Seeking Alpha
We cover over 5K calls/quarter
Profile| Send Message|
( followers)  

Newport (NASDAQ:NEWP)

Q1 2011 Earnings Call

April 27, 2011 5:00 pm ET

Executives

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

Jeffrey Coyne - Senior Vice President, Corporate Secretary and General Counsel

Robert Phillippy - Chief Executive Officer, President and Director

Analysts

James Ricchiuti - Needham & Company, LLC

Dave Kang - B. Riley & Co., LLC

Mark Miller - Noble Financial Group, Inc.

D. Mark Douglass - Longbow Research LLC

Jiwon Lee - Sidoti & Company, LLC

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

Operator

Good day, everyone, and welcome to the Newport Corporation First Quarter 2011 Financial Results Conference Call. [Operator Instructions] 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 Phillippy

Thank you. Good afternoon, and welcome to Newport's First 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.

I'm pleased to report that the Newport team continued our track record of solid execution in the first quarter of 2011 and delivered another strong financial performance. Our orders of $129.7 million and sales of $128.4 million were both records for the first quarter of the year.

Our net income and earnings per share were also exceptionally strong, led by our gross margin of 45.1%, which achieved one of our long-standing targets. Chuck will provide a more detailed financial update later in the call.

We continue to see favorable conditions in our target end markets and made great progress on our growth initiatives during the quarter. I'd like to take a few minutes now to provide an overview of our orders performance in the first quarter.

First, since it has been on everyone's mind recently, let me make a few comments about Japan. Most importantly, we have 51 Newport team members and a number of significant sales channel and supplier partners in Japan, and I'm relieved to report that, although, we had a few close calls, the information we've received indicates that all of these people and their immediate families are safe. As for our business results, our first quarter orders from Japan were somewhat below our expectations, but this did not have a significant impact on our sales results.

Our 2011 internal operating plan calls for approximately $65 million in revenue from Japan. At this point, it's unclear how much of these sales, if any, would be impacted by this tragedy. For now, our Japanese team is focused on helping our customers return to normal business operations as soon as practical.

In the first quarter of 2011, we received $55.3 million in orders from U.S. customers, representing approximately 43% of the total. Orders from customers in Asia, including Japan, were $35.2 million or 27% of the total. Orders from Europe were $27.1 million or 21%, and the rest of the world accounted for $12 million or 9% of total orders.

Our growth in Asian markets continues to be robust, particularly in China, where our business has doubled over the last 2 years and now exceed $35 million per year.

As part of our global expansion initiative, we have continued to invest in sales, technical support, service, manufacturing and distribution infrastructure in Asia. Our most recent investments include the opening of a new regional distribution center in China and a new sales technical support and service office in Singapore. We expect to begin to see the benefits of both these investments during the course of 2011.

Orders from our scientific research, aerospace and defense security customers were $41.8 million, representing growth of 7.6% over the prior year period and a record level for our first quarter, which historically has tended to be seasonally soft in this market. This is an excellent result, as it comes in a largely post-stimulus funding market environment.

In the U.S., the drastic cuts in federally funded research that some had anticipated didn't materialize as the continuing resolution recently passed by Congress, which prescribes spending levels for the second half of fiscal 2011, reduced budgets of major research agencies by an average of only 1%.

Currently, difficult funding environments in the U.S. and parts of Europe are being more than offset by increasing budgets in some fast-growing Asian economies. Our scientific research market orders have also benefited from the success of several of our recent new product introductions. In particular, our recently introduced Mai Tai SP oscillator has been widely accepted as a leading solution for ultrafast laser applications. And our new Spitfire Ace ultrafast amplifier, which we introduced at Photonics West trade show in January is quickly gaining traction with researchers worldwide.

In addition, our new NSTRUCT, instrument management software, has garnered much attention for its ability to synchronize the operation of instruments and motion controllers to improve the efficiency of laboratory experiments.

Orders from microelectronic market customers were $41.6 million, representing a slight increase sequentially and a book-to-bill of 1.0 and our fifth consecutive quarter of orders greater than $40 million in this market. While these orders were at 12.5% lower on a year-over-year basis, it's important to recall that our orders in this market in the first quarter of 2010 were an all-time record for us, as our OEM customers replenished their very low inventory levels to respond to the early phases of a significant ramp in demand.

