Newport Management Discusses Q4 2012 Results - Earnings Call Transcript

Feb.20.13 | About: Newport Corporation (NEWP)

Newport (NASDAQ:NEWP)

Q4 2012 Earnings Call

February 20, 2013 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

Patrick M. Newton - Stifel, Nicolaus & Co., Inc., Research Division

James Ricchiuti - Needham & Company, LLC, Research Division

Lawrence Solow - CJS Securities, Inc.

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

Operator

Ladies and gentlemen, thank you for standing by, and welcome to the Newport Corporation 2012 Fourth Quarter and Year End Conference Call. [Operator Instructions] Thank you. I would now like to turn conference call over to Mr. Robert Phillippy, CEO of Newport Corporation. Sir, you may begin your conference.

Robert J. Phillippy

Thanks. Good afternoon, and welcome to Newport's fourth 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 of them can prove that inaccurate and there can be no assurance that the results will be realized.

In the fourth quarter, the Newport team continued to effectively execute on our operational strategy, which is focused on maximizing financial performance while positioning the company for future growth. Our profit and cash generation increased to the highest levels of the year with $21.5 million in non-GAAP operating income, $0.37 in non-GAAP earnings per diluted share and $27.1 million in cash from operations. This performance came despite a slight sequential decline in sales that resulted from challenging conditions that continued during the fourth quarter in many of our end markets.

Throughout 2012, we have streamlined our business and integrated our acquisitions while investing in gaining momentum in some compelling long-term growth opportunities. As a key part of these efforts, effective January 1, we have realigned our organization around 3 major technology platforms: photonics, optics and lasers. All of the products, technical talent and manufacturing assets in each of these areas are now aligned with a common leadership structure that will enable us to further capitalize on the channel, product and supply chain synergies in each business group. Beginning with the first quarter of 2013, these 3 business groups will represent our new reporting segments. With this new organization now in place, we are positioned better than ever to capitalize on the improving market conditions we anticipate in 2013.

Chuck will provide more color on our financial performance and outlook later on the call. But first, I would like to comment on conditions in our end markets and some of the highlights of our business.

Company-wide orders were $133.9 million in the fourth quarter, representing a decline of 6.9% sequentially and 11.3% versus the fourth quarter of 2011. This order level represents what are very likely trough conditions in our microelectronics market, coupled with constrained activity in end markets that are impacted by the current government funding uncertainties. For the full year of 2012, our orders were $612 million, growing 12.7% over 2011.

Fourth quarter sales of $141.6 million declined approximately 1% sequentially and 12% versus the fourth quarter of 2011. Full year sales of $595.3 million grew 9.2% over 2011. The increases in full year orders and sales were due to the contributions of our recent acquisitions, which more than offset declines due to the unfavorable market conditions.

Fourth quarter orders from our research and defense customers of $52.8 million increased 2.2% sequentially, but declined 5.4% versus the fourth quarter of 2011. As expected, we did not see the year-end budget flush that we have in past years. The threat of pending sequestration in the U.S. and macroeconomic uncertainty in Europe influenced this result. For the full year 2012, sales to this market grew 10.3% versus 2011. We continue to drive new product development programs and build customer relationships to further enhance our position in the scientific research market.

In 2012, we introduced 81 new product families targeted for the scientific community, including new tunable lasers, opto-mechanical positioners, laser diode controllers, vibration isolation workstations and optical power meters and detectors. Our product portfolio provides researchers with a full suite of highly modular and configurable products for laser-based experimentation. We were encouraged to see growth in orders from defense market customers in the fourth quarter despite the difficult funding environment. With Ophir's differentiated technology and infrared lens system for drone aircraft and ground-based sighting systems, we are moving aggressively to increase our presence in this market. Just 15 months since acquiring Ophir, we now have active engagements with 3 Tier 1 U.S. defense contractors and are quickly gaining traction and business relationships that have excellent long-term growth potential.

Orders in sales from life and health sciences customers were $27 million, a decline of 18.6% sequentially and 27.6% versus the fourth quarter of 2011. As we continue to expand our OEM business in this market, order patterns are becoming increasingly variable on a quarter-to-quarter basis. For the full year of 2012, sales to this market increased 10% versus 2011. Product demand for clinical applications remain strong, but leveled off from the ramp we experienced early in 2012, while bioinstrumentation OEM orders and sales for laboratory applications deteriorated a bit during the quarter due to reduced demand for our customers' products. A bright spot was that of our sales of ultrafast lasers for bioimaging applications that remained strong, with sales of our new InSight DeepSee laser continuing to increase at a record pace. With fully automated operation and twice the tuning range of competitive products, InSight is quickly becoming the new standard for multiphoton imaging applications.

