JDS Uniphase Corporation - Shareholder/Analyst Call

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JDS Uniphase Corporation (JDSU) November 16, 2011 12:00 PM ET


Thomas H. Waechter - Chief Executive Officer, President and Director

Martin A. Kaplan - Chairman, Member of Compensation Committee, Member of Governance Committee and Member of Corporate Development Committee

Roy Bie - Senior Vice President of Advanced Optical Technologies Products Group

Andrew Pollack - Vice President, General Counsel and Secretary

Martin A. Kaplan

Okay, good morning. It's now about 10:01 a.m., and this Annual Meeting will, please, come to order. Welcome to the 2011 Annual Meeting of Stockholders of the JDS Uniphase Corporation, which is being held here at 690 North McCarthy Boulevard, Milpitas, California. We're pleased that you're all with us. I'm Marty Kaplan, Chairman of the Board of Directors of the company, and I will be presiding as Chairman of this Annual Meeting.

Let me move on by introducing the other directors who are here today. Rick Belluzzo, Chair of the Governance Committee, just raise your hand; Hal Covert, Chair of the Audit Committee; Penny Herscher, Chair of Comp Committee; Masood Jabbar, Chair of the Corporate Development Committee; Kevin Kennedy; and our new Director, Keith Barnes, who I would like to welcome to our Director team. We have a number of company people here today, but I won't take the time. You've seen them before. You can meet them after the meeting. They are joining us for the meeting.

So now that I've completed the introductions, I will proceed with the official business of this Annual Meeting. The agenda for the meeting is to vote on the matters presented to the stockholders of the company. After we adjourn the Annual Meeting, we will make a presentation and have an opportunity to discuss your questions to Tom, who will make the presentation. The audio portion of this Annual Meeting as well as the presentation and the question-and-answer period are being broadcast live on our website, and a recording of these proceedings will be available to listeners after the Annual Meeting has concluded.

So let's begin. The time now is about 10:03 a.m. and the polls are open. I will now ask Andrew Pollack, our General Counsel, who will be acting as the Secretary and Inspector of Elections for this Annual Meeting, to present the matters to the stockholders for a vote. As the Inspector of Elections, Mr. Pollack has signed an oath of office that will be filed with the minutes of the Annual Meeting.

Mr. Pollack, the time is yours.

Andrew Pollack

Thank you, Mr. Chairman. There are 4 proposals to be voted upon: first, the election of 3 Class III directors to serve until the 2014 Annual Meeting. The Board of Directors nominees are Penny Herscher, Masood Jabbar and Tom Waechter; second, to ratify the appointment of PricewaterhouseCoopers LLP as the company's independent registered public accounting firm for the fiscal year ending June 30, 2012; third, to approve on a nonbinding advisory basis the company's compensation of its named executive officers; and fourth, to recommend on a nonbinding advisory basis the frequency of the votes on the compensation of the company's named executive officers.

The shares that are entitled to vote at this Annual Meeting consist of the outstanding shares of our common stock on the record date or at this Annual Meeting, which was September 20, 2011, and through the JDS Uniphase special voting chair, the outstanding exchangeable shares of JDS Uniphase Canada.

We will now proceed with the voting on these matters. Before we close the polls, if you did not turn in a proxy or want to change your previous vote on any matter to be voted on today, please raise your hand and a ballot will be distributed to you.

When completing the ballot, clearly mark your vote on the ballot. Sign your name in the way your shares are registered. Print your name below your signature, and indicate the number shares you own.

While any remaining proxy cards or ballots are being collected, I, as Secretary of the Annual Meeting, am pleased to report that the notice of the Annual Meeting and the proxy statement for this Annual Meeting were mailed or made available to shareholders on October 3, 2011, to all stockholders of record at the close of business on September 20, 2011. A copy of the notice of Annual Meeting and an affidavit that it was duly mailed will be filed with the minutes of the Annual Meeting, along with the list of stockholders and the minutes of the Annual Meeting. No one, except the stockholder of the company on the record date or a person holding a duly executed proxy of such a stockholder may vote on matters presented at this Annual Meeting.

There are present at this Annual Meeting in person or by proxy, holders of common stock of the company and exchangeable shares of JDS Uniphase Canada, they're entitled to cast a majority of the 229,083,755 votes entitled to be cast at this Annual Meeting. A quorum is present. Since notice was duly given and a quorum is present, I announce that the polls are now closed. I will now report the results.

The votes cast for the Class III directors show not less than 125 million votes for the Class III directors listed in the proxy statement. The nominees receiving the greatest numbers of votes, Penny Herscher, Masood Jabbar and Tom Waechter have, therefore, been elected Class III directors to serve a 3-year term until the Annual Meeting of Stockholders in 2014.

