Newport's CEO Discusses Q1 2014 Results - Earnings Call Transcript

| About: Newport Corporation (NEWP)

Newport Corporation (NASDAQ:NEWP)

Q1 2014 Results Earnings Conference Call

April 30, 2014; 05:00 p.m. ET

Executives

Bob Phillippy - Chief Executive Officer

Chuck Cargile - Chief Financial Officer

Rob Fink - KCSA Strategic Communications, Investor Relations

Analysts

Rob McCarthy - Stifel

Mark Miller - Noble Financial Capital Market

Larry Solow - CJS Securities

Mark Douglass - Longbow Research

Operator

Ladies and gentlemen, thank you for standing by and welcome to the Newport Corporation, first quarter earnings conference 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). Thank you.

I would now like to turn the call over to Rob Fink of KCSA Strategic Communications. Please go ahead sir.

Rob Fink

Thank you. Good afternoon and welcome to Newport's, first quarter of 2014 conference call.

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 current expectations and involve various risks and uncertainties that are discussed in periodic SEC filings. Although, we believe that the assumptions underlying these statements are reasonable, any of them could provide inaccurate, and there can be no assurance that the results will be realized.

During this call we’ll be discussing certain of our financial results on a non-GAAP basis, excluding items we believe to be outside of our core operating results. We believe that the supplemental presentation of non-GAAP financial information provides insight into our core business results, as well as a useful comparison of our financial results between periods. Please refer to the press release we issued today for a reconciliation of our results on a GAAP and non-GAAP basis.

Also, please be aware that much of the information we are discussing during this call is also included in the press release and Form 8-K we issued earlier today. We encourage you to visit newport.com and specifically the section titled Company Investor Information, where you can see the presentations that we have made at recent investor conferences. We have also posted historical financial statements and scheduled that detail historical trends for our sales and orders by market and the financial performance of our three business segments.

Included also are our schedules showing supplemental non-GAAP financial information and a reconciliation to the corresponding GAAP measures. I also encourage you to download the company’s Investor Relations app, which is available for free on the iTunes App Store and in the Google Play market.

With that said, I would now like to turn the call over to Bob Phillippy, Newport’s President and Chief Executive Officer.

Bob Phillippy

Thanks Rob and thanks to everyone for joining us on the call today. The first quarter was a great start to what we expect to be a very productive year for Newport. Our sales of $146.9 million grew 10.8% year-over-year and our non-GAAP gross margin of 45.4% exceeded our long-standing target by 40 basis points.

We leverage these results to achieve non-GAAP earnings of $0.29 per share and 81.3% increase over the first quarter of 2013. In addition, our orders of $147.3 million represented our fifth consecutive quarter with a book-to-bill ratio greater than one.

We continue to gain momentum in our business by successfully implementing our growth initiatives. In fact, based on the progress of some of the programs related to design wins that we’ve mentioned in previous calls, we expect our book-to-bill to be solidly above one for the full year.

I now like to provide an update on our orders and sales trends, activities and conditions in each of our target markets. First quarter orders of $42.6 million from Microelectronics customers grew 51.1% versus the first quarter of 2013, but declined 20.4% sequentially as we had expected.

Sales in this market were also up year-over-year, but also down sequentially with our first quarter total of $34 million climbing 22.5% versus the prior year period, but declining 14.3% sequentially. The year-over-year growth was the result of momentum from new products and recent design wins, as well as improvement from what proved to be near trough market conditions in early 2013.

The sequential sales decline was due primarily to our divesture of MRSI, which contributed $3 million is sales to microelectronics customers in the fourth quarter. The sequential decline in our orders was due to this divesture and the $14 million order in Q4 for our collaborative development program that was not expected to repeat in Q1 offset in part by higher orders from other microelectronics customers.

As discussed on previous calls, we’ve historically made great progress on our growth initiatives during down market cycles and the investments we made to drive innovative product development during the most recent cycle are now beginning to pay dividends.

