Newport (

NEWP

)

Q4 2010 Earnings Call

February 2, 2011 5:00 p.m. ET

Executives

Robert Phillippy – President and CEO

Charles Cargile – CFO, SVP and Treasurer

Analysts

Jim Ricchiuti – Needham & Company

Derek Jose - Longbow Research

Mark Miller – Noble Capital Markets

Ajit Pai – Stifel Nicolaus

Jiwon Lee – Sidoti & Company

Dave Kang – B. Riley

Presentation

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Operator

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Good day everyone and welcome to the Newport Corporation fourth quarter and full year 2010 financial results conference. Today’s call is being recorded. Now at this time I’d like to turn the conference over to the chief executive officer, Mr. Robert Phillippy. Please go ahead.

Robert Phillippy

Good afternoon and welcome to Newport’s fourth quarter 2010 conference call. With me is our chief financial officer, Chuck Cargile. Before we get started, I’d like to remind you that during the course of this conference call, we will be making a number of forward-looking statements that are based on our current expectations and involve various risks and uncertainties that are discussed in our periodic SEC filings. Although we believe that the assumptions underlying these statements are reasonable, any of them could prove inaccurate and there can be no assurance that the results will be realized.

The Newport team delivered a record financial performance in the fourth quarter and full year of 2010. I'd like to mention a few of the many highlights. First, our sales for the fourth quarter and full year 2010 were both all-time records for the company. Our 2010 sales of $479.8 million represented an increase of 31% over 2009. Our fourth quarter and full year orders were also all-time records, with 2010 orders of $510.1 million representing an increase of 41% versus 2009.

Our operating income for the fourth quarter was $18.3 million, or 13.7% of sales. Net income for the fourth quarter was $0.40 per diluted share, resulting in full year net income of $1.09 per diluted share, the first time we have exceeded $1 per share in a decade.

These strong earnings drove excellent cash generation. In the fourth quarter we increased our cash balance by $35.1 million and finished 2010 with $200.2 million in cash. We're very pleased with this performance, which resulted from a combination of favorable market conditions and solid execution by the Newport team.

Perhaps the most notable highlight for this call is that we believe we are very well-positioned to continue revenue and profit growth in 2011. I'll comment further on our outlook a bit later, but first I would like to provide an overview of our orders and sales in our target markets and characterize the market conditions and trends in that context.

Fourth quarter orders from research and aerospace and defense market customers were $43.4 million, an all-time record for Newport, increasing 12.5% sequentially and 3.7% over the fourth quarter of 2009. Our performance in this market was strong in all regions of the world, led by stellar results in both Europe and Japan. Fourth quarter sales to this market of $42.4 million were also excellent and represented growth of 10.9% sequentially and 6.8% versus the fourth quarter of 2009.

We continue to enjoy a very strong position in this market, and have just announced several innovative new products and tools that will expand our presence even further. I will comment on these a bit later in this call.

In the microelectronics market, fourth quarter orders were $41.2 million, up 52.6% over the fourth quarter of 2009, and fourth quarter sales were $42.6 million, up 72.9% versus the fourth quarter of 2009. Our semiconductor equipment OEM customers continue to be the key drivers of our orders and sales in this market, and our business levels with them remain strong.

In addition, recent forecasts for the semiconductor equipment industry have become increasingly optimistic as several of our Tier 1 semiconductor equipment customers have provided more favorable outlooks and have raised their expectation for sales levels in 2011. While we did have a slight sequential drop in orders from this market in the fourth quarter, they remain near historically high levels, exceeding $40 million for the fourth consecutive quarter.

We received $25.5 million in orders from life and health sciences customers in the fourth quarter. This represents an increase of 10.7% versus the fourth quarter of 2009, but a slight 7.3% decrease sequentially. Sales to life and health sciences customers were up 28.6% versus the fourth quarter of 2009, and 17.1% sequentially.

Recent forecasts for the global, analytical, and bioinstrumentation market range from 6-8% growth in 2011. With our increasing presence with Tier 1 OEMs, we expect our sales to this market to grow at a faster rate than the industry. We also continue to enjoy record orders and sales levels for our full suite of products for multiphoton imaging applications including our Mai Tai lasers, vibration control workstations, and wavelength extension modules.

Orders from, and sales to, industrial and other market customers showed continued strength in the fourth quarter. Orders of $20.3 million rose $23.6% versus the fourth quarter of 2009 and 3.1% sequentially, while sales of $19.6 million represented a 28.2% increase versus Q4 of 2009 and 5.4% sequentially. This performance is testimony to our increasing participation in applications such as high-precision materials processing, sensing, and fiber optic device manufacturing.

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