Second, the votes cast in favor of proposal #2, ratifying the appointment of PricewaterhouseCoopers LLP as the company's independent registered public accounting firm for the fiscal year ending on June 30, 2012, are not less than 186 million votes, which represents the majority of the holders of the company's common stock and exchangeable shares entitled to vote at this Annual Meeting that are present in person or by proxy. Accordingly, the appointment of PricewaterhouseCoopers LLP as the company's independent registered public accounting firm for the fiscal year ending June 30, 2012, is hereby ratified.

Third, the votes cast in favor of proposal #3, the approval on a nonbinding advisory basis of the company's compensation of its named executive officers are not less than 121 million votes, which represents the majority of the holders of the company's common stock and exchangeable shares entitled to vote at this Annual Meeting that are present in person or by proxy. Accordingly, the compensation of the company's named Executive Officers is hereby approved.

Fourth, the votes cast with respect to proposal #4, the recommendation on a nonbinding advisory basis of the frequency of the vote and the company's compensation of its named executive officers are not less than 127 million votes for an annual vote, not less than 200,000 votes for a biannual vote and not less than 8 million votes for a final vote. Accordingly, the recommendation for the frequency of the vote on the company's compensation of its named executive officers is for an annual vote.

Chairman Kaplan, that concludes the report of the voting.

Martin A. Kaplan

Thank you, Mr. Pollack. The report of the Inspector of Elections will be filed as part of the minutes of the Annual Meeting. We are now ready to adjourn the Annual Meeting. I will, therefore, entertain a motion for adjournment.

Is there a second?


It has been moved and seconded that the Annual Meeting be adjourned. All those in favor saying, aye.


All opposed?


I hereby declare that the 2011 Annual Meeting of the Stockholders is adjourned.

As previously disclosed, Richard Liebhaber and Casimir Skrzypczak informed us of their intention to retire from the company's Board of Directors, and their retirements are effective upon the conclusion of this Annual Meeting. In each case, their retirement was a personal decision and not the result of any disagreement with the Board or management. I, on behalf of the entire board and the company, wish to thank Dick and Cas for their years of dedication and service to the company as stockholders and the Board.

At this point, Tom Waechter, our President and Chief Executive Officer, will address the stockholders with a brief presentation, which at the end, we'll allow for a brief question-and-answer period. At that time, please raise your hand and use the microphone that is -- will be brought to you to ask your questions. To ensure that everyone can hear the question, please introduce yourself and do use the microphone.

Tom, the floor is yours.

Thomas H. Waechter

Good morning, everyone, and welcome. I'll do a brief overview of JDSU a little bit. For you that may not know all the moving parts of the company, give you an update on that and a little bit of our financial performance. So if we can go to the next slide.

So just to remind you, there will be some forward-looking statements today. So I'll run a short video that, I think, will give you a good overview of JDSU.


So as JDSU employees, we're very proud that we touch most people's lives around the world every day. I mean, it helps shape it in a positive way. And we are playing to win at JDSU. We're serving some very strong market drivers, especially around broadband. It's a very explosive growth, and we have a lot of unique products and services to help network operators solve their problems with trying to keep up with the demands on these networks today.

We're technology leaders. If you look at our revenue that we're generating from new products, our last reported quarter, very high percentage for both optical components and our test equipment as far as revenue from those products. So we continue to innovate and differentiate ourselves through these new products. We have a very diversified portfolio of products as you saw from the video, and our non-telco revenue has grown to over 20% now, so we continue to diversify into some new and exciting areas. Very expansive footprint around the world, so we serve a global customer base, a very diversified customer base. And as you probably know, we have very solid financial record and balance sheet.

We can't achieve all those things without a very strong team. This is the executive team. I'm not going to go through each individual because we don't have time today, but a team of people who's very committed, very dedicated to the business have put a strategy together that's working and are executing to that strategy.

We have 3 major business segments for JDSU. We have the CommTest business, which runs approximately 45% of our revenue on a quarterly basis, and it's a full suite of test equipment and solutions for network operators to help them implement networks, manage those networks, troubleshoot them and improve the quality of service on these networks. CCOP is a combination of optical components and our commercial lasers. You might have noticed in the video that fiber laser system, cutting metal at a very quick -- at a very rapid pace. That's one of the new expansion areas for us, again, a new differentiated product. And of course, our optical components business, we continue to grow and continue to improve our business model from the perspective of new products, differentiated products and more integrated products, especially at the wafer level. And our Advanced Optical Technology business, which has a whole suite of products but a big focus on anticounterfeiting measures. Whether it's banknotes, bankcards, pharmaceuticals, we protect the people, both in their pocketbooks and from a health standpoint on a daily basis. You can see a very large available market for each one of those 3 major businesses for JDSU.

