Robert, is there any way that you could help us with some of the operating expense lines, how we should think about R&D now with almost the full quarter of NDS and how we might think about SG&A?

Yeah, we've finished up in the R&D line, I think, around 8.5%. We don't expect to make significant investments above and beyond that on a percentage of sales basis and I don't think NDS really changes that much for us. So you can expect that roughly around the same sort of level. I also don't have any sort of significant investments going in from an SG&A perspective. I think you'd look at that as a percentage of sales. There might be some opportunity to reduce that a little further from where we're currently at because we have had a bunch of sort of one-timers running through our numbers as part of this 12x12 restructuring program and the 2012 restructuring program and the talent upgrade and whatnot. So we're probably looking, when we finished up the fourth quarter, at 24.7. That's a relatively high number for us on a go-forward basis. So, I'd expect that to come down a little bit. And then it really comes down to your amortization of your intangibles. That's going to be a purchase accounting discussion and we're not there yet. Jim Richiutti - Needham & Company, LLC: That's helpful. Anything on the tax rate that you can say at this point?

Again, what happens there is that the acquisition of NDS plays some havoc on our -- we exited kind of a pull down allowance period and so from a -- the important thing to think about for 2013 is that the base GSI businesses are probably operating with a cash tax rate closer to around 10% like that for the full year. But from a GAAP basis, now that the valuation allowances have been released, you can see the GAAP come how much up is really contingent upon how we treat the NDS acquisition. I would say absent doing NDS, we'd probably see something in the range of 31% to 33% and that sort of level categorizes like a worst case sort of scenario. But there's a lot of effort that we're going to have to do and I think NDS is going to move around a little bit. So we're probably a couple of weeks away from giving some additional indication on that. Jim Richiutti - Needham & Company, LLC: Okay. Thanks very much.

Thanks, Jim.

Your next question comes from Stephen Stone with Sidoti & Company. Your line is now open.

Hi, Stephen. Stephen Stone - Sidoti & Company: Hi, guys. Can you give a bit of an update on what your expectations are for the microelectronics business? It seems like the decrease in the revenue that you're seeing or your guidance revenue mostly due to NDS and industrials. Is there any component of the semiconductors that may firm up a bit here?

Well, the first thing I would say is it's both NDS and our printers business in medical because we're seeing kind of the similar dynamic in those. So we wouldn't want to overlook that. But in terms of the microelectronics, we tried to basically take a stand to say it doesn't get better this year. If there's a significant turnaround in that business, it's not captured in our outlook at all. We're just planning for a stagnation, because frankly no customer has conveyed to us any indication that that is turning around. Now as I mentioned with lead times and this sort of -- we're hand to mouth with customers, they will not commit to two quarters worth of orders as coverage. So we really have at most kind of the one quarter view on things. So if it going to turn around later this year, we wouldn't really know it until a quarter ahead of time. So we don't see it and we're not forecasting it right now. Stephen Stone - Sidoti & Company: Okay. And any expectations for the semiconductor sales business, is that something you expect first half of this year or is that still up in the air?

I mentioned that we'd like to get it done in the first half of this year. So that being said, it's not done in full term. Stephen Stone - Sidoti & Company: Okay. Thank you.

Sure.

Thanks, Stephen.

(Operator Instructions). Your next question comes from Joe Bess with Roth Capital Partners. Your line is now open.

Hi, Joe.

Good afternoon. I was hoping -- you talked a little about Asia and the softness there. I was hoping you can touch a little bit more on what you guys are seeing in some of your other geographic markets?

Well, it's hard to separate the geographies from the end market dynamic, you know, particularly for an OEM supplier like we are. We are selling into the manufacturing locations for a lot of products. So even if you take some of the medical business, we may be shipping that over to Europe, but the slow order rates are in fact really due to the U.S. But I would the U.S. is a bit of a problem for us because the U.S. is where medical teams will be slow, right? So in the U.S., I don't know, the overall environment is not that bad in the U.S., it's kind of like vary this modest growth, flattish. It's not driving capacity additions. So anything we would do in the U.S. that's industrial is not really giving us growth, but it's not really killing us either. We're just seeing the medical be the slowdown, it's affecting the U.S. and then when you said Asia, predominately China but some of the other geographies in Asia is a little bit more tied in the industrial and microelectronics. Europe has been kind of stagnant for a long time but I have not noticed really a market change upward or downward in the climate in Europe. It just kind of remains stagnant.

