GSI Group Reports Third Quarter Results Company Reports Revenue of $84Million and $0.18 Earnings per Share BILLERICA, MA October 23, 2007: GSI Group Inc., (Nasdaq: GSIG), a leading provider of precision technology and semiconductor systems, today announced financial results for the third quarter ended September 28, 2007. Third quarter revenue was $84.0 million, compared to $73.1 million in the second quarter of 2007 and $81.6 million for the third quarter of 2006. Excluding restructuring charges, operating profit was $10.1 million in the third quarter versus $5.5 million in the second quarter and $7.5 million in the third quarter of 2006. GAAP net income for the quarter was $7.8 million, or $0.18 per diluted share, compared to the second quarter results of $3.3 million, or $0.08 per diluted share, and $5.7 million, or $0.14 per diluted share in the third quarter of 2006. Year to date 2007 revenue was $231.3 million, compared to $234.2 million in the same period of 2006. Excluding restructuring charges, year to date operating profit totaled $21.6 million in 2007 compared to $22.8 million in 2006. Year to date GAAP net income was $14.3 million, or $0.34 per diluted share, compared to year to date GAAP net income of $17.0 million, or $0.40 per diluted share in the prior year. Third quarter bookings were $75.1 million, compared to $89.5 million in the second quarter of 2007 and $65.1 million in the third quarter of 2006. The book to bill ratio was .89. The backlog as of September 28, 2007 was $89.2 million, compared with $74.4 in the third quarter of 2006. The backlog as of September 28, 2007 includes deferred revenue of $13.1 million. Dr. Sergio Edelstein, President and CEO commented, "We are pleased with the results this quarter and remain focused on executing our strategy of aggressive new product launches and market penetration, building a larger presence in Asia and integrating our company onto a world class operational platform." Dr. Edelstein continued, "During the quarter we saw stronger demand for our scanner and circuit board drill products. We also recorded two large semiconductor orders. One of these orders, which allowed us to meet the high end of our revenue and income expectations, was based on our newly released green-laser technology. Furthermore, our UK restructuring is on plan and our China facility is now producing additional higher margin products." Gross margin of 41.3% in the third quarter increased from 40.7% in the second quarter. Operating expenses, excluding restructuring charges were $24.6 million in the third quarter compared to $24.3 million in the second quarter. Stock based compensation was $0.8 million in the third quarter. Income tax expense for the third quarter was $2.8 million, an effective tax rate of 26%. Cash and short term investments were $161.7 million, up $9.5 million from the second quarter, net of $1.7 million used in the Company's previously announced stock buyback program. The Company anticipates the following for the fourth quarter of 2007: - - Revenue to be in the range of $80.0 million to $84.0 million - - Diluted earnings per share, including restructuring charges, in the range of $0.13 to $0.17 - - Restructuring charges of approximately $1.0 million Dial In: October 24th at 8:30 a.m. ET GSI Group will host a conference call for investors at 8:30 a.m. eastern on October 24th. Participants are invited to join by dialing (706) 634-5123 with an access code: 19450296. The replay will be available for two weeks by dialing (706) 645-9291 with the replay passcode: 19450296. The conference call also will be broadcast live over the Internet at www.gsig.com. About GSI Group Inc. GSI Group Inc. supplies precision technology to the global medical, electronics, and industrial markets and semiconductor systems. GSI Group Inc.'s common shares are listed on Nasdaq (GSIG). Certain statements in this news release may constitute forward-looking statements within the meaning of the United States Private Securities Litigation Reform Act of 1995, Section 27A of the United States Securities Act of 1933 and Section 21E of the United States Securities Exchange Act of 1934. These forward-looking statements may relate to anticipated financial performance, management's plans and objectives for future operations, business prospects, outcome of regulatory proceedings, market conditions, tax issues and other matters. All statements contained in this news release that do not relate to matters of historical fact should be considered forward-looking statements, and are generally identified by words such as "anticipate," "believe," "estimate," "expect," "intend," "plan," "objective" and other similar expressions. Readers should not place undue reliance on the forward- looking statements contained in this news release. Such statements are based on management's beliefs and assumptions and on information currently available to management and are subject to risks, uncertainties and changes in condition, significance, value and effect. Other risks include the fact that the Company's sales have been and are expected to continue to be dependent upon customer capital equipment expenditures, which are, in turn, affected by business cycles in the markets served by those customers. Other factors include volatility in the semiconductor industry, the risk of order delays and cancellations, the risk of delays by customers in introducing their new products and market acceptance of products incorporating subsystems supplied by the Company, risks of currency fluctuations, risks to the Company of delays in its new products, our ability to continue to reduce costs and capital expenditures, our ability to focus R&D investment and integrate acquisitions, changes in applicable accounting standards, tax regulations or other external regulatory rules and standards, and other risks detailed in reports and documents filed by the Company with the United States Securities and Exchange