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GSI Group Inc. (NASDAQ:GSIG)

Q4 2013 Earnings Conference Call

March 11, 2014 5:00 pm ET

Executives

John A. Roush - CEO and Director

Robert Buckley - CFO

Analysts

Lee Jagoda - CJS Securities

Jim Richiutti - Needham & Company

Operator

Ladies and gentlemen, thank you for standing by, and welcome to the GSI Group 2013 Fourth Quarter 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) Thank you.

I will now like to turn the call over to Robert Buckley. You may begin.

Robert Buckley

Thank you. Good afternoon and welcome to GSI Group's fourth quarter and year ending 2013 earnings conference call. I am Robert Buckley, Chief Financial 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 Web-site 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. Those 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 view 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'll 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 Chief Executive Officer of GSI Group, John Roush.

John A. Roush

Thank you, Robert. Good afternoon everybody and welcome to our call. I'm pleased to report that GSI finished 2013 on a strong note. So I'd like to take the opportunity to reflect on the progress we made as a Company during the year. In my view, we accomplished a number of very important things that move us closer to our strategic goals and position us for future success.

We built a much stronger and more capable management team across GSI, continue to shift the Company towards a more attractive mix of end markets and applications, and we've improved our capabilities in terms of our underlying ability to drive profitable organic growth in our served markets. In addition, we generated significant free cash flow which strengthened our balance sheet and enabled us to ultimately execute on the JADAK acquisition, which we did announce several weeks ago.

I would also point out that we accomplished these things in the context of a year where we delivered solid financial results that continued to improve as we move through the year. So at this point, I'd like to give you a brief summary of our financial results.

In the fourth quarter of 2013, we delivered revenue of $87.7 million and adjusted EBITDA of $13.7 million. Both figures were within our previously communicated guidance ranges. Q4 non-GAAP EPS was $0.18, double the level of Q4 2012. On a full-year basis, we delivered revenue of $342 million, which was up 26% versus 2012 and up 2% on an organic basis.

Full year adjusted EBITDA was $51 million, up 23% versus a year ago. Non-GAAP EPS was $0.63 for the year, up 40% from 2012. And we generated $49 million in operating cash flow during the year and ended 2013 with just $10.5 million of net debt, which as I mentioned positioned us very well for the JADAK acquisition earlier this year. Robert will cover these financial results in more detail in his section.

At this point, I'd like to provide some commercial updates on our progress across the Company. In our press release, you'll note we are now reporting results in three segments. In the fourth quarter we reorganized the Company and the reporting segments followed that structure. In essence, we separated Medical Technologies business from the Precision Motion business that had been all grouped together in our prior Precision Technology segment. This structure more fully recognizes the Medical business which is a distinct and important dimension of our strategy and notes the fact that these products and applications have unique characteristic and requirements.

So let me start the commentary with our Laser Products segment which remains the largest of the three. Our laser-based revenue increased 3% in the fourth quarter versus the year ago, despite a 25% reduction in sales to customers in the scientific market. Excluding the scientific sales, laser sales growth would have been 8% in the fourth quarter.

Our scanning products, which we market under the Cambridge Technology brand, experienced growth in all four quarters of 2013, with sales growth of 8% for the full year, as the Company saw increased orders in applications such as marking, OCT retinal scanning, via hole drilling, and 3D printing.

As many of you know, over the last couple of years our scanning growth has been fueled by new scanning solutions products such as the Lightning II all-digital 3-axis scan head. These solutions products expand our addressable market and increase our content on customer systems. Scanning solutions sales were over $16 million for the full year 2013, up over 50% from 2012 and double the level that we had in 2011.

Sales of CO2 lasers, sealed CO2 lasers that is, which we sell under the Synrad brand name, experienced increasing sales growth throughout 2013, culminating with year-over-year growth of 12% in the fourth quarter. The increased CO2 demand, which was primarily in applications such as coding, marking and engraving of organic materials, resulted in large part from the launch of a number of new products including the p100 and p250 pulse lasers which offer superior power and performance enabling customers to cut faster and drill deeper through a variety of materials including organics and aluminum with minimal heat effect zone and superior cut edge quality.

