Welcome to the NeoPhotonics First Quarter 2015 Conference Call. This conference is being webcast live on the NeoPhotonics event calendar webpage at www.NeoPhotonics.com. This call is the property of NeoPhotonics and any reproduction without the written consent of NeoPhotonics is prohibited. You may listen to a webcast replay of this call by visiting the event calendar page of the NeoPhotonics website. I would now like to turn the call over to Erica Mannion at Sapphire Investor Relations, Investor Relations for NeoPhotonics.

Good afternoon. Thank you for joining us to discuss NeoPhotonics operating results for the first quarter of 2015 as well as the company’s outlook for the second quarter of 2015. With me today are Tim Jenks, Chairman and CEO, and Ray Wallin, Chief Financial Officer. Tim will begin with a review of the first quarter. Ray will provide results for the first quarter and the outlook for the second quarter of 2015, and then Tim will provide closing comments before opening up the call for questions. We may make statements in this conference call which are not historical facts. These statements may be considered forward-looking statements that involve risks and uncertainties. Various factors could cause actual results to differ materially from what is set forth in such forward-looking statements, including those that have been set forth in our press release sent out today, May 7, 2015, and will also be described in detail in our Annual and Quarterly Reports on Forms 10-K and 10-Q, and our registration statement on Form S-1, all of which we have filed with the SEC. Listeners who do not have a copy of our first quarter 2015 earnings press release may obtain a copy of the press release by visiting the company’s website. Now, I will turn the call over to CEO, Tim Jenks.

Thank you for joining us today. NeoPhotonics had a strong first quarter. We achieved record first quarter revenue of $81.4 million, which came in above our projected range of $75 million to $81 million, and grew 19% annually and 3% sequentially, outpacing the seasonal softness we traditionally experience in the first quarter which is due to annual price negotiations and the Chinese New Year. Also noteworthy, our gross margins expanded both annually and sequentially in the quarter, recording a non-GAAP gross margin of 31%, a full 9 percentage point increase over the first quarter of 2014 and an approximately 1 percentage point increase over the prior quarter. On an earnings per share basis, our news was even better. As a result of our continued growth, margin expansion and operating cost discipline, we were again profitable posting our second sequential GAAP profitable quarter with slightly positive earnings of $0.00 and non-GAAP earnings of $0.13 per diluted share. We generated $9.9 million of EBITDA and we generated $7.4 million of cash from operