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Executives

Victor Allgeier – IR, TTC Group

John Markovich – CFO

Hong Hou – President and CEO

Analysts

Al Shams – MidSouth Capital

Michael Intrator – Natsource Asset Management

EMCORE Corporation (EMKR) F2Q10 (Qtr End 03/31/10) Earnings Call Transcript May 10, 2010 5:00 PM ET

Operator

Good day, ladies and gentlemen and welcome to the EMCORE Corporation second quarter fiscal 2010 earnings and six month results conference call. (Operator Instructions) Today's call is being recorded and a webcast of this call will also be available at www.biabid.net. Again, that's www.biabid.net.

At this time, I'd like to turn the conference over to Victor Allgeier of TTC Group. Please go ahead.

Victor Allgeier

Thank you and good evening, everyone. Today, after the close of markets, EMCORE released its fiscal 2010 second quarter and six month results. By now, you should have received a copy of the press release. If you have not received the release, please call our office at 646-290-6400.

With us today from EMCORE are Dr. Hong Hou, President and Chief Executive Officer and John Markovich, Chief Financial Officer. John will review the financial results and Hong will discuss business highlights before we open the call up to 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 Securities and Exchange Commission.

I'll now turn the call over to John.

John Markovich

Thank you, Vic and good afternoon, everyone. And thank you for taking the time to participate in our call this afternoon. I will start by providing you with some highlights of our fiscal second quarter and first half operating results, review our backlog numbers and conclude with an overview of our balance sheet, cash flow and liquidity measures.

With respect to the second quarter operating results, EMCORE's consolidated revenue for the fiscal second quarter ended March 31 totaled $48.2, which represents an increase of $5.8 million or 14% from $42.4 million reported in the immediately preceding fiscal first quarter ended on December 31 and an increase of $4.9 million or 11% when compared with the prior year period.

The $48.2 million in second quarter revenue exceeds our revenue guidance of a $45 to $47 million range and represents the company's third consecutive quarter of sequential quarter-to-quarter growth in revenue.

On a segment basis, our Photovoltaics business accounted for $18 million or 37% of the company's total revenue for the quarter, which represents an increase of $1.2 million or 7% from $16.8 million reported in the immediately preceding quarter. And an increase of $3.1 million or 21% when compared to the prior year period, with the increase over both periods due primarily to higher sales of space solar powered products.

The fiber optic segment accounted for $30.2 million or 63% of the company's total revenue for the quarter, which represents an increase of $4.6 million or 18% from $25.6 million reported in the immediately preceding quarter and an increase of $1.8 million or 6% when compared to the prior year period, with the improvement due primarily to higher demand for cable television, parallel optics and telecom products.

Moving onto gross profit and margins, on a GAAP basis, the consolidated gross profit for the second quarter was $15.5 million, an increase of $7.5 million or 90% from the $8 million gross profit reported in the immediately preceding quarter and an increase of $22.5 million or over 300% when compared with the prior year period.

The $15.5 million in second quarter gross profit represents the fourth consecutive quarter of sequential quarter-to-quarter improvement in gross profit and is the company's highest reported consolidated gross profit in the last eight years.

For the March quarter, our consolidated gross margin was 32.1%, which represents a considerable improvement from the 18.9% gross margin reported in the immediately preceding quarter and the negative 16.2% gross margin reported in the prior year period. The 32.1% second quarter gross margin represents the fourth consecutive quarter of sequential quarter-to-quarter improvement in consolidated gross margin and is the company's highest reported gross margin since the fourth quarter of fiscal '01.

On a segment basis, the second quarter photovoltaic GAAP gross margin was a record 44.6%, which represents a doubling of the 22.1% gross margin reported in the preceding quarter and a dramatic improvement from the negative 24.7% gross margin reported in the prior year period.

This improvement in gross margin was primarily due to increased sales of higher margin space solar power products, improved manufacturing yields, a favorable adjustment of about $800,000 related to the sale of inventory previously reserved for and a larger than expected benefit from a precious metal reclamation process of approximately $400,000.

As set forth in the non-GAAP tables that are incorporated in the earnings press release, the Photovoltaics gross margin for the second quarter, excluding these favorable adjustments would have been approximately 40%.