We recently introduced several new vibration damping solutions to enhance the image quality of microscopes, and they are being well received by customers. These new products are an excellent complement to our lasers and optical subassemblies designed for microscopy applications. Orders from microelectronics customers of $26.2 million declined 19.8% sequentially and 17.5% versus the fourth quarter of 2011. This low level of activity is a direct reflection of current industry down cycle, although recent industry forecasts and communications with our customers give us optimism that conditions will improve perhaps substantially during the course of 2013. In the meantime, we continue to make inroads with our solutions for next-generation semiconductor manufacturing technology. For example, in January, Intel made the first public presentation of a fully patterned 450-millimeter wafer at a SEMI Industry event. That wafer was patterned on a system that incorporates Newport's dynamics air bearing stage platform. As we mentioned previously, we introduced the first production-ready solution for 450-millimeter wafer positioning in July of 2012 and are engaged with several semiconductor equipment OEM customers to implement this technology on next-generation manufacturing equipment.

Orders from industrial and other market customers were $28 million, representing growth of 5.9% sequentially and 6.7% versus the fourth quarter of 2011. For the full year, industrial and other market sales grew 45.8% versus 2011. As the industry leader in laser measurement technology, we continue to benefit significantly from growth in the high-power lasers for industrial applications. Our products are used to calibrate and characterize lasers in applications such as cutting, welding, drilling and marking. We continue to enhance our product line in this area as exemplified by the introduction of our new Ophir StarLite power meter. This versatile new product includes a host of features and operates seamlessly with our full suite of optical detectors and sensors.

Before I turn the call over to Chuck, I'd like to briefly touch on our product development efforts. In several recent calls, we've mentioned that our new product pipeline is more robust than it's ever been. At the Photonics West trade show held in San Francisco earlier this month, we introduced 36 new products. One of which I'd like to highlight. Quasar is a 40-watt UV hybrid fiber laser with proprietary TimeShift Technology. We believe this product could be a game-changing solution for mobile device manufacturing. With higher pulse energy that can be achieved with today's all fiber lasers and the capability to tailor pulse width and shape to optimize process efficiency, Quasar has demonstrated superior results in a variety of micromachining applications, including high-speed, high-precision cutting and drilling of flat panel display glasses, semiconductors and PC boards. We have already received several significant orders for Quasar and expect to begin production shipments of the product this quarter. This is just one example that it helps to reinforce the point that we have and will continue to invest in the development of next-generation solutions to help our customers extend the frontiers of science and enhance the capability and productivity of their manufacturing applications.

I will now turn the call over to Chuck to comment on other aspects of our financial performance and to communicate our outlook for 2013. Chuck?

Charles F. Cargile

Thank you, Bob, and thanks to all of you for joining us. First, I'd like to mention that much of the information we're discussing during this call is also included in the press release and Form 8-K we issued earlier today. I encourage you to visit our website at newport.com and specifically the section titled, Company Investor Information, where we've included the presentations that we've made at recent investor conferences. We've also posted historical financial statements, schedules that detail historical trends for our sales and orders by market and the performance of our 3 reporting segments. Included also are schedules of showing supplemental non-GAAP financial information and a reconciliation to the corresponding GAAP measures. I also encourage you to download our new Investor Relations app, which is available free of charge on the iTunes App Store and in the Google Play Market.

Before I provide a summary of our financial performance, I'd like to shed some additional light on the internal reorganization that Bob referenced a few minutes ago. Through the end of 2012, we reported our business results in 3 segments: photonics and precision technologies, which we call PPT; lasers, which is primarily our Spectra-Physics and High Q brands; and Ophir, which we acquired in Q4 of 2011. Going forward in 2013, our laser business is unchanged, but the other 2 businesses have been realigned into a photonics business group and an optics business group. We believe that organizing around these 3 technology platforms will allow us to better manage our collective assets, capture synergies and support our customers. In addition, we believe it will be easier for investors to understand the ever-changing dynamics of our business. So this will be the last time we report and discuss our businesses in the old format. Beginning with our results for Q1 of 2013, we will report and provide restated data so we can discuss our businesses in the new reporting segments.

