EMCORE's CEO Discusses Q2 2012 Results - Earnings Call Transcript

EMCORE (EMKR)

Q2 2012 Earnings Call

May 03, 2012 4:30 pm ET

Executives

Victor Allgeier -

Mark B. Weinswig - Chief Financial Officer and Principal Accounting Officer

Hong Q. Hou - Chief Executive Officer

Analysts

Edward A. Zabitsky - ACI Research

Alex B. Henderson - Miller Tabak + Co., LLC, Research Division

Stephen Koffler

Presentation

Operator

Good day, ladies and gentlemen, and welcome to the EMCORE Second Quarter 2012 Earnings Conference Call. [Operator Instructions] As a reminder, this conference call is being recorded.

I would like to turn the conference over to your host, Mr. Vic Allgeier. You may begin.

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 our current expectations and projections about future events and financial trends affecting the financial condition of our business. Such forward-looking statements include, in particular, projections about our future results, statements about our plans, strategies, business prospects, changes in trends in our business and the markets in which we operate.

Management cautions that these forward-looking statements relate to future events or our financial performance, and are subject to business, economic and other risks and uncertainties, both known and unknown, that may cause actual results to be materially different from those expressed or implied by any forward-looking statements, including, without limitation, the impact on the company, our customers, our suppliers from the effects of the floods in Thailand and consummating the asset sale transaction with Sumitomo, including the likelihood of obtaining regulatory and other necessary approvals to consummate the transaction.

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 our business that are addressed in our filings with the U.S. Securities and Exchange Commission that are available on the SEC's website, located at www.sec.gov, including the sections entitled Risk Factors in our annual report on Form 10-K and our quarterly report on Form 10-Q.

We assume no obligation to update any forward-looking statements to conform such statements to actual results or to changes in our 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'll now turn the call over to Mark.

Mark B. Weinswig

Thank you, Vic, and good afternoon, everyone. Today, I'm going to focus my discussion on our second fiscal quarter operating results and our balance sheet. Please note that the effect of the reverse stock split is reflected in our share and per share amounts.

Consolidated revenue for our second fiscal quarter totaled $37.8 million, which is an increase of $0.3 million or 1% over the previous quarter. The increase was primarily due to higher Fiber Optics revenue, partially offset by a reduction in our Solar business. Our Q2 revenue guidance was $38 million to $40 million.

On a segment basis, our Photovoltaics business accounted for $15.8 million or 42% of the company's total revenue. This represents a $3.3 million or 17% decrease from the prior quarter. As we've said previously, while we believe in the long-term growth prospects of this business, our revenue in any given quarter may be a bit lumpy as illustrated in our last couple of quarter results.

The Fiber Optics segment accounted for $21.9 million or 58% of the company's total revenue. This represents an increase of roughly $3.6 million or 20% from the prior quarter, with the increase primarily from our initial recovery efforts after the flood in Thailand. Hong will discuss the prospects of the Fiber Optics business later in the call.

Consolidated gross margin was 14%, a 5 percentage point increase from the prior quarter, primarily attributable to the recovery in our Fiber Optics segment.

On a segment basis, Photovoltaics gross margin decreased 1.8 percentage points to 20.9%, as we were unfavorably impacted by the lower revenue base. We believe that this segment can reach gross margin targets of 30%.

Fiber Optics gross margin was 9.4%, a 14 percentage point increase from the prior quarter, primarily due to higher revenue and lower excess and obsolete charges. In the first quarter, the company recognized expenses of approximately $2.4 million, primarily from additional excess and obsolete charges and losses on outstanding purchase commitments relating to the Thailand flood. We expect our gross margins in our Fiber Optics segment to continue to improve in future quarters. After we complete the rebuild of the manufacturing lines damaged by the flood, we will begin to lay out the operating targets for the Fiber segment.

Operating expenses were $14.2 million, excluding the flood-related charges. It's important to note that at the end of January, we removed the compensation-related reductions that were previously implemented. We believe that our operating expenses will increase in future quarters as we focus our R&D resources from the manufacturing rebuild to new product development and product support. We recorded a flood loss of $0.1 million in the quarter related to our Fiber Optics segment.

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