Good afternoon. My name is Mike, and I will be your conference operator today. At this time, I would like to welcome everyone to the GSI Group 2013 Q3 Earnings Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. (Operator Instructions) I will now turn the call over to Robert Buckley, Chief Financial Officer of GSI Group. You may begin your conference.

Thanks Mike. Good afternoon and welcome to GSI Group's third quarter 2013 earnings conference call. I am Robert Buckley, Chief Financial Officer of GSI Group. With me on the call is John Roush, Chief Executive Officer of GSI Group. If you have 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 archived on our website. Before we begin, 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 our responses to questions that may include forward-looking statements. These involve inherent assumptions with known and unknown risks and other factors that could cause our future results to differ materially from our current expectations. Any forward-looking statements made today represent our views only as of today. We disclaim any obligation to update forward-looking statements in the future even if our estimates change. So you should not rely on any of today’s forward-looking statements as representing our views as of any date after today. During this call, we'd be referring to certain non-GAAP financial measures. A reconciliation of such non-GAAP financial measures to the most directly comparable GAAP measures is available as 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. I’m now pleased to introduce CEO of GSI Group, John Roush.

Thank you, Robert. Greetings everybody and thank you for joining our call. So today, we announced the third quarter results, and I would say on the whole, we're quite pleased with them. We increased growth in a number of important areas and we had stronger execution across the Company. We made progress on our strategic objectives, we improved our profitability and we strengthened our balance sheet, and most importantly, we strengthened our organisation in a number of critical areas which we believe enables us to sustain and further improve our performance over time. Robert of course will cover the financial results in more detail but I would like to provide some highlights. Third quarter revenue was $85.5 million with reported growth of 23% and organic growth of 3% versus the third quarter of last year. Our book-to-bill ratio in Q3 was 1.04. Adjusted EBITDA was $13.7 million or 16% of sales and represented increase of 14% on a sequential basis and 27% versus the third quarter of last year. Non-GAAP earnings per share were $0.15 in the quarter, which is an increase of 25% versus a year ago. And during the quarter, we received IRS refunds totaling $12.5 million and we ended the quarter with net debt below $25 million. Overall, I'm pleased with these financial results as they reflect the progress we have made as a company in a number of important areas as well as improvement in some of our end markets. In terms of the commercial landscape, we got important growth contributions on the laser side of the business. Overall, Laser Products sales grew 4% year-over-year with a 1.1 book-to-bill ratio. And within Laser Products, our scanning sales were up 16% year-over-year with a book-to-bill ratio of 1.11. Our scanning solutions growth platform, which is really a…

Thank you, John. During the third quarter of 2013, GSI generated revenue of $85.5 million, an increase of 23% from $69.5 million in the third quarter of 2012. The NDS acquisition accounted for roughly 21% of the 23% revenue increase year-over-year. Changes in foreign exchange rates adversely impacted revenue causing a roughly 1% decrease in revenue. Excluding the impact of the NDS acquisition and changes in foreign exchange rates, the Company increased revenue 3% organically compared to the third quarter of 2012. Sales of our Laser Products segment for the third quarter of 2013 increased 4.1% to $50.3 million compared to $48.4 million one year ago. Negative effects from foreign exchange rates impacted Laser Products sales by $400,000 for the third quarter. Sales of our Precision Technology segment for the third quarter of 2013 increased 66.2% to $35.1 million from $21.2 million in 2012. The NDS acquisition added approximately $14.6 million in sales this quarter. Changes in foreign currency rates adversely impacted our sales by 1.4% compared to the prior year. Excluding NDS and the impact of foreign exchange rate fluctuations, revenue declined 1.5% organically. Turning to our profitability, third quarter gross profit was $35.8 million or 41.9% gross margin compared to a gross profit of $28.9 million or a 41.5% gross margin during the same period last year. Laser Products third quarter gross profit was $20.9 million reflecting a 41.5% gross margin compared to $19.2 million or roughly 39.8% gross margin in the same period last year. The 1.7 percentage point increase in gross margin was primarily attributed to a change in product mix, specifically increased sales of our higher-margin scanning business lines. This mix shift was unexpected to be favorably due to the program timing with a key customer. Gross profit dollars increased $1.6 million or more than…

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

So can you quantify the losses if any related to fiber in the quarter and then your expectation for profitability in fiber in Q4 and in 2014?

