Novanta Inc (NOVTU) 2011 Q4 法說會逐字稿

Good afternoon, ladies and gentlemen. My name is Martina, and I will be your conference operator today. At this time, I would like to welcome everyone to the GSI Group fourth-quarter and full-year 2011 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 would now like to turn the call over to Tim Spinella, Assistant Treasurer of GSI Group. You may begin your conference.

Thank you very much. Good afternoon, and welcome to GSI Group's fourth-quarter and full-year 2011 earnings conference call. With me on the call are John Roush, Chief Executive Officer of GSI Group, and Robert Buckley, Chief Financial Officer. If you have not received a copy of our earnings press release, you may get one from the investors 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 in 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 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 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 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, Tim. Good afternoon, everybody, and welcome to our call, and thank you for your continued interest in GSI. As I reflect on 2011, I'm extremely proud of the progress the Company's made during the year. In the past 12 months, we have built a talented, energized and highly focused senior management team and corporate organization. We've systematically addressed and resolved a wide range of issues across the Company including -- bringing the financial reporting up to current status; re-listing the stock on NASDAQ; settling various legal matters; reducing the principal and refinancing the Company's debt to save $9 million a year in interest costs; aligning our businesses into several strategic product groups; and then deploying a strategy to accelerate growth across key platforms, and implementing our 12x12 plan, which is designed to streamline our infrastructure across the Company. Our agenda has been very ambitious, and we have delivered on it point-by-point.

Along with these accomplishments, I'm pleased to report that we have delivered strong 2011 financial results that are consistent with our prior guidance despite weak economic conditions in the microelectronics markets that did impact our fourth-quarter results. We've made strong progress on several strategic initiatives, including our identified growth platforms, the 12x12 plan, and our strategic review of several systems businesses. We'll provide further updates on some of those strategic areas here today.

In terms of the financial performance, I will summarize the results, and Robert will comment in a bit more detail. But for the full year, we delivered revenue of $366 million, versus the prior guidance range of $365 million to $370 million. And we delivered adjusted EBITDA of $65 million versus a guidance range of $63 million to $66 million. Our full-year diluted earnings per share were $0.86 per share, up from a loss of $0.03 a share in 2010. For the fourth quarter, revenue was approximately $80 million, and adjusted EBITDA was just over $12 million. Both figures were down from prior-year levels, as we did see a significant impact from the microelectronics downturn that reduced our own fourth-quarter sales by over $13 million from third-quarter levels, and about $15 million from our earlier Q4 expectations. But despite the soft market conditions, we executed very well as a Company. We delivered strong profitability and cash flow on the reduced sales levels.

From a strategic perspective, we made significant progress around our three growth platforms -- scanning solutions, Fiber Lasers, and medical components. In scanning solutions, we had a number of attractive new business wins, including two key programs in the medical market. Our Lightning-II All Digital Scanning System, the world's fastest all-digital scanner, was designed into a new terabit resolution tissue imaging system for cancer detection. It was also designed into a new state-of-the-art OCT system for retinal scanning.

We also made significant progress with our Fiber Laser platform. Since the launch of our new 1-kilowatt laser in November, we have seen robust demand that is several times what we saw a year ago. In addition, our second-generation Fiber Laser module is expected to launch at the end of the second quarter, which will lower our overall cost to manufacture by nearly 30%. Finally, we also have a multi-kilowatt product in the final stages of development, and we expect to launch that product later in 2012.

Furthermore, on March 5, we were awarded a $4.8 million contract with the French National Center for Scientific Research for a high-powered scientific laser and amplifier. This award firmly establishes us as a premier supplier of high-energy lasers to the scientific market, and is expected to put us in a very strong position for future programs around the world. We expect to ship this order in mid-2013. In addition to the organic growth focus of these platforms, we now have an active pipeline of acquisition opportunities, and we're optimistic that we can get some deals done this year. The transactions that we're considering could be financed out of cash balances and the available capacity on our bank facility.

