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Newport (NEWP)

Q3 2011 Earnings Call

October 26, 2011 5:00 pm ET


Charles F. Cargile - Chief Financial Officer, Senior Vice President and Treasurer

Robert J. Phillippy - Chief Executive Officer, President and Director


Ajit Pai - Stifel, Nicolaus & Co., Inc., Research Division

Dave Kang - B. Riley & Co., LLC, Research Division

James Ricchiuti - Needham & Company, LLC, Research Division

D. Mark Douglass - Longbow Research LLC

Jiwon Lee - Sidoti & Company, LLC



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Good day, everyone, and welcome to the Newport Corp. Third Quarter 2011 Financial Results Conference Call. Today's call is being recorded. At this time, for opening remarks and introduction, I would like to turn the call over to Chief Executive Officer, Mr. Robert Phillippy. Please go ahead, sir.

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Robert J. Phillippy

Thank you. Good afternoon, and welcome to Newport's Third Quarter 2011 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 accomplished a lot in the third quarter. We delivered another solid financial performance highlighted by $125.6 million in sales, $0.27 per share in earnings and $30 million in cash provided by operating activities. We also advanced our strategic agenda by closing our acquisition of High Q Laser, and by handling the pre-closing actions related to our acquisition of Ophir Optronics in a very attractive credit facility, both of which closed on October 4. We are pleased with our execution on both tactical and strategic levels.

Now I'd like to take a few minutes to provide an overview of third quarter activity in each of our target end markets. I'm pleased to report that we achieved all-time record quarterly orders from our scientific research, aerospace and defense security customers in Q3. These orders of $44.3 million represent growth of 14.9% over the third quarter of 2010. In particular, we have seen a very strong response to a number of our new products, including our Spitfire Ace ultrafast amplifier from our Spectra-Physics laser division. Our New Focus Velocity series external cavity diode lasers, our Newport Smart Table optical tables and several instruments in our OREO product line.

On a regional basis, we achieved excellent year-over-year research market orders growth in China, and we have particularly strong research market orders in Europe due to some significant customer wins. We also experienced 24% year-over-year growth in research orders in Japan, a surprisingly strong result given the otherwise slow recovery in that country.

Total research market sales were $42 million, representing growth of 9.7% over the third quarter of 2010, consistent with the strong order levels.

As anticipated, demand in our microelectronics market softened considerably due to the current downturn in the semiconductor equipment industry. Our third quarter orders for microelectronic customers were $29.3 million, a decline of 32.9% from the third quarter of 2010. Sales to microelectronic customers were $33.7 million, a 23.8% decline from third quarter of 2010.

Speculation regarding the depth and duration of this down cycle varies considerably, and we have prepared ourselves for a broad range of outcomes. Over the past few months, we have taken actions to reduce our cost structure in response to these weakened conditions, and we will continue to monitor the situation carefully.

It's also important to note that we have streamlined our cost structure significantly over the past 3 years and as such are well prepared to weather a downturn.

We are closely aligned with Tier 1 OEMs in the semiconductor equipment industry, and we expect to continue to receive orders from them to support technology buys by their customers. In addition, we continue to have a high degree of engagement with these customers on their next-generation platforms and have maintained our R&D investment to support ongoing collaborative development programs in this area. We have historically gained share during weaker periods in this market and expect to do so again in the current down cycle.

Third quarter sales to life and health sciences customers were an all-time record of $30.7 million, representing 27.5% growth over the third quarter of 2010. This result was driven by continued demand from our bioinstrumentation OEM customers and the addition of High Q sales of lasers for surgical procedures. Orders from customers at our life and health sciences market were $26.6 million, a decline of 3.4% from the third quarter of 2010, which represented our second highest orders level in this market. The main driver of this result was the timing of orders for key OEM programs.

It is important to note that while High Q contributed to our life and health sciences sales, their orders during the quarter were negligible as they have received several large orders from their OEM customers prior to the closing of the acquisition. As a result, High Q added $21.6 million of backlog scheduled to shift in the next 12 months to our total.

Going forward, the timing of High Q orders will continue to vary widely on a quarter-to-quarter basis due to the patterns of order activity from their major customers. We expect additional reorders from these OEM customers in Q4, giving us very healthy revenue momentum in this business as we enter 2012. We expect this to help fuel incremental revenue growth in our life and health sciences market in coming quarters.

In addition, we have begun taking orders for our new InSight DeepSee tunable ultrafast laser, and we have experienced strong floatation activity for this innovative new product. This, combined with ongoing demand from our bioinstrumentation and bioimaging customers, leads us to expect robust orders and sales growth in our life and health sciences market in the fourth quarter and next year.

Third quarter sales through industrial and other market customers were $19.2 million, a 3.1% increase over the Q3 of 2010. This result was driven by demand for component products from OEM customers for materials processing, telecommunications and automotive applications. Third quarter orders from industrial and other market customers were $18.4 million, a decline of 6.7% versus the third quarter of 2010. This decline was due in part to particularly weak orders from industrial customers in Japan. In addition, since we serve a broad array of applications in this segment, including micromachining, fiber optic communications, rapid prototyping and laser manufacturing, this order trend generally reflects the current economic uncertainty in many parts of the world.

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