We don't really get too much into the specifics around that. We did mention before that the business loses over $1 million in a particular quarter. It wasn't a significant impact or a significant change to that in the third quarter, but we do expect that to shift as we enter into the fourth quarter. We have taken restructuring actions in our Rugby site and our Chinese site in order to deal with some of the costs, and then a lot of that will start to play through as we get into the fourth quarter.

And then into next year.

Okay. And then maybe could you talk in a little more detail about the potential positive factors in your business independent of the macro trend, like some of the new products, that we should look for next year that should drive growth independent of the macro economy?

One clearly is the scanning area, right. I mean so we do play in two parts of the scanning market, the galvo which is really a component galvanometer level, and then the scanning solutions or scan head market, and pushing into scan head sort of had doubled our addressable market to the north of $200 million, and that's really a penetration story for us, alright. So we don't really need the macro environment to grow for us to grow in solutions as we are kind of penetrating. And we have targeted areas that are sort of new applications, via hole drilling and converting and some of these other areas. So, our solutions growth can occur say into the double digits without any macro growth because it's pushing to a new area. I would say in the CO2 laser business, you have some of that as well where the pulsed laser technology and some of the mid-power applications for CO2 are areas we really haven't participated in a significant way in recent times. So, we've made our living on CW, 100 watt and below type of CO2. We will continue to do that, but as we pres into pulsed and mid-power, we've increased our addressable market. So I mean you can look for growth in some of those areas, and obviously we are tied to the macro environment in a number of cases like every company, so that's a factor, but we're not sitting there kind of just assuming all our improvement at the Company comes from a big economic acceleration because we frankly don't see huge signs of that.

Got you, and one more question and I'll hop back in the queue. Just as it relates to the share repurchase, you clearly indicate that share repurchase is sort of third in your list of priorities behind organic growth and acquisitions. Given the mode size of the share repurchase, why wouldn't you be able to do acquisitions as well as repurchase shares?

I mean we view those two things as very related. So the reason why the repurchase program isn't large is because of where it sits in the priorities. We view it as a tool. It's in the mix, it's a way to increase shareholder returns, returning cash, et cetera, and it's something we consider important but it isn't larger because we do see good opportunities for acquisitions and for investing in organic growth. So I guess if we didn't see those opportunities, maybe the authorization would be much larger.

Okay, thanks very much.

Your next question is from Joe Bess with Roth Capital Partners. Your line is open.

Just a follow-up on the scan head market as well as some of the new applications you are pursuing with CO2 lasers, when we look into Q4 and look at an organic growth of about 4% to 6%, how much comes from new markets versus just organic growth with applications that you guys have done historically?

I don't know that we can sort of look at that [cut and put to you kind of] (ph) point on it without analyzing platform by platform, but clearly we do see that a good part of our growth is really being driven by new areas that we're pushing into, because we're just not seeing that GDP growth is all that robust anywhere.

Coming to the capital spending in the manufacturing and medical markets, so there's not a big uptick in kind of macro factors beyond our businesses. So the organic growth you are seeing is really being generated by additional penetration of our products in the new applications that we haven't served before as well as the introduction of new products.

I mean I think if you look at our Q3 results and these comments here, we've said that scanning solutions is up 70 odd percent in third quarter. It's not quite at that level in Q4 but it's very high growth, I mean so way beyond approximately sort of market based type of growth. That's an example there, and you would see similar things looking at some of the CO2 where we are pushing into new areas. But actually, mathematically say the growth we're getting is $5 million or whatever it is in dollar terms, so how much of the $5 million specifically came from new programs, I mean that's math that we don't have as we sit here but certainly we can kind of work through that.

Got you, thanks. And then cross-selling of your medical components is a key growth driver moving forward. Is there any way you can help demonstrate the traction you are gaining with this initiative?

I would say it's in its early stages. I mean at this point, we kind of are probably more focused on on-boarding a new leader into NDS. We've put a new operations leader into NDS, we've put a new radiology sales leader for the U.S. into NDS and bolstering that team. There's a significant product roadmap there. There's some things on the surgical side of the business that are important for next year but the radiology product line is being revamped kind of almost in its entirety with upgraded models in every part of the product line. So we've been probably more focused on that because we think that can deliver more [from us] (ph) than the cross-selling initiatives near-term. I think it's a little bit longer term strategy where we looked at who has the stronger relationship in some cross-introductions. By the way, the encoder business is getting a lot of traction and some of the OEMs even in the surgical space, that's creating some opportunities with the NDS business.