Turning to the 12x12 program, we are seeing tremendous progress on these initiatives that make up 12x12, and we're well on our way to achieving our goal of at least $5 million in annualized cost savings through the elimination of up to 12 facilities by the end of this year. At the end of 2011, we announced our plan to close and relocate the operations of our East Setauket, New York laser manufacturing and R&D facility, which also previously served as the corporate headquarters of Excel. We will be transitioning the operations of this business to our Santa Clara, California laser site. The consolidation of our scientific laser business in Santa Clara positions us as a leading provider of both high-speed and high-power scientific lasers, and will assist our efforts in that market for years to come.

We also announced the consolidation of our three offices in Japan into a single location in central Tokyo. This consolidation lowers our cost of doing business in Japan, and also creates greater critical mass and cohesiveness for our Japanese sales and applications teams. As we move through 2012, we expect to continue to make strong progress on the 12x12 initiatives with significant site moves occurring through the year.

As previously announced, we are currently exploring our options to exit our Semiconductor Systems and Laser Systems businesses, all three of which are under strategic review. In aggregate, these businesses contributed approximately $62 million of revenue in 2011, with operating profitability below that of our other business lines. While these businesses represent strong franchises in their respective markets, we believe our resources are better allocated to growing our OEM precision component and subsystems franchises. We've retained outside advisors who are assisting us in our efforts to exit these businesses. We are making progress, but it is still early in the process, and we do not expect significant updates regarding potential outcomes for several more months.

On another front, many of you are aware that this year we began to step up our investor relations activities. As part of that process, we presented at investor conferences sponsored by CJS Securities and Roth Capital Partners. The presentations from those conferences are available on our website. We are also planning to present at two additional conferences in the month of May, and we expect that there will be other such opportunities as we go through the year.

I'll also note that this afternoon in our SEC filings we remediated our material weakness, and filed the Sarbanes-Oxley-compliant 10-K. We also filed a new shelf registration statement Form S-3, which is good corporate finance practice, and further underscores the progress we have made as a Company.

So, with those updates, I'll now turn the call over to Robert to provide more specific details on our financial performance. Robert?

Thank you, John. Good afternoon, everyone. I'll now provide some additional details on our fourth-quarter and full-year 2011 results. Following my prepared remarks, we will open up the call for questions. Despite some strong economic headwinds, the Company delivered on its guidance, and demonstrated another solid quarter of financial performance.

For the fourth quarter of 2011, GSI generated revenue of $79.8 million, a decrease of 13% from $91.6 million in the same period a year ago. Our Laser Product division generated revenue in the fourth quarter of 2011 of $30.9 million, a 6% decrease compared to $33 million in the fourth quarter of 2010. Sales of low-power CO2 lasers in our Laser System businesses stalled in the quarter due largely to lower end-market demand.

Our Precision Motion and Technology division generated revenue of $39.2 million in the fourth quarter of 2011, a 17% decrease compared to $47.3 million in the fourth quarter of 2010. Softening of demand for spindles, galvos and encoders in the quarter were driven by end-market dynamics, particularly the semiconductor and printed circuit board markets. The largest drop in revenue came from our Westwind spindles business, which experienced a nearly 50% decrease in revenue in the quarter.

Our Semiconductor Systems division generated revenue of $9.7 million in the fourth quarter of 2011, a 15% decrease compared to $11.4 million in the fourth quarter of 2010. However, the fourth quarter of 2010 included $1.3 million of revenue recognized that had been deferred from orders placed by customers prior to 2009.

For the full-year 2011, GSI generated revenue of $366.3 million, down 4% from $383.5 million in the same period a year ago. However, the Company recognized $45.7 million of revenue in 2010 in its Semiconductor Systems business that had been deferred from orders placed by customers prior to 2009. This compared to only $500,000 in 2011.

On the other hand, in 2011, the Company recognized $8.6 million of revenue that had been deferred on multiple element arrangements delivered over multiple periods and entered in prior to the adoption of ASU 2009-13. After the adoption of this accounting standard in the first quarter of 2011, the Company did not defer any revenue on new orders placed after January 1, 2011, related to multiple element arrangements and delivered over multiple periods. Excluding these items, the Company's revenue would have grown 6% year-over-year.