In general, conditions in this market continue to be very robust, and we expect to set a new record for microelectronics market orders in the second quarter, as we have already received a $15 million order for lasers from one of our large OEM customers. We anticipate this order entering production in the second quarter with shipments occurring over a 3-year period.

Our orders from Life and Health Sciences customers were $26 million, an increase of 9.7% over the first quarter of 2010. This growth was driven by 2 primary factors. The first of these is our continually expanding portfolio of industry-leading products for bioinstrumentation OEM customers, including some recently enhanced offerings, such as our Stabilife optical filters and our Agilis precision stages and controllers that are capturing a significant number of design wins.

The second is our very differentiated capability to provide application-specific optomechanical and optoelectronics subsystems to bioinstrumentation customers. This enables bioinstrumentation OEMs to simplify their supply-chain by receiving a single, fully assembled, calibrated and tested subsystem that is already optimized for performance, cost and reliability, rather than attempting to integrate a broad array of potential suboptimal component parts from other suppliers.

This value proposition has proved quite appealing over the last few years, as we now have several programs in full production. We also continue to see strong orders from bioimaging customers for our lasers, optical components and subassemblies and vibration isolated platforms. We expect our orders from Life and Health Sciences customers to continue to grow at a faster rate than the analytical and bioinstrumentation industry forecast of 6% to 8% in 2011.

Orders from industrial and other market customers totaled $20.3 million, representing 39.5% growth over the first quarter of 2010. Activity levels remain high with many of the broad array of customers we serve in this market. In particular, in the first quarter, we had strong orders from industrial laser OEM customers that use our optical components and precision motion technology as enabling elements of their laser-based systems.

We also saw strong demand for our products and systems used for alignment and packaging of fiber optic devices used in the telecommunications industry. Our rapid growth in this market, which represents a very diverse set of applications, is testimony to our ability to leverage our expertise in photonics technologies to enable an increasing number of industries.

In summary, we are very pleased with our orders performance in the first quarter and the momentum that it provides us for 2011. We are also proud of the way we were able to capitalize on the favorable market conditions to deliver strong sales and profits. I will now turn the call over to Chuck to provide more detail on our financial performance. Chuck?

Charles Cargile

Thank you, Bob. First, let me address a few housekeeping items. 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. I encourage you to visit our website at newport.com and, specifically, the Investor Information section where we posted supplemental financial information, which includes historical financial statements, schedules that detail the historical trends for sales and orders by market and the performance of our 2 reporting segments. In addition, we posted our most recent Investor Relations PowerPoint presentations. And earlier this month, we made our 2010 annual report available on the website.

Lastly, I'd like to mention a couple of investor conferences we'd be attending in Q2. On May 11 and 12, we'll be presenting at the Jefferies & Company Global Technology Internet, Media and Telecom Conference in New York City, and on May 24, we will present at the B. Riley & Co. Investor Conference in Santa Monica, California. Now I'll comment on certain aspects of our financial performance.

On a year-over-year basis, our revenue increased in all of our key end markets. We followed our all-time record revenue performance in the fourth quarter of 2010, with the second-best revenue quarter in our history at $128.4 million.

Our new orders of $129.7 million in the first quarter slightly exceeded our revenue level, giving us a book-to-bill ratio of 1.01. This marks the sixth time in the last 7 quarters that our book-to-bill has exceeded 1.0. As a result, our backlog remains robust and gives us confidence for continued growth in 2011. Furthermore, we are expecting our book-to-bill for Q2 to exceed 1.0 again.

Our fourth quarter 2011 gross margin was 45.1%, exceeding our stated target of 45%. This level represents an improvement of 80 basis points versus the fourth quarter of 2010 and is considerably higher than the 40.2% we reported in the prior year first quarter.

We are pleased that we met this internal target, but, more importantly, this margin level is a very clear indicator of our ability to leverage manufacturing costs on robust sales. A strong gross margin is an enabler to many aspects of our business model impacting pricing decisions, investments in sales channel and product development.

We continue to manage our operating expenses closely, even as we benefit from strong demand from our customers. Compared sequentially with the fourth quarter of 2010, our operating expenses in the first quarter increased by only approximately $300,000. Although we will always be mindful of our total spending on operating expenses, we anticipate further investment in appropriate growth initiatives.