The second quarter fiber optics GAAP gross margin was 23.6%, which represents a meaningful improvement from the 16.7% gross margin reported in the preceding quarter and the negative 11.7% gross margin reported in the prior year period.

The improvement in the fiber optics gross margin was due primarily to higher gross margins in the company's broadband and digital product lines, as well as lower inventory, excess and obsolescence charges when compared to the prior year period. This 23.6% second quarter fiber optics gross margin represents the third consecutive quarter of sequential quarter-to-quarter improvement in the fiber optics gross margin and is the highest gross margin achieved in the last seven quarters.

On a GAAP basis, the consolidated quarterly operating loss was $1.1 million, an improvement of $10.8 million or 91% from an operating loss of $11.9 million reported in the preceding quarter and the $25.9 million operating loss reported in the prior year period. This represents the third consecutive quarter of sequentially lower operating losses.

On a GAAP basis, the consolidated net loss was $1.7 million, an improvement of $11.9 million or 87% from a net loss of $13.6 million reported in the preceding quarter and the $23.7 million net loss reported in the prior year period. This represents the company's best bottom line performance in the last six years.

On a per share basis, the second quarter net loss per share was $0.02, representing an improvement of $0.15 from a net loss per share of $0.17 reported in the preceding quarter and $0.28 when compared to the net loss per share of $0.30 reported in the prior year period.

Now for the highlights of the first half operating results and of course consolidated revenue for the six months ended March 31 was $90.6 million compared to $97.3 million in the prior year period. On a segment basis, first half revenue for the photovoltaic segment was $34.8 million, an increase of $5 million or 17% when compared to $29.8 million reported in the prior year period.

First half revenue for the fiber optics segment was $55.8 million compared to $67.6 million reported in the prior year period.

Consolidated gross margin for the six months ended March 31 was 25.9%, which represents a sizeable improvement from the negative 5.6% gross margin reported in the prior year period.

On a segment basis, the first half Photovoltaics gross margin was 34.8%, dramatic improvement from the negative 5.5% gross margin reported in the prior year period and the first half fiber optics gross margin was 21.4%, also representing a significant improvement from the negative 5.6% gross margin reported in the prior year period.

The consolidated net loss for the six months ended March 31st was $15.4 million, an improvement of $61.8 million or 80% from a net loss of $77.2 million reported in the prior year period.

And now onto order backlog, as of March 31, the company had a consolidated order backlog of approximately $68 million, which represents a $6.8 million or 11% increase from a $61.2 million order backlog reported as of the end of the preceding quarter. On a segment basis, the quarter-end Photovoltaics order backlog totaled $41.3 million compared to $42.3 million reported as of the end of the preceding quarter.

The quarter-end fiber optics order backlog totaled $26.7 million, a $7.8 million or 42% increase from $18.9 million reported as of the end of the preceding quarter, with the step up in orders being broad based across both customers and products. EMCORE's order backlog is defined 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.

Onto the balance sheet, as of March 31, cash, cash equivalence, current restricted cash and available for sale securities totaled approximately $19 million, which represents a $2.5 million increase from the $16.5 million as of the end of the preceding quarter. As of March 31, our networking capital totaled $37.9 million, which represents a $5.9 million or 18% increase from $32 million in networking capital as of the end of the preceding quarter. This represents the company's first sequential quarter-to-quarter improvement in networking capital in the last seven quarters.

Onto liquidity highlights, during the second quarter, the company generated positive cash flow from operations of approximately $1.1 million and has generated positive cash flow from operations in three of the last four quarters, aggregating approximately $900,000. This compares with a cash consumption of $43.5 million in the immediately prior four quarters.

This improvement in the cash flow dynamics of the business are due to the combination of improved operating performance, a continued focus in improvement on working capital management and lower spending on capital equipment. In the March quarter, the company generated $4.9 million in consolidated positive gross cash flow, which represents the cash generated by operations before taking working capital and capital expenditures into consideration.

This was due primarily to the significant improvements in gross margins experienced in three out of our four divisions. This represents the first quarter that the company has generated gross cash flow in the last four quarters or last five quarters.

Over the last four quarters, the company has generated approximately $7.5 million of cash from working capital, driven primarily by the monetization of $12.8 million in inventories and the lowering of accounts receivable balances by $4.6 million.

