Tim Jenks - Chairman, President & CEO JD Fay - VP & CFO Erica Mannion - President, Sapphire Investor Relations, LLC

Welcome to the NeoPhotonics 2012 Second Quarter Conference Call. This call is being webcast live on the event calendar page of the Investor Relations section of NeoPhotonics’ website at www.NeoPhotonics.com. This call is property of NeoPhotonics and any recording, reproduction or transmission of this call without the expressed written consent of NeoPhotonics is strictly prohibited. You may listen to a webcast replay of this call by going to the event calendar page of the Investor Relations section of NeoPhotonics’ website. I would now like to turn the call over to Erica Mannion, Investor Relations for NeoPhotonics.

Good afternoon. Thank you for joining us to discuss NeoPhotonics’ financial and operating results for the second quarter ended June 30, 2012. With me today are Tim Jenks, Chairman and CEO and JD Fay, CFO. The call today contains forward-looking statements that involve risks and uncertainties. These include statements related to NeoPhotonics’ business outlook for the quarter ending September 30, 2012, future periods and industry trends, as well as forward-looking statements that we may make in response to questions. Forward-looking statements are generally indicated by words such as “would”, “believe”, “should”, “expect”, “outlook”, “estimate,” “anticipate”, “forecast” and similar expressions that look toward future events or performance. Actual results may differ materially from forward-looking statements. Factors that could cause results to differ materially from these statements include those described in today’s press release as well as those detailed in the section entitled "Risk Factors" of the company’s Quarterly Report on Form 10-Q most recently filed with the SEC. NeoPhotonics cautions you not to place undue reliance on forward-looking statements, and that these statements speak only as of the date they are made. In addition, non-GAAP financial measures will be discussed today. Please visit the Investor Relations section of the NeoPhotonics Web site for a copy of the company’s press release, which contains an explanation of these non-GAAP financial measures as well as a reconciliation to the comparable GAAP measures. Before I turn the call over to Tim, I’d like to mention that NeoPhotonics will present at the dbAccess 2012 Technology Conference in Las Vegas on September 11 and Think Equity’s 9th Annual Growth Conference in New York on September 12. Now, I will turn the call over to Tim Jenks. Tim…

Thank you for joining us today. I will provide a financial update and discuss progress in our overall business. I will comment on our expansions with products for Coherent and other high speed networks, on our view about the industry and its direction as a whole, and on our developments in the Russian market with the Russian Corporation of Nanotechnologies. In the second quarter, we delivered record revenue of $63.0 million, significantly above our projected range of $55-$61 million provided in our first quarter 2012 conference call. Further, our diluted loss per share from continuing operations was $0.13, a significant improvement from a loss of $0.47 in the prior quarter. Our non-GAAP gross margin expanded to 26.5%, which was well above our projection and an increase from 23.9% in the prior quarter. We believe we are on a sustainable path of growth and accelerating our path to profitability. We experienced increased demand across key parts of our business, notably for high speed products used in Coherent networks as well as in Agility products and in our Access business. These are important points as NeoPhotonics has made a sustained investment in Coherent capabilities. We now have several products being sold in volume in this growth market and we view the change to Coherent as a sea change in network architecture, much like the change to 10 gigabit per second dense wave-division multiplexing networks, or DWDM, more than a decade ago. This year we are seeing some fruits of our labor. We have seen some slowing in the China domestic market, more generally last year, and the first half of this year. However, the Access market in this region continued to show strength. We have noted various reports about carrier capex being moderated somewhat, as well as our having macro-economic concerns, notably…

Thank you, Tim, and good afternoon. For the second quarter of 2012, revenue was $63.0 million, which was 24% higher than our second quarter 2011 revenue of $51.0 million, and up 16% from the first quarter of this year. Our reported revenue is also 9% higher than the midpoint of our projection, and another quarter of record revenue. GAAP gross margin for the second quarter was 24.8%. Non-GAAP gross margin for the second quarter of 2012 was 26.5%, above both our projection and the previous quarter’s Non-GAAP gross margin of 23.9%. Importantly, our non-GAAP gross margin was slightly better than the 26.4% result from the second quarter of 2011, illustrating the return of our margins to pre-acquisition levels. Non-GAAP gross margin for the second quarter of 2012 excludes amortization of purchased intangibles and other assets relating to the acquisition of Santur of $0.9 million, and stock-based compensation expense of $0.1 million. Loss from continuing operations for the second quarter of 2012 was $3.7 million, as compared to a loss from continuing operations of $11.8 million in the first quarter and income of $13.7 million in the second quarter of 2011. Diluted loss per share from continuing operations for the second quarter of 2012 was $0.13, a significant improvement from the loss per share of $0.47 in the prior quarter. Non-GAAP loss from continuing operations for the second quarter was $1.7 million, which was also a significant improvement from the loss of $5.4 million in the first quarter and compares to break-even in second quarter of 2011. Non-GAAP diluted loss per share from continuing operations for the second quarter was $0.06, which was much better than the midpoint of our projected loss per share of $0.18, and a $0.16 per share improvement compared to the first quarter of 2012. Non-GAAP loss…

Thank you for joining us today. Before we conclude, I would like to thank our shareholders for their time today and their continued interest in our company, and our customers and our exceptional employees for their dedication and diligent efforts. We look forward to our next update with you regarding our progress.