Our operating income in the first quarter of 2011 was $17 million or 13.2% of sales. On a year-over-year basis, our operating income in the first quarter of 2011 increased by 127% compared with the prior year period on a 20% increase in sales. Both of our operating divisions performed well. Our Photonics and Precision Technologies division recorded segment income of $19.7 million or 24% of sales, almost identical to the stellar performance in the fourth quarter of 2010.

And we're pleased to report that our Spectra-Physics Laser division continues to post increasing levels of profitability. In the first quarter this year, Spectra-Physics recorded segment income of $4.8 million or 10.4% of sales, the highest level they've achieved since our acquisition of Spectra-Physics in 2004.

We recorded a very positive nonrecurring transaction in the current quarter. We eliminated the legal entity in France that had been established in prior years as a part of tax planning mechanism. We determined that tax mechanism and legal entity were no longer necessary. That legal entity has now been fully dissolved and the final accounting led to a reclass from equity to income of an accumulated foreign currency translation adjustment. This is a non-cash items that will not occur. Therefore, in our press release, we've included a table that reconciles our net income and earnings per diluted share including this item and excluding it.

Our tax rate for the first quarter of 2011 was 4.6%, as we continue to benefit from the tax shield we have for federal income tax purposes resulting from our evaluation allowance. Only taxes resulted from those on foreign earnings, statement on taxes and some U.S. alternative minimum tax.

Our diluted shares outstanding for the first quarter of 2011 were $38.8 million. As a result of these factors, our earnings per diluted share were $0.53 on a GAAP basis and $0.35 per share excluding the gain from the currency translation adjustment. Even without the benefit of the translation gain, our EPS of $0.35 equates to an increase of 150% compared with the $0.14 per diluted share we reported in the first quarter of 2010.

Our total cash, cash equivalents and marketable securities balance at the end of the first quarter of 2001 was $196.4 million. We've increased our cash balance by $57.9 million since the first quarter of 2010. As expected, in Q1 required substantial payouts for year-end accruals primarily related to incentive compensation leading to a quarterly reduction in cash of $3.8 million. In total, we paid approximately $9 million in annual incentive compensation in Q1. We expect to generate approximately $15 million of cash in the second quarter.

In summary, we're off to a great start in 2011 from a financial perspective. I'll be glad to answer any questions you have after Bob makes a few more comments.

Robert Phillippy

Thanks, Chuck. I would now like to discuss our outlook for 2011 and beyond. I'm pleased to report that the combination of favorable market conditions, robust order activity, strong backlog and continued solid executions have led to an improved outlook for 2011.

For the second quarter of 2011, we anticipate increasing revenue 12% to 15% over the $114.6 million we recorded in the second quarter of 2010 and leveraging that top line growth into operating income that is more than 50% higher than last year's second quarter.

Also, partially on the strength of the $15 million laser OEM order we have already received, we expect to achieve an all-time record for new orders in the second quarter of 2011.

For the full year 2011, we anticipate continued revenue growth, and we expect our earnings per diluted share on a GAAP basis to increase by more than 50% compared with the $1.09 per share we recorded in 2010.

Excluding the nonrecurring currency translation adjustment gain in the first quarter, we expect to increase our non-GAAP EPS by more than 35% over the 2010 level.

As for the longer-term view, we are now performing at our target levels of 45% gross margin and 10% to 15% operating profit. In January of 2010, we introduced the strategic road map that outlined our plan to leverage this financial model together with 3 growth initiatives: global expansion, value-added solution development and targeted acquisition activity to achieve an average annual growth rate of 20% over a 3- to 5-year period. This plan targets revenues of more than $750 million in 2013 at the same 10% to 15% operating income level with continued strong cash generation. We have made great progress in pursuing this strategy, and we continue to increase our presence in our key markets and gain momentum in our growth initiatives.

We are pleased with our results in the first quarter, which demonstrated the effective execution of our strategy and position us well for an excellent year in 2011. That concludes our prepared remarks. We’d now like to address your questions.

Question-and-Answer Session

Operator

[Operator Instructions] And we'll take our first question from Jim Ricchiuti with Needham & Company.