The highlight of the quarter from a business unit perspective was the performance of our laser business. In Q4, our laser division recorded gross margins of 45.2% on $44.9 million in revenue. This helped to drive operating income of $6.9 million and an all-time record operating margin of 15.4% of sales. We're very encouraged by this result. And more importantly, we're becoming increasingly confident that we will achieve top line growth in our laser business through a combination of improved overall market conditions in the second half of 2013, the successful introduction of new products and increasing customer penetration with our existing products.

Our PPT division continues to perform very well financially throughout industry cycles. Although revenue declined slightly to $73.2 million in the fourth quarter of 2012 from $79.5 million in the fourth quarter of 2011, the division's fourth quarter operating income of $15.6 million was 21.3% of revenue. This compares with just 21% of revenue in the fourth quarter of 2011. PPT has consistently produced very strong profitability and has demonstrated the ability to sustain this performance by leveraging our strong sales channel, broad product portfolio and significant brand equity. Our PPT division has historically been very successful at gaining market share and expanding customer relationships throughout industry cycles. We're confident that PPT is achieving that success with customers through this current cycle as well.

Ophir's revenue of $23.5 million reflected the continued headwinds in the primary markets it serves, particularly the constrained defense spending environment in the U.S.. We're encouraged that despite this top line pressure, Ophir's operating margin was over 10% for the second straight quarter. We are confident that we can maintain these margin levels during trough-like conditions and believe that as market conditions improve, so too will our lower margins. This positions Ophir to provide Newport with an even greater profit contribution going forward. Effective January 1, the Ophir businesses have been integrated into Newport's new reporting units. Ophir's infrared and CO2 optics businesses will be included in Newport's new optics group, and Ophir's industry-leading laser measurement and photonics products will be included in Newport's new photonics group.

Before I review our consolidated financial results for Q4 and our outlook for 2013, I'd like to reiterate our remarks regarding the impairment charge we announced on February 5. At that time, we announced a noncash accounting charge in the range of $130 million to $140 million due to a write-down of impairment of assets related to our acquisition of Ophir. The effects of this charge certainly distort our current financial statements, but the most important ramifications are twofold. Number one, the charge is noncash, nontax-deductible expense that has no impact on our financial condition or our ability to execute our strategic plan and does not show the long-term value that Ophir brings to Newport. Number two, as a result of the reduced amount of capitalized intangible assets following the charge, we will reduce our noncash amortization expense by approximately $7 million in 2013.

On Page 7 of the press release we issued today, we have included a reconciliation of our results in accordance with GAAP and our results, if you exclude this impairment charge and other items we believe to be outside of our core operating results.

The following comments I make will focus on our non-GAAP results. Our consolidated gross margin for the fourth quarter was 45.1%. That's an increase of 30 basis points compared with the 44.8% we recorded in the third quarter of this year.

Our operating income was $21.6 million or 15.2% of sales. It's particularly noteworthy that despite revenue being at the lowest level of any quarter in 2012, our gross margin operating income and operating margin were all at the highest levels of the year. We've often said that we can't control the winds of the market nor can we predict exactly when they will shift, but we can and will adjust our actions during turbulent market conditions to maximize our profitability.

Our efforts at cost containment were an important factor in these results. Since the early part of 2012 when we recognized that market conditions were deteriorating, we reduced our headcount by about 7%. In the second half of 2012, our operating expenses excluding amortization and noncash stock compensation, were $79.7 million. This compares with $86.4 million in the first half of 2012. This half year reduction of $6.7 million shows the impact of the cost reduction steps we outlined in our last conference call. Non-GAAP earnings per diluted share in the fourth quarter were $0.37. This is the highest level we reported in any quarter of 2012.

Lastly, we had an excellent quarter from a cash management standpoint, capping a very good year. In the fourth quarter, we've generated cash from operations of $27.1 million. This is the highest level we recorded in 2012. And during the full year 2012, we generated $81.4 million of cash from operations and reduced our indebtedness by $39.5 million or 18%.

In summary, our non-GAAP operating income, earnings per share and cash from operations for the fourth quarter were at the highest levels we saw in 2012. Market conditions had been challenging, but we continue to execute effectively.