Spoke about the market drivers. On the left-hand side are of those that are really associated with broadband, so a number of subscribers, new applications, new devices that are constantly hooking up to have a network, putting a lot of demand on the network, especially the streaming video. Right-hand side, as you saw on the -- in the -- or video at the beginning, growing our CPV business, the solar business, very strong drivers there to get to some alternative energy. Laser market, we're expanding in a whole new market now with micromachining and welding where we -- primarily, were in micromachining type of business, as I mentioned, currency protection, and there's a lot more currency being printed around the world, a lot more counterfeiting efforts going on there.

Here's just a few statistics, so I'm not going to read through each one of those. But when you think about what's happening in the networks and the demands on the network, here's just some statistics of what happens every 60 seconds. So every minute in a network, you can see 600 new videos on YouTube, just the -- outstanding numbers, and that really helps drive our business and the solutions that we are providing to our customer base to try to get ahead of this tsunami of information and traffic across these networks that's happening now at a even more advanced pace.

If you look at our last 3 fiscal years, we just finished the fiscal year 2011 at the end of June. Look at the -- our revenue financial performance. 2011, we grew about 30%, 32% on the top line year-on-year. It's a very significant top line growth. Gross margin dollars went up 40-some percent, and operating income went up about 130%. So I think the business model is really working. We're getting top line growth, and with a mix of new products and the outsourced manufacturing, we're continuing to improve our gross margin line and that we continue to run lean processes to get operating expenses out of the business. So a lot of that incremental revenue is dropping directly to the bottom line.

I think from a shareholders' perspective, if you look at the earnings per share, doubling from '09 to '10 and more than doubling from '10 to '11, so model is working. We continue to improve upon the model and continue to expand into some new areas of opportunity for the company.

From that, we have a very strong balance sheet. We've been cash flow positive 16, 18 quarters in a row. Even during the recessionary period, which was very severe, we were cash flow positive, so that's one of the things, as a management team, we're very proud of is to continue to perform and continue to generate positive cash that allows us to reinvest into the business whether it's R&D where you saw we're really being successful. With these innovative new products, we're growing our top line, improving our gross margins. We're differentiating our company from our competitors or where there's opportunities for acquisitions to further expand into some of these adjacent markets. I think we've had some very good success with that. So being positive from a cash flow standpoint and keeping a strong balance sheet is important to us to have that flexibility going forward.

I talked about market leadership. The top part here is around CommTest. We're a strong leader in fiber tests. There's more fiber being distributed out through the network, through the home, up the tower or between towers, et cetera. we can see in a number of areas we lead and test a very strong position and very strong leadership in optical components. Over the last 2 years, we've had 2 products out to market from an optical component standpoint, our tunable XFP and our Super Transport Blade, which basically adds more flexibility and agility into these networks. So it helps the operator to really manage the networks more real -- on a realtime basis.

We went out to market for 2 years with those 2 products without any competitors, shipping in any type of volumes. So again, it's a very good leadership and success there, and we continue to focus on high-growth markets. I think traditionally, we've been a very strong company in North America and Western Europe. We've really put a strong effort into focusing on what we call high-growth markets, some of the BRIIC countries, including Indonesia now, Middle East, Africa. These are all opportunities for the company, and we're starting to grow in those areas. The last quarter, we generated about 32% of our revenue out of these high-growth areas. So very good opportunity for this company going forward.

Collaborative innovation, this is just a list of a few of the customers we're working closely with. Second one down on the left is Amada. It's a Japanese partner we worked 4 years with to come up with this new fiber laser product, again, cuts at very high speeds, a very clean and very low-power consumption. So it's really creating some new opportunities out there in the market. Again, you could see the revenue coming out of new products as a percentage of overall revenue at the bottom. It's a very good traction, working with our customers, understanding what they need and coming to market with solutions very early ahead of our competitors.

Talked about most of these areas. Video, most of the projections say that in the year 2014, 80% to 90% of the traffic across these networks is going to be video. So that's an important area for us that we continue to focus and expand, laser, solar, these intelligent networks for utilities, how do we better utilize the power and energy we have today. Just a recognition, you probably know we had a very strong introduction into that market with a gaming customer, and we continue to look for new opportunities to expand into new applications there and that next generation of anticounterfeiting technology.

We are receiving quite a few awards both from the industry and our customers, but honestly, I think the customer awards are extremely important to us because our customers are demanding and they rightfully should be and I think we've done a really good job supporting those. I'll just point out a couple. Huawei, about halfway down the middle of the page there, very important Chinese customer for us, a network equipment manufacturer. Talked about Amada at the top, our Japanese partner. Ciena Networks on bottom right-hand side. Just a few of the awards that we received.

And we're getting a lot of, I think, positive media coverage, a lot of financial journals, CNBC, et cetera, picking up. I think a progress they're seeing in JDSU units and very favorable coverage for us.