On a segment basis, the photovoltaic segment generated positive cash flow from operations for the fourth consecutive quarter, while the fiber optics segment also generated positive cash flow for the quarter, which represents the segment's third consecutive quarter of sequential improvements in cash flow from operations.

The company continued to maintain a $14 million credit facility with Bank of America and a $25 million committed equity line of credit facility with the Commerce Court Small Cap Value Fund under which we drew down $2 million during the quarter. In addition, the company continues to evaluate its capital requirements and alternative sources of capital and is currently exploring the replacement of its existing credit facility with a potentially larger credit facility.

With respect to the separation of our fiber optics and Photovoltaics businesses, the company announced on February 3 that it has entered into an agreement to sell 60% of the majority of our fiber optics business to and enter into a joint venture with the Tangshan Caofeidian Investment Corporation. Presently, we are in the process of securing government approvals on both sides of the transaction and expect to consummate the transaction shortly after receiving such approvals.

For the current quarter ended June 30, we are expecting consolidated revenue to increase on a sequential basis to a range of $49 to $51 million with increases in both the Photovoltaics and fiber optics segments.

With that, I will turn the call over to Hong for his operational strategic update, as well as an update on where we are with respect to the sale of the majority of our fiber optics business to the Tangshan Caofeidian Investment Corporation.

Hong Hou

Thanks, John. Good afternoon, everybody. John has just provided a detailed financial review of the Q2 results. Now, let me just quickly summarize the highlights.

The consolidated revenue for Q2 was $48.2 million, which exceeded our guidance of a range of 45 to $47 million and represents a 14% sequential improvement from the immediately preceding quarters. Our consolidated gross margins was approximately 32%, which is the highest gross margin that we have achieved in several years. Both the fiber optics and the Photovoltaics business segments demonstrated sequential revenue growth and significant gross margin improvement.

The operating loss was $1.1 million. However, we have achieved approximately $1.1 million in positive cash flow from operations, despite increasing inventory levels associated with the increase in the customer orders and future demand. While we continue to enjoy solid visibility in our Photovoltaics business, our order backlog for the fiber optics business increased by 42% when compared to the last quarter.

In all, this represents the best operating results for the company in the last several years and we expect a continued improvement in the current quarter. We feel that our businesses are finally getting back on the right track.

Now, let me provide some updates on the operations and strategy. First, on our fiber optics business segment. For our Broadband Fiber Optics business, the revenue from the cable TV product line in the March quarter increased over 16% sequentially when compared to the immediately preceding quarter while the revenue from the low margin fiber to the home product line declined. This spherical shift in product mix contributed to the improvement in gross margin that totaled 37% for our broadband division.

Visibility and booking activity continues to be strong with a backlog increased by 29% when compared to the previous quarter. The market drivers for the cable TV products are from the two aspects. First, infrastructure operate for the existing cable plant to 1 gigahertz. Second, the new deployment of backbone infrastructure with an increased digital overlay to serve small and mid-size businesses. We believe that this sector of business will continue to experience robust growth throughout the balance of the year.

Our vertically integrated infrastructure and comprehensive intellectual property portfolio continue to provide us with competitive differentiators in this area of our business. Our Satcom and Specialty Photonics business include a suite of new technology and products such as terahertz generation and detection technologies, radio frequency to microwave system links, variable optical delay lines for remote sensings and antenna and a key modulator component for fiber optic gyros.

Many products in our portfolio provide unique technical solutions to the defense industry and military applications. Over the last year, we have secured several long-term contracts that are expected to last for the next five to ten years. Although the Satcom and Specialty Photonics business is somewhat fragmented across the customers, the gross margins are typically in the range of 40% to 50%. And we continue to secure new business opportunities in this area.

For the telecom business, we have been a significant rebounding demand for tunable transponders and components. The March quarter revenue for this product line has increased nearly 40% compared to the previous quarter. However, the competition still fears due to the supply demand imbalance. As we work down the extra inventory for this product, we'd expect continued incremental improvements in the gross margins of the telecom products and significantly lowered inventory risk.