Our fiber laser business, which goes to market under the JK Lasers brand name, saw significantly improved profitability in the fourth quarter as a result of a major expense restructuring we executed during the fall. We continue to participate in this market as a smaller player and we see growing demand off of our small base. For the full-year 2013, fiber laser sales increased 13% to approximately $10 million. EBITDA losses are now minimal for this line of business and the team has identified additional product cost savings opportunities which we plan to implement during the course of 2014.

As indicated in our press release, we have signed a letter of intent to divest our scientific laser business, which operates under the Continuum brand name. This move represents another step in our transformation of GSI, which focuses the Company in our most attractive and sustainable growth markets.

So turning to our newly established Medical Technologies segment, sales more than tripled in Q4 based on the inclusion of the NDS acquisition in the results. In the quarter, our sales of medical displays, which we sell under the NDS name for surgical markets and the Dome brand name for radiology markets, were substantially above third quarter level as both OEM and hospital customers increased their order rate from us. During the fourth quarter, we completed development of several new medical display products which we expect to launch in the market in 2014 pending FDA approval.

Our sales of thermal printers for medical applications were down 17% in Q4 2013 versus prior year, but increased 25% on a sequential basis. Our sales of these thermal printer products were impacted throughout the year by reduced investment in chart recording technology by hospitals but also by several customer product platforms that reached end-of-the-life in the past year. On a more positive note, in the second half of 2013, we won a number of new thermal printer programs with medical OEM customers and we now expect to see mid to high single-digit revenue growth in thermal printers for 2014.

Moving onto the Precision Motion segment, in the fourth quarter sales of our motion-based products increased 19% on a year-over-year basis. Sales of optical encoder products, which we market under the MicroE brand name, increased due to recovering capital investment levels generally and new program wins in industrial automation, microelectronics applications such as wire bonding, and medical applications primarily robotic surgery.

Our sales of air bearing spindles under the Westwind brand name also increased in the fourth quarter versus prior year level. This growth was based on higher demand from OEM customers in via hole drilling for printed circuit board fabrication as well as products we have recently introduced to certain new application areas such as glass grinding, paint spraying, turbo generator components and aerospace components. These new programs and products are designed to diversify the Westwind revenue base, improving the stability and the growth potential of this business line.

Now I'd like to comment on our progress with respect to operations and productivity. During the latter part of 2013, we made a significant commitment of resources, talent and organizational focus to improve the operational performance and capability of our production sites. We hired a number of professionals from the outside with substantial experience in lean manufacturing, strategic sourcing and productivity at companies with world-class capabilities in these areas.

GSI held its first ever kaizen event in the fourth quarter on one of its laser production lines. Within a single week, the lean project improved productivity and reduced lead time, each by over 40%, while achieving numerous other improvements in quality and performance. Annualized savings from this kaizen event were 130,000 in labor productivity alone, excluding any impact from likely improvements in cost of poor quality, lead time reduction and reduced inventory levels. We subsequently held three additional kaizen events across the Company and we have plan for at least one major kaizen event per month for all of 2014.

In addition, we launched the Company-wife strategic sourcing program designed to leverage and drive productivity savings across our global direct material purchases, which were approximately 150 million in 2013. Initial savings from this strategic sourcing program are expected to occur in the second half of 2014.

With respect to our organization, during 2013, and particularly in the latter part of the year, we made numerous upgrades to our leadership team across the Company. Over the full year, we brought in two dozen new leaders at the director level or higher. Three quarters of these individuals were talent upgrades to existing positions. Within the remaining cases, the new hires were brought in to newly created roles to strengthen our capabilities in areas such as product marketing, applications engineering, lean manufacturing and strategic sourcing.