For example, opportunities for Quasar and Talon, our new UV lasers designed to enhance mobile device manufacturing have been developing quickly. These products complement each other in power, performance and price. At 60 watts, Quasar is the highest power single mode UV laser in the industry, with the patent-pending TimeShift technology that gives it a unique ability to optimize the lasers interaction with materials such as chemically strengthened glass, ceramic and sapphire.

Talon is now a family of six to 15 watts UV lasers, with a disruptive cost performance model for a number of lower power mobile device manufacturing applications. Quasar which we introduced in the first quarter last year has already been an unprecedented success story for us and we expect the Talon family, which was introduced in February of this year, to play a significant role in further enhancing our position in this market.

For semiconductor manufacturing applications we reported on a number of design wins for our dynamics Air Bearing Stage technology for 450-millimeter wafer handling applications last year. While the timetable for the introduction of 450 millimeter wafers into a production environment still appears to be three to five years away, I’m pleased to report some very good news for the near and medium term.

Some of our newer OEM customers have found our positioning technology so compelling that they are working to implement dynamics into their 300-millimeter tools. This is a very positive development, as it should result in a higher revenue and an acceleration of the production timing for some of our recent design wins. As a result, we now expect dynamics to contribute incremental revenues of more than $20 million over the next three years, despite the slowdown in the pace of transition to 450-millimeter wafers.

Turning now to the life and health sciences market. Our first quarter orders of $29.7 million declined slightly on both the year-over-year and sequentially basis, while sales to these customers of $34.3 million increased 9.7% versus Q1 of 2013 and 4.1% sequentially.

Market demand for our products designed into both clinical and laboratory applications remains brisk. In particular, we set a new record for orders for our Optimate Dental Imaging Systems for the second consecutive quarter.

Our patented conoscopic holography based scanning approach has become a very popular solution for highly accurate scans enabling complex dental restorations. Our second generation scanner that provides this accuracy with even greater speed in now in production, offering customers a possible upgrade path for the current installed base of more than 2,500 units.

We also saw a nice sequential increase in sales of our femtosecond lasers for surgical applications to a near record level. We continue to gain traction with our ultra fast lasers in life and health sciences applications and we further expanded our portfolio with the introduction of the new High Q2 laser in February. This laser produces an ultracompact femtosecond solution with high-key power for both nano-surgery and bioimaging applications.

Activity in our industrial market continues to be robust with orders of $35.5 million increasing 22.5% over the first quarter of 2013 and 2.9% sequentially. Sales of $35.2 million were an all time record, increasing 28.7% versus the first quarter of 2013 and 1.5% sequentially. This strong performance was driven primarily by record sales of diode laser test systems from our ILX Lightwave business.

Since acquiring ILX in January 2012, we’ve established our position as the industry’s preferred supplier of test systems for active devices for both fiber optic network and industrial laser applications. We also saw continued strong demand in several other applications, including 3D Printing, automobile night vision and industrial laser optics and power measurement.

Scientific market orders of $28.3 million declined 10.7% from the first quarter of 2013 and 18.6% sequentially. Sales of $31.9 million increased 3.2% from Q1 of 2013, but declined 3.6% sequentially. The sequential declines were expected and consistent with the historical seasonal patterns for this business, compounded by the continued weak overall research-funding environment.

We did see higher year-over-year and sequential sales to this market in Japan, due in part to the March 31 fiscal year end and purchases made in advance of the consumption tax rate increase that became effective on April 1. Also research market sales in China, Germany and France grew nicely year-over-year. However, we have not yet seen the modest improvement expected in the U.S. associated with the budget agreement reached in late December.

We continue to be well positioned in this market and have recently enhanced our product portfolio with the introduction of a number of very differentiated new products, including a new high power version of our industry leading Spitfire Ace Ultrafast Amplifier that is ideal for time resolved spectroscopy and other advanced scientific applications.

Also we introduced our new-patented SmartTable Active Vibration Dampers that can be affixed to existing optical tables or other rigid structures to significantly improve their vibration stability and therefore enable much more accurate and advanced experiments.

The defense and security market continues to represent a tough environment for us, with sales of $11.6 million and orders of $11.3 million, both representing double-digit sequential and year-over-year declines.

