Victor Allgeier - TTC Group, Inc., Investor Relations Mark B. Weinswig - Chief Financial Officer Hong Q. Hou - President and Chief Executive Officer.

Dave Kang - B. Riley & Co. Krishna Shankar - ROTH Capital Partners, LLC Edward Zabitsky - ACI Research.

Good day, ladies and gentlemen, and welcome to the EMCORE Corporation fiscal first quarter 2014 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 call is being recorded.

I would now like to turn the conference over to Victor Allgeier. You may begin..

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 events, 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 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 our business or our 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 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 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..

Thank you, Vic, and good afternoon, everyone. Today I'm going to focus my discussion on our first fiscal quarter operating results and our balance sheet. Consolidated revenue for our first fiscal quarter totaled $44.2 million, which is an increase of $1.1 million or 3% over the previous quarter.

The increase was due to higher Photovoltaic and Fiber Optic revenue. Our Q1 revenue guidance was $43 million to $45 million. On a segment basis, our Photovoltaics business accounted for $20.9 million or 47% of the company's total revenue. This represents $0.4 million or 2% increase from the prior quarter.

As we have said previously while we remain confident in the long-term prospects of the Photovoltaics business our revenues in any given quarter may be a bit lumpy. Fiber Optics segment accounted for $23.3 million or 53% of the company's total revenue. This represents an increase of roughly $0.7 million or 3% from the prior quarter.

Hong will discuss the outlook for the Fiber Optics business later in the call. On a segment basis, Photovoltaic gross margin increased over 23 percentage points to 37%, primary reason for the increase due to a significant increase in higher margin shipments. We continue to believe that this business' target gross margin is at roughly 30%.

Fiber Optics' gross margin was 10.3%, 1.3 percentage points decrease from the prior quarter. While we have seen a significant improvement in our TXFP product yields and margins, the manufacturing line is still underutilized and margins are below our average.

In addition, over the next two quarters with the launch of the micro-ITLA we expect our margins to be slightly under pressure. Finally we have seen some more aggressive pricing for our flagship ITLA product.

While we expect our overall gross margins in the Fiber Optic segment will improve in future quarters as we complete the ramp-up of our new product line at our contract manufacturer and our Fiber Optic revenues continue to increase.

Consolidated gross margin was 22.9%, 10 percentage points higher from the prior quarter, primarily attributable to higher solar segment revenues. Total operating expenses for R&D and SG&A were $12.4 million. We saw an increase relating to certain audit related and corporate costs as we discussed in December and higher severance cost.

We believe that our quarterly operating expenses should be at around $11.5 million per quarter going forward. We discussed last quarter, during our fourth fiscal quarter we had recognized a $4.8 million one-time gain associated with the sale of our stake in our joint venture.

On a GAAP basis, the consolidated net loss for the first quarter was $2.1 million. Our GAAP net loss per basic and diluted share was $0.07. Our non-GAAP net loss, after excluding certain adjustments, all of which are set forth in the non-GAAP tables included in today's release, was a loss of $0.5 million versus $5.8 million in the prior quarter.

Significant improvement was primarily due to financial improvements within the Photovoltaics business and Fiber Optics business. Please note that we have included additional information regarding amortization, stock comp and other items in today's release to provide further clarity on our results.

Now on the order backlog, we define as purchase orders or supply agreements accepted by the company with expected product delivery and/or services to be performed within the next 12 months. One December 31st, the company had a Space Solar order backlog of approximately $55 million versus $57 million at the end of the prior quarter.

As Hong will discuss we’re working with customers on long term agreements. Moving on to the balance sheet; at the end of December, the company's cash and cash equivalents and restricted cash balance was $18.7 million. The increase was primarily due to the collection of receivables that were outstanding at the end of the quarter.

Overall while we saw significant improvements in the solar financial results reaching almost record levels Fiber Optics business has experienced some headwinds but we’re seeing some opportunities for improvements.