Okay. And then thinking about you [guys'] guidance and when we bake in the NDS acquisition, you're looking at -- on the lower end, you're looking at revenue basically flat year-over-year for the combination of your legacy businesses. I was hoping you can give a little bit better or additional clarity on where the growth might be coming from in that versus is there a contraction that you're anticipating on the Precision side?

Well, if you take it in some of the areas we've kind of conveyed where we're seeing some pretty significant growth. And it's not a surprise, it's really where we're doing some of the investing. So definitely fiber lasers is giving you growth year-over-year. We are seeing some in the scanning business. It's meaningful, particularly the solutions part of scanning but actually the overall scanning is doing pretty well, component and solution. So those will be the areas. And if you say what's not doing well in the full year outlook, I mean even on a year-over-year basis, where are we seeing negativity? Most areas are doing okay in there. The printers business has got a negative year-over-year impact, the color measurement business it's actually kind of flat.

Okay.

Scientific would be another area we're not seeing much…

Okay. And then last question just thinking about revenue on a quarterly basis. Are you guys anticipating to see growth throughout the year and be more back half weighted?

Well, we always give a little bit of more revenue in Q4. Q1 is kind of be a little bit lighter, so there'll be a little bit of a ramp but not the hockey -- in this forecast, there is no sort of big hockey stick.

We would normally expect some sequential improvement. I mean if there's a quarter that throws of the sequential pattern, it's often Q3 because you're picking up kind of some late summer slowdowns that we'll see in Europe and certain other geographies. So sometimes Q3 doesn't follow that as well and arguably that's why Q4 is high as Q3 will be low. But all other things equal, you'd normally just see a modest progression through the year.

Okay, great. I think I'll jump back in the queue.

Okay. Thanks, Joe.

Your next question comes from Kevin Beck with Paradice Investments. Your line is now open.

Hi. Good afternoon, guys.

Hello.

Just a couple of quick questions. If you look at the guidance, you're basically guiding the core business roughly flat from the Q4 levels and you already talked about NDS and when you look at the EBITDA levels or adjusted EBITDA, it's basically the same. So I guess I wondered the 12x12 savings was looking at sort of 5 million to 6 million on an annualized basis. How should we think about those phasing in 2013 because -- are all those getting reinvested back into the business or I thought we would have seen some leverage there on the savings?

Yeah. I would say the way to think about it has been funding our fiber laser business. Predominately, there's been -- we've taken out a significant amount of cost that's helped from that perspective. We've been able to fund a very large investment in there without having a huge impact to us and the ability to maintain kind of flat, kind of EBITDA performance in 2013.

That's actually when one of our biggest challenges on how to thread the needle with the fiber laser businesses. It wants to grow faster than we would like given our cost structure. I mean that's been the case for a year and a half. So we've been gating it a little bit. But in order to achieve the market, you got to get your product out there and sometimes that's happening out in front of our -- the material cost reduction. So you say, well, let's not lose money in fiber lasers. That would mean don't sell them. And then you fall behind what is a growth market. So we have been selling some and trying to do it. But a lot of times over the past year, year and a half that's picked up and then we've ended up a little bit more negative in fiber lasers than we wanted, but we even had the luxury of continuing that there. But at some point that resolved itself because your cost get in line and you don't do that anymore. I mean it's sort of a start-up type dynamic, the fiber laser business.

The other consideration is I think we wanted to make sure because it's been a different dynamic in 2011 when we gave guidance around 2012, but we wanted to make sure we had a guidance range that we're very comfortable with achieving. And so we're trying to take that position on this. We don't want to have an opportunity to disappoint people.

