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18 May 2015

Emcore's quarterly revenue rises a more-than-expected 3.5% to $19.1m

For its fiscal second-quarter 2015 (to end-March), Emcore Corp of Alhambra, CA, USA (which provides compound semiconductor-based components, subsystems and systems for the broadband and specialty fiber-optics market) has reported revenue of $19.1m (slightly exceeding the guidance of $17-19m). This is up 3.5% on $18.4m last quarter and $13m a year ago due to the continued momentum in cable TV from major ODM customers plus strength in the components product lines.

Emcore completed its sales of its Space Photovoltaics business on 10 December to SolAero Technologies Corp (for $150m) and of its Telecommunications Fiber Optics business (the tunable laser and transceiver Digital Products lines) on 2 January to NeoPhotonics Corp of San Jose, CA, USA (for $17.5m, comprising $1.5m in cash and a note from NeoPhotonics with a two-year maturity and an escalating interest rate). The continuing Broadband Fiber-Optics business includes products for cable television (CATV) and fiber-to-the-premise (FTTP) networks as well as satellite communications, video transport and specialty photonics.

"In the Broadband Cable TV segment, over the past three years, we've seen a significant improvement in the results and outlook," says chief financial officer Mark Weinswig. "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," he adds. "Normally, the CATV CapEx cycle is at its low point in the first calendar quarter," notes president & CEO Jeffrey Rittichier.

On a non-GAAP basis (for continuing operations), gross margin was 33.5% (the highest in the past five years). This is up from 28.1% last quarter due to due to higher revenue, lower inventory-related reserves, and operational improvements (better factory utilization and absorption of the fixed costs as a percentage of revenue).

Total operating expenses were $8m, cut from $10.2m last quarter due mainly to lower transaction-related compensation and lower severance expenses (primarily associated with the departure of executives).

"Corporate costs were higher than normal due to the related work and activity associated with de-integrating the divisions we have sold," notes Weinswig. "In addition, we have moved our corporate headquarters to Alhambra, CA, which has resulted in some increased near-term spending," he adds. "We expect to see cost reductions in G&A (general & administrative expenses) over the next couple of quarters, as we begin to operate out of our new headquarters as the broadband business."

Income from continuing operations was break-even, an improvement on a loss of $0.9m ($0.03 per share) last quarter and $3.3m ($0.11 per share) a year ago.

During the quarter, cash and cash equivalents fell from $147.6m to $141m due to the pay-down of certain acrued expenses associated with the transaction.

Driven by continued strength in cable television and growing strength in chips, for fiscal third-quarter 2015 (to end-June), Emcore expects revenue to grow to $19-21m.

"As we evaluate the market for CATV components and systems, we see continued strength over the next few quarters," says Rittichier. "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," he adds.

"Our satcom and video revenues have been at or near our internal expectations, as we look to find additional opportunities. 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," continues Rittichier. "We did start production shipments of Fiber Optic Gyros in Q2 and expect to ramp slowly in response to orders from three customers," he adds.

"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," Rittichier notes. "We expect to have additional capacity online in fiscal first-quarter 2016."

Emcore's goal continues to be to remain at a break-even level at $18-19m per quarter of revenue, depending on product mix and the timing of certain spending.

"We resolved many delinquent backlog issues and turned our efforts toward reducing cycle times, developing our EMS [electronic manufacturing services] suppliers and optimizing our own manufacturing operations - 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," says Rittichier. "We've already started work on outsourcing assembly operations from Alhambra to our Asian EMS partners and expect to also move operations from Langfang that we don't execute as cost effectively as some leading EMS providers. 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," he adds. "Ultimately, we're only going to support high value-added processes internally and we'll re-design our products and processes to transition operations from a high-fixed-cost or high-headcount 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 [externally modulated laser] in the fall," reports Rittichier. "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," he adds. "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 an effort to demonstrate our ongoing commitment to providing shareholder value, we announced that our board of directors has authorized to purchase up to approximately $45m of our shares of common stock through a modified Dutch auction tender offer," says Weinswig. Emcore intends to finance the share repurchase from proceeds from the sale of the Space Photovoltaics business and the Telecommunications Fiber Optics business.

See related items:

Emcore announces commencement of $45m modified Dutch auction tender offer

Emcore's quarterly revenue grows 28.7% to $18.4m

Emcore's quarterly revenue growth in Fiber Optics offset by drop in Photovoltaics

Emcore completes sale of tunable laser and transceiver product lines for $17.5m

Emcore closes sale of Space Photovoltaics business to Veritas Capital affiliate for $150m

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