With that I'll turn the call over to Hong, who will discuss the company's strategic and operating initiatives and provide revenue guidance for the second quarter..

Thanks, Mark. Good afternoon, everyone. As Mark discussed we achieved consolidated revenue of $44.2 million in the December quarter. This represents a $1.1 million or 2.6% sequential increase.

Revenues increased for both Fiber Optics and Photovoltaics segments, with Photovoltaics increasing by $0.4 million or 2% and Fiber Optics by $0.7 million, 7.1% on a sequential basis. Consolidated gross margin was 22.9%, improved significantly over prior quarter due primarily to the improvements in Photovoltaic gross margins.

Consolidated operating loss was $2.05 million, but on a non-GAAP basis net loss for the quarter was reduced to approximately $0.5 million. This represents a $5.3 million improvement compared to the immediate preceding quarter.

We continue to improve our cost structure and believe that we can reach breakeven at a quarterly revenue level at approximately $45 million to $47 million depending on the product mix. Now let me give you an update on our businesses and market conditions. First, I will start with the Space Photovoltaics business segment.

Revenue for our Photovoltaic segment was $20.9 million, a record level, and the gross margin was 37%, significantly higher than the prior quarter. The improvement was due to a favorable product mix. Net income for this business exceeded $4 million for the December quarter, representing one of the most profitable quarters of this division.

In the December quarter several satellites from our international customers powered by EMCORE’s solar products were successfully launched. In addition U.S spacecraft to Mars named Maven launched and it is currently bound for Mars. EMCORE’s products contain an outstanding on orbit performance and reliability batteries.

This success has further solidified EMCORE’s position as a premier provider of solar power solutions for challenging and unique space expectations. In the past quarter Space Photovoltaic division was awarded or authorized to begin work on a total of 13 separate contracts. These awards had a total value in excess of $10 million.

Customers included the U.S. government and several domestic and international aerospace defense and satellite integrators. Several significant contract awards are expected during Q2 that means this March quarter timeframe. Backlog for this division as of December 31st for delivery over the next 12 months is over $55 million.

However this expected long-term purchase agreements should increase our 12 month backlog significantly above the $55 million and also provide long-term commitment and business outlook to a level that EMCORE has not previously seen. Our Space Photovoltaics business remains very robust for the foreseeable future.

Although the business outlook is robust we continue to rigorously managing the business with emphasis on technical and operational excellence. We reduced the cost structure in early January for this segment to further improve the business competitiveness.

We continue to expand our space solar market share by expanding customer base, also by increasing the level of integration such to provide fully integrated solar panel products instead of just providing solar cells. In the meantime we are aggressively pursuing adjacent market opportunities such as high-end mobile power for defense applications.

Preliminary market study indicates that the high-end mobile power market is very elastic. In addition to the key requirement of high efficiency, net weight and flexibility, competitive cost structure is essential to enable adjacent applications to take-off.

Now let me discuss our market position and business outlook in our Fiber Optic business segment. In the broadband cable TV business shipments increased substantially over the September quarter. Our business in cable TV is recovering.

However the rebound in demand for high end transmitter from the slump in early 2013 has not been as rapid as our customers previously anticipated.

When we conducted a more in-depth analysis from the breakdown of the 2013 CapEx spending as reported by two major cable TV service providers last week it was very evident that their spending on customer premises equipment or CPE and the equipment for the node increased in 2013 substantially.

However the spending on the high-end equipment has been on a slower growth path.

The recent earning releases from the leading cable service providers in the North America, such as Comcast and Time Warner Cable indicated that the 2014 CapEx spending approached about 14.5% of their revenues, while Comcast it is a substantial increase from 12.9% of their revenue in 2013 and for Time Warner Cable it is in line with their 2013 percentage of spending on CapEx.

Although we do not have the exact breakdown of their spending between CPE and infrastructure we’re hopeful that when choke points near customer interfaces and node in HSB networks are removed through the recent spending in 2013 demand for higher end products will increase more rapidly in the near future.