Our Laser Products division generated revenue for the full year of 2011 of $131 million, an 8% increase compared to the full-year 2010. Our Precision Motion and Technologies division generated revenue of $191.4 million for the full year, a 6% increase compared to the full-year 2010. While our Semiconductor Systems division generated revenue for the full-year 2011 of $43.9 million, a 46% decrease compared to the full-year 2010.

Turning to profitability. Fourth-quarter gross profit was $34.6 million or 43.3% gross margin compared to a 41.9% gross margin during the same period last year. Laser Products' fourth-quarter gross profit was $11.1 million reflecting a 36% gross margin, compared to $12.6 million or 38.3% gross margin for the same period last year. The decline in gross margins was largely associated with declines in low-power CO2 lasers and high-power lasers.

Precision Motion and Technologies' fourth-quarter gross profit was $18.4 million, reflecting a 47.1% gross margin compared to $21.4 million, or 45.2% gross margin for the same period last year. The drop in margin was primarily driven by the decline in the sales. Semiconductor Systems' fourth-quarter gross profit was $5 million, reflecting a 51.8% gross margin compared to $4.3 million in the fourth quarter of 2010, with a 38.3% gross margin. The quarterly improvement in gross margin is the result of sales of high-margin upgrade kits in 2011.

Turning to the full year of 2011, GSI delivered a gross profit of $160.4 million or 43.8%, which compares to $166.4 million or 43.4% for the full-year 2010. However, in 2010, the Company recognized $20 million of gross profit in our Semiconductor Systems business that had been deferred from orders placed by customers prior to 2009. Laser Products' full-year gross profit was $48.7 million compared to a 37.2% gross margin, compared to $46.7 million or 38.5% gross margin for the full-year 2010.

Precision Motion and Technologies' full-year gross profit was $90.7 million, reflecting a 47.4% gross margin, compared to an $88.4 million or 48.8% gross margin for the full-year 2010. Semiconductor Systems' full-year gross profit was $20.9 million, reflecting a 47.6% gross margin, compared to $31.3 million or 38.5% gross margin for the full-year 2010.

Operating expenses for the fourth quarter of 2011 amounted to $29.1 million, including $2.2 million of restructuring expenses related to our 12x12 program. SG&A expenses for the quarter were $18.4 million, a decline of $1 million compared to the third quarter, and a decline of $700,000 compared to the fourth quarter of 2010. On a full-year basis, our operating expenses amounted to $116.4 million, a $4 million increase compared to 2010. This was driven by higher R&D spending in 2011, and a shift of resources from reorganization and bankruptcy-related activities to running a public company.

With respect to our 12x12 program, the Company recognized a $2.2 million restructuring charge in the fourth quarter of 2011. Roughly $1 million of this charge was non-cash restructuring charge related to accelerated depreciation. The Company expects to incur aggregated cash restructuring charges in the range of $4 million to $5 million, and between $3 million and $4 million of non-cash restructuring charges related to the overall 12x12 program. As John mentioned earlier, we are making tremendous progress with this program, and expect to reach at least $5 million of annualized cost savings by the year-end 2012.

Adjusted EBITDA, a non-GAAP financial measure, was $12.2 million for the fourth quarter of 2011 versus $14.4 million for the same period last year. Full-year 2011 EBITDA was $65.1 million versus $74.7 million for the full-year 2010. However, adjusted EBITDA for the full-year 2010 included $20 million of gross profit from the $45.7 million of deferred Semiconductor Systems revenue. The Company's earnings per share for the full-year 2011 was $0.86 on a diluted basis, up from a loss of $0.03 for the full-year 2010.