In the vast majority of cases, our new talent was hired from world-class companies such as Danaher, Crane, GE, Boeing, IDEX and Corning. As we exited 2013, it is very clear to me that the increased talent and capability of the organization have begun to pay off in a myriad of ways and will do so to a much greater extent over time.

There is however a cost to the increased talent and we do see somewhat higher expense levels in 2014. In the early part of the year, this will tend to slightly compress our margin. As the benefit of these programs that these individuals are driving, begins to kick-in, the returns will be very attractive for GSI. We can readily see at least $5 million of productivity savings from identified projects that we can achieve this year, primarily in the second half. We expect productivity gains to be ultimately much greater and accelerate in the future as the benefit from these new programs gain momentum.

So with that, I'd now like to turn the call over to Robert to provide more detail on the financial performance. Robert?

Robert Buckley

Thank you, John. During the fourth quarter of 2013, GSI generated revenue of $87.7 million, an increase of 32% from $66.4 million in the fourth quarter of 2012. The NDS acquisition accounted for roughly 28% of the 32% revenue increase year-over-year. Changes in foreign exchange rates adversely impacted revenue causing a roughly 0.4% decrease in revenue. Excluding the impact of the NDS acquisition and changes in foreign exchange rate, the Company's revenue increased 4.3% compared to the fourth quarter of 2012.

Turning to our segments, sales of Laser Products for the fourth quarter of 2013 increased nearly 3% to $48.8 million compared to $47.5 million one year ago. Our laser-based revenue experienced year-over-year sales growth of 3% in the fourth quarter of 2013 compared to – despite a 25% reduction in sales in customers in the scientific market. Excluding the scientific laser business, the sales growth would have been approximately 8%. The majority of this segment's growth was driven by strong demand and greater market penetration of the laser scanning solutions products and stronger market demand of sealed CO2 laser products.

Sales of Medical Technologies for the fourth quarter of 2013 increased 250% to $25 million compared to $7.1 million one year ago. The NDS acquisition added approximately $18.7 million this quarter. Sales of visualization solutions, sold under the NDS and Dome brand names, were substantially above third quarter levels as original equipment manufacturers and hospital customers increased their order rates consistent with the normal market seasonality.

Sales of Precision Motion for the fourth quarter 2013 increased 19% to $14.1 million from $11.8 million in 2012. The majority of the segment's growth was driven by a recovery in customer capital spending in the manufacturing sector and new program wins in advanced industrial markets such as industrial automation and turbo generator applications.

Turning to profitability, the fourth quarter gross profit was $36 million or 41% gross margin, compared to gross profit of $27.3 million or 41% gross margin during the same period last year. Laser Products fourth quarter gross profit was $19.2 million compared to $18.8 million for the same period last year. Gross margin percentages were roughly flat year-on-year at 39%.

Medical Technologies fourth quarter gross profit was $10.6 million reflecting a 42.4% gross margin, compared to $3.6 million or roughly 51% gross margin in the same period last year. The 8.6 percentage point decrease in gross margin was primarily driven by the acquisition of NDS. NDS' gross margins are lower than the segment's average as a result of purchase accounting adjustments. Gross profit dollars increased $10.6 million or more than 291% compared to the fourth quarter of 2012. The NDS acquisition accounted for the increase in gross profit dollars.

Precision Motion fourth quarter gross profit was $6.3 million reflecting a 44.8% gross margin, compared to $5.1 million or 43.2% gross margin in the same period last year. The 1.6 percentage point increase in gross margin increased $1.2 million in gross profit dollars or more than 23%. This was primarily driven by favorable product mix and lower operating cost generated as a result of our prior restructuring initiatives.

Operating expenses amounted to $29.3 million for the fourth quarter of 2013 from $24 million in the fourth quarter of 2012, an increase of approximately $5.3 million driven by the acquisition of NDS. Excluding the impact of NDS, operating expenses were down $1.8 million driven by lower restructuring and lower overall spending.