James Ricchiuti - Needham & Company, LLC

You alluded to the fact that you're hitting your target model. Is that something you'll be revisiting? Or as you look at the longer 3- to 5-year strategy, this is still a model that you would look to track as you move forward with some of these other initiatives?

Jeffrey Coyne

Jim, it's Jeff. I think for the near term, we'll keep the targets as we've explained them recently. As business conditions change or once we have achieved them for several quarters in a row, there may be parts of it that we revisit or as we get to different sales levels, there may be parts of it that have to be revisited. I think for the rest of 2011, those will be the targets that we continue to speak to.

James Ricchiuti - Needham & Company, LLC

Okay. And just a question on the order activity. In the scientific and research market, that -- and it sounds like it's fairly broad-based. And you've called out a couple of things. Notably, that you are still seeing pretty good demand in the U.S. and Europe, but also some of the emerging markets. Is there any way that you can give us a sense as to how the orders, perhaps breakout by country or -- by region? What I'm trying to get to is just is the -- are the emerging countries becoming a bigger part of this business for you?

Robert Phillippy

Yes. Jim, this is Bob. I won’t answer it with specific numbers, but to give you a sense -- and, I guess, specifically, the answer is, yes. Asia, in particular, is an area where we've seen robust growth in the scientific and other markets for that matter. And what we were trying to highlight in the prepared remarks is that even if we have a spartan funding environment in the U.S. and some countries in Europe, it's being more than offset by pretty good numbers and pretty good growth trajectories in parts of Asia.

Just as a quick example, the National Natural Sciences Foundation of China, which is their biggest agency for funding competitive research grants, is going to see a 17% budget increase this year. So while in the prepared remarks, I spoke to the fact that in the midyear funding revolution in the U.S., everybody was worried about really dramatic cuts that didn't materialize after all, but it was a 1% decline. In other parts of the world, we're seeing double-digit increases. The same is true with some other countries in Asia as well. So right now, we're seeing a tale of two funding scenarios. U.S. and some countries in Western Europe are pretty conservative and pretty flat, whereas we're seeing robust growth, and we're pretty proud of that 7.6% growth in the research market year-over-year.

James Ricchiuti - Needham & Company, LLC

It's helpful. And last question for me, and I'll jump back in the queue. You gave us some guidances in terms of how to think about full year earnings. But I wonder if you can give us any kind of sense as to what kind of revenue level we might be looking at for the year as a whole?

Robert Phillippy

I'll give it, I guess, just kind of within same general terms that we did. We gave specific guidance for Q2, of course. But just to think about the total year, we characterize it this way. We came in to the year with a strong backlog, so that was the starting point. And then we've augmented that now with the book-to-bill that's a bit greater than 1 in Q1. And also, I mentioned that we have already booked the $15 million order in Q2. So we expect all-time record orders in Q2, and that basically sets the stage very well for positive growth for the full year. So while I'll stop short of specifics, I'll say that in addition to the fact that our momentum is there, the market conditions remain pretty stable, albeit, we're not seeing the same degree of acceleration we did in 2010 because we're coming out of a trough year in 2009, they're still pretty robust across-the-board, and we would fully expect to be able to leverage that with continuing strong orders and sales.

Charles Cargile

Another way to think of the numbers, Jim, is that the 12% to 15% in Q2 will get you to something a little bit larger than what we did in Q1, and maybe as high as $4 million or $5 million higher than that level. And we've said that we expect the revenue to grow slightly each quarter of the year for the full year. We're not going to see huge increases because we're already in pretty high level, but we do expect to see an increase.

Operator

We'll go to our next question from Ajit Pai with Stifel, Nicolaus.

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

A few questions. I think, first is just looking at the $15 million laser order that you talked about. Can you give us some sort of sense as to how material it is—it’s about less than 1/3 of your quarterly orders, overall, but just in terms of within the laser business, in a typical quarter, when is the last time, if you ever have received the $15 million order -- and how diversified is that business in terms of its orders?

Robert Phillippy

.

It's a pretty good order for us. We felt it was big enough. That it was noteworthy. I can't comment on how many orders we've had of that size, but it's amongst the biggest. And it is for ongoing business from a long-time customer. I can't really comment much more than that because we're limited by nondisclosure as to the application, but it is in the microelectronics segment. And in terms of the mix, it will be a significant impact to Q2 on the positive side, but then it will ship over the course of 3 years.