Turning to the balance sheet. We ended the year with $54.8 million in cash and cash equivalents, despite paying roughly $16 million in interest payments and refinancing fees, as well as $39.6 million of debt repayments. The Company ended 2011 with total debt of $68 million at a weighted average interest rate as of December 31, 2011 of approximately 3.2%. This compares to total debt of $107.6 million at the end of 2010, which consisted of 12.25% senior secured PIK election notes. Consequently, we finished the fourth quarter with approximately $13.2 million of net debt versus nearly $51 million at the end of 2010.

As a reminder, net debt is a non-GAAP measure. We define net debt as total debt minus cash and cash equivalents. Finally, free cash flow, also a non-GAAP measure, which we define as cash flow from operating activities less capital expenditures, was $12.8 million in the fourth quarter of 2011.

As a final point, as John mentioned earlier, we filed a new shelf registration statement Form S-3 with the Securities and Exchange Commission today. The registration statement will not become effective until so declared by the SEC. The Company's registration statement is a mixed-use registration allowing for the issuance of both debt securities and equity, including secondary offerings. The Company considers this registration a good corporate finance practice, and has no immediate plans for an actual offering.

Turning to our outlook for 2012, it is helpful to start with some perspectives on our end markets. Our medical business, which accounted for 18% of our Q4 sales, is looking very positive. Despite some slowing we've seen in Europe, we expect strong medical growth based on new design wins. Our industrial and scientific markets are both performing well, particularly in the US, and we expect low to mid single-digit growth from these segments.

The uncertainty is really with the timing of a microelectronics market rebound, which makes up one-third of our revenue. This market has seen a steep downturn in the Q4 and Q1 timeframe, on an order of 30% decline. While customers are telling us that they fully expect a recovery during the course of 2012, the timing is not yet known. That being said, we do expect improving conditions as we move through the year.

Turning to the first quarter of 2012, we expect revenues largely in line with our fourth quarter of 2011, or a range of $78 million to $81 million. It should be noted that the first quarter of 2011 included approximately $2.1 million of revenue recognized that had been deferred under multiple element arrangements delivered over multiple periods and entered in prior to the adoption of ASU 2009-13. For the first quarter of 2012, adjusted EBITDA is expected to be in the range of $11 million to $12.5 million. For the full-year 2012, while there's uncertainty about revenue, we do expect to see growth.

In addition, we are working on enough different cost-of-performance levers, including the 12x12 program, that we are confident that we can deliver on prior full-year adjusted EBITDA estimates of at least 10% growth from 2011. In addition, as a result of the debt repayments and refinancing in 2011, the Company expects to realize interest cost savings of at least $9 million, assuming no acquisitions or changes in our debt structure.

Finally, as a Canadian-domiciled company, GSI's 2011 statutory tax rate was 27%. Based on our geographical mix of businesses and legal entity structure, we currently see a blended statutory rate closer to 30%. Throughout 2012 we'll be implementing a number of strategies and projects to drive our rate closer to our Canadian statutory rate in the longer term. As we look at 2012, we are expecting our effective tax rate to be between 10% and 15%, absent any divestitures. This is being driven primarily from continued valuation allowances and other reserve activities. In addition, we expect to pay cash taxes closer to our effective rate of 10% to 15% for 2012.

This concludes our prepared remarks, and I'd now like to open the call up for questions. Operator?

(Operator Instructions) And we'll pause for just a moment to compile the Q&A roster. (Operator Instructions) Lee Jagoda, CJS Securities,.

Good afternoon.

Hi, Lee, how are you doing?

Good. So your fiscal year, your full year guidance implies a rather significant sequential increase in EBITDA after Q1. Can you talk about -- a little more about the factors that give you confidence in this? And moreover, can you talk about the recent order trends you're seeing in microelectronics?

Yes, absolutely. I would say we do see that it's likely that revenue will build through the year. Okay? So you're going to see some of the sequential EBITDA happening because of revenue. It is a little difficult to predict exactly when you start to see much stronger conditions in semiconductor and printed circuit board, but every customer without exception is saying they will see that at a point in time, it is just whether it is really a Q2 or Q3 event. I think part of it is revenue. Part of it also is just all of the opportunity from the various cost levers, 12x12.

