Victor Allgeier - IR, TTC Group Jeff Rittichier - CEO Mark Weinswig - CFO.

Good day, ladies and gentlemen, and welcome to the EMCORE Corporation First Quarter 2016 Earnings 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 introduce your host for today's conference, Mr. Victor Allgeier. Sir, please 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 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 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, President and 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, Vick, and good afternoon, everyone. Today I'm going to focus my discussion on our first fiscal quarter operating results and our balance sheet. Please note that consistent with the prior quarters, today's results include the effects of classifying our Telecom division and Photovoltaics segments 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 first fiscal quarter totaled $22.5 million, which is a decrease of $0.5 million or 2% over the prior quarter.

Similar to last quarter, the results reflect continued strength in our CATV and components product lines despite seeing more pressure on our chips area. Our Q1 ‘16 revenue guidance was $22 million to $24 million. Jeff will discuss the outlook for the business later in the call.

Broadband Fiber Optics’ gross margin was 32.9%, an 8.2 percentage point decrease from the prior quarter, primarily due to reduction in ASPs, lower favorable variances and lower factory utilization and absorption of the fixed costs as a percentage of revenue.

These items, coupled with a slightly unfavorable product mix in the quarter, help lead our gross margins being on the lower side of our target ranges of mid 30s.

While we are implementing new strategy that should improve our operating model in future periods, those activities will lead to some additional costs in the next couple of quarters and take some time to realize. As a result, we would expect our gross margins to be in the low-to-mid 30s for the Q2 ‘16 excluding any individual items.

In the Broadband Cable TV segment, over the past six quarters, we have seen significant strength in the results and outlook. In general, after tough times in 2012 and 2013, the Cable TV Optical Network Infrastructure business has seen improving market trends.

Looking forward, EMCORE is excited about opportunities with the migration to DOCSIS 3.1 and the further investment by the MSOs to increase the capacity of their networks. For the Chip Level Device products, as we have discussed in prior quarters, our revenues have grown significantly from two years ago.

This quarter we recognized revenues of $4 million, with the majority being from GPON applications. Jeff will discuss the outlook for this product line later in the call. Total operating expenses for R&D and SG&A were $7.4 million, down $0.9 million from the prior quarter. The decrease was primarily due to lower compensation costs and other items.

In SG&A, we expensed more than $900,000 associated with our arbitration activities which was similar to the prior quarter. We expect a significant reduction in legal fees relating to the arbitration in the March quarter.

We filed our final closing statements in January relating to the arbitration and are now waiting for the arbitration panel’s final ruling. On a GAAP basis, the consolidated net income for the first quarter was $1 million, which includes $1.1 million of net income from discontinued operations.

Our GAAP net loss from continuing operations was $0.1 million, a $1.5 million decrease from the prior quarter, primarily from lower gross profits. Our non-GAAP income from continuing operations, after excluding certain adjustments, all of which are set forth in the non-GAAP tables included in today's release, was $1.3 million of income.

Please note that we have included additional information regarding amortization, stock comp, legal-related costs and other items in today's release to provide further clarity on our results. Moving on to the balance sheet. At the end of December, the Company's cash and cash equivalents balance and restricted cash was over $116 million.

The increase in cash from the September quarter was due to a significant reduction in accounts receivable in the inventory. Regarding our working capital metrics, DSOs were at roughly 58 days, below our typical range of 65 to 70 days, and that was due to better collections at the end of the quarter.

Inventory turns were at 3.9x which was at the high end of our historic range. Overall for the first quarter, the Broadband Fiber Optics' financial results showed positive - were positive. And of course continuing operations were profitable on a non-GAAP basis and the company generated strong cash flow from operations.

On the operating expense area, as we've discussed before, we saw higher levels of expenses in Q1 than historical periods due to additional costs for the arbitration and typical year-end corporate activities. We expect our normal SG&A levels to decrease in the March quarter and to remain relatively flat throughout calendar year 2016.

Turning to our operating model, our goal is to be at a breakeven level on a non-GAAP basis, excluding the items we noted earlier at $20 million per quarter of revenue, depending on product mix and the timing of certain spending.

