Victor Allgeier – President, TTC Group, Inc. Mark Weinswig - Chief Financial Officer Jeffrey Rittichier – President, Chief Executive Officer & Director.

Dave Kang – B. Riley & Co. LLC.

Good day, ladies and gentlemen, and welcome to the EMCORE Corporation’s Second Quarter 2015 Earnings Call. At this time, all participant lines are in a listen-only mode to reduce background noise, but later we will be conducting 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 introduce first speaker for the day, Vic Allgeier. Sir, you have the floor..

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 trends affecting our business.

Such forward-looking statements include, in particular, projections about our future results, statements about our plans, strategies, business prospects, changes and trends in our business, and the markets in which we operate.

Management cautions that these forward-looking statements relate to future events or our 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 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 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 Jeff Rittichier, Chief Executive Officer; and Mark Weinswig, Chief Financial Officer.

Mark will review the financial results and Jeff 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 second fiscal quarter operating results and our balance sheet. Please note that consistent with the prior quarter, today’s results include the effects of classifying our Telecom division and Photovoltaics segment as discontinued operations.

Therefore, the results we have released and we will discuss today are only for our Broadband Fiber Optics division. Consolidated revenue for our second fiscal quarter totaled $19.1 million, which is an increase of $0.6 million or 3% over the prior quarter.

The strong results were due to the continued momentum in CATV from numerous customers and strength in our components product lines. Our Q2 2015 revenue guidance was $17 million to $19 million. Jeff will discuss the outlook for the business later in the call.

Broadband Fiber Optics’ gross margin was 33.5%, a 5.4-percentage-point increase from the prior quarter, primarily due to higher revenue, lower unfavorable variances and reserves, and better factory utilization and absorption of the fixed costs as a percentage of revenue.

In the Broadband Cable TV segment, over the past three years, we’ve seen a significant improvement in the results and outlook, as Jeff will discuss further. In general, after more than two years of tough times, we believe that the Cable TV Optical Network Infrastructure business is seeing improving market trends.

Total operating expenses for R&D and SG&A were $8 million, down $2.2 million from the prior quarter. The decrease was primarily due to lower transaction-related compensation and lower severance expenses, primarily associated with the departure of executives. Regarding the telecom divestiture, the business was sold on January 2, 2015.

The total gain from our discontinued telecom and solar operations, including both the sale and the operations of the stub period was $4 million. For the Telecom division, as we noted last quarter, the consideration for the division was $1.5 million of cash and a promissory note.

The note and the accrued interest totaling $15.7 million was paid in early April and has not reflected in our cash balance at March 31. On a GAAP basis, the consolidated net income for the second quarter was $3.1 million, which includes the $4 million of net income from discontinued operations, as noted previously.

Our GAAP operating loss from continuing operations was $1.6 million, a $3.4 million improvement from the prior quarter, primarily from higher gross margins and lower SG&A expenses.

Our non-GAAP net income, after excluding certain adjustments, all of which are set forth in the non-GAAP tables included in today’s release, was break-even versus the loss of $0.9 million in the prior quarter. The significant improvement was due to higher revenues and gross profit and lower corporate costs.

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. Moving on to the balance sheet. At the end of March, the company’s cash and cash equivalents balance and restricted cash was $141 million.

This reduction into the cash balance from December was due to the pay-down of certain accrued expenses associated with the transaction. As noted earlier, we received $15.7 million in cash proceeds from the pay-down of the promissory notes in April 2015.

Overall, for the second quarter, the Broadband Fiber Optics’ financial results showed continued strength. As a result of improved manufacturing efficiencies, lower reserves and higher operating performance, EMCORE realized significantly higher gross margins and strong overall financial results.

Gross margins of 33.5% for the broadband business were the highest levels the company has realized in the past five years. Our corporate costs were higher than normal due to the related work and activity associated with de-integrating the divisions we have sold.

In addition, as we noted last quarter, we have moved our corporate headquarters to Alhambra, California, which has resulted in some increased near-term spending. We expect to see cost reductions in G&A over the next couple of quarters, as we begin to operate out of our new headquarters as the broadband business.

Our goal continues to be to remain at a break-even level on a non-GAAP basis, excluding the items we noted earlier, at $18 million to $19 million per quarter of revenue, depending on product mix and the timing of certain spending.

In addition, in an effort to demonstrate our ongoing commitment to providing shareholder value, we announced today that our board of directors has authorized to purchase up to approximately $45 million of our shares of common stock through a modified Dutch auction tender offer at a price to be determined prior to the commencement of the offer.

We expect to commence this tender offer on or about May 15, 2015 and we intend to finance the share repurchase from proceeds from the sale of the Space Photovoltaics business and the Telecommunications Fiber Optics business.

The terms and conditions of the anticipated tender offer will be described in an offer to purchase and the related letter of transmittal that will be filed with the SEC and distributed to shareholders on the commencement of the tender offer.

With that, I will turn the call over to Jeff, who will discuss his reflections on the company’s strategic and operating initiatives, and provide revenue guidance for the third quarter.

Jeff?.

Thank you, Mark. As Mark stated, our consolidated revenues for the second fiscal quarter totaled $19.1 million, which was an increase of $0.6 million or 3% over the prior quarter. Normally, the CATV CapEx cycle is at its low point in the first calendar quarter. So we’re happy with the top-line growth during this typically weak seasonal first quarter.

As you probably expect, the primary driver of our revenue increase was higher CATV sales from our major ODM customers as well as our component product lines on a global basis.

Our gross margins also improved to 33.5%, up from 28.1% in the previous quarter on the strength of operational improvements and lower inventory-related reserves, as we continue to focus on better managing our inventory. As we evaluate the market for CATV components and systems, we see continued strength over the next few quarters.