Now turning to our outlook. We're enthusiastic about the reports we're getting from our customers that lead us to expect stronger market conditions in the second half of 2013. We're confident that we've rightsized our business and that we're capturing the top line and bottom line synergies from the businesses we recently acquired. As a result of these actions, we expect our profit performance to reflect record results once end market conditions improve in the second half of this year. However, in the near term, outlook continues to be cautious because the expectations of a stronger second half of 2013 are not yet reflected in our orders or our backlog. I'll also remind you that we generally have a seasonally weak first quarter of our calendar year. As such, we expect our first quarter 2013 sales to be slightly lower on a sequential basis. In addition, we expect our non-GAAP earnings per diluted share to decline sequentially in the first quarter due to an increase in our operating expenses resulting from seasonal nature of certain expenses and our continued investment to fund our growth initiatives. Despite the near-term pressure, we believe the positive effects of our cost management initiatives are clearly evident, and we are gaining market share and enhancing our competitive position. We're following the playbook we've used successfully in the past and fully expect to benefit from these actions going forward.

That concludes our prepared remarks, and we'd now like to address your questions.

Question-and-Answer Session

Operator

[Operator Instructions] Your first question comes from the line of Patrick Newton of Stifel.

Patrick M. Newton - Stifel, Nicolaus & Co., Inc., Research Division

I guess first, a question on the laser segment seeing as your operating contribution margin was more than 100% in the quarter. I think it's fair to say that, that was one of the segments that benefited from your restructuring. But I wanted to dig into whether or not there were any mix benefits. Is this kind of operating profit level that you exhibited in the quarter somewhat sustainable? And how we should think about that segment on go-forward basis because by my model, I believe that this is record levels?

Charles F. Cargile

Patrick, yes, we were very happy with the laser business in the quarter. We believe that the 15.2% operating margin is an all-time record for that business. I do have to correct one thing that you mentioned. The lasers business is actually the one that's least impacted by our organization realignment. Ophir gets put into optics business and the photonics business, and PPT gets split into optics and photonics, but lasers is relatively unchanged. So the benefits and the strength of the lasers' performance is truly stand-alone improvement by that business group. There was -- I think we've mentioned over the last several years about the operational improvement that we've had in that business. And in the fourth quarter, we did get the benefit of reducing some excess and obsolete inventory. We've lowered our inventory particularly in Japan and also in the U.S., so we were able to reverse a reserve that we had for inventory for maybe somewhere north of $500,000. So we wouldn't expect that to recur in the first quarter. But we do expect and we've long said that the laser business should be able to move between 12% and 15% operating income. And it was good to see it actually exceed that target in the first -- in the fourth quarter.

Patrick M. Newton - Stifel, Nicolaus & Co., Inc., Research Division

All right. So it sounds like if I eliminate the E&O, we're looking at more like a 14% margin, all else equal?

Charles F. Cargile

Correct.

Patrick M. Newton - Stifel, Nicolaus & Co., Inc., Research Division

Okay. And then I guess, Bob, in your prepared remarks, you discussed or I guess on the press release that Newport's well positioned to drive a significant growth in sales and profitability. I think you definitely demonstrated the profitability already. And then in your prepared remarks, you discussed the potential for substantial improvement specifically in microelectronics. So I guess from this growth perspective when we talk about significant growth, it sounds like from a timing perspective you're looking at the second half of 2013. But can you quantify what significant means to Newport, and discuss which of your end markets or segments you expect will drive some of this outsized growth?

Robert J. Phillippy

Yes, Patrick. So I won't quantify it specifically, but I think I can give you some directional commentary that will help. So the underlying demand drivers of microelectronics are quite strong. I'm sure you've heard a number of other companies talk about the consumer appetite for mobile devices. And that's the underlying demand driver that we think has a lot of legs and will continue for some period of time in the future not just the appetite for mobile devices themselves, but the appetite for ever more powerful, smaller form factor and more functional mobile devices. And as you know, we participate in really 2 different areas now, with the second one gaining strength, and that is semiconductor equipment for front-end processes, where we participate in a variety of applications. And that industry is about to undergo an inflection point as it continues to reach tighter and tighter tolerances, and that's associated with EUV lithography and 450-millimeter wafers. And as the industry goes to tighter tolerances, that's good for us. And I mentioned in the prepared remarks that there are some long-term drivers there associated with programs that we're participating in and engagements that we're active in, in particular regarding 450 millimeter. The second piece is also, at least in large part, perhaps not completely in microelectronics and that is that we are very engaged in applications associated with glass cutting and PCB board processing and silicon processing. And I mentioned Quasar, which for us, is an opportunity for incremental growth because it's not a category of products that we have participated in historically. So when I talked about substantial growth, I'm always looking at the long term. As we've discussed in the past, we're not trying to guess the cycles. We certainly hear from our customers that there is an expectation that 2013 will improve. But it's not ours to try to guess exactly when or exactly how high it will improve. But I guess from just a practical standpoint even if the industry were flat on a year-over-year basis, for us, that would be very good news sequentially based on where we are today, which is very likely trough conditions. So if you even were to model in flat year-over-year, you'd have a significant amount of growth in the second half based on our current run rate.