Gentleman on the bottom left-hand side here, that's Okamoto San. He's the CEO of Amada, our partner in Japan, and he actually did a video. It's on our JDSU.tv website. If you have the opportunity to go in, I think you'll really see and hear from him personally why they chose JDSU to partner with. And I think we have a very happy partner and customer there.

Fiscal 2012, we just reported our September, the first quarter. It's a little bit mixed message of what's happening right now out in the market. The end drivers remain very strong. We see it in our lives every day, more devices, more hooking up all the time on to the network, but we are seeing some headwinds out there from a macroeconomic standpoint, a lot of concerns over what's happening in Europe with the sovereign debt, I think. Debt issues, some of that has spread into North America. So for us, we continue to focus down on our strategy, keep looking at innovating, getting ahead of our competitors and growing market share even during some of these uncertain times.

You might have read, we also had some disruption with the flooding, severe flooding in Thailand. Most of the optical companies have operations or CM partners in Thailand. They had some very severe flooding in and around the Bangkok area and the delta there. We have started to recover from that. It's disruptive as for a period of time. We now have manufacturing back up and running. We have -- we're able to get people, workers, employees in and out of the facility and be able to get the products back in and out of the facility, so we're starting a quick and rapid recovery from that -- those issues in Thailand.

So I mentioned our response during this period of time. Keep doing the things we do best. Our strategy is working. Keep focused on our customer, collaborative innovation, keep weaning out the business, so we can continue to reduce our expenses. At the same time, we're growing our market share, and where there's opportunities for strategic acquisitions, we're positioned financially to do those and most importantly, the attitude of playing to win, even when you get into some uncertain conditions out there in the market.

So let me just quickly summarize, and I'll open up if you have any questions or inputs for myself or any of the board members, our Executive team here today. So very significantly improved the financial results and business model over the last 24 months, both GAAP and non-GAAP with a strong balance sheet. As I mentioned, very good position in the market, strong leadership through these innovative and differentiated products. We're growing into adjacent markets, so I think we have a lot of levers to pull. Our core business is growing, and then we're moving into some of the adjacent markets where we can reuse our technology into new markets and new applications. And as I mentioned, we're leaning forward into some of these headwinds to continue to -- look to continue to improve the business model, grow the business and improve the financial performance of the business. So with that, again, our investment thesis is we're in broadband and optical innovation, and we continue to strengthen our business model with clearly defined targets for the company.

So with that, we have some microphones. Michelle is in the back of the room if there's any questions or even inputs or -- are we hooked up on the phone for questions? No, just in the room here.

I think gentlemen in the back has a question.

Question-and-Answer Session

Unknown Shareholder

Given the catastrophe in Thailand, have you thought strategically about diversifying your manufacturing facilities on a geographic basis? Next question is are you displaying your next-generation counterfeiting technology in the back?

Thomas H. Waechter

In the back, let me ask that first. I don't think we have any of the variable [indiscernible].

Unknown Shareholder

I'd like to hear more about that.

Thomas H. Waechter

Okay. I'll turn it over to Roy Bie, who is here and he runs that business. So let me answer maybe your -- while he's getting prepared with the microphone, let me answer your question on Thailand. We do constantly look for diversification. We do have a number of contract manufacturers. We have contract manufacturers in various parts of the world, China, Thailand, Mexico, throughout various parts of the world. So we are diversified from a total CM standpoint, but some of our products are more concentrated in some areas like Thailand optical components. So we continue to look at that -- how we can diversify, so if there is future incidents like this that there's less disruption to the business.

Roy Bie

And to answer the question on the anticounterfeiting, the next-generation use is what we call our optically variable magnetic pigment. So it complicates the printing process to make it harder to do because you have to be able to magnetically orient these plates in order to get the features, and there's 14 countries now that have currency redesigns that are using this new technology, and all of the majors are taking a look at it right now. So that should be our next-generation product going forward.

Unknown Shareholder


Roy Bie

No, just our customers are always asking for more sophistication in the design in order to stay in front of them. No, we don't have any counterfeiting issues with the current one. It's just that product's been around for many, many years now, so this is the next generation.

Thomas H. Waechter

Thanks, Roy. Are there questions or inputs from anyone in the room?

Unknown Shareholder

Just one quick question relative to the earnings per share on the slides. I noticed they're non-GAAP. What is the difference? Or was is taken out or added to come up with a non-GAAP versus the GAAP?

Thomas H. Waechter

The primary difference between GAAP and non-GAAP is amortization of -- through acquisitions. There's amortization and goodwill. When you buy something, especially in stock-based compensation, those are the biggest elements there. We did last fiscal year for the first time in the history of the company, we were GAAP profitable the entire year. So we're proud of that and continue to drive in that area. But those are the primary differences between GAAP and non-GAAP. Okay, good question. Okay, anyone else?

So again, I'll wrap up and again appreciate your interest in JDSU and your support, and thanks for attending today.

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