Our customers, the OEMs, continue to consolidate as the definition of the network evolves. Clearly, the ability to closely integrate set-top boxes with the rest of the network is becoming more important than ever, as is the move to greater bandwidths for streaming applications and services.

Based on what we’re being told by our customers, DOCSIS 3.1 compliant products will figure heavily into their plans going forward. Our satcom and video revenues have been at or near our internal expectations, as we look to find additional opportunities.

Historically, these products have had better margins than our consolidated margin and we’re looking at some additional opportunities to add revenue from these product lines. We did start production shipments of Fiber Optic Gyros in Q2 and expect to ramp slowly in response to orders from three customers.

We made chip shipments this past quarter and are working to expand our fab capacity to address demand from the Chinese market for GPON chips. We expect to have additional capacity online in the first quarter of FY 2016.

In the last call, I made a point of making my commitment to build a team that’s focused on customer satisfaction and operational excellence. During Q2, we resolved many delinquent backlog issues and turned our efforts toward reducing cycle times, developing our EMS suppliers and optimizing our own manufacturing operations.

Toward that end, we’ve already completed Six Sigma White Belt training for virtually all of our professional staff in Alhambra and Langfang in China, and are beginning to roll out Green Belt training in both facilities.

We’ve already started work on outsourcing assembly operations from Alhambra to our Asian EMS partners and expect to also move operations from LEO that we don’t execute as cost effectively as some leading EMS providers, such as [ph] box-builds and [ph] TLP packaging.

This will enable our captive Chinese operations to concentrate on higher value-added work that has a stronger IP content and results in differentiation from our competitors.

Ultimately, we’re only going to support high value-added processes internally and we’ll redesign our products and processes to transition operations from a high fixed cost or high head count model to one that is driven by variable cost in a supply chain. This will improve our agility and performance in the future.

Technology development has also progressed well this quarter, and we’re currently on track to launch our cable television EML in the fall. We have a strong customer interest in this product and are currently designing transmitter subsystems around this part for launch sometime around the end of the calendar year. Turning to guidance.

For the third quarter in fiscal 2015 ending June 30, our revenue expectation is in the range of $19 million to $21 million. We expect continued strength in cable television and our growing strength in chips to provide growth over Q2.

With that said, we’re also starting to focus our plans for accelerating growth outside of CATV and hope to talk about those opportunities sometime in the fall.

In the meantime, we’re going to be focusing on fundamentals, and really that means excellence is judged by our customers, operational efficiency, management systems and the use of Six Sigma disciplines to improve our productivity.

Finally, I’d like to recognize the EMCORE team for putting together another solid quarter and we’re all looking forward to a successful Q3. With that, I’ll turn the call over to Q&A..

Thank you. [Operator Instructions] And we’re ready for our first question from the line of Dave Kang from B. Riley. Your line is open..

Yes. Thank you. Good afternoon. Great results and guide. First of all, just more questions on the indium phosphide chip business. So can you just talk about the visibility, the number of customers? And at OSA, you said that you expect this business to increase about 50% annually.

Just wondering if you can just kind of go over the dynamics, more color as far as your assumption on this 50% growth..

Well, 50% growth, I’m not quite sure if I remember that part of the conservation, Dave. But, with that said, what we’re starting to do is take some of the products that we’ve had running through our fab and the technologies running through our fab and position them for the merchant chip market.

I will say that we’re talking to some of the larger suppliers and are working out agreements – hope to work out agreements over the next couple of quarters. I really don’t want to provide any names as a matter of fact now that I think about it. I believe that we’re prevented from doing so with some non-disclosure agreements.

But suffice to say that we are getting traction in the GPON market with our APDs and a couple of other devices that customers are now starting to take in small volumes for qualification and sort of pre-production builds. Beyond that, I can’t say much more at this point. And I apologize for that, but we’re still pretty early in all this..

Okay. That’s fair. You mentioned GPON.

Are we talking about both here in North America as well as China, more color on that GPON market opportunity?.

Well, GPON is really the primary volumes is over China right now..

Okay..

There are some other technologies which are getting traction. And we do have exposure, say, to RF over Glass revenue, but that’s pretty small right now. And we’ve got products that we think are very competitive, and we just have to let those opportunities play out a bit..

Got it. And then I was wondering if you can talk about capacity utilization? Sounds like it’s running fairly high now.

What’s the current utilization and at what point do you start to add capacity?.

Well, I think, there’s room to add capacity on the wafer size without buying lots of equipment. The primary place where we’ve got to add some additional capacity is really more on the test side.

And there’s opportunities for us to either do more of that ourselves, possibly over in Langfang in our Chinese facility, or to do that with supply chain partners. And we’re looking – taking a look at those tradeoffs right now.

But you should think of it, Dave, more as constrained in what we call chip fab, which is back in turning wafers into chips and then doing singulation test and start operations as opposed to the raw wafer in Alhambra..

Got it. Just wondering if I can get a couple of numbers, Mark, depreciation, amortization, and CapEx..

Yeah. Depreciation in the quarter was $470,000. And in terms of amortization, it’s in the non-GAAP tables [ph] of the 6 and our accretion expense was $52,000..

Okay. I think that was it. Thank you..

Thank you, Dave..

Thank you. [Operator Instructions] And standby for one more question. And that looks like all the questions that we have for today. So I’d like to turn the call back over to management for closing remarks..

I’d just like to thank my board and the team here at EMCORE for putting in a greater quarter, and just thank you especially our investors for the strong support and the patience you’ve shown over the years. Hopefully, you’ll see the results and the actions we’ve taken today as proof that EMCORE’s committed to delivering shareholder value. Thank you..

Ladies and gentlemen, thank you again for your participation in today’s conference. This now concludes the program. And you may all disconnect your telephone lines. Everyone have a great day..