12x12 is not the only thing happening in the Company, we have continuous improvement efforts in the factories. We have some of the savings we alluded to in our Fiber Laser business where there are margin opportunities from the lower-cost modules that we can produce. So we just sort of looked across all those levers and we still believe we can drive that level of profitability. We're pretty confident in that. And in terms of the order trends, orders have been running stronger, certainly in, up to now in the first quarter than they were in the fourth quarter, but they're not really where you would say you want to -- say we can see a clear recovery in electronics relative to where it was. It's improved but it is not to the point where we're going to get year over year growth in microelectronics in the near-term outlook.

Sure. And then related to the Semiconductor Systems segment, I know you had said that there were some high margin upgrade kits that affected the robust margin you had in the quarter. Do you have a breakdown between the new installation of products in the segment versus the repair of placement and upgrade section of that segment.

We could probably follow up with you a little bit later on that. I think for the most part we haven't shipped any memory repair units in probably about two years. And so a large majority of what we've been selling have been upgrades into that marketplace and other marketplaces. We do upgrades on the LCD markets as well as significant service revenue. And then we're seeing some nice growth coming out of some of the other products that we have within the portfolio. But we can get back to you on some specific details.

Great. One more question and I'll hop back in the queue. Can you just remind us what your blended rate is on the current debt outstanding?

3.2%.

Great.

(Operator Instructions)

Mike Krueger, MPK Partners.

Gentlemen, I got the impression that you're saying the shelf registration is not something you have any immediate plans to use. So perhaps my question's already been answered, but I just want to say that in my opinion, issuing equity at these prices, you would really have to find something incredible to buy, so I would tend to discourage equity financing at this share price.

I think we concur with you. What it really is, is just having a shelf registration gives us quick access in the event that we need to raise some capital associated with an acquisition. But given the economics, obviously debt would be our preference. We don't really see a need for that, any of the acquisitions that we have been looking at are relatively small in nature. We can finance it with our existing credit facility and cash on hand. But while we had the opportunity it was the right thing to do to put the shelf up. I agree with you wholeheartedly that this is not the current market to be issuing equity at our valuation range.

Okay. Great. Thanks.

Chris McDonald, Kennedy Capital.

Hi, good afternoon, thanks for taking my question. First, just on the Fiber Laser, maybe, could you just elaborate a little bit, John, on what the Company's done to take the cost out? And then also talk a little bit about the multi kilowatt product and the timeline around when that might be available, and how long has that been in the product pipeline?

Yes, so in terms of getting the costs down on Fiber Lasers, there's a whole host of things that we're doing. Part of that is just volume, right? We have been setting up production line and capacitizing that and when you get it in place and you run more volume across it, costs come down. We're also working with our vendor base to redesign the diodes that we use in a lot of the components. We have been putting in better processes for the 6 to 1 combining that we do over the various lines in the Fiber Laser. But probably the biggest thing that moves the needle is the module size, so if you can kind of imagine if you have a 400-watt module, you put three of them together to get a kilowatt product. If you have a 600-watt module, you put two of them together and you get a kilowatt product and there is economy there from doing that. So that's the kind of things that we're doing across all that.

It is a pretty comprehensive program to bring costs down. We track it on a monthly basis and there is a lot of opportunity. In terms of the multi-kilowatt product, I would say for competitive reasons we are not going to say a whole lot about that except that that product is pretty far along. We have been working on it for some time. And it will be something that we will release this year. But as to exactly when we do it and how we do it, we're probably not going to go on record with that just now.

Okay, no that makes sense. And then maybe elaborate a little more as well on the progress and what the opportunity pipeline looks like in the scanner product line, is that certainly an area of emphasis for the Company?