Research and development expenses were $6.4 million or 7.3% of sales during the fourth quarter 2013 compared to $5.5 million or 8.2% of sales during the prior year. R&D expenses increased in terms of total dollars due to the acquisition of NDS, but excluding the impact of NDS, R&D expenses were lower as a consequence of savings achieved from our restructuring initiatives and for better focusing our investment dollars on higher returning projects.

SG&A expenses were $20.5 million or 23.4% of sales during the fourth quarter of 2013 compared to $16 million or 25% of sales during the fourth quarter 2012. SG&A expenses increased in terms of total dollars due to the acquisition, but excluding the acquisition of NDS, SG&A costs were slightly lower year-over-year.

Operating income amounted to $6.7 million or 7.6% of sales in the fourth quarter of 2013 compared to $3.3 million or 5% of sales in the fourth quarter of 2012. Laser Products operating income for the fourth quarter increased by $1.2 million or 20.6%compared to the fourth quarter last year, driven by increased demand and favorable mix of higher-margin products in addition to reduced operating losses from our fiber laser products.

Medical Technologies operating income in the fourth quarter was roughly flat compared to the fourth quarter last year. While NDS contributed to EBITDA and to the Company, amortization and purchase accounting adjustments in our GAAP operating income largely offset.

Precision Motion operating income for the fourth quarter increased by $1.2 million or roughly 95% compared to the prior year, driven by a favorable product mix and lower operating costs generated as a result of our prior restructuring initiatives.

One topic we do not discuss very often but has become a more meaningful number in our results is reported in other income, which is below income from operations. We recognized $1.5 million for the full year 2013 and $300,000 for the fourth quarter of 2013 related to earnings in our equity investment in Laser Quantum. Our ownership of this business increased in the second quarter of 2013 as a result of the share buyback program instituted by Laser Quantum.

This had the effect of increasing our ownership stake from 25% to 41% without GSI having to make any additional cash outlays. This gives us a meaningful position in approximately $16 million business with roughly 29% operating income margins. At this time, we are currently maintaining our ownership stake in the business at 41%.

Adjusted EBITDA, a non-GAAP financial measure which includes the adjustments noted in the non-GAAP reconciliation attached to our earnings press release, was $13.7 million in the fourth quarter of 2013 compared to $9 million in the fourth quarter of 2012. The increase in adjusted EBITDA was predominantly attributed to significant increases in profitability across our core businesses.

The Laser Products businesses received benefits from improvements in the operational effectiveness, reduced losses in fiber lasers and a mix shift to higher-margin products. Our Precision Motion business is experiencing the benefits from our restructuring actions, improvements in their operational effectiveness and a result of our efforts to focus on more predictable and sustainable customers. And our Medical Products business experienced some seasonality benefits as OEMs and hospitals increased their order rate consistent with the market seasonality.

Diluted earnings per share from continuing operations was $0.13 in the fourth quarter of 2013, compared to $0.44 in the fourth quarter of 2012. The fourth quarter of 2012 included a release of valuation allowances of $15.3 million. Adjusted earnings per share, a non-GAAP financial measure which includes the adjustments noted in the non-GAAP reconciliation attached to our earnings release, was $0.18 in the fourth quarter of 2013 compared to $0.09 in the fourth quarter of 2012, representing 100% increase year-over-year.

Turning to the balance sheet, as of December 31, 2013, cash was $61 million while total debt was $71.5 million. Since acquiring NDS in January of 2013, we have made $38.5 million of debt repayments, reducing our gross debt from $103.1 million in the first quarter of 2013 to $71.5 million at year-end. The Company completed the fourth quarter of 2013 with approximately $10.5 million of net debt as defined in the non-GAAP reconciliation table in our earnings release.

This represents $56.3 million decrease in our net debt position compared to the first quarter of 2013. The weighted average interest rate on our senior credit facility was 2.9% during the fourth quarter. The consolidated leverage ratio at the end of the quarter was approximately 1.4 on a gross basis but less than 0.2 on a net basis.