We continue to support our customers for transitions to new standards, protect and expand the current customer base. We’re deeply engaged in product design and qualification to address new standard DOCSIS 3.1, CCAP the remote node QAM. In addition we’re expanding our product offering return path transmitters node products.

The emerging demand and more stringent performance requirement provide opportunities for us to penetrate into this market we have previously not owned -- had any… We continue EMCORE’s tradition of innovation through maintaining technology leadership in the cable TV broadband area, have finished the design and qualification of a type of disruptive linear semiconductor laser which offers high power modulation and transmission over the linear RF, with the linearity performance similar to the externally modulated transmitters.

The cost structure is greatly reduced and the power consumption is greatly reduced as well. We started sampling to selected customers this quarter, helping them highly sort after solutions for years and our customers are very excited.

We’re also making significant strides in going beyond the current ODM model to serve the second tier markets and customers. We intend to expand our cable TV transmitter, receiver and EDFA offerings on EMCORE's platforms serve the secondary market and private networks. Cable TV revenue represents a majority of the business of our broadband division.

However we leverage our expertise in linear optics and RF mixed signal design and vertically integrated manufacturing infrastructure in linearized optoelectronic component to expand applications to adjacent markets. The most noticeable one is the fiber optic gyros for a range of high-end navigation applications.

Due to the superior performance and a competitive pricing we’re unseating the incumbent providers with the same form-fit function replacement. This is in established market with substantial plan so win introduction contracts from multiple prime contractors.

This can increase our revenue pretty significantly when the volume shipments begins in the next two or three quarters. In general our broadband business had a broad technology base with high barriers for competition. Production consolidation has been largely completed and our cost structure is more competitive.

We are continuing to defend and expand our leading position in Cable TV. In the meantime we want to pursue a higher margin growth opportunity to selected niche market by leveraging our core competency and infrastructure with significant opportunity for future business growth in our broadband division.

Moving on to our business in telecom division, during the December quarter shipment volume of ITLAs was at a record level. The revenue from this product line increased 7% compared to the September quarter. We continue to see a strong demand in ITLAs for coherent 100 gigabyte deployment. The order activity for this quarter is very strong.

It's likely that the shipment volumes of ITLAs in the March quarter will reach a new record level. During the annual price and market share allocation negotiations at the end of last year price erosion was approximately 10% with the existing customers.

A significant portion of our volumes shipped in the December quarter came from the new pricing for some customers and we have realigned our engineering resources to not only developing new products but also define cost reductions in the future for our current products. On the micro-ITLA front we have commenced volume production.

Customer demand has been increasing moderately recently. Recently however we are seeing an accelerated effort from all customers to migrate to micro-ITLA platform before the end of the calendar year 2014.

It's largely driven by our customers' desire to increase their line charge sensitivity and also design for metro applications using coherent transmissions. We clearly welcome these trends and this signal to the beginning of the coherent applications in the much larger macro market. We believe our micro-ITLA will be a market leading product.

As we reported previously we have successfully resolved early issues in tests and assembly on introducing Tunable XFP products. Our recent focus is to further reduce their band cost so that we can stay competitive with respect to the market leaders.

Recently we started a new program to drastically reduce the cost of Tunable TOSA, confident about the competitive advantage of the EMCORE's Tunable XFP both negative and zero chirp with full-band tunability and better OSNR and a higher output power. These are the key attribute requirements for replacing 300-pin transponders which started last year.

After our industry first demonstration of an all indium phosphide 100 gigabit per second DP-QPSK integrated coherent transmitter narrow along with Tunable laser integrated with the best-in-class indium phosphide IQ modulator at the ECOC in London back in September 2013, we plan to make the ICT commercially available to the marketplace in early 2015.

Integrated capability will enable the industry to transition to smaller form factors and eventually CFP2, CFP4 solutions transponders.

For our telecom business our strategy is to continue to produce best-in-class transmission products based on the Tunable laser and modulator capability, continue to enable ITL coherent networks, based on superior performance and flexibility.