As we’ve communicated previously, the government funding reductions in the U.S. in 2013 had impacted this business significantly. While our good progress with targeted OEM customers makes us optimistic about our long-term prospects in this market, we recognize that it will take some time to recover.

With the defense and security market representing only 10% of our trailing 12-month sales, our downside risk in this market is very limited at this point and we have significant upside potential in new program wins.

As we reported previously, we’ve already achieved several design wins that we expect to generate approximately $6 million of incremental revenue per year beginning in late 2014 and early 2015 and we are engaged with customers on a number of additional programs that have similar if not greater potential, but with timing it’s a bit further out.

With several infrared zoom lens designs that are the lightest and most compact in the industry, we have ideal product solutions for Drone Aircraft Surveillance and with our new Romanian manufacturing facility now operational, we can provide very cost effective offerings for a wide array of thermal imaging applications.

Regionally year-over-year sales grew in all of our major markets, with Asia Pacific sales leading the way with an 18.5% increase versus the first quarter of 2013. We continue to invest in expending our presence in the Asia Pacific region, with the additional of sales and technical support resources in China, Korea, and Taiwan and we believe that our above market growth rates in the region reflect the value of these investments. We also achieved particularly strong 16% year-over-year sales growth in Europe, followed by 2.7% growth in the U.S. and 4.2% growth in the rest of world.

As mentioned earlier, we’re off to a great start in 2014. We now have clear evidence that our growth initiatives are well targeted and they are making an increasingly significant contribution to our financial performance. In addition, we continue to work to ensure that our operational execution is effective in all areas of our business. These factors, combined with record backlogs scheduled to ship within the next 12 months, provide us with confidence that the momentum we have developed in our business will continue.

I will now turn the call over to Chuck to review our financial performance and discuss our outlook for 2014 in more detail. Chuck.

Chuck Cargile

Thank you, Bob. I’ll discuss the results for each of our three business groups and key components of our consolidated income statement, balance sheet and cash position. Then I’ll discuss our outlook for Q2 and the remainder of 2014.

First, our Photonics group. Their first quarter sales were $59.5 million, reflecting a slight increase both sequentially and year-over-year. Their segment income was $13.5 million; that’s the highest in the groups’ history and was 22.8% of sales. This is yet another example of the excellent financial performance we’ve come to expect and appreciate from this group.

We’ve mentioned before the exceptional contribution the group is getting from Ophir Photonics. Last quarter we highlighted that Ophir Photonics sales and profit in 2013 were all time records for that business. I’m pleased to report that they are continuing to post excellent results in 2014. In fact, in Q1 Ophir Photonics posted all time records for quarterly sales, operating income dollars and operating margin.

Also on a smaller scale, ILX, which we acquired in 2012, achieved all time record sales in the first quarter. These are the two most recent examples of our Photonics groups’ impeccable track record of acquiring and integrating companies to enhance their industry leading Photonics product and technology portfolio.

Our Spectra-Physics Lasers group delivered another strong quarter. You may recall that in Q4, 2013, Spectra-Physics recorded all time record levels of segment income, both in dollars and as a percentage of sales. Although they didn’t beat that record in Q1, their sales of $46.5 million and segment income of $5.6 million or 12% of sales was very good for our first quarter of the year.

To put it in perspective, their first quarter sales increased 19.5% year-over-year and their segment income was a very impressive 78% higher than Q1 of 2013. We said last quarter that we thought our lasers group was poised for a great year in 2014 and their first quarter financial results certainly provided solid foundation for them to build on.

Our Optics group also had a relatively strong quarter. Sales of $40.9 million were 15.8% higher than the year ago quarter. This group leveraged that $5.6 million of increased sales into $3.9 million of additional segment income. In fact, the group segment income of 11.1% of sales was the highest level they’ve achieved in over a year.

We expect this group’s profitability to continue to improve, as we continue to ramp production volume in our new Romania facility during the course of 2014. We made significant investments over the past two years to establish this new low cost manufacturing site and we expect it to being making a positive profit contribution this year. In short, all three of our business group’s executed well in the first quarter and have established a strong foundation for the remainder of 2014 and beyond.