Operating cash flow for the fourth quarter of 2013 was $14.8 million. The improvement in operating cash flow was driven predominantly by higher earnings in the quarter, coupled with some benefits from working capital as a result of improvements made in our customer collection efforts.

Moving to our 2014 financial guidance, it's important to recognize two significant events being incorporated into our guidance. First off, we expect our scientific laser business will be reported as discontinued operations, which has the effect of eliminating its financial results from GSI's income from continuing operations and the Company's consolidated financial results in all periods.

On January 31, 2014, we signed a letter of intent to sell our scientific laser business line, sold under the Continuum brand name, for $7.5 million in cash. This agreement is subject to successful completion of due diligence by the potential acquirer entry into a definitive agreement and customary closing conditions. Consequently we expect that the scientific laser business will be qualified as held-for-sale and will be reported as a discontinued operation in the first quarter of 2014. In 2013, the scientific laser business reported sales of $25 million and was approximately neutral to the Company's adjusted EBITDA on a full-year basis. We expect to provide restated financials of last two years for our shareholders in April. Second, our financial guidance assumes a closing date of March 31, 2014 for our acquisition of JADAK, resulting in three quarters of contribution of JADAK's financial results.

So for the full year 2014, we expect revenue from continuing operations between $360 million and $370 million, representing year-over-year revenue growth of 14% to 17% on a reported basis. For the full year 2014, the Company expects the JADAK acquisition to add approximately $40 million in revenue. Revenue for the full year 2013, restated for the scientific laser business being treated as discontinued operation, was approximately $317 million. In addition, I should note, the low end of our revenue guidance range reflects a material change in the economic environment, which at this moment is neither anticipated nor expected.

For the full year 2014, we expect adjusted EBITDA to be in the range of $58 million to $62 million, representing year-over-year growth of 14% to 22% and greater than 16% adjusted EBITDA margin. This excludes any contribution from this Company's scientific laser business as this business is expected to be reported as discontinued operations beginning in the first quarter. For the full year 2014, the Company expects the JADAK acquisition to add approximately $7.5 million in adjusted EBITDA. And adjusted EBITDA for the full year 2013, restated for the scientific laser business being treated as discontinued operations, is largely unchanged from our reported number of $51 million.

Turning to the first quarter of 2014, we expect revenue from continuing operations of between $75 million and $77 million, representing year-over-year organic growth of 1% to 3%. Revenue for the first quarter of 2013, restated for the scientific laser business being treated as discontinued operations, was approximately $75 million. While our businesses experience a lower first quarter as a result of capital spending seasonality in some of our markets, we expect all of our business lines, with the exception of NDS, to report strong growth.

And yes, as a consequence of the customer dual sourcing event that we experienced just weeks after buying the business, we will face some difficult comparisons. That being said, we expect the first quarter of 2014 to be the last tough comparison of the year for this business. Thus, we expect the business line to return to growth as we exit the second quarter of 2014.

For the first quarter of 2014, we expect adjusted EBITDA to be in the range of $9 million to $10 million. Our Q1 profit projections take into account the numerous transformational investments and projects across our businesses in the first quarter to enable sustainable profitable growth, including cost reductions in our businesses through operational efficiencies, lower material costs and improvements in product quality. As these programs build momentum, we see further opportunity to drive sustainable organic growth.

As John mentioned earlier, our continuous improvement program is already making significant progress, as demonstrated in the second half of 2013. For the full year, we expect to realize productivity savings in the range of $5 million for these programs, with the majority of the savings occurring in the second half of the year. The earlier results we have seen and the programs we have underway give us great confidence in our ability to achieve our 2014 adjusted EBITDA guidance, and we believe our continuous improvement program puts us on a path to continued profit growth in margin expansion beyond 2014.