Patrick M. Newton - Stifel, Nicolaus & Co., Inc., Research Division

And I guess last one for me just to dovetail off that last comment of the trough. It sounds like microelectronics, you definitely have a lot of indications of troughing orders and the demand. But I guess if we look at the other side of your business, if we look at Ophir and the research and defense side, it sounds like you're pretty confident that sequestration is already fully impacted in your model given the comments somewhere around trough, and that perhaps we won't be seeing another leg down. Is that -- I'm not trying to put words in your mouth, but is that a fair assessment? And then potentially with part of your expectation of a better second half, do you think that perhaps, there's some pent-up demand within either research or for your defense end markets and segments?

Robert J. Phillippy

Yes, with -- in response to the first part of the question, we believe that sequestration is more than fully loaded into the current run rate. And the reason I say that is because there's the threat of sequestration and then there's the uncertainty and the apprehension related to that with people don't know exactly what to do. And so we've got a situation where a lot of things are just frozen because of the uncertainty. Frankly, even if sequestration is implemented, it's a better scenario because at least it creates some certainty, and people will adjust to that and so will we. As it relates to the second part of the question, I guess I would say that we will grow in accordance with the activities that we've got on an ongoing basis. We talk about Tier 1 defense contractor engagement and things like that. And so as you look at the market outlook, I think that we can grow even counter to the overall market trends given a longer period of time because of some of the customer engagements we have.

Operator

Your next question comes from the line of Jim Ricchiuti of Needham & Company.

James Ricchiuti - Needham & Company, LLC, Research Division

Just a couple of quick questions. The Ophir business, if things don't pick up from the standpoint of your top line over the next couple of quarters, what might we anticipate seeing in terms of operating margin improvements just reflecting some of the cost initiatives you've been taking?

Charles F. Cargile

Jim, we said that we think Ophir in trough level conditions will bounce around that 10% of sales that we are today. Now there are a couple of large initiatives that we're in the midst of now that can give us a little bit of -- probably a little bit higher than even the 10.3% we did last quarter and the 10.2% in Q4, where we are in the process of transitioning from distributor in Europe for Ophir's photonics sales and going direct. So that will be a nice savings for us that will start to materialize in the second half of the year. And we continue to systematically transition some of the supply chain and manufacturing to our low-cost manufacturing supply chain that Newport has. So I think those things over time will help. Ideally, we start to see those benefits as revenues starts to come back as well. And then I have every reason to believe that Ophir would be a 15% operating income business just like we see now with the laser business.

James Ricchiuti - Needham & Company, LLC, Research Division

Okay. Man, just on the life and health sciences segment of the business, what do you see in terms of the pipeline? How does your -- as you look out over the next couple of quarters, any sense as to bookings levels and the activity you're seeing in that market? Could we see some improvement sequentially from this point?

Robert J. Phillippy

Jim, this is Bob. Absolutely. And I remember when we were on this call last quarter, talking about a very high sequential increase that we had seen from the prior quarter. And I think that just helps to amplify the point that because this business is very OEM-centric, there's going to be high volatility on a quarter-to-quarter basis. So the best way to look at it is to give it a little bit more time, particularly the orders are going to be highly variable. So as we look at opportunities, we've got good traction on both the clinical and the bioinstrumentation side of the business. On the clinical side, I mentioned in the prepared remarks that we had a ramp to complete early in 2012, where the demand for our product outstripped our capacity to respond to it. We've now gotten there. And so that demand has flattened a bit so we haven't seen the same growth rate that we saw earlier. And then in the laboratory side -- or I should say the bioinstrumentation side, we've got a number of engagements with opportunities. And interestingly, they're a little bit larger in size than we've historically seen. They'll take a while to gestate, but we certainly have active engagement there. And then I mentioned as a part of the product that go in the laboratory applications, the bioimaging piece is going very, very well with our laser products in particular.