Yes, it certainly is. I think you probably know that in the galvanometer components market we're the global market leader and we view it as a doable step-up to do the scanning heads or the scanning modules. We have been emphasizing that for some time now. There is a huge pipeline there of different opportunities that we're working on. To some degree you almost have to pick and choose, and bet a little bit about which one you think if you get designed into that system it will sell better. So we've had a lot of good success with some of the processing in Lithium-ion batteries. there's certain application areas we tried to focus on that we think are relatively new applications for lasers generally, so rather than go displace a competitor that's already selling a scanning module, we try to look for those new applications where they aren't even using a laser. It is a first-time application, so we really aren't so much taking the scanner away from a competitor, we're the first scanner in that industry. But there's a significant pipeline there.

To some degree it's a matter of the design cycle, because it's not just our product, it is the customer's product that's getting designed and launched into the market. But we track our revenue internally of the scanning modules versus the scanning components, and we're seeing good growth there. We're pleased with the progress there. There is a good mix of medical as I mentioned in my comments. It is not really just specifically a medical product, but there are some pretty interesting applications there in imaging stuff, and also in the OCT retinal scanning, some good opportunities.

Okay. Great and I just have a couple cleanup items maybe for Robert. One, I don't know if you can try to give an estimate for what CapEx and D&A might look like in 2012?

Well, from a CapEx perspective we were a little over $4 million in full-year 2011. I do expect that to go up in 2012, kind of mostly related to some IT investments that we're making. It will likely go up closer to the $8 million range and then it'll begin to fall back down because those are really non-recurring type capital investments that we need to make. And so on a go-forward basis it would be probably closer to 5% or 6% -- $5 million or $6 million.

Okay. Great. And then would you expect D&A has been running I think $15 million and change the last couple of years, is that pretty steady looking forward?

For the most part. The only thing that's really going to result in significant changes in that is as some of our intangibles are amortized down fully. And there is some accelerated depreciation associated with some of the activities that we're doing related to the 12x12 program. So for the most part I think what the Q4 number looks like, it will be the run rate going forward, that could change depending upon how we execute on 12x12.

Okay. Good. Thanks a lot and good results.

Thanks, Chris.

Stefan Mykytiuk, Pike Place Capital.

Two questions. First off, you've talked a lot about in the past about how you have been reallocating R&D from some slower-growth divisions to higher-growth opportunities. Are some of the new products that you talked about today, are those the fruits of that reallocation, or is there really more to come from allocating R&D to your most promising opportunities?

Well, I guess the way I would answer that is the things that we're talking about today, the seeds of those were probably sown before that. But what you're seeing is an acceleration of the rate at which we can get things done. We've staffed the R&D teams a little bit larger. We've staffed the applications teams a little bit larger. We've hired some sales people. We're shifting dollars into the areas where we want to grow them. So I don't think at this point we can really say that brand new projects have already borne fruit, but I think we have accelerated progress.

As you get a little bit further into this, more completely new things will come out at the end of the pipeline, but our cycle really is, we're co-developing typically with our customers. We're taking a base technology that we already have and adapting that to work well in some product that a customer is launching. So we kind of have a little bit of our own development timeline, but we also have the customer's launch timing and development timing. So it doesn't typically happen in six, nine months, it is typically 12 months to as much as even 24. But you can speed things up that are underway, and that is what we have really been doing to date.

Okay. So should we, absent also changes in the cycle, or improvements in order trends, and kind of the marketplace, should we expect the growth over the next year or two should be accelerating just because of the -- you're focusing your efforts on more promising opportunities?

We think so. I'm not sure we're going to say that we're going to go and double the growth rate in a year or two of the Company. But we think that the portfolio, if you look through the cycle, because we're going through a cycle, in early 2010 there was a very, very, the cycle shifted and things were really strong for a few quarters and then the back half of '11 it slows down a little bit on us. But if you average through that, the portfolio was really, we would say it was kind of a mid-single-digit growth as we inherited this, and we're trying to accelerate that to where it's capable of growing, so if you were thinking of it as a 4% to 6% grower, we would like it to be more like a 6% to 8% organically. Okay, we're not saying it's going to be 2 or even 3X or anything like that, but you can definitely improve it. And the timeframe you mentioned is when you start to see that.