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

Right. So when it ships over the course of 3 years, when you recorded your orders and when you provided book-to-bill, typically, do you take the entire 3 years order then record as an order? Or you just don't report it? I mean, you don't provide a backlog, of course. But how do we think about -- does it mean it's nontransferable, nonreturnable? Is that why you're going to include it in the orders for the quarter?

Robert Phillippy

To answer the question, we do record every order that we get, by taking orders, and then when we record our backlog, you'll see a clear delineation between backlogs scheduled to ship. And then for the next 12 months, and backlog that’s scheduled out beyond 1 year. And we'll put that in our 10-Q and at the end of the year in our 10-K. So that's how you can see the difference and what's scheduled for one year and what's not.

Operator

And we'll take our next question from Mark Douglass with Longbow Research.

D. Mark Douglass - Longbow Research LLC

Okay. You're making us work for a living here guys, so just some calculations here. Let me make sure I got this right. So we're looking at $128 million, $132 million in 2Q, and what you're saying is operating income of at least $24 million, that's operating income?

Charles Cargile

Which one what are you looking at, Mark?

D. Mark Douglass - Longbow Research LLC

For 2Q you said it's going to be greater than 50% as operating income, right? Not net of income?

Robert Phillippy

Correct.

Charles Cargile

Yes. The reason we do that is because it's the net income then it gets confused between whether you're including the currency translation gain or not. So we focused the first part on the operating income.

D. Mark Douglass - Longbow Research LLC

Okay. Now that implies a pretty substantial EPS and then getting like $0.50. Did the...

Charles Cargile

Mark, it's 50% on top of last year's Q2. Last year's Q2 was $11.2 million.

D. Mark Douglass - Longbow Research LLC

Okay, I see. And then do you think for the sales guidance -- and so we're looking at then, too, than for fiscal year of EPS of at least $1.50. Does that sound about right, 35%?

Charles Cargile

35% on top of the last year's number.

D. Mark Douglass - Longbow Research LLC

So thinking about microelectronics here, there's have been a lot of announcements early in the year and even recently, too, about increased capital spending from the big guys like Intel, Global Foundries, TSMC. Will that necessarily flow through to you? If so, you probably baked in what they had already have planned in but with a stepped up investments and will that come through the second half of '11? Or is it just too soon to tell because you don't know exactly what they're going to spend their money on?

Robert Phillippy

.

So Mark, the word necessarily flow through to us is a strong word, I'd like to use it. But we'd say that odds will be very, very high, that we will benefit from that. That news is very good and, as you know, we are closely aligned with tier 1, share-leading, semiconductor equipment companies, and we're in a mix of programs, some of which are next-generation tools for technology buys, other of which, because we've been doing this for a while, are things where we would benefit from capacity buys. So if the money gets spent, the odds are very, very high because we are designed into those products that we will benefit from that. So one of the reasons that we're quite upbeat on guidance is we read the same things you do and that is that those capital spending reports are quite positive, as is the guidance from our customers.

Operator

And we'll take our next question from Dave Kang with B. Riley.

Dave Kang - B. Riley & Co., LLC

Chuck, can I get some numbers first? Can I get strong compensation and depreciation, amortization and CapEx for the quarter?

Charles Cargile

Sure. For the quarter stock comp was $2 million. That's about $1.7 million of that being in SG&A and $200,000 in R&D, $100,000 in cost of sales. CapEx for the quarter was also $2 million, and what was the third 1 you asked for?

Dave Kang - B. Riley & Co., LLC

Depreciation and amortization?

Charles Cargile

And depreciation and amortization was $5.4 million.

Dave Kang - B. Riley & Co., LLC

Okay. And are these going to change for all quarters this year? Or...

Charles Cargile

.

I think they'll change a little bit. The stock comp is a little higher in Q1 than it may be in the remaining quarters. We have to do a little bit of catch up in Q1 of some stock comp because we had lower forfeitures than we've had in the prior years. So I think that'll come down $700,000 in the successive quarters. And, alternatively, I think the CapEx will go up a little bit. We're only at $2 million. That's going to run probably around $3 million in the quarter, in the out quarters. And then depreciation and amortization will be pretty flat, maybe slight increases but not a lot.