Furthermore we plan to expand applications into metro and beta centers through small form factor high performance and low cost of the External Cavity Lasers. We continue to make solid progress in the fiber-optic segment. We are seeing a number of opportunities for our products both domestically and internationally.

We expect to see continued revenue growth enabled by new products and the improvement in financial performance over the future periods.

Turning to guidance for the second quarter of fiscal year 2014 ending March our revenue is expectation is in the range of $40 million to $44 million, with the improvement from Fiber Optics and sequential decrease from the Space Photovoltaic segment.

Space Photovoltaic segment can be quite lumpy due to the binary nature of a certain large orders to either ship all of them or none of them by the end of the quarter. So this wider range is primarily from the uncertainty on the Photovoltaic side.

In summary, we feel that our technology and products are very well positioned to address the faster growing areas of the marketplace. We will be focusing on improving the operations performance, including driving revenue growth, cost reduction and a new product introduction.

We’re working diligently to improve the financial performance throughout the year. With that, I will turn the call over to Q&A..

Thank you. (Operator Instructions). And the first question is from Dave Kang of B. Riley & Co. Your line is open..

Thank you, good afternoon. I am wondering if I can get some numbers first.

Mark, can I get the actual revenue numbers for cable TV and ITLA or maybe the mix?.

Yeah, thank you for the question. Looking at the two divisions that make up our Fiber Optic segment specifically what we call the broadband business which includes the cable TV area and the digital products division the broadband business was $14.7 million. .

Okay and then I guess the rest is ITLA?.

Yes..

Was there any Tunable XFP?.

Yes, Tunable XFP was relatively flat quarter-to-quarter. .

Can you remind me what the previous quarter was because I thought that was negligible?.

Yeah, we were just around $1 million at the end of last quarter..

Okay and then Hong you gave a little bit of color as far as the PV going down.

Can you give us a ballpark? Are we talking maybe million or a couple of million or even more?.

So Dave for PV you know the wider range FFX is related to a program and we -- from a production point of view we’ll be ready to ship all of them but there’re some customers and their end customers that are out of control. So we’re working through that if we can ship all of that we’ll be at a higher end of the range.

If not it's going to be having about $2.3 million order hit that will be deferred into the next quarter. We’re not losing it. It’s simply March 31st we have to make that shipment before that or we’ll have to defer it to the following quarters so the Fiber Optics revenue projecting to increase a few percent..

Right. Now is that primarily what, ITLA or what about cable or broadband that can be flat, just a little bit more color between those and also….

Primarily ITLA..

What was that?.

Primarily ITLA, that business is now running very, very strong. .

Okay..

The booking activity is very strong in the customers across the board domestic/international customers all have a very-very high demand. So we have to work with our contract manufacturers to run that around the clock on that line..

Okay and then what about micro? Are we finally going to see some micro revenue in the current quarter, March quarter?.

Yes, so it’s probably, still be little bit small. The reason is you know we commenced the running production 2nd March last year and the customers they are all interested in getting a few hundred units here and there and they are starting planning into their system for qualification. So that has been the mode.

And I think that's still going to be lasting through the March quarter. But they all give us a warning sign that they are about to order for higher volume and some of them are projecting to cut in volume production for micro-ITLAs as early as June quarter and then some of them a little later in the September quarter. .

And lastly on Tunable XFP, I mean, so when does that thing really ramp, I mean we've been talking about ramp for a while and it sounds like it hasn't really gone anywhere.

I mean when do we see that ramping?.

Yeah. So early issue on the Tunable XFPs as you know was the prices and tax issue and we have worked through that and the yield is excellent, that's not an issue. And but during that time we could not produce much, or more we produced more money we are going to lose. So that was not interesting.

And we managed to keep a few key accounts and so those few key account they have more stringent requirement on the performance. And so they have a little bit slow in demand, we feel that as well. But that gives us a little bit opportunity to as I said focusing the engineering effort on the cost reduction design.