On the product engineering front, we introduced a micro-ITLA product at the Optical Fiber Communication Conference in March. This is the miniature form of Integrable Tunable Laser Assembly. This product is specifically designed to meet the needs of 40 and 100 gigabits per second line-cards and transponders. Its features include narrow linewidth, low noise, frequency fine tuning and high output power while providing the full functionality of the ITLA multi-source agreement in a quarter size form factor and with half of the power consumption.

In addition, the modularity and the flexibility of EMCORE's external vertical laser – external-cavity laser technology platform enables a wide array of product variance and the next generation enhancements simply through the substitution of a few standard components. This new product has generated tremendous traction from the customer base.

The tunable XFP transceivers utilizing our external cavity tunable lasers continues to be viewed by our customers as the only product in the industry that meets the 300pin transponder performance specification while providing higher density and a lower power. We have developed the internal supply of laser game chips and Mach-Zehnder modulators for the integration into the TXFP. We expect that the final tunable TOSA and XFP transceiver product utilizing this internally – develop the components will be a disruptive product that will serve as the basis of a significant revenue growth in the near future.

In our datacom product lines, the demand for parallel optical transmitters and receivers continues to be very strong. The March quarter revenue for this product area has increased nearly 25% sequentially. This product family, utilizing vertical cavity surface emitting lasers and photodiodes array provide aggregated bandwidth of 40 to 80 gigabit per second in one link and are used in customers' flagship router-switch systems as backbone interconnects.

Another product family utilizing the parallel optical transmitters and receivers are the active cables. They are by directional communication links using resin fiber to connect the two parallel optical transceivers imbedded in the electric connectors at each end of the cable. The use of high bandwidth low loss optical cables allows the information to be transmitted at distances that are more than 10 times greater than that of the copper cables.

According to a recent report by a market research firm, Light Counting, sales of active optical cables during the last three years or more than 150,000 units with EMCORE accounting for the majority of the volume. The reliability of an EMCORE connect cables over that time period is better than five failures in 1 billion hours of device operations. This reliable performance demonstrates the suitability of 850 nanometer VCSEL array technology and multi-mode optical fibers for high performance data computing applications.

The newly qualified Quad Data Rate Active Optical Cable offering the aggregated bandwidth of 40 gigabit per second has gained significant market traction. We are ramping up the production capacity very aggressively. As the transmission bandwidth over cables increases, it becomes more and more advantageous and cost competitive to replace copper cables with fiber.

Our packaged products of the devices and components also contributed in a significant manner to the March quarter revenue. Leveraging our Gallium Arsenide and Indium Phosphide fab capability and capacity, we are able to offer laser and photodiode packaging at very competitive prices for passive optical and storage area network applications. As the fiber to the home market in Asia is ramping up, we see an increased demand on these components.

Now, let me discuss the solar photo opaque side of our business. Our business in space solar power product lines experienced continued growth. The revenue in the March quarter for our space solar cells solar panels increased 8% sequentially and we achieved a record high gross margin of 47% in the March quarter. And our visibility in this area continues to be excellent.

Although, we've reported that as of March 31st, the order backlog scheduled to ship for the next 12 months decreased slightly for photo opaque, there are significant orders in the pipeline. We believe that our space photo opaque business will continue to grow and the profitability is sustainable and selling prices have increased across several recent long-term purchase agreements and the cost has decreased through engineering improvements, manufacturing efficiency and the improved supply chain management.

We have made major progress in developing and improving manufacturing processes of inverted Inverted Metamorphic Multi-junction or IMM solar cell design for the next generation high power and lightweight solar panels. Working closely with an aerospace company and a government agency, we have developed a robust process to produce 33% convert efficiency and their AM0 illumination condition lightweight solar cell panels using the IMM technology. These technologies are potentially at a critical inflexion point wherein it may enable a whole range of commercial, especially government applications.

Aside from the sponsored research, we have invest – we started investing – we start investing internal resources to accelerate the commercialization of this potentially disruptive technology platform. Concurrently, we have started to reallocate resources to push for the IMM commercialization for terrestrial CPV application, as well. We expect that the conversion efficiency to reach approximately 45% with a quadruple junction design of IMM structure under 1,000 times illumination conditions.

We continue to be very proud of our technology heritage and outstanding reliability record of supporting more than 70 space missions that have been launched and put in orbit over the last seven years with zero in-orbit failures. Adding to that, we have recently received Platinum Quality Award from a major aerospace customer.