Commission and with securities regulatory authorities in Canada. Such risks, uncertainties and changes in condition, significance, value and effect, many of which are beyond the Company's control, could cause the Company's actual results and other future events to differ materially from those anticipated. The Company does not, however, assume any obligation to update these forward-looking statements to reflect actual results, changes in assumptions or changes in other factors affecting such forward-looking statements. For more information contact: Investor Relations, 978-439-5511, Ray Ruddy, (ext. 6170) GSI GROUP INC. CONSOLIDATED BALANCE SHEETS (Unaudited) (U.S. GAAP and in thousands of U.S. dollars, except share amounts) September 28, December 31, 2007 2006 -------- -------- ASSETS Current Cash and cash equivalents $161,745 $138,315 Accounts receivable, less allowance of $287 (December 31, 2006 -- $911) 74,078 54,546 Income taxes receivable 8,028 5,755 Inventories 71,070 72,703 Deferred tax assets 8,180 7,925 Other current assets 5,962 11,559 -------- -------- 329,063 290,803 Total current assets 31,498 33,511 Property, plant and equipment, net of accumulated depreciation of $32,691 (December 31, 2006 -- $28,588) Deferred tax assets 18,664 20,099 Other assets 2,562 710 Long-term investments 833 693 Intangible assets, net of amortization of $8,104 (December 31, 2006 -- $6,380) 13,475 14,965 Patents and acquired technology, net of amortization of $39,074 (December 31, 2006 -- $ 35,455) 21,299 24,203 Goodwill 26,421 26,421 -------- -------- $443,815 $411,405 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current Accounts payable $ 15,340 $ 14,002 Accrued compensation and benefits 11,045 13,455 Deferred Revenue 13,077 2,965 Other accrued expenses 10,274 12,881 --------- --------- Total current liabilities 49,736 43,303 Deferred compensation 663 2,740 Deferred tax liabilities 12,442 12,342 Accrued long term restructuring 983 1,141 Income Taxes Payable 1,798 Accrued pension liability 9,035 8,806 --------- --------- Total liabilities 74,657 68,332 Commitments and contingencies Stockholders' equity Common shares, no par value; Authorized shares: unlimited; Issued and outstanding: 42,635,080 (December 31, 2005 -- 41,889,804) 315,555 310,635 Additional paid-in capital 7,490 5,314 Retained earnings 43,727 29,431 Accumulated other comprehensive loss 2,386 (2,307) --------- --------- 369,158 343,073 --------- --------- Total stockholders' equity $ 443,815 $ 411,405 ========= ========= GSI GROUP INC. CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) (U.S. GAAP and in thousands of U.S. dollars, except share amounts) Three Months Ended Nine Months Ended September 28, September 29, September 28, September 29, 2007 2006 2007 2006 --------- --------- --------- --------- Sales $ 83,952 $ 81,627 $ 231,273 $ 234,151 --------- --------- --------- --------- Cost of goods sold 49,262 48,057 137,393 136,640 --------- --------- --------- --------- Gross profit 34,690 33,570 93,880 97,511 Operating expenses: Research and development 7,529 7,594 22,915 22,435 Selling, general and administrative 15,381 16,878 44,247 47,635 Amortization of purchased intangibles 1,693 1,734 5,112 5,075 Restructuring and other 1,915 (142) 5,843 (452) --------- --------- --------- --------- Total operating expenses 26,518 26,064 78,117 74,693 --------- --------- --------- --------- Income from operations 8,172 7,506 15,763 22,818 Interest and other income, net 1,701 1,194 4,927 2,521 Foreign exchange transaction gains (losses) 682 (589) 248 (1,158) --------- --------- --------- --------- Income before income taxes 10,555 8,111 20,938 24,181 Income tax provision (2,782) (2,380) (6,643) (7,163) --------- --------- --------- --------- Net income $ 7,773 $ 5,731 $ 14,295 $ 17,018 ========= ========= ========= ========= Net income per common share: Basic $ 0.18 $ 0.14 $ 0.34 $ 0.41 Diluted $ 0.18 $ 0.14 $ 0.34 $ 0.40 Weighted average common shares outstanding (000's) 42,654 41,815 42,344 41,912 Weighted average common shares outstanding for diluted net income per common share (000's) 42,936 42,011 42,578 42,279 GSI GROUP INC. Consolidated Analysis By Segment (unaudited) (thousands of U.S. dollars) Three Months Ended Nine Months Ended ------------------------ ---------- --------- September 28, September 29, September 28, September 29, 2006 2007 2006 2007 --------- --------- ---------- --------- Sales: - ------ Precision Technology $ 48,620 $ 52,100 $ 139,165 $ 149,517 Semiconductor Systems 36,646 32,975 95,614 93,316 Intersegment sales elimination (1,314) (3,448) (3,506) (8,682) --------- --------- ---------- --------- Total $ 83,952 $ 81,627 $ 231,273 $ 234,151 ========= ========= ========== ========= Gross profit %: Precision Technology 39.2% 40.6% 37.9% 40.2% Semiconductor Systems 41.5% 38.1% 42.5% 40.2% Intersegment sales elimination (32.2%) (4.1%) (15.2%) 1.9% Total 41.3% 41.1% 40.6% 41.6% GSI GROUP INC. Consolidated Sales Analysis By Geographic Region (unaudited) (millions of U.S. dollars) Three Months Ended ---------------------------------------------- September 28, 2007 September 29, 2006 ------------------- ------------------- Sales % of Total Sales % of Total ------- ------- ------- ------- (In millions) (In millions) North America $ 24.4 29% $ 24.8 30% Latin and South America 0.2 -- 0.3 -- Europe (EMEA) 11.1 13 12.9 16 Japan 17.8 21 16.8 21 Asia-Pacific, other 30.5 37 26.8 33 ------- ------- ------- ------- Total $ 84.0 100% $ 81.6 100% Nine Months Ended ---------------------------------------------- September 28, 2007 September 29, 2006 ------------------- ------------------- Sales % of Total Sales % of Total ------- ------- ------- ------- (In millions) (In millions) North America $ 67.7 29% $ 68.1 30% Latin and South America 0.5 -- 1.1 -- Europe (EMEA) 36.5 16 39.2 17 Japan 47.4 20 36.2 15 Asia-Pacific, other 79.2 35 89.6 38 -------- -------- -------- -------- Total $ 231.3 100% $ 234.2 100%