Finally, we are expecting depreciation and amortization expense for the first quarter of 2014 to be approximately flat with the fourth quarter of 2013, at $4.5 million, after restating for the scientific laser business, and we expect stock comp expense to be roughly $1.4 million. We also expect our full year 2014 non-GAAP tax rate to be less than 37% or our cash taxes to be less than 30%, driven largely by geographical mix of income.

By the end of the first quarter of 2014, assuming a close of JADAK at month-end, we expect approximately $140 million of gross debt and slightly more than $100 million of net debt. The JADAK acquisition will be financed through a combination of cash on hand and our senior credit facility. The latter will have a weighted average interest rate of approximately 3%. As a reminder, we have a $250 million credit facility, which is comprised of $175 million revolver and a $40 million term loan.

We demonstrated solid financial results in the fourth quarter of 2013, exemplifying the tremendous progress we have made over the year. We believe we are well-positioned in 2014 and see a clear path to achieving our goals. We have momentum with our continuous improvement programs and our organic growth programs. And more importantly, we have the internal talent now to execute on these initiatives.

This concludes our prepared remarks. I'll now open the call up to questions.

Question-and-Answer Session

Operator

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

Lee Jagoda - CJS Securities

So looking at your EBITDA guidance for the upcoming year, it would actually imply a reduction versus your original expectations, and at the bottom, essentially no year-over-year growth. Is there something you're seeing in the various end markets that caused the change versus the pretty recent guidance you gave?

Robert Buckley

No. The way to think about the low end part of the guidance is just factoring in some sort of macroeconomic environment change that we don't see today. So, for the most part I would say, we really haven't changed our guidance, that we still believe that we'll have that 8% to 10% coming from the core business, and then adding in some JADAK business which could be in the range of $7.5 million, but there's some plus and minus to that as well. But overall, we are not seeing anything different than what we've communicated back in January and February.

John A. Roush

Lee, it's John. I mean I think that you do have to look at the bottom end of the range and say, we're tracking hospital CapEx data, we're tracking PMIs around the world, we look at kind of seven different Purchasing Manager Industrial Indexes every single month. Five of the seven have trended negative the last two months. Does that continue or does that normalize? And so, there's some caution at the bottom end there.

Lee Jagoda - CJS Securities

So just to be clear, if I take 8% growth on what you just did, that would get me to roughly $55 million, which would only imply roughly $3 million from JADAK, yet you say in the release there's $9 million to $10 million from JADAK – $7.5 million excuse me.

Robert Buckley

$7.5 million, so $55 million plus $7 million is $62 million, that's the top end of the range.

Lee Jagoda - CJS Securities

Right, but that's the low end of the previous range. That's what I'm trying to triangulate. We could follow it offline also.

Robert Buckley

Don't forget when I gave the low end – when I gave that range it was off of the $50 million number, so we beat $5 million of what we originally expected at year-end. So asking for 8% growth off of $51 million is…

John A. Roush

Versus $50 million. I mean the sum of what he's talking about is that.

Lee Jagoda - CJS Securities

Got you. Just switching gears to JADAK, the $40 million contribution for three quarters, sort of appears to be higher than the $50 million annual run rate you gave on the last call. Is there seasonality in that business or is it sort of an upward revision to the forecast?

Robert Buckley

There is a little bit of seasonality with the business. There's a little bit of…

John A. Roush

I would just say two things, (NYSE:A) seasonality, but (NYSE:B) it's a growing business, okay. So it's experiencing an upward trend in all of its demand, so as you kind of move through the year, even if it wasn't seasonal, it's got that. It's both.

Lee Jagoda - CJS Securities

Okay, thanks very much.

Operator

Your next question comes from the line of Jim Richiutti with Needham & Company.

Jim Richiutti - Needham & Company

A question regarding the growth rate for the year, Robert, I think I heard you correctly that ex the Continuum business, the continuing revenues were $317 million last year.

Robert Buckley

Correct, for 2013, it will be $317 million by backing out $25 million of Continuum revenue.

