EMCORE's CEO Discusses Q2 2011 Results - Earnings Call Transcript

EMCORE (EMKR)

Q2 2011 Earnings Call

May 05, 2011 4:30 pm ET

Executives

Mark Weinswig - Chief Financial Officer and Principal Accounting Officer

Victor Allgeier - IR, TTC Group

Hong Hou - Chief Executive Officer, President and Director

Analysts

Stephen Copper

Alex Henderson - Miller Tabak + Co., LLC

Edward Zabitsky - ACI Research

Presentation

Operator

Ladies and gentlemen, thank you for standing by. Welcome to the EMCORE Corporation Second Quarter Fiscal 2011 Earnings Conference Call. [Operator Instructions] This conference is being recorded today, Thursday, May 5, 2011. I would now like to turn the conference over to our host, Mr. Victor Allgeier with TTC Group. Please go ahead, sir.

Victor Allgeier

Thank you, and good afternoon, everyone. Before we begin, we would like to remind you that the information provided herein may include forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Exchange Act of 1934. These forward-looking statements are largely based on EMCORE's current expectations and projections about future events and financial trends affecting the financial condition of its business. Such forward-looking statements include, in particular, projections about EMCORE's future results, statements about its plans, strategies, business prospects, changes in trends in its business and the markets in which they operate. Management cautions that these forward-looking statements relate to future events or its future financial performance and are subject to business, economic and other risks and uncertainties, both known and unknown, that may cause actual results, levels of activity, performance or achievements of its business or its industry to be materially different from those expressed or implied by any forward-looking statements.

Neither management nor any other person assumes responsibility for the accuracy and completeness of the forward-looking statements. We caution you not to rely on these statements without also considering the risks and uncertainties associated with these statements and EMCORE's business that are addressed in its filings with the Securities and Exchange Commission that are available on the SEC's website, located at www.sec.gov, including the sections entitled Risk Factors in its annual report on Form 10-K and its quarterly reports on Form 10-Q. EMCORE assumes no obligation to update any forward-looking statements to conform such statements to actual results or to changes in its expectations, except as required by applicable law or regulation.

With us today from EMCORE are Dr. Hong Hou, President and Chief Executive Officer; and Mark Weinswig, Chief Financial Officer. Mark will review the financial results, and Hong will discuss business highlights before we open the call up to questions. I will now turn the call over to Mark.

Mark Weinswig

Thank you, Rick. And good afternoon, everyone. Today, I'm going to focus my discussion on our second fiscal quarter operating results and our balance sheet. Consolidated revenue for our second fiscal quarter totals $47.2 million, which is a decrease of $4.9 million or 9% over the previous quarter. This was in line with our prior guidance of $46 million to $49 million in revenue. On a segment basis, our Photovoltaics business accounted for $17.2 million or 36% of the company's total revenue. This represents $3.5 million or a 17% decline from the record revenue for this segment in the prior quarter. The decrease of revenue was primarily driven by some large orders that we fulfilled in Q1 in our space solar power generation products. We believe that the Space Solar business will continue to experience a year-over-year growth, although our revenues in any given quarter are a little lumpy.

The Fiber Optics segment accounted for $30 million or 64% of the company's total revenue. This represents a decline -- a decrease of roughly $1.4 million or 4.5% from the prior quarter. It's a decrease primarily driven by lower sales of our legacy products and decline with an Asian customer. As we noted last quarter, we are continuing to move into the end of life stage on a few products. We expect to see another $2 million to $3 million reduction in these products from this evolution.

In Q2, we experienced solid results in our Cable TV business. In addition, our Tunable Laser business also saw some significant increases in business levels, specifically at 40G and 100G flavors. I will discuss this in more detail later in the call. Consolidated gross margin decreased to 22.4% from 24.3% in the prior quarter, primarily from a deterioration in the Photovoltaic margins driven by a reduction in revenue.

On a segment basis, Photovoltaic gross margin was 30.2%, which is a decrease from 33% reported in the prior quarter. Fiber Optics gross margin was 18%, a 0.4% reduction from the prior quarter, primarily due to lower revenues and a $1.2 million inventory reserve related to the end of life legacy product, which was partially offset by a better product margin. The Telecom and Datacom division is experiencing a product mix shift as customers begin to move towards newer technology platforms. We believe that this evolution will cause margins in this division to improve when our new products begin to ramp in the latter part of this year. As we increase capacity, we will see certain start-up costs including NREs and capital expenses as we move these new products into full production.

Operating expenses, excluding the award from the litigation settlement, increased $1.9 million from the prior quarter to $17.4 million, primarily due to higher headcount related costs and stock comp FAS123(R) expenses. The litigation settlement gain of $2.6 million was recognized as the funds were received in the second quarter.

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