Dave Kang - B. Riley & Co., LLC

Got it. You briefly talked about Japan. You mentioned that orders were impacted a little bit because of the Japan quake. How much are we talking about? Are we take talking maybe a couple of million at this point or -- and what is your assumption for Japan as far as Q2 guidance is concerned?

Charles Cargile

Well, first let me just speak to that as a guidance. The guidance that we've given for Q2 and for the full year, of course, includes all the latest knowledge that we have for Japan. It's very hard for anybody to know what the lasting impact is going to be for Japan, but we have included that. And although it will probably, almost certainly, be more negative than we had anticipated when we entered the year, it's factored in and then we're still able to raise our guidance even with slight back draft or down draft.

Operator

And we'll take our next question from Mark Miller with Noble Capital Market.

Mark Miller - Noble Financial Group, Inc.

Two areas that are showing great opportunities for equipment makers are the display areas specifically LED, OLED, as well as the solar area. I'm just wondering if you could comment about what are you doing in those areas? What are you seeing in those areas?

Robert Phillippy

Thanks, Mark. This is Bob. I'll comment on LEDs first. So applications for LED manufacturing represent a fairly small but rapidly growing part of our revenue. We have some technology that we believe we'll serve some LED manufacturing applications very well. For example, we recently introduced 3 new laser products that can be optimized for LED scribing and marketing applications, just to mention those are the Tristar, the Pulseo and the Explorer XP products. And we had a couple of those at Photonics West, as you may recall. These are quickly gaining traction with the manufacturers and systems integrators for LEDs. And so I guess, in total, what I would say is that we're still fairly early in our penetration of that market, but we think it offers significant promise.

Mark Miller - Noble Financial Group, Inc.

Okay. In the backlog, especially for the orders for the next quarter, are these going to represent the same mix or higher mix in terms of what you've been shipping recently?

Robert Phillippy

In terms of specifically related to LED?

Mark Miller - Noble Financial Group, Inc.

No, just in general. In terms of more of kind of a positive impact to your margin, is the mix going to improve or stay the same from what you've shipped the last couple of quarters?

Robert Phillippy

I think that's -- I would guess that the margin impact would be negligible, either way. I mean as we mentioned during the prepared remarks, we're operating in our target margin level now, and our intent and expectation is that we will continue to operate at the target margin level and continue to operate at that income level and invest to spur the growth, because we've set a meaningful growth target for ourselves, and we are making great traction.

Operator

And we'll return to Ajit Pai with Stifel, Nicolaus.

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

Yes, just going back to the investments. You also mentioned that you laid out targets in January of 2010 in terms of growth, the 20% plus growth and the $750 million. So could you give us some color on the inorganic side? So your balance sheet is much better than it's been in the long time, and you've executed extremely well on the organic and the turn around and the organic investments. But on the acquisition front, there hasn't been anything done so far. So would that mean that over the next year and a half, that probably would be extremely high that they're going to see things happen? And how is that looking right now in terms of the pipeline just given the recovering economy? And then, yes, so that will be the first question.

Robert Phillippy

Yes. We continue to be very active in looking at businesses that we think will fit well with Newport. As you mentioned, it is a key part of our strategy, and we do look hard and frequently at what we term bolt-on acquisitions. Ones that you may recall like New Focus that we did in 2009. Richardson Gratings, Franklin Filters and Mirrors, Stratford Oriel, those product lines and businesses that we've bolted on over the last 6 or 7 years, and each one of them contribute now over 20% EBITDA to our bottom line. So we're looking for businesses like that, and I think you are also correct, having followed us for so long, to know that I think, by virtue of the fact, that we haven't done any acquisitions over the last two years, but yet we continue to work on them. And we believe that there is a good pipeline of opportunities for us. I think it -- I think we will have some acquisitions within the near- to mid-term. There's nothing that we can comment on specifically, of course, but I think that we do continue to look at it, and it has been successful for us in the past. I have every expectation that it will be in the near- and mid-term as well.

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

Then the second question is just looking at your channel, especially after you have acquired New Focus and the new catalog. Are you still keeping separate catalogs for the brands as well? Are you going to consolidate them all into a single catalog? And has the Web become a meaningful way? Or is it not yet a meaningful way for -- has anything changed in the way you're targeting that research market?