And we are looking at a pretty significant reduction on the build materials through this new design scheduled to cut in, in three or four months' timeframe. .

Well, that's like the June, probably more like September quarter. .

Yeah. So it will be contributing to the revenue and the bottom line in the September quarter that we should start doing production with the new design in the June, by June also. So the line is [active], that in a way I think that gives us a little bit operational leverage on increasing and pulling in the micro-ITLA opportunities.

As you know the micro-ITLA and Tunable XFP are using the same assembly line for the optical components. .

Got it. All right. Thank you. .

Thank you. The next question is from Krishna Shankar of ROTH Capital. Your line is open. .

Yes, Hong what is the outlook for the broadband cable business? What are your customers telling you in terms of next generation upgrades and their target or any plans and how is your cable business looking over the next few quarters?.

Yeah. Krishna, so nice area. We were a little bit frustrated, you know we can say visibility is low and we used to have a very good visibility on the cable TV side. So largely due to the customer base consolidation and also migration into the new standard, when we were reading that the CapEx spending in 2013 from MSOs were very healthy.

So that really we were really perplexed because early after 2013 cable took a nosedive and it has recovered since then but we are not at the historic level. We are still probably $4 million or $5.5 million away from that. So last week both Comcast and Time Warner had their earnings call and gave very detailed CapEx outlook.

The outlook really looks very promising and also they gave the detailed breakdown on the spending between CPE and infrastructure. We found that last year they spent a lot of money on the CPE side, the Customer Premises Equipment and the node side.

So that's why we were more optimistic for this year for the future spread as the spending on the direct transmitter is still to increase. Our cable TV product portfolio is primarily skewed into the high density transmitters side.

So to answer your question in the March quarter we expect a flat quarter for the cable TV but going forward we expect rest of this year Cable TV should recover a lot more rapidly than the last two-three quarters. .

Okay and then when do you think micro-ITLA revenues could potentially cross over ITLA revenues and can you talk about the margins and the competition in the micro-ITLA market?.

Yeah, so that’s a very good question. Know we are monitoring the transition to micro-ITLA very closely. It’s really the micro-ITLA is used in two major areas, one is to increase the density to replace the ITLA so that’s clearly cannibalization but the other one is to enable a more compact lower cost transceiver transponders for metro applications.

The market for metro is expected to be three-four times of the long haul transmission. So we’re seeing the first wave, the urgent transition for the customers more toward the metro applications. So from that point of view we don't really know exactly.

You know I think it’s probably in 2016 it will be crossover and maybe in mid of 2015 but certainly we do not expect the crossover will happen in 2015. That means ITLA will continue to be a very strong product in very strong demand throughout the 2014. Micro-ITLA will start increasing pretty significantly from the June quarter. .

And to follow up on that. One thing that Hong didn't mention is that we’re actually seeing stronger bookings outlook and sales outlook for the ITLA business. So that business continues to actually ramp up rather than ramp down..

Okay, thank you..

Thank you, Krishna..

(Operator Instructions) And the next question is from Edward Zabitsky of ACI Research. Your line is open..

Hey, Hong and Mark. Hey guys I had a couple of questions that are gross margin related.

First of all, I am wondering really on the Fiber Optic product line, with these cost reductions that you expect in three to four months' time where we should we accept roughly the gross margin in that group to shake out and also I am wondering if you could what kind of incremental gross margins you would get from further -- from increases in revenue in that group? Then I have another question afterwards.

Thanks..

Yeah Ed so just to kind of walk through the question we have discussed previously kind of our goals for the Fiber Optics business is to get the gross margin on that business to be in a high 20s up to about 30% kind of that target range. Obviously we are significantly below that point now.

The factors that we see driving us to get to those levels are increased revenues specifically in Tunable XFP, the micro-ITLA and also on our cable TV product lines we believe that those will significantly assist us.

