EMCORE Corporation's CEO Discusses F3Q12 Results - Earnings Call Transcript

EMCORE Corporation (EMKR)

Q3 2012 Earnings Call

August 7, 2012, 04:00 pm ET

Executives

Victor Allgeier - TTC Group

Hong Hou - CEO

Mark Weinswig - CFO

Analysts

David Kang - B. Riley

Edward Zabitsky - ACI Research

Alex Henderson - Needham

Presentation

Operator

Good day, ladies and gentlemen, and welcome to the EMCORE Corporation third quarter 2012 earnings conference call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. (Operator Instructions) As a reminder, this conference is being recorded.

I would now like to turn the call over to your host Victor Allgeier. Please go ahead.

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 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, levels of activity, performance or achievements of our business or 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 our businesses that are addressed in our filings with the US 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 reports 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 Weinswig

Thank you Vic and good afternoon everyone. Today, I am going to focus my discussion on our third fiscal quarter operating results and our balance sheet.

Consolidated revenue for our third fiscal quarter totaled $41.1 million, which is an increase of $3.3 million or 9% over the previous quarter. The increase was primarily due to higher Fiber Optics revenue, offset by reduction in our Solar business. Our Q3 revenue guidance was $38 million to $41 million.

On a segment basis, our Photovoltaic business accounted for $15.3 million or 37% of the company's total revenue. This represents a $0.6 million or 4% decrease from the prior quarter. As we've said previously, while we believe in the long-term growth prospects of this business, our revenues in any given quarter may be a bit lumpy.

The Fiber Optics segment accounted for $25.8 million or 63% of the company's total revenue. This represents an increase of roughly $3.9 million or 18% from the prior quarter, with the increase primarily from our recovery efforts after the flood in Thailand.

In the third quarter, we recognized $1.8 million of revenues related to the divested enterprise product lines versus $4 million in the prior quarter. Hong will discuss the prospects of the Fiber Optics business later on the call.

Consolidated gross margin was 10.7%, a 3.5 percentage point decrease from the prior quarter, primarily attributable to deterioration in our solar segment margins and the shift towards Fiber Optics which typically have lower margins.

On a segment basis Photovoltaic gross margin decreased 8 percentage points to 13% as we were unfavorably impacted by higher losses in our terrestrial solar business, various losses from power outage at our Albuquerque location and lower yields. We believe that this segment can reach gross margin targets of 30%.

Fiber Optics gross margin was 9.3% flat with the prior quarter primarily from higher margins from increasing revenues offset by higher excess and obsolete charges, losses on purchase commitments and yield variances associated with our manufacturing ramp up. The gross margin for our Fiber Optics segment would have been over 15% in the quarter if we exclude these items and our consolidated gross margins would have also been close to 15%. We expect our gross margins in the Fiber Optic segment to improve in future quarters as our revenues continue to increase.

After we complete the rebuild of the manufacturing lines damaged by the flood, we will lay out the operating targets for the fiber segment. Total operating expenses for R&D and SG&A were $13.8 million excluding the flood related charges; gain on sale of assets, legal settlements and impairment charges.

During the third quarter we recorded a gain on the sale of the enterprise product line of $2.8 million. We have differed $4.9 million of the gain on sale until the indemnification obligation and adjustment contingencies are cleared.

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