So late '11 or when we were kind of setting up what 2012 would look like, okay, there had been a slowdown in microelectronics in particular that really hit around Labor Day in 2011 and started to impact Q4. People knew that heading into 2012, there would be a weak first half but everybody was saying back half recovery, back half recovery, back half recovery. Customers were saying it. Competitors were saying it. The whole world was saying it. There was no back half recovery. It just didn't happen. And then we were in a position where at midyear, we were looking at this back half recovery that was kind of build in and we had to deal with that. So we're not doing that this year. So at some point, there is a recovery. And so we'd rather have a recovery not assumed and have it occur than the other way around where we assume it occurs and then it doesn't.

Great. And do you think fiber laser gets to break even this year on a core basis?

Exiting the year is the -- the FL4 architecture that -- there's a huge amount of work going on with the team; different design, different manufacturing process, different suppliers involved in the manufacturing process, there's a whole bunch of pieces of it that comes together and get qualified out. And our plan is to have that all deployed by the end of the year. We call the FL4 architecture. And if we get there, we kind of exit the year where we want to be. But there's still a lot of work. It's not a guarantee, but that's a stretch goal that we have.

Great. And then my last question, maybe for you, Robert is, as you think about moving past 12x12, is there opportunity at least in working capital as you move forward here? And I don't know how much that changes with NDS here, but as you think about getting past the plant closures, et cetera?

Well, (inaudible) we've articulated a few times that we're not very good in our inventory management. We had a negative focus area in 2011 or 2012 because of all the priorities, but we'll be focused on a go-forward basis. John's going to speak to it a little, so I'll have him outline it. There's a big opportunity there. We just have to get out.

Right. If I might just chip in. I mean one of the things that you saw in 2012 was just moving parts. A lot of operations have been picked up and moved, even the ones that didn't appear to move were affected by moves because we had a number of operations that were on the receiving end of moves. So, that affects you and there was inventory builds to cover the moves. There was a lot of relaying out of production sells and the like. It was not a good year for us to really see those improvements, because it was an unstable kind of set of sites. In 2013, there's really no planned facility moves. We are kind of in a much cleaner footprint. We really do the vast majority of our production now in four sites. There's a few others that are quite small, but the vast majority is happening in four locations. And so you can kind of focus on those and really implement lean and continuous improvement, Six Sigma and I think there's a lot of opportunity not only in working capital, I think in driving down inventory. And certainly given a kind of a flattish revenue picture, it's going to be important to try to drive these inventories down and improve those processes. But the yields, the customer facing metrics, the delivery, the customer return rates and the field quality all, I think, are significant opportunities for us that are both a productivity and cost save item but also customers' satisfaction improvement. Now when you take an example like the scanning business, a great business; makes money, satisfies the customers in a lot of ways, a terrific technology, they have some work to do on inventory management and they have some work to do on their delivered quality. And I think those things only help a strong business get stronger.

Great. Thanks so much.

Thank you.

We have no further questions at this time. I'll turn the call back to our presenters for closing remarks.

Thank you, operator. So as we move forward in 2013, it's clear that GSI has made a lot of progress as an organization. We've now built an outstanding team and we have a solid foundation on which we can drive growth and improvement. Our agenda for 2013 is clear. We'll complete the successful integration of NDS and look to follow-on with additional growth initiatives and acquisitions within the medical components space. We will continue to invest on our other growth platforms; scanning solutions, fiber lasers, both of which entail organic growth investment and possible acquisitions into those platforms. On the operational front, we will build on the foundation created by 12x12 by deploying our continuous improvement initiative across our factories this year. With the completion of that program, the vast majority of our production takes place in four major sites and they're the focus of our team. It's true that economic uncertainty remains a significant part of the landscape in which we operate. I don't expect that to change anytime soon. We've factored that into our plans as best we can. If the fiscal concerns that plague major nations make progress and the macro environment improves, that will be an upside to our plans and our estimates. We have a strong committed management team here at GSI and we all remain excited about the company's future and what we can achieve here over time. I appreciate your interest in the company and your participation in today's call. I would look forward to joining you all in early May on our first quarter earnings call. Thank you very much. The call is now adjourned.

This concludes today's conference call. You may now disconnect.