Now, I’d like to make a few comments about our consolidated financial results for Q1 and our outlook for the second quarter and full year of 2014. Unless otherwise noted, these comments refer to our non-GAAP results.

Our consolidated gross margin was 45.4%. We’ve been saying for some time that we anticipated crossing the 45% barrier in 2014 and are very pleased to have achieved that important milestone already in Q1.

Our SG&A expenses in the first quarter were $34.9 million or 23.7% of sales. The SG&A amount was $3.1 million higher than the fourth quarter 2013 level, which is consistent with the guidance we provided last quarter and reflects increased expenses for incentive compensation programs and some front end loaded annual expenses.

Even though SG&A increased in absolute dollars, as a percentage of sales the 23.7% was 90 basis points below Q1 of last year. We believe that this level will be the high water mark for the year. We also invested $13.8 in research and development in the first quarter. That’s the highest amount we’ve ever invested in a single quarter.

We’ve been encouraged by a number of our new product launches and look forward to continuing to fund the innovative initiatives to allow us to be the industry leader in a wide range of Photonics lasers and Optics solutions.

Dispute our greater investment in R&D and SG&A, we were able to leverage our year-over-year sales increases into very strong profit growth. Our fourth quarter operating income was $17.9 million or 12.2% of sales, an increase of 60.5% over the first quarter of 2013. Our earnings per diluted share of $0.29 increased $0.13 or 81% versus the $0.16 per diluted share we reported in the first quarter of 2013.

In the first quarter we generated $9.4 million of cash from operations and reduced our total indebtedness by $12.5 million. At the end of the quarter out total cash balance, including restricted cash, cash equivalence and marketable securities was $63.2 million and our total debt was $76 million. In summary, our Q1 financial performance reflects an excellent start to 2014.

Now I’ll discuss out outlook. We believe we will continue to have momentum in our business, despite an uneven and uncertain recovery in many of the markets we serve. Based on our record backlog scheduled to ship in the next 12 months and the new program wins we’ve captured, we’re increasingly confident that we will achieve significant year-over-year sales and profit growth in 2014.

For the second quarter of ’14 we expect our sales to be in the range of $147 million to $153 million, reflecting the year-over-year increase of 9.5% to 14%. In addition we expect our non-GAAP operating income and non-GAAP earnings per share in the second quarter to increase significantly compared with the prior year’s second quarter due primarily to the higher level of sales.

This concludes our prepared remarks and we’d now like to address any questions you have.

Question-and-Answer Session

Operator

(Operator Instructions) Your first question comes from Patrick Newton with Stifel.

Rob McCarthy - Stifel

Good afternoon, thanks for taking my call. This is Rob on for Patrick today. First off, Bob I just want to talk a little bit about life and health sciences orders. A couple of years ago you had a large, I think $38 million order for ultra fast lasers. That was supposed to be about two years in duration. I just want you to comment on kind of where Newport stands of fulfilling that order and the anticipation of any follow-up orders to come.

Bob Phillippy

Yes, thanks Rob. When we announced the order a few years ago, we said it was likely to cover two years of demand and since we received that order, demand rates for a period of time had slowed modestly until this quarter and I think I mentioned it in the prepared remarks when they picked up to a near record pace. So while the timing of OEM orders is always based on customers forecast and processes and therefore it makes it difficult to predict in the bucket of a single quarter. Based on the recent demand run rates, we would expect to receive another order sometime in the second half of the year.

Rob McCarthy - Stifel

Okay, great. I appreciate that. Can I think about the semi-cap kind of cycle that’s going on, we heard recently some uncertainty from some of your major customers kind of regarding semi-cap. How do you view this cycle playing out over the next six to 12 months or you know – I guess I’m trying to get a sense of how sustainable that is.

Bob Phillippy

Yes, so two points related to that. I think the first is that hopefully you noticed it through the context of the remarks, is that one of the themes of this call is that much of the momentum we developed in our business is the result of growth initiatives. More specifically we’re pretty excited about some of the new product introductions we’ve got and we got some significant program wins that are propelling a lot of our business right now. So this gives us pretty good confidence that we’ve got the ability to outperform the market.