The reason solar panel program awards have served to improve the utilization of our solar panel manufacturer facility, thereby lowering our fixed cost per unit and allowing our solar panel products to be more cost competitive. We believe that this will, in turn, provide additional opportunities for the company to increase our market shares in this product area.

Today, we are one of the largest solar panel manufacturers in the world, as well, aside from being the largest solar cell manufacturers. EMCORE is an established leading provider of the space solar power for commercial satellite programs. However, we believe that there are tremendous opportunities for us in governmental and defense programs. While we'll continue to protect and to expand our market share in the commercial sector, we plan to invest significant resources to develop the new business opportunities in the government and defense area. This represents a very attainable upside to our current businesses.

Now, let me turn to our terrestrial solar power business. The products we are offering in this area include concentrated photo opaque, our CPV components and systems. We have completed the design and are in the process of the certification of our Gen-III CPV Systems. We believe that the cost structure of this design is very competitive compared to the competing technology and we expect the competitiveness of this design will be further enhanced once we've ramped to higher production volumes.

We have shifted our organization focus from the development to the commercialization of the Gen-III design. Recently, we have entered into a power purchase agreement with a major Southwestern United States utility company to sell one megawatt of power generated by our new Gen-III system. We have also been down selected to provide a one megawatt Gen-III system to a developer in Europe. There are a number of other opportunities in the pipeline, which lead us to believe that we will be ramping up or CPV business later this year as we release the Gen-III product.

Because the bulk and related high shipping cost of the CPV modules, we have revised our CPV manufacturing strategy. The solar cell design in the manufacturing, the CPV system design and the business development will continue to be based in the U.S. However, we intend to develop and establish the centralized low cost manufacturing operation in China to manage the supply chain and to manufacture the CPV receiver subassemblies.

Once established, we plan to ship the piece parts, assembly, tooling and fixtures and test equipment to a facility close to the site of each CPV project where the final assembly and test of the solar modules will be conducted.

This will not only significantly reduce the cost of shipping, but also bringing job opportunities to the local community where the project is. Based on our recent experience, this has become a very appealing aspect of business development and this strategy is made possible due to the low capital and facility requirements for CPV module assembly.

Currently, we have several options for the CPV receiver and manufacturing facility in China through which we can also develop business opportunities in China. We're currently assessing our alternatives and plan to make a final decision for the site of China manufacturing relatively soon.

As I mentioned earlier, we started working on the next generation CPV targets, which are targeted to provide approximately 15% more power than the current generation, therefore lower cost for a CPV system with a IMM solar cell. We believe that the integration of such a solar cell into the same CPV system design should be very straightforward.

We have implemented a new marketing strategy that will allow us to focus on our traditional competencies in technical innovations, system designs and engineering. While retaining our unique competitive advantage as the only vertically integrated supplier in the CPV market, we will continue to develop and pursue partnerships in other venues with major companies, both domestically and internationally to drive the deployment of CPV components and systems.

Now, let me give you an update on the pending transaction involving the sales of a majority interest in our fiber optics business in the corresponding aforementioned of a joint venture. Although, we discussed this in great detail last quarter, I will provide an update by going through some key elements of the agreement.

On February 3rd, we entered into a share purchase agreement to sell 60% of interest in our fiber optics business to and create a joint venture with Tangshan Caofeidian Investment Corporation or TCIC. They are a regional Chinese government owned investment company that is focused on developing a high-tech and infrastructure industry in the Caofeidian Industry Zone in Tangshan City, Hebei Province of China, which is approximately 150 miles Southeast of Beijing.

The agreement provides for TCIC to purchase a 60% interest in EMCORE's fiber optics business, which include the telecom, enterprise, cable TV and fiber to the home and video transport product lines for approximately $27.8 million in cash. However, the satellite communications and the specialty photonics fiber optics product lines will retain – will be retained at EMCORE for control considered reasons.

Post the closing, this business will be operated as a privately held joint venture and will be named EMCORE Fiber Optics Limited or EFO and registered in Hong Kong as a holding company under which there will be two primary operating entities, one in the US and the other in China.