During the first fiscal quarter, on $22.5 million of revenue, we realized $1.3 million of non-GAAP income from continuing operations and we generated strong cash flow. In summary, we were pleased with the financial results.

Finally, with the continued strong results and large cash position, the Board of Directors is continuing to review options to enhance shareholder value.

Last quarter we noted that the Board of Directors continued to evaluate the Company's cash needs and that the Company expects to approve a cash dividend or distribution to shareholders, with the timing and amount to be determined in the next few months following completion of a review.

We are still in the process of working through this matter and expect to update shareholders in the future. 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 second quarter.

Jeff?.

number one, moving low value added processes to EMS; number two, install more robust measurement and process control technologies at key points in our assembly lines; and number three, improved operating leverage through automation. We will also reduce the fixed and semi-fixed expense of our assembly operations.

Satcom manufacturing operations are being ready for relocation to EMS, as we speak, with upgraded processes for assembly and new automation test systems. This will improve our margins and reduce fixed expense.

We are also looking at a number of options to improve the efficiency of our detector chip fab operations which will improve operational efficiency. The critical parts of our coding and test operations will remain in the U.S., but will feature the introduction of our first robots into chip fab operations.

As we said previously, these moves will not affect any of our IHR [ph] products which will continue to be primarily built in the US.

We've nearly completed the outsourcing of our first true turnkey assembly products to EMS from EMCORE China, freeing those engineers to focus on the areas that give us meaningful cost advantages or opportunities for competitive advantage.

Upgraded processes are also in their final stage of development for a laser module in transmitter families that will smooth the automation of transmitter assembly by improving process shields.

We expect to further strengthen EMCORE China’s automation and engineering teams and look forward to seeing improvements as streamlined processes are developed and inserted into operations during our Six Sigma Black Belt projects. We're doubling down on Six Sigma implementation across the board beginning with my executive team.

Those that are currently not Black Belts and there were three Black Belts on my staff already, will enter Green Belt training within the next few weeks. Black Belt training will start in both our Alhambra and Chinese facilities within the next few weeks as well.

The second session of Green Belt training will be conducted in both facilities and White Belt training will be institutionalized for new hires that don't already have a certification.

Our scientists and engineers are receiving advanced design of experiments and statistical process control training over the next few quarters, and we expect to integrate this training regimen with our new manufacturing execution software in our primary manufacturing facilities.

Over the next year, specific Six Sigma projects will also be conducted by our manufacturing engineers in our suppliers’ facility. I recently attended the Green Belt projects at our Chinese facility and was especially proud of the fact that they completed their Green Belt training and executed their projects so successfully.

I'm looking forward to reviewing the U.S. Green Belt projects in the next few weeks. Despite our progress with Lean Six Sigma, we still have a lot of opportunity to drive waste out of manufacturing operations and extend our leadership position.

As Mark stated and on the legal side we completed both the Sumitomo arbitration itself, as well as the post-arbitration filings and expect our legal defense costs to be down significantly from this point forward. We hope to hear a decision from the panel in 60 to 90 days from now. Turning to guidance.

For the second quarter of fiscal ‘16 ending March 31, our revenue expectation is in the range of $21 million to $24 million. As I said, we see that the trends in Cable Television continue to be strong but we are mindful of any remaining inventory positions and upcoming product changes within our customer base.

In closing, I'd like to thank the EMCORE team for their efforts this quarter and state that I’m look forward to updating you all in early April and after the close of Q2.

In addition Mark and I will be at the Northland Investor Conference in early March and will be meeting with customers at the upcoming Optical Fiber Communication Conference from March 21 to 24, and I will be at CIOE in China the same week. With that, I will turn over the call to Q&A..

Operator:.

Thank you all for taking the time out of your busy day. As I know there is a lot of calls going on right now. But we appreciate your time and attention and look forward to speaking with all of you soon. Thank you very much..

Ladies and gentlemen, thank you for your participation in today’s conference. This concludes the program. You may now disconnect..