Newport's CEO Discusses Q1 2012 Results - Earnings Call Transcript

Newport (NEWP)

Q1 2012 Earnings Call

May 02, 2012 5:00 pm ET

Executives

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

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

Analysts

James Ricchiuti - Needham & Company, LLC, Research Division

Lawrence Solow - CJS Securities, Inc.

Christian Seiferth

D. Mark Douglass - Longbow Research LLC

Mark S. Miller - Noble Financial Group, Inc., Research Division

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

Alfred Victor Tobia - Sidus Investment Management, LLC

Presentation

Operator

Good day, everyone, and welcome to the Newport Corporation First Quarter 2012 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.

Robert J. Phillippy

Well, good afternoon, and welcome to Newport's first quarter 2012 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 event could prove inaccurate and there can be no assurance that the results will be realized.

The first quarter of 2012 represented another solid financial performance by the Newport team. The incremental sales and orders contributed by our acquisitions of Ophir, High Q and ILX enabled us to achieve significant year-over-year growth in Q1 and has set the stage for strong growth for the year.

We had record orders of $186.1 million, representing growth of 43.5% over the first quarter of 2011. Sales were $157.2 million over 22% higher than the first quarter of 2011. Easily a record for the first quarter of the year and second only to our all-time record sales of $160.9 million in the fourth quarter of 2011.

We also completed our acquisition of ILX Lightwave during the quarter. And we continue to make excellent progress on the integration of all our recent acquisitions. In addition, we retired the remainder of our convertible notes during the quarter and reduced our total debt by $21.6 million.

In short, we executed well and we're off to a good start for the year. I'll discuss our outlook going forward later in the call, but first, I'd like to comment on conditions and activities in our markets.

As expected, our recent acquisitions enabled us to overcome some lackluster business conditions in some areas and achieved year-over-year orders growth in all of our end markets. Another benefit of our recent acquisitions is improved end market and geographic balance. This is exemplified in the first quarter with approximately 34% of our sales coming from the scientific research and aerospace, defense and security markets, 23% from life and health sciences, 23% from microelectronics and 20% from industrial and other markets.

Regionally, the U.S. accounted for approximately 39% of our first quarter sales with Asia accounting for 27%, Europe for 26%, and the remaining 8% coming from other parts of the world. This balance enables us to participate in a range of very exciting growth opportunities, while providing a degree of insulation from the inherent cyclicality of some markets.

Now turning to our individual markets, first quarter orders from customers in our scientific research, aerospace, and defense and security markets were $49.2 million, an 18% increase over the first quarter of 2011 and a decrease of 10% versus the fourth quarter of 2011.

The sequential decrease was expected, given the historically seasonal nature of this business. We did experience particular weakness in orders from universities and government labs for some of our higher-priced products such as ultrafast laser amplifiers and precision motion systems.

We believe this is primarily the result of budget timing, as we have visibility to a number of opportunities that should enable us to regain momentum in these product areas later this year.

In addition, we have seen a modest uptick in OEM orders from aerospace and defense contractors, which have become a more significant part of our business as a result of our recent acquisition of Ophir. This business is program driven and as such, is subject to a wide variation in quarter-to-quarter order activity, so the uptick was welcome news. Our long-term prospects in this market continue to be quite favorable, as defense and security applications continue to rely more heavily on remote surveillance and night vision systems.

First quarter orders from life and health sciences market customers were $63.2 million, by far, an all-time record for the company, and representing growth of 71% sequentially and 142% over the first quarter of 2011. The highlight of this order activity was the $37.7 million order for ultrafast lasers used in surgical procedures, which we started to ship in Q1 and expect to continue to ship through the end of 2013.

This market has strong growth potential, as the unique and precise interaction of ultrafast laser pulses with tissue create better patient outcomes. We also added a new application space during the quarter with the introduction of a solar simulator product lines specifically configured to testing standards in the cosmetics industry.

Our new Sol-UV Solar Simulators are fully compliant with the European Cosmetics Association standards for testing SPF for sunscreen and other skin care products, and deploy a patent pending optical design that results in highly efficient and accurate tests. We've already received an initial order from a major cosmetics manufacturer and believe this application niche will provide some interesting growth prospects.

Our first quarter order from microelectronics customers were $44.8 million, an increase of 45.8% sequentially and 7.7% over the very strong first quarter of 2011. Our book-to-bill ratio in this market was 1.26.

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