Robert Phillippy

I guess, Ajit, the best way I would describe it as has anything changed that continues to evolve more in favor toward the Web and a couple of specifics. So I think I may have mentioned this previously, but if I haven't, we got over 2 million unique page visits on our website last year. And if you just think about that in the context of the size of the industry, I mean, it is a prolific tool. In fact, it's, by far, the greatest, I'll call it, frequency of interaction tool we have to interface with our customers. And so customers are using that tool every single day to understand information about our products, to search and find specification information, to evaluate the performance of our products and, in some cases, to order.

The reference value of that medium has continued to far exceed the order activity on that medium. Although, the orders continue to increase robustly over the Web. So website continues to evolve, and we continue to invest in making sure it's robust and an industry-leading tool. If you just take a look at some of the features that we've provided, just go on our website and go to our Product page and take a look at the information that's available, not just performance data, but graphics, designs, downloadable 3D models, comparable products, all sorts of different tools on our website, including configuration tools.

In terms of the brands, our strategy is to leverage the individual brands that have come on board by our acquisition through the course of our company's development. And so we are not going to suppress those under the Newport brand name. We, instead, will continue to accentuate names like Spectra-Physics, Oriel, Richardson Gratings and New Focus and Corion filters, and have those be a part of portfolio. Now that said, they do all appear on newport.com, although there are specific home pages for each of the brands, they're all specifically linked to newport.com. And in terms of catalog, it's kind of a mix and match. Sometimes we do a featured catalog with 1 brand or products. But our general Newport catalog includes the products of our individual product brands. The last thing I want to comment on catalogs is that we are now publishing them as part of our global expansion initiative in French, German, of course, English and now Mandarin Chinese.

Operator

And will take our next question from Jiwon Lee with Sidoti & Company.

Jiwon Lee - Sidoti & Company, LLC

First off, there are different ways to think about your business. But I'm trying to get a sense for your growth expectation, qualitatively, between your Laser and the Photonics for this year, if you could please?

Robert Phillippy

Well we said, of course, that across-the-board, it's on a level -- the business will increase 12% to 15% in Q2 versus last year. And within the different businesses, I think, it's very similar. There may be slightly higher increase in PPT than Lasers, but both of them would fall within that 12% to 15% increase. And I think it's similar to say, for the year, the sales will both grow in a similar fashion, recall that both divisions operate in the same market so they're dependent on the same market dynamics. For orders, because we did record that very large laser order in Q2, and that's a laser order you'd naturally see the laser order growth rates to be higher than PPT.

Jiwon Lee - Sidoti & Company, LLC

And then the Laser division's profitability with your gross margin and up margin sort of kind of hitting at least on your target, is there some sort of where you could go for the time being? Or is there some room for improvement?

Robert Phillippy

We've been happy with Laser's improvement over the last couple of years, of course. And the 10.4% for the quarter is the highest operating income percentage that Spectra-Physics Laser division has provided since we acquired them in 2004. But I don't think that that's as high as it gets for Spectra-Physics . I think that have put strong improvements in place. We're seeing growing revenue, and I think that they can continue to leverage that business. We don't have in our model any expectation that Lasers would carry the same operating income as a percentage of sale that PPT does, but recall we often benefit from the pull through of PPT products, along with Lasers in some of our subsystems and just in terms of bundled selling.

Operator

And will take our next question from Mark Douglass with Longbow Research.

D. Mark Douglass - Longbow Research LLC

What was operating cash flow in the quarter? Did you say that and I missed it?

Charles Cargile

You didn't miss it. We generally, as you'll see in the press release, we provide the income statement and the balance sheet. The cash flow, the official and final cash flow statement, will be in our Q that we'll file in over next week or 10 days. So it's not official or final. The operating cash is going to be -- probably going to be a little bit negative. We mentioned that the cash balance went down about $3.7 million, and then we had about $2 million of CapEx. So it's going to be a little bit negative for the quarter. But I think as we mentioned, we're going to generate $15 million for Q2. I think you'll see a similar cash generation pattern a little bit higher even for 2011 that you saw in 2010. And I mentioned in the prepared remarks that compared with one year ago today, the cash balance is up almost $60 million.

D. Mark Douglass - Longbow Research LLC

Right. That $15 million 2Q , that's free cash flow?