The U.S. operating entity of the joint venture will be formed through the current fiber optic business unit located in the U.S., and the China operating entity will be based on the current EMCORE operations located in China. But will be relocated to Tangshan Caofeidian from the current location in long-term.

Over the next several years, the joint venture will focus on developing a high volume, low cost manufacturing infrastructure in China, as well as a local customer support organization to better serve the expanding customer base in China and worldwide.

The agreement with TCIC also provides for TCIC to provide the joint venture with additional funding of $27 million and EMCORE to provide $3 million after the closing to fund the JV's ongoing operations. Furthermore, TCIC has committed to providing additional funding to support the JV's future strategic growth through acquisitions.

With the exception of JV's CFO, all of the JV's executives such as the CEO, COO and CTO will be from the current executive team of EMCORE. We expect that our customers, suppliers and employees will experience a relatively seamless transition.

Presently, we are in the process of securing government approvals for the transaction on both sides and expect to consummate the transaction shortly after receiving such approval.

After the transaction EMCORE will become almost a pure play vertically integrated Solar Photovoltaics company with three product areas – space solar, cell solar panels, concentrate Photovoltaics, our CPV product for terrestrial power and specialty and Satcom products.

Post transaction, the analyzer revenue run rate for this product line will be approximately $100 million and we believe that we'll be generating positive cash from day one. With a relatively strong balance sheet and potential upside from monetizing our JV equity interest down the road and the remaining EMCORE should have sufficient liquidity to facilitate our long-term growth opportunities.

Additional capital from any further liquidity events related to the fiber optics joint venture can be utilized to grow our CPV business on a non-diluted basis to our current shareholders. In addition to the financial benefits, this separation will allow EMCORE management to focus on growing its photovoltaic and the defense homeland security businesses.

EMCORE will continue to grow its revenue around its core space power business. In addition, two other strong growth segments remain the government and defense programs based on the ultra high efficiency solar cells and satellite communication systems in specialty photonic products and the terrestrial CPV business.

So over the last several months, EMCORE's management team has visited and held discussions with our employees, customers, suppliers, shareholders and the government funding agencies regarding the rationale and the detailed transition plans of this pending transaction. And the responses that we have received have been overwhelmingly positive. We certainly look forward to the consummation of this transaction. With that, I will turn it over to Q&A.

Question-and-Answer Session

Operator

(Operator Instructions) We'll go to Al Shams with MidSouth Capital.

Al Shams – MidSouth Capital

Yes. Gentlemen, good afternoon. Yeah, this question is directed to Mr. Hou. Is that correct?

Hong Hou

Yes.

Al Shams – MidSouth Capital

Remember, I spoke with you about a couple of weeks ago. The turnaround appears to look real good. It looks like we're gaining some traction. A few questions I'll throw out at you – but congrats to you and your team for getting things turned around. Number one, do you think you're going to need to tap any additional capital resources, either equity or debt?

Number two, with the problems going on in Spain, Germany will that affect the terrestrial solar business? And then number three, do you have any rough idea what we might realize of a sell of the cable products business? Let me just throw those three out at you.

Hong Hou

Al, thank you very much for the questions. John, you wanted to address the first one about additional financing needed?

John Markovich

Sure, Al. Based upon what we currently have in place with respect to our equity line of credit and our Bank of America credit facility, in combination with the fact that we've been generating positive cash flow from operations. And then the pending 40% interest that we will have in the JV, we do not think that we are going to have to do anything anytime in the near future with respect to an additional capital transaction.

However, as I outlined, we are currently in the processing of pursing a larger bank credit facility, larger than what we currently have in place. But that is intended only to give us additional flexibility with respect to borrowing above and beyond what we have now. What we have in place now is a $14 million line and we think the business can support a larger facility with that.

Al Shams – MidSouth Capital

Okay. Good.

John Markovich

Does that answer your question?

Al Shams – MidSouth Capital

Yes.

Hong Hou

Yeah. So yes, just in general, we have been able to generate positive cash from the operations. Until we have a significant event in the CPV business in that case, we do need more working capital easily to build the inventory. And unless that event, we really don't need additional financing. And let me try to address your second question…

Al Shams – MidSouth Capital

Yeah.