That said, we are pretty aware, the recent communications from some of our major customers that referred a short term slowdown in the semi conductor equipment demand and I think most of the comments said that they would – expected this demand to be soft in the near term, but expect in the second half to be a bit stronger. So for programs that we’re designed into as an OEM supplier, our business is going to follow that trend for existing programs.

But what’s more important and what we’re trying to highlight here is that longer term the industry trends are pretty favorable for us, because the industry part of the reason that is sited for some of the short term slowdowns is struggles by chip makers to achieve yields at the 20 nanometer node and smaller and that actually plays well into our ultra precision products and so we fully expect to have more design content for the next generation tools than we do for this generation tools, but we’re not going to escape the cycles of the market.

Rob McCarthy - Stifel

Got you, I appreciate the color on that. And then sort of one last question from me. So you had mentioned kind of how well Talon or Quasar has been doing. I was wondering if we could get some more detail on that or some color on how it actually faired in the quarter and what the market reaction has been to the sort of the Quasar 2 product.

Bob Phillippy

Yes, Quasar has been extremely well received by customers. If fact its been more successful in its first year introduction. It just recently passed its one year anniversary in the first quarter and its been more successful in its first year than any other product in our history.

What I was also talking about and I just wanted to reinforce is that we’ve got very high hopes for Talon, which was a complementary product, or which is a complementary product also for applications in the mobile device manufacturing space. So both of those are new entries for us in mobile device manufacturing and we’re pretty excited about it.

Last quarter I said that we had exceeded $20 million in orders for Quasar and that was really an intent to quantify a successful launch, but I don’t want to discuss specific sales and orders of a product on an ongoing basis primarily for competitive dynamic reasons, but we’re really excited about it and customer acceptance has been outstanding.

Rob McCarthy - Stifel

Great. I appreciate the color. Good luck.

Bob Phillippy

Thanks Rob.

Operator

Your next question comes from Mark Miller with Noble Financial Capital Market.

Mark Miller - Noble Financial Capital Market

I’d just like to piggyback on those last two questions. Did you feel any of your competitors are imminent in announcing a UV fiber laser or do you think you have a pretty clear path over the next couple of quarters?

Bob Phillippy

You’re talking about in competition with Quasar, Mark?

Mark Miller - Noble Financial Capital Market

Yes, with Quasar, that’s correct.

Bob Phillippy

Oh absolutely. It’s a pretty attractive space. We’ve talked about it in previous calls. We started out with a bit of a lead, at least at this power level for a single mode UV laser, but there will certainly be competitive entrance. We’ve heard and seen different sorts of, I won’t say announcements, but different sorts of entries into the space and so we certainly won’t be able to occupy it alone.

That said, we feel like Quasar’s a pretty differentiated product and what we haven’t seen is anybody able to come forward with TimeShift technology, which is patent pending, which enables you to basically optimize the interaction between the laser and the material. So we feel like Quasar is and will continue to be a very, very differentiated product, but we will certainly have competition in that space, undoubtedly.

Mark Miller - Noble Financial Capital Market

Are you concerned or do you feel the proprietary technology you have will allow you to mitigate any pricing pressures on entry of competitors.

Bob Phillippy

That’s really in part what Talon’s for; is we’re trying to have complementary products. Quasar with very, very differentiated performance characteristics and Talon is a very cost effective product and so yes, we are likely to see entries for UV lasers, be they are fiber technology or otherwise, that will compete in that category, but Talon we think will successfully compete on a price basis for those applications that don’t require the performance characteristics of Quasar. So the full intent was to have a complementary product portfolio, knowing that price competition is coming.

Mark Miller - Noble Financial Capital Market

I’ll jump on again in queue, thank you.

Bob Phillippy

Thanks Mark.

Operator

Your next question comes from Larry Solow with CJS Securities.