Operator

Your next question comes from the line of Larry Solow of CJS Securities.

Lawrence Solow - CJS Securities, Inc.

You guys have discussed I think a $15 million number and sort of targeted savings, I think, going back a couple of quarters. And I think we've -- I think as of last quarter, we were mid-2/3 of the way there. Are we almost done in getting most of expense realized? And has this number -- is it a moving target that sort of grows over time in terms of growth?

Charles F. Cargile

Larry, yes, we have affected most of the actions that we identified before. And I think the fact that our financial results in the quarter were a little bit higher than the guidance that we had given as a result of those savings, the steps that we took to reduce our costs. I mentioned that our headcount is down about 7% from the peak. And then if you look at the financial statements themselves, you can see the benefits. Specifically, if you look at the first half operating expenses, excluding the noncash depreciation and amortization and stock comp, so the non-GAAP operating expenses, the way we report them in the first half versus the second half, they're $6.7 million lower. So that's just half year. So if you annualize that, you're at about $13.4 million. And then also you can see in the quarter, our gross margin was up 40 basis points on slightly lower revenue, which is also a reflection partially of the cost reduction steps. So I think as financial statements certainly bare out, the benefits of the cost reduction steps that we've had. And then I think when you -- when we report at the end of Q1, you should be able to look at Q1 2013 operating expenses versus Q1 of 2012 and annualize that, and again see proof of the $15 million of savings.

Lawrence Solow - CJS Securities, Inc.

Okay. And sort of reading between the lines, it sounds like revenue maybe -- all things being equal, maybe revenue goes up modestly this year. Or let's just assume it does, and it's hard to say, a flat first couple of quarters and up in the back half. I would imagine you would still expect some margin improvement even on a pretty flat environment, and at least getting the tail-end of your cost reductions from last year if there's...

Charles F. Cargile

Absolutely. We have shown historically the ability to leverage increasing profitability when the revenue goes up. And as we said, we're not able to predict exactly when the markets are going to turn in our favor. But just to put it in context, right now, our level of revenue in the microelectronics space is -- was about $27 million or $28 million. The last time we were experiencing peak conditions in the semiconductor space with our semiconductor OEM customers, we were doing around $44 million or $45 million. So that's an $18 million swing in the quarter from what now we're describing as trough conditions to peak where we were before. And that's not even if -- that doesn't even consider if we've gained share or the fact that historically, peak to peak, our revenue goes up. So that would be an $18 million swing in quarterly revenue. And then also, what often gets overlooked is how slow the research environment is. We're at levels now that are lower than any level we've seen since going all the way back to the recessionary time of 2009. And so the level where we are today is a full $8 million or $10 million below where we've seen peak conditions before. So just those 2 markets alone, if we get back to where the winds that are behind us, we could see a $25 million or $28 million swing in revenue in a quarter. If you see -- once we see that type of revenue increase, there's going to be significant profit leverage.

Lawrence Solow - CJS Securities, Inc.

And for the research side specifically, are you actually at the levels of '09 or not quite? I mean I'm not saying it's going to get there, but you're a little bit above those levels, I guess?

Charles F. Cargile

Yes. In the 2009 time period, we were -- we did in the low 20s, $20 million a quarter. And now, we're -- excuse me, I'm looking at the wrong number. Yes, that's right. We were around $25 million and now this quarter, we're certainly below that. But you have to -- it gets a little confusing because we also have the benefit of the acquisitions in there as well.

Lawrence Solow - CJS Securities, Inc.

Right, exactly, exactly. And just you mentioned that the clinical side of life sciences and I guess I would imagine a lot of that is High Q. Can you maybe just give us a little more color on that? I know there was some supply issues originally and I guess now, that's been resolved. I guess there were some opportunities from some of the existing customers and maybe an opportunity to expand into the U.S.. Any update on that?