Hong Hou

You know, which is the economic situation in Europe and the impact to our CPV business. So CPV is a technology specifically suitable for the areas with a lot of direct sunlight. Germany, unfortunately or fortunately is not our market of CPV product. So it has no impact to us. And Spain had a huge ramp up in 2008 and but the market has slowed down dramatically in recent years. In spite of that, we're still getting some contracts here and there, even though at a smaller scale. But they do recognize the advantage in some area of Spain.

So our business at the CPV level – at the current level is very limited. If anything in the future, I would say there is only one direction and that's going up. Plus our focus has been really in the market of China and the U.S.

Al Shams – MidSouth Capital

Okay. Good.

Hong Hou

Okay. So Al, your third question is about the cable product, right?

Al Shams – MidSouth Capital

Yes. What kind of proceeds we might realize out of sell of our interest.

Hong Hou

The proceeds of sale of the interest is about 27.8% – $27.8 million.

Al Shams – MidSouth Capital

Okay. Good.

Hong Hou

For 60% of the equity of the interest, yes.

Al Shams – MidSouth Capital

Okay. Okay. Okay. One last question and I'll let somebody else have a shot. Do we think we can still generate cash from reducing the level of inventories and accounts receivables or are we now down to a more normal level?

John Markovich

Well, we've generated a lot of cash on both fronts on both of those metrics, Al, over the last four quarters. But that was in an environment of relatively flat to down revenue growth. At this point, given that the business is increasing in terms of orders and backlog and our revenue, we're anticipating it increasing. We think that's going to be difficult to continue to maintain that.

So the consumption of cash from working capital is going to be entirely a function at this point in time of the growth in the business going forward. So we do not expect to be able to achieve the magnitude of cash that we've generated from working capital in the near future that we have over the course of the last year.

Al Shams – MidSouth Capital

Okay. Okay. Well, great. It looks like we've made a good turn here and thanks to you guys and the team. Thank you.

Hong Hou

Thank you.

Operator

(Operator Instructions) Turning now to Michael Intrator with Natsource Asset Management.

Michael Intrator – Natsource Asset Management

Thank you very much. To begin with, I wanted to congratulate you both on a really impressive quarter. I had actually two pretty brief questions both of which I think you've kind of hit on. I just wanted to kind of help just a little bit. In terms of revenue generated in the last quarter, do you have a percentage that was being generated in the euro zone, so it was actually euro denominated?

And then my second question was just a point of clarification. I had the pleasure of hearing you speak at the Jefferies con and during that conference, you had spoke about qualifying EMCORE as a qualified supplier for government contracts and you identified that as one of the areas for growth. And I just wanted to know what the status of that qualification process was and what could be expected?

John Markovich

Sure. Michael, this is John. I'll address your first question. I actually don't think we had any revenue during the quarter that was denominated in euros. And to the extent we did, it was very, very immaterial.

Hong Hou

And the – generally, the revenue generated from – our majority of the customer base is in the U.S. and second largest territory for the revenue contribution is from Asia. So Europe has traditionally not the largest contributor to our revenue. And Michael, as regard to your second question, we are still in the process being cleared as a trusted supplier and that status is very important for us. As I talked about, we have really a lion's share in the commercial aerospace side and but we have very little accessibility in the past to the government in defense programs.

With that status, we should be able to leverage our infrastructure and the product offering in getting some more traction and drill our business in the space side. So we are in the process of being cleared and making good progress, but it has to be one step at a time.

Michael Intrator – Natsource Asset Management

Okay. Thank you very much. I appreciate the clarifications.

Hong Hou

All right. Thank you.

Operator

(Operator Instructions) And we have no further questions in our queue. I'll turn this conference back over to management for additional or closing remarks.

Hong Hou

All right. As John and I have discussed, the operating performance of the last quarter represent a significant improvement over the previous quarter. So we expect that this trend will continue and the consolidated revenue for the June quarter to be in a range of $49 to $51 million with the increases in both the photovoltaic and fiber optic segments.

And as for the impending transactions, we continue to focus on the execution of our business plans while we are waiting for the approval. I'm sure that you will hear from the company about the progress in the future communications. We thank you very much for your attention today and look forward to the next call. Bye, now.

Operator

Again, that concludes today's conference call. Thank you for your participation.

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Source: EMCORE Corporation F2Q10 (Qtr End 03/31/10) Earnings Call Transcript
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