Larry Solow - CJS Securities

Hi, good afternoon guys. You discussed the outlook for the book-to-bill for the year. I think it’s going to be over one. Would you characterize that as sort of in the similar areas? I guess you sort of mentioned that you referred to some follow-on orders. Would you say its similar areas as last year in the microelectronics particularly or do you think – do you expected the book-to-bill to be greater than one, perhaps across most of the end markets.

Bob Phillippy

Well, Larry this is Bob. The book-to-bill greater than one for the full year comment was specifically intended to foreshadow some large orders coming, most likely in the third and fourth quarters of the year.

We are working on some very exciting projects, but it’s a bit too early to communicate the specifics and so I won’t characterize them in markets per say, other than to generally say that life and health science and microelectronics are two of the markets in which the majority of the content is OEM deployed and that’s where you generally see the larger orders.

The other thing I would comment on is that over the past couple of years, we’ve been periodically talking about design wins for a particular product or a particular program. In most cases when we communicate that, that represents a starting point and then we work on the program for a year or two before we see any meaningful production order quantities and so really what’s happened is those programmers are being implemented and we’re going through design phases where our customer is getting closer now to implementing their product into production or in some cases we’re iterating on a next generation solution for a particular piece of business.

So that’s the idea, is that we’re looking on the front end of some pretty exciting opportunities and we would expect those to start bearing fruit towards the latter part of the year.

Larry Solow - CJS Securities

Great, so probably you got some visibility on that one, some positive visibility. Okay, just a follow on to that. The large collaborative development contract you had in the EUV area of microelectronics, the $42 million order. Have prototypes, are they expected to be delivered soon and do you have any visibility on potential additional orders coming from that?

Bob Phillippy

Yes, a couple of things. Just to clarify, the $14 million collaborative development project that we announced last quarter, actually that was actually booked in Q4 of 2013, was intended to be a project that was to span about a year. We did see a small amount of revenue late in ’13 and we would expect to build the rest of the order through the course of 2014.

That included prototypes as part of it. It was a collaborative development, along with prototypes and related equipment. So that was kind of the size and scope of the thing. So we would expect that to continue through the course of 2014 and build out, I won’t say radically, but it’s depending on milestones of the program.

Larry Solow - CJS Securities

Got you, okay. And then just lastly, can you just remind us around the new plan in Romania what the positives, your anticipated positive effects of that and I guess is that already started or will that begin in the coming quarters. Thanks.

Bob Phillippy

Yes, its been an investment really for a couple of years now and what we’ve basically been doing is taken a facility that had very good, I’ll call it personnel and technical competency and capitalizing it and putting in our process controls, so that we could not only produce the precision of products that our customers have come to expect, but also produce them predictably in at the scales that we anticipate.

So basically we’ve been capitalizing it, putting in process control, building up the team, etcetera for the last couple of years. That has been a financial drain and Romania continues to take a small loss, although by the second half of the year we would expect it to turn from a smaller loss to breakeven or maybe even modestly profitable.

Larry Solow - CJS Securities

Got it, great. Thanks very much.

Bob Phillippy

Thanks Larry.

Operator

(Operator Instructions) Your next question comes from Mark Douglass with Longbow Research.

Mark Douglass - Longbow Research

Good afternoon gentlemen.

Bob Phillippy

Hey Mark.

Mark Douglass - Longbow Research

On the Quasar, is it broadly display cutting that is – does it handle glass as well as sapphire or right now is it just glass, strengthened glass.

Bob Phillippy

Yes Mark, so Quasar is a potentially very versatile product. As you know we introduced it a year ago at 45 watts of UV and now in this past February we upped the power to 60 watts of UV.

It can be deployed in, with multiple hard materials, including glass, ceramic and sapphire. However we have more experience from an application development standpoint with glass and that’s just based on customer requests, our customers have had more requests along those lines, so we’ve worked on more applications based on that. And when I say glass, I don’t mean typical glass. I mean chemically strengthened glass like would be deployed for mobile devices.

Mark Douglass - Longbow Research

Okay, because a couple of other laser companies talked about getting some, at least initial traction in sapphire. I’m just curious if you’re in the same boat.

