EMCORE Corp (EMKR) 2004 Q4 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the EMCORE fiscal 2004 fourth quarter and year end earnings conference call. At this time all participants have been placed on a listen only mode and the floor will be open for questions following today's presentation.

[Operator Instructions] I would now like to hand the floor over to your host, Victor Allgeier. Sir, the floor is yours.

Thank you and good morning everyone. Yesterday after the close of markets EMCORE released its fiscal 2004 fourth quarter and year end results. By now, you should have received a copy of the press release; if you have not received a release please call our office at 212-227 0997.

With us today from EMCORE are Reuben F. Richards Jr., President and Chief Executive Officer; Tom Werthan, Vice President and Chief Financial Officer; and Dave Hess, Vice President of Finance. Tom will review the financial results and Reuben will discuss business highlights before we open the call up to your questions.

Before we begin, we would like to remind you that some of the comments made during the conference call and some of the responses to your questions by management may contain forward-looking statements that are subject to risks and uncertainties as described in EMCORE's earnings, press release and filings with the SEC.

I will now turn the call over to Tom.

Thanks, Vic, and good morning to everyone. Today we are reviewing our fourth fiscal quarter and our 2004 year end result. And just to remind everyone during this fiscal year we did sell our cover disk equipment division so all the revenues I refer to both in the quarter and historically have been restated in accordance with generally accepted accounting principles; and the restatement was to eliminate any (indiscernible) revenues so that the revenues comparisons become more meaningful.

And with that let me review our operating results for the quarter. Revenues for the quarter came in at 25.5 million, which represents an increase of 20 percent sequentially and 50 percent year-over-year.

For fiscal '04, revenues totaled a little over 93 million, representing an increase of 54 percent or about 30 million when compared to last year.

And let me review the product line results.

In our wireless RF division revenues came in at 2.6 million and that was essentially flat year-over-year and sequentially. On the fiber optic side, which includes our parallel and digital products, both our cable TV division, which is the Ortel (ph) division, revenues came in at 14.6 million.

And that is up 54 percent year-over-year and 23 percent sequentially.

And, finally, on Satellite Communications, revenues came in at 8.3 million. That is up 70 percent year-over-year and also 23 percent quarter over quarter.

During the quarter we commenced volume shipments of our 10 gigabit ethernet modules. The production ramp began in mid-July and for the quarter we have shipped in excess of $4 million of this product entirely to one customer.

The quality issues that we mentioned last quarter with our vendor have been resolved. Yields on the module were lower than anticipated; and a lot of effort is being applied to increasing the yields, both to increase profitability and provide us the ability to outsource the product.

Gross margins in the quarter were 4 percent or about $1 million. This is up from the 2 percent or $400,000 reported last quarter. And there were three contributing factors for low gross margins.

The 10 gigabit modules yields. This was our first quarter ramping production and we did not achieve the yields expected; however, the yields have been steadily increasing throughout the quarter and even post quarter. And we're confident we will achieve the gross margins that we expect on this product.

Secondly, 33 percent of our revenues as I mentioned were generated from Satellite Communications; and this is our lowest gross margin product line, thereby impacting overall growth margins.

And, finally, on our communications satellite program, we incurred a charge of 1.2 million related to a contract with positive contribution margin but an overall expected loss due to fixed costs overhead absorption. So essentially and in accordance with generally accepted accounting principles, we've booked the entire loss on the contract in Q4, which impacted margins.

Operating expenses for the quarter totaled 11 million which decreased of about 1.3 million for about 10 percent both sequentially and year-over-year. This decrease of 1.3 million includes severance charges of about 1.(technical difficulty) million.

You may recall on our last quarter's conference call we did indicate that we had identified cost savings opportunities going forward of about $5 to $6 million per year. The reduced operating savings, even with the severance budget this quarter, is a reflection of implementing these cost saving opportunities.

The operating loss for the quarter was 10 million, a decrease of 1.8 million, sequentially, and 1 million year-over-year. Below the line, interest expense of 1 million was flat sequentially and a decrease of $900,000 when compared to last year.

The interest savings as a result of the bond exchange offer that was completed in February of this year wherein we reduced total debt by 66 million, reduced annual interest expense by 3.3 million, and extended the due date as of May of '011.

Also included in this quarter is a non-cash charge of $500,000, representing a write-down of an investment in a semiconductor laser company with a low-cost packaging approach.

GELcore's profits for the quarter was approximately .5 million and we recognized 49 percent net of that or about $232,000. The net loss for the quarter was 11.3 million, a decrease of 1.2 sequentially and 2.5 million year-over-year.

For fiscal '04, the net loss was 13.9 million, compared to a net loss of 38.5 million in fiscal '03.

Couple of comments on the balance sheet before handing the call over to Reuben.

Cash at September 30th was 51.5 million, a decrease of about 6.5 million in the quarter; CapEx was about $500,000 leaving a cash burn from operations of about 6 million. That's a decrease of about 2 million from the previous quarter; and we do expect to receive between $15 and $17 million in January as part of the TurboDisc sale's additional payment.