And then in addition to that kind of the cost reductions that we’re working on specifically with the Tunable XFP then also as we ramp up the micro-ITLA and that product getting up the door.

As we've mentioned before we do expect that as we start to ramp up that product in higher volumes we will see a slight margin challenges just because of the startup costs.

So regarding the incremental margins, our incremental margins are significantly higher than our gross margins are today and as we start to implement some of these cost reductions we do expect to see our incremental margins you know actually increase. .

Sure, so ahead of the volume in micro-ITLAs could you see your Fiber Optic gross margin rebound to 20% or somewhere in that vicinity, is that kind of a good ballpark to think about?.

Yeah I mean I think the most important thing is to look at kind of what’s in front of us. As Hong mentioned the cable TV business for us we have a little bit of have lower visibility than what we had in the past. That business historically has been a very-very strong driver of our gross margins.

As we’ve seen decline in that business over the last few quarters and now we’re trying to see slight recovery we do believe that, that business is the one that can really help drive our margins up faster than any other product line.

On the telecom side, our digital products area, the Tunable XFP ramped up and then also starting new micro-ITLA will be key drivers for us being able to hit 20% or above gross margin target..

Okay I understood. And I was also wondering—by the way great job on the space fiber optics, that’s just a great result 37% gross margin.

I am wondering what drove it and what would bring it down to 30% again please?.

Yeah, just a little bit more color on the Fiber Optics gross margin. As Mark said traditionally the gross margin for optical TV broadband product has been very strong. I don't want to go out on this Ed, ever mention about this again. The flood happened and when that happened we were doing manufacturing in the U.S. facility in four different places.

So we finally completed the production consolidation by the end of December over to our totally owned subsidiary in China. The cost structure is very favorable, so that itself was just a pretty meaningful improvement of the gross margin from the broadband division.

For the telecom side as much as we would like to increase the sales of Tunable XFP even with the yield improvement as Mark said margin's still challenged but the high volume of ITLA itself was improved the gross margin pretty significantly because that has always been a very good product with very strong gross margin.

So consolidated for Fiber Optics we should be seeing the low 20% when this thing are said and done. As far as the Space Photovoltaic, yeah last quarter, the December quarters 37% gross margin primarily due to the favorable product mix.

There are a couple of customers, they order the product above and beyond the specification of our standard product and usually that translates to a lower yield.

But because of our operations figures we have been able to produce the high requirement product with the same margin, same yields -- rather than margins and those gross margins improved pretty dramatically. For those customers gross margin is actually about 47% 48%.

We clearly like to have more of those customers rather than CTV for example in the past in the September quarter for which gross margin was single digit. So it's really heavily depends on the mix of the product. .

So thank you.

So going from -- expanding into panels, what does that do to your TAM in that market?.

That's a very good question. So we today serve the product at the solar cell level and also at the solar panel level. So sometimes if we push our customers to supply solar panels instead of solar cells we will encroach into their business scope.

But there is some opportunities that our customers otherwise have to hire a third-party, almost a contract manufacture that's using our solar cells to integrate into the panel. But now we can provide a one stop solution for them to provide solar panels.

And that opportunity translates to us on the annual basis as our incremental gross $15 million to $20 million incrementally more revenue. So that increased our serviceable market by that much on an annualized basis. .

Okay, very good. Thanks, guys. .

Thank you Ed. .

Thank you. (Operator Instructions). And I am not showing any further questions at this time. I'll turn the call back over for closing remarks. .

Okay. This time I am not jumping in early to cut off any questions.

Thank you very much for dialing in today and the company plans to present in the 16th Annual B Riley Investor Conference in Santa Monica on May 19 and we will also be exhibiting at the meeting with our customer and industry analysts at the 2014 OFC in San Francisco on March 11 through March 13.

And currently we will be showing at the Satellite 2014 in Washington D.C. We look forward to talking to you soon. Thank you very much..

Ladies and gentlemen this concludes today's conference. You may now disconnect. Good day..