Robert J. Phillippy

Yes, we're continuing to implement the same game plan that we've talked about for a couple of quarters now. And that is that we really had a three-pronged approach. Number one was build capacity in order to meet existing customer demand, and we've checked that box. We certainly are there at this point. We've expanded in an ample way to be able to satisfy the current run rate of products for sure. Secondly was penetrate new customers with the existing product. We happen to have a pretty differentiated product for photonic applications at this point, and we continue to work on that. Those are always going to take some time because they're clinical applications, and so they need various types of approvals. And then the third piece is expand that core technology to new applications. And again, that's another one that's in process. So the -- I guess I'd say progress with High Q has been great. It's been a really great team to work with, and we feel like we've accomplished a lot. And we certainly are well on track with all the plans that we put together at the time of the acquisition.

Lawrence Solow - CJS Securities, Inc.

Okay. Just last question, just can you give us a little update I guess on your efforts in China? I know you were transferring more and more manufacturing over there and had also opened up a sales office. So how is that going? And I guess China's growth probably slowed a little bit, but hopefully, it's still a rising kind of contributor to your P&L.

Robert J. Phillippy

Sure. Yes. So just to talk about the business trajectory in China, we mentioned on the last call that we did see a bit of a cooldown in China as the general economy slowed there. If you look at it in the second half of the year in total, it was a little bit slower. But the good news is, is that we did see a bump in orders in the fourth quarter. So that was pretty welcome news. And also a lot of the things that we hear about 2013 are pretty upbeat so there's every reason to believe that things could, I won't say heat up, but things could improve and return to their prior trajectory in the course of 2013. So that's very, very welcome news. In terms of our activities, the Wuxi facility is now, I'll call it, in an environment where we're consistently producing $50 million a year at Wuxi. So we built up that infrastructure. And we continue to expand our activities in China and in Asia. We've got a sales office in Beijing now. We've also got a customer service and logistics center in Wuxi. And I think I've mentioned it on a previous call that we've got a little bit away from China now, but we've got also an office in Singapore. But -- so the answer is this, we have invested in China and we'll continue to do so during the course of 2013.

Operator

[Operator Instructions] Your next question comes from Mark Miller of Noble Financial Capital Markets.

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

Can you talk a little bit about China showing some of improvement? I'm wondering what you're seeing in Europe.

Robert J. Phillippy

Yes, Mark. In Europe, we did not see the end of the year budget flush that we have on some occasions. It was essentially flat, whereas usually, there is seasonal strength in the fourth quarter. So we would basically characterize that as I'll say less-than-robust conditions in Europe based on just general macroeconomic uncertainty.

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

And just to remind me, the budget flush typically shows up, is it life and health sciences as well as scientific research?

Robert J. Phillippy

Mostly scientific research. But I think that there -- certainly, there could be some life and health sciences as well because some of our life and health science sales, albeit on an OEM basis for us, go into products that our customers sell into laboratory environments.

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

Now you're guiding for this quarter in terms of OpEx due to some seasonal factors increasing. From the prior discussion, it would seem like to me reasonable to assume, as a percent of sales in the second half of the year, that should be decreasing?

Charles F. Cargile

Yes, that's correct, Mark.

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

And then finally, tax rate. 31%, 32% for this year?

Charles F. Cargile

Yes. I think, Mark, depending on the mix of earnings around the globe, it's going to be in the -- anywhere from 32% to 35%. Keep in mind that's our provision rate in the income statement. Our cash tax rate is closer to the 18% to 20% range.

Operator

This concludes today's question-and-answer session. I would now like to turn the floor back over to Mr. Robert Phillippy for any additional closing remarks.

Robert J. Phillippy

Well thank you, and thanks for your participation in today's call and your continued interest in Newport. Newport really continued its track record of crisp execution in the fourth quarter and in doing so closed the year in which we demonstrated our ability to perform well regardless of the market environment. As always, my sincere thanks to Newport team members around the world for your support and resourcefulness as we continue to manage our business effectively while we stay focused on our strategic growth initiatives. We look forward to updating everybody the progress on our next conference call. And also for investors interested in a more thorough update, we plan to attend and present at 2 events next month. The first is the Piper Jaffray Technology, Media and Telecommunications Conference in New York City on March 13, and the second is the Roth Capital Conference in Dana Point, California on March 19. So thanks again for your interest. Bye now.

Operator

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

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Newport (NEWP): Q4 EPS of $0.37 beats by $0.05. Revenue of $141.6M misses by $1.82M. (PR)