In summary. Pretty satisfied with the revenue ramp. Satisfied with the savings we generated in operating expenses; and we will continue to see that going forward. Our focus remains on reducing cash burn and improving gross margins.

Regarding the outlook for next quarter revenue should be in the $26 to $27 million range and with that I will turn the call over to Reuben.

Reuben F. Richards, Jr.: Thank you, Tom. Good morning, everybody. I am going to begin with a commentary on the fourth quarter performance of our product lines and then move to a discussion of the market outlook and forecast for the Company for fiscal '05; and then close with a discussion on an outline -- and outline the Company's plans to receive profitability by March.

For fiscal (technical difficulty) 4, you can see from the improved financial performance the Company made significant progress since the supply chain of product issues experienced in the June quarter.

As Tom pointed out, revenues increased 20 percent quarter over quarter to 25.5 million. This was primarily driven by 10 gigabit products.

Gross margins improved almost 4X from 2 percent in Q3 to 8.6 percent on a pro forma basis, net of the accelerated program costs. OpEx declined almost 20 percent, net of severance to $10 million a quarter. The Company cut its cash burn to 6 million and for the first time in several years, revenue visibility extends out more than two quarters through March of 2005.

On a product line discussion. In fiber optics, revenues increased 23 percent from Q3 to almost 15 million, driven, as I said earlier, by increased demand and shipments for the Company's 10 gigabit ethernet modules for Cisco as well as the 10 gigabit telecom or OC-192 transceivers that go to Cisco, Sycamore, and IBM.

Both of these product lines have purchase orders where we are booked to capacity through March of 2005. We expect these products to drive significant profitability at gross margin level over the next two quarters as we continue to drive yield improvement and cost savings in a production standpoint.

In the CATV market, while revenues were flat quarter to quarter, there have been some recent telecommunications announcements that indicate the capital spending by end customers such as FBC (ph) and Verizon to our CATV OEMs and Alcatel, Motorola, and AFC. The capital spending for fiber to the home will commence in counter year 2005 with the expected video deployment accelerating at midyear of 2005.

The CATV division has launched a number of new products targeted at the FTTX (ph) market and these products include transmitters for analog, Quam and L band video transmission as well as pond transceivers for both the Asian and North American markets.

In Satellite Communications, revenues increased 23 percent quarter to quarter to 8.3 million and for the first time in two years, this business unit generated cash from operations. The operational improvement came primarily through increased yields in the fab and the market continues to be dominated by government spendings; and we continue to see interest in the terrestrial solar cell market at both the domestic and a foreign level. And we anticipate initial revenues for terrestrial products will start in the March quarter of 2005.

In RF, the revenues for the quarter were flat with the prior year end in quarter to quarter. We saw some margin improvement as a result of the product mix with a higher content of gallium nitrite base field effect transistors for the high-powered switch and base station market.

Demand was driven primarily by RF macro devices. And we expect revenues to expand for the Gamset (ph) product in both U.S. and Japan. The RF products on our legacy transistor product line are expected to be flat going forward.

On GELcore. GELcore continues to turn in profitable quarters with 232,000 net income for EMCORE's ownership with revenue growing 20 to 30 percent annually. The objectives for 2005 are accelerating product platforms beyond transportation, signage, displaying commercial refrigeration to penetrate the medical aerospace and general illumination markets.

Revenues for '05 are expected to be in the $90 to $100 million range.

With regard to the 2005 forecast and profitability, for 2005, revenues are expected to increase 20 percent to approximately 110 million, driven primarily by demand for 10 gigabit ethernet and 10 gigabit telecommunications products.

Satellite Communications are expected to remain flat through midyear, as well as RF is expected to remain flat for the year.

This is the first-year -- and first year we have given a revenue forecast that does not depend on new products or markets to be developed to achieve both our topline and operational targets.

Operational profitability will be achieved with an average quarterly revenue level of about 28 million gross margins of 18 percent and OpEx on a sustained basis of about 9.5 million a quarter.

The revenue target is expected to be met in March. The margin improvement will be achieved from improved yields and lowering production costs through transferring the module productions to contract manufacturers; and OpEx is nearly at its target today and we expect to make additional progress in the December quarter towards these goals.

Anyway, the fourth quarter represents a significant rebound forward from the problems experienced in June. We saw a big improvement in terms of gross margin profitability. We have visibility, as I said earlier, now going out through the March '05 quarter; and we are optimistic that we are able -- we will be able to achieve the cash flow objectives by the March quarter that we have outlined in terms of no longer having a cash burn at EMCORE.

With that I will turn it over to questions and answers.

(OPERATOR INSTRUCTIONS)

Gentlemen, I'm showing no questions at this time.

Okay. Well, thank you and we would like to close by saying we feel highly confident on the outlook for '05 and in our ability to drive operational profitability over the next few quarters; and we look forward to the next fourth quarters' conference call. Thank you very much.

Thank you. This does conclude today's teleconference. You may disconnect your lines at this time and have a wonderful day.