Okay, great.

And I think – I was going to say we've had some cases where the sourcing relationship we have with encoders has opened the door for some of the display business.

Okay, thank you. And then thinking about 2014 and kind of your view of your end markets, how do you see your revenue mix by end markets changing in 2014 from where it is today?

You mean apart from acquisitions and divestitures or any – you're just saying as it is now, what it's about?

Yes.

I mean I think there is – actually in aggregate the industrial market is the one that's been sort of steadily getting some slight improvements, and then there's been question marks around China in the industrial space and the manufacturing sector there, but overall industrial has been [indiscernible] a modestly positive vector for us for about a year. Scientific is definitely struggling and we don't expect that market to be strong next year. Microelectronics is expected to be up modestly, not double-digit or anything but sort of 5% or 6% growth and I think that's what we factored into our plans, but I don't see it at uniform across the year. I think it's sort of 5% for the year but much stronger back half than first half. So the question is medical, right, because we've actually seen some tough conditions in certain parts of medical this year. We are not waiting around for the market necessarily to be way, way better next year. We have product strategies and specific programs in medical that are going to get us growth and we have a pretty good line of sight to that.

Okay, great. Thanks for that. And then just last question, with your comments on the semiconductor market and kind of having a view that growth is going to be a little bit slower than kind of what the industry is seeing, can you give us a little bit more insight into why you think this at this point of time?

I don't know a lot. I mean Robert can jump in here too, but my view is, the industry forecast is 5% or 6% growth in overall semiconductor capital equipment. I mean you can take different sources of data. I think that's true. I just don't think it's 5% or 6% in every quarter. I mean we're seeing parts of the market actually decelerating right now. So I mean it's November. So is something really going to be decelerating in November and then suddenly be ramping up in January, February, March? I mean that's where I think that takes some time to work itself out. And there's a difference between front-end parts of the market and back-end and we're seeing the back-end part is more slower, and we probably have more penetration in back-end applications. And so that somewhat plays into it where the front-end tends to pick up before back-end based on the way the capital dollars are being invested.

The one thing I'd put into context here is that our exposure into that microelectronics market is relatively light at this stage. Roughly 16% of our sales is still into that end market. So it is not – regardless of its direction, it's not a significant driver of our revenue.

Where you see that is the Westwind spindles is very significantly penetrated into mechanical via hole drilling and a few other applications, and then you see some of the encoder businesses in there in the wire bonding and the disk drive production, and some of the scanning is in via hole drilling. So we are exposed to it in a few different places.

Okay, great. Thank you for the color.

(Operator Instructions) The next question is from Jim Richiutti with Needham & Company. Your line is open. Jim Richiutti - Needham & Company: Just wanted to follow-up on that comment you just made about the medical market, and I know you're not going to wait for the market that you can put a – it sounds like an active new product strategy. Is this more – should we think about this more towards the second half of next year or will there would be product rolling out in the first half that potentially gets that part of the business on a stronger growth trajectory?

I think it is something that impacts the first half. So there are several different things there. We have the surgical program and encoders that shipments are already occurring now and they do benefit even the early part of next year, so that's helpful. The radiology product strategy for NDS, there's a number of products in the product line and we are not able to sort of redesign all products all at once. So they are going to be phasing into the market through the course of next year, but there will be some benefit early in the year and then sort of a build as you go through. And then in the thermal printers which goes into patient monitoring, vital signs monitoring, EKG, pacemaker programming applications, there we've been awarded some new programs and it's just a question of the ramp-up timing by the OEM, and all indications from customers are that there will be some attractive growth even in the early part of the year. So that isn't sort of you've got to wait two or three quarters to see the benefit. We do see pretty good impact from that. NDS had some tough comparables on the surgical side of the business, and particularly Q1 because that dual sourcing event that occurred last year or earlier this year still had significant volume occurring in Q1 and then the dual sourcing happened in March, but the radiology side will start to see some nice growth. Jim Richiutti - Needham & Company: Got it. And then in the laser scanning area, putting aside what's happening in the scanning solutions, clearly there's some real nice growth, market share gains. The growth in just the galvo business seems to be pretty healthy, double-digit growth, what's driving that? Is that – do you see that as being sustainable?