Bob Phillippy

Well, given some large investments in sapphire production, there’s certainly been a lot of discussion and buzz about that, but for us at least, that’s not as mature in terms of application development as glass.

Mark Douglass - Longbow Research

But its still a potential for you?

Bob Phillippy

It’s a laser that will cut the material.

Mark Douglass - Longbow Research

Okay, and then Romania, if you could flush that out a little bit more. Is this going to be 100% new capacity and new sales for you or is it shifting capacity from other places into Romania as a combination thereof and lets say once its at a reasonably good absorption level, how much would it help margins versus where it is now?

Chuck Cargile

Mark, its Chuck. I think it’s a combination of all of those. By having the OpEx manufacturing presence in the EU, we’ll be able to access some programs there that we weren’t able to access before. We’ll also be able to shift some manufacture. As you know we have a lot of OpEx manufacturing capability and capacity around the world. Some of that would be a very good candidate to move to the lower cost region, so that will help and then in some cases it can even replace some of our supply chain. So we’ll have multiple opportunities to move production there and I think it will be a meaningful contribution.

We’ve not quantified how much contribution we think we can make. We’ve often provided analogies or comparisons to when we started the Greenfield operation in Wuxi, China, in which case we were able on average to get about 20% profit improvement when we moved, as we accelerated production there. We might not get that high of a contribution, but it will probably be something similar.

Mark Douglass - Longbow Research

Okay, thank you.

Operator

Your next question comes from Mark Miller with Noble Financial Capital Market.

Mark Miller - Noble Financial Capital Market

Just wondering if you can give us a little color. You had excellent results in Ophir; what’s driving that?

Bob Phillippy

The Ophir Photonics business continues to provide excellent record performance. Its has been a really nice add in to our Photonics business. Mark, you’ve followed us for a long time, so you probably remember that in almost every instance that we can recall, when we have acquired and integrated a business and our Photonics group has been very successful. We have a very strong manufacturing base and a very, very broad sales distribution channel. So we’re able to leverage both of those when we acquire and put businesses in there, so the Ophir Photonics results have been very, very good.

And on the optic side, we’ve been hurt by the tepid conditions in the defense market, but their efficiency has improved steadily in the 2-plus years that we’ve owned them. So the cost basis there is lower and in fact for the quarter we don’t combine them anymore as an Ophir reporting unit. They are within our optics group and our Photonics group, but if they had been combined, we would have had a relatively high level of sales, about $30 million for them and the operating margin would have been in the mid to high teens, which is better than Ophir had when we acquired it, so the profit performance has been very good.

Mark Miller - Noble Financial Capital Market

Well, and if I can just throw another one at you. Laser segment income while up year-over-year was down and it was down quite a bit more than your sales drop. I was just wondering what was driving that?

Bob Phillippy

Yes, there’ll always be a little bit of variability in the lasers profit percentage. We mentioned that last quarter. Even while we were bragging about the all time record, we said that the mix of products there creates a little bit, a greater variability than some of our other businesses, so it wasn’t as high as the record level. But the 12% in the first quarter is very respectable for our laser business, 12% operating income or segment income as a percent of sales. So we were pleased with that and I think you’ll continue to see a good profit performance from the laser group.

Mark Miller - Noble Financial Capital Market

That was just basically a mixed type thing.

Bob Phillippy

Yes.

Mark Miller - Noble Financial Capital Market

Okay, thank you.

Bob Phillippy

You’re welcome.

Operator

At this time there are no further questions. I would now like to turn the floor back over to Bob Phillippy for any closing remarks.

Bob Phillippy

Okay, thank you and thanks everybody for your interest in Newport. If you have questions or would like additional information related to any of the topics we’ve discussed today, please don’t hesitate to contact us.

Also for investors interested in learning more about our company, we will be presenting at the B. Riley Conference in Santa Monica, California on May 21 and at the Needham Advanced Industrial Technologies Conference in New York City on August 7. And of course as always, thanks to our fellow Newport team members around the world for your continued support as we aggressively pursue our strategic objectives. Bye now.

Operator

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