Okay. Terrific. And then kind of shifting to external growth, based on the guidance you gave for EBITDA and interest and taxes, it looks like you'll generate something around $50 million of free cash flow in 2012. Is the most likely use of that then, is going out and doing acquisitions to supplement the internal growth?

Well, for the most part I think that's what our plan is. We haven't devised any plans to redeploy that back in the form of any share buy-back or dividends at this point in time. I think we would be probably getting ahead of ourselves a little bit. But we'll see how the year looks as we migrate our way through it. I think initially we would like to deploy the money back into the businesses as well as look for some acquisitions to supplement some of the work that we've been doing.

Okay, but said another way, you're comfortable with where the balance sheet is now and you don't need to pay down more debt.

We don't need to pay down more debt but we have a revolver, so the revolver we could pay it down at any point in time.

Right.

There is no intent to pay down the term loan at this point but the revolver we can fluctuate that up and down for whatever needs that we need.

Okay. Terrific.

The debt level is very manageable and I would say at this point we're looking at a pipeline of acquisitions that would be adjacent to things we're doing in our growth platforms, that would bring it technology or access to a part of the market that is not as well served. But these are things that typically could be done within the current construct of our balance sheet. Now, there is the possibility we won't rule out that we would look at something slightly larger. So if we're talking about deals that would typically be $20 million, plus or minus kind of acquisitions. But if there was something that was, you know, $50 million, $75 million, even, $100 million type acquisition, that would be a little big to do without basically altering our capital structure. And there are ways we could do that but that is not something we're actively working on right now. It is a little bit opportunistic. We want to hit some singles, so to speak, with our acquisitions, and fill specific needs first.

Okay. Terrific. Thanks so much.

(Operator Instructions)

Chris McDonald, Kennedy Capital.

Hi, I just had one quick follow-up, so, yes, the back of the envelope on free cash flow looks like, I don't know, ballpark, $1.50 per share. I just wanted to make sure when you look at where the working capital position of the Company is you don't see either need for meaningful additional investment. I think in the past we even talked about some opportunity on the inventory side. I just wanted to get your take on how you feel about working capital, and how that may trend, clearly with -- I mean there is a relationship with sales but somewhat independent of that any initiatives you have going on there would be great to know.

Sure. Independent of sales, I would say for the most part we still see opportunity in working capital. I think our receivable management is actually quite well, we do do a good job of managing that. We still do a very poor job around payables and inventory. That is something that will be more of a back-half focus for us because we would like to execute on the site consolidation efforts before we actually go focus on that a little bit. So I don't see -- to answer your questions more directly -- I don't see a need for a significant uptick in working capital.

So, Chris, it is John. When we -- at some of the conferences we talked about, the way we've sequenced it a little bit, is to work on the footprint first. And then focus in more on continuous improvement, and the two are not necessarily mutually exclusive. But on the other hand, how much energy do we want to put into improving inventory of sites we're going to close down. So that is the kind of thing that there is a lot of opportunity that goes with straightening out, where we have sites, how many we have, and how they're going to be set up. But it does give you more of a one-time benefit. I guess, there is a recurring savings but it is a step-change, right? And then, then you shift into the continuous improvement mode on those smaller number of sites that have more critical mass. I guess that's the way we view it. But there is significant opportunity there.

Okay. Great. No, that makes a lot of sense. Thank you.

Okay.

There are no further questions in the queue. I will turn the call back to Mr. Roush for closing remarks.

Thank you, operator. As we move forward in 2012 it is clear that GSI has made tremendous progress as an organization. We have built an outstanding team and a solid foundation on which we can now drive growth. The agenda for 2012 is very clear. We'll continue to invest in our growth platforms, we'll execute on the 12x12 program, complete our strategic reviews, build our pipeline of acquisitions, and deliver on our financial commitments. I'm very excited about the Company's future, and I'm confident in what we can achieve here over time. I look forward to joining you in early May on our first quarter earnings call. So thank you very much for your attention and your interest in the Company. The call is now adjourned.

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