Jim Richiutti - Needham & Company

Got it. Okay, so looking at the guidance ex JADAK, it seems like you're looking for a 4% to 7% or so growth, and you highlighted a few areas that it looks like you're assuming a little pickup in thermal printers, a little stronger growth rate there, the NDS business appears to be have easier comps. So I'm wondering, what areas are you anticipating maybe slower growth?

Robert Buckley

If you look at the first quarter as a comparable, for the most part it's relatively low organic growth, but that's all being driven by NDS. We are facing a tough year-over-year comparison as a result of that sourcing event. So the businesses are really growing at a high single-digit rate in the first quarter if you were to take out the impact of NDS. Overall, I would say the general tone of the business is that they are performing somewhere around that range.

As you get throughout the year, there's some difficult comparisons here and there as you get into different issues around recoveries in microelectronics markets and whatnot that may or may not repeat, but I wouldn't expect any of our businesses to really substantially slow down. I think the vast majority of it is really linked to some difficult comparisons with NDS, pretty significant in the first quarter. You don't really see that much growth in the second quarter and then it gets to materialize in the back half of the year.

John A. Roush

So if you look across our segments and then even if you go into the product line level down below the segments, and you kind of take a look at our view of the full year, you're getting some growth contribution from just about everywhere. It just is varying, nobody is blowing the doors off necessarily, but everybody is, every product line is contributing some growth, and I'll just reiterate what Robert said, you have this comparison problem early in the year for NDS and other than that there is a contribution everywhere. I would say though I'm not sure about the 4% to 7%. You had said, Jim, at the top of your comments, 4% to 7% excluding NDS, and I think you might want to…

Robert Buckley

We kind of guided low single-digit type of growth before…

John A. Roush

On the base.

Robert Buckley

On that base, and that's really kind of factoring in the NDS business, and that's about it.

Jim Richiutti - Needham & Company

Okay, that's helpful. Thanks a lot.

Operator

There are currently no further phone questions. I'll turn the call back over to Mr. Roush for any closing remarks.

John A. Roush

Thank you, operator. So as we move forward in 2014, it's clear to me that GSI has made tremendous progress as an organization. We've now built an outstanding team, a more attractive portfolio and solid execution capabilities, on which we can drive a greater level of sustainable profitable growth. Our agenda for 2014 is very clear. Following the closing of the JADAK transaction, we'll implement our integration program for the business. The GSI Medical team has already been in detailed contact with the JADAK management team to begin the process or at least planning the process of leveraging our common capabilities to serve customers on both sides of the medical business.

We'll continue through the year to invest in the attractive opportunity that we see within our Medical, Laser and Precision Motion segments. As I mentioned earlier on the operational front, we will build on our initial successes and deploy both lean principles and strategic sourcing across our production sites. Just to reiterate what I said earlier, we aim to complete one major kaizen event per month this year along with ongoing strategic sourcing initiatives across the Company to better leverage that $150 million direct material spend.

Economic uncertainty remains a part of the landscape in which we operate. I don't expect that to change anytime soon. Over the last six months of 2013, we did experience a more stable, and I would say modestly positive, economic trend. Our 2014 assumptions call for that trend to continue, but that's far from certain. We monitor all those economic indicators. As I said, most are positive but not convincingly so. So we're a little bit cautiously optimistic about the economy and I think the lower end of the guidance range reflects that posture. But we are on track for a guidance range of $360 million to $370 million on sales and $58 million to $62 million of adjusted EBITDA.

Irrespective of the market, we have strong capabilities, a committed management team and a hunger for success. I'm confident we can navigate successfully towards our strategic and financial goals and we all remain very excited about the Company's future and the value we can achieve here over time.

So I, on behalf of Robert, myself, the Board, the senior management, we all appreciate your interest in GSI and participation in today's call. I look forward to joining all of you in early May on our first quarter earnings call. Thank you very much. Today's call is now adjourned.

Operator

Again, thank you for your participation. This concludes today's conference. You may now disconnect.

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