Keep in mind the overall revenue was the galvo and the scan head added together. So part of the reason the overall business is up 16% is because of the solutions, but we saw growth across all of it in third quarter, I mean not as high in galvos as you would imagine but there was growth there. I mean I would call it mid to high single-digit type growth on galvos. Jim Richiutti - Needham & Company: Okay. And looking at next year and the mix of business, it appears that you're setting yourself up with a product portfolio across the different segments where you're going to be generating some higher gross margins. Can you give us any sense as to where we might see, and maybe Robert this is a question for you, where we might see gross margins going?

Into 2014, I try to avoid those conversations until we get into January. Jim Richiutti - Needham & Company: Can you say that it looks like a better [indiscernible] though?

On a macro basis, they are absolutely going to go up. We are getting the mix shift changes but John spoke at great length about the continuous improvement efforts and productivity programs that we've implemented across the Company and the individuals that we hired to drive that. And so gross margin is where you're going to see that materialise in this organisation. We have $150 million of direct material spend that hasn't been touched in probably a decade in terms of any serious negotiations around pricing with our vendors or consolidation of purchasing power.

As I said, we haven't even touched indirect where there's also opportunities.

Right. So it is an area of significant earnings growth driver as we go into 2014. How much is that, I'd like to kind of save until we get into the new year because of course revenue will be a little bit of factor on that. The four core parts of this portfolio that we talk about on a regular basis are our Cambridge Technology scanning business, our MicroE encoder business, the NDS surgical business and even the Synrad CO2 business, are significant drivers of profitability for the organization, and as we have made great changes in those four business lines, they've begun to really have a significant impact on us. Jim Richiutti - Needham & Company: Okay, that's helpful. And John, one last question and I'll jump back. In terms of acquisitions, is there any – in broad terms, can you talk a little bit about – you've made some commentary in the past about focusing more on the medical market, has that strategy changed at all or is there any color you can give on the types of acquisitions you're looking at?

Sure. So I mean I think there's a few sort of major thrust areas within our acquisition strategy and one is medical, and I think there we really like the customer engagement of the major medical OEMs, we like their sourcing behavior, they are looking for technology and quality and a commitment long-term and we are very prepared to step up to those things. So we want to have more capabilities to offer them so we can broaden those relationships. So there I mean we're looking for acquisitions that are not necessarily the exact technologies we have today. They may be adjacent technologies but they strengthen these customer relationships. And I think there was a question asked about the pace of this key account strategy. The more you have to offer these OEMs, the faster you can kind of go with that and then be more efficient in covering those accounts. So you may see acquisitions that relate to adjacent technologies in medical. Another area is the sort of scanning and beam delivery and selected laser type of place because we still have a significant part of the Company that's tied into the laser space. A third area that maybe we haven't talked about as much but I think that will change is in the precision motion space. We're getting some good opportunities with the optical encoder business which is really a 1/1000 of a micron motion control technology in designing the very high-end robotics and other types of application areas, and we think there is more we can do in that space. That's a good play that we have but it's sort of – can be a building block to do more. So motion might be the third area. And you know what we'll look to build in those broad areas, fiber laser has been something we've talked about as a significant maybe a platform in the past. I would say we view it as something less. It's an opportunistic play, it's a great market, we have a targeted position in there and we're being pretty selective about it so we can kind of manage growth versus our economics and our profitability, and we pull back and [extract] (ph) a little bit more towards the profitability dimension. So I'm not sure we necessarily see acquisitions in that space, but you never know. So I would say it's medical, kind of scanning and then precision motion. Jim Richiutti - Needham & Company: Okay, that's helpful. Thanks very much.

There are no further questions. I will turn the call back over to the presenters.

Thank you, operator. So in conclusion, I would say that we were pleased with the Q3 results from a financial, operational and organizational perspective. The Company is making strong progress towards our goal. The makeup and culture of the Company are stronger and the team has greater bandwidth and capabilities. We are out showing the beginnings of a talent bench too. The financial results were positive, the balance sheet strong, and the economy is showing signs of modest but continued improvement and we've seen no return to organic growth. I'm cautiously optimistic about Q4 and 2014. We intend to control our destiny. Long-term, I'm convinced GSI can deliver on its very substantial promise. So on behalf of my whole team, I'd like to thank all of you for your continued interest in GSI. The call I snow adjourned.

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