Charles Cargile

Correct. We just look at it, Mark -- you should look to see the increase in cash balance. I know that many people define operating cash or free cash with different things in and out. So to simplify that, when we talk externally, we tend to try and focus on than increase or decrease in the cash balance because that's what you really have.

D. Mark Douglass - Longbow Research LLC

Right. Okay. So free cash in 1Q, it's going to be a little negative?

Robert Phillippy

Correct.

D. Mark Douglass - Longbow Research LLC

Okay. And then on – I know it’s tough to pin the tax rate, but I think last time you mentioned something like 10%,12% for the full year, is that still what your kind of thinking on non-GAAP basis?

Charles Cargile

The tax rate is a little lower than I had thought it would be when we announced three months ago. And it's dependent on the mix of earning. To the extent earnings in the U.S. is higher, it's going to drive that tax rate down because we have the shield on U.S. federal taxes. And that mixed shift we did see in Q1, I don't expect it to be at the same mix level in Q2 and beyond. So for our own modeling, we're expecting tax rate for the rest of the year to be back in that 8% to 10% range, a little bit higher than what we had this quarter.

Operator

And we'll go next to Dave Kang with B. Riley.

Dave Kang - B. Riley & Co., LLC

Yes, just one question. So you recently talked about the optical communication markets. Now that the market is coming back, will you focus more on that segment just like you did back in the late 90s?

Robert Phillippy

Dave, we don't plan to launch a major initiative in capital equipment to enable fiber optics manufacturing like we did in the late 90s. But we see increasing number of opportunities to leverage what I'll call our core technologies set. So component and subassembly and subsystem level products for fiber optic device assembly and align and attach applications. So the answer to the question is we're enjoying a pretty good growth there and, it’s certainly on our radar screen. But it's not going to be one of those huge initiatives where we do a bunch of CapEx spending to produce CapEx products for that marketplace. It'll be more configuring products that are in line with our core technologies than an our standard products.

Dave Kang - B. Riley & Co., LLC

Got it. And I may have missed this, but regarding the $15 million orders, did you talk about the shipment schedule for that?

Robert Phillippy

Yes, it's going to commence shipping -- you're talking about the $15 million order we got earlier this quarter?

Dave Kang - B. Riley & Co., LLC

Yes.

Robert Phillippy

Yes. It's going to commence shipping in Q2, in this current quarter and ship over the course of three years.

Operator

[Operator Instructions] We'll return to Mark Miller with Noble Capital Market.

Mark Miller - Noble Financial Group, Inc.

I'm just wondering if you can give us any insights. Are we still expecting to see a significant increase in your corporate tax rate for 2012?

Charles Cargile

Mark, it's Chuck. And, yes, we probably will. Once we have satisfied the GAAP requirements of a certain period of profitability, which we think we will achieve either later this year or early 2012, then the valuation reserve would be reversed. And the nuance there is -- the period gets reversed. There will be a very large gain in the tax line. And then after that, the tax provision would go back to a more normalized 35% to 40%, but the cash taxes would still be low, because we would still have NOL that we would be able to use to shield the cash tax payments. But the provision would be increased to a more normalized rate, and I should say probably in 2012.

Mark Miller - Noble Financial Group, Inc.

So just trying to digest what you said, would it be mid-20s? Or was that too conservative?

Charles Cargile

That would be too good. It's going to be in the mid-30s probably.

Operator

And that does conclude our question-and-answer session. And at this time I'd like to turn the conference back to you, Mr. Phillippy, for any additional or closing remarks.

Robert Phillippy

Thank you. And thanks, again, for your participation in today's call and your interest in Newport Corporation. Speaking on behalf of the team of Newport employees around the world, we are proud of our ongoing track record of solid operational and financial performance. I continue to be impressed by and appreciative of the things that we have achieved together. Also, I would like to comment that our hearts go out to our colleagues in Japan, who have dealt with incredible devastation in their country and who are now working diligently to rebuild it. Please know that you continue to have our full support. With that, we look forward to the next quarter's update. Goodbye now.

Operator

And that does conclude today's conference. Thank you for your participation.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!

Source: Newport's CEO Discusses Q1 2011 Results - Earnings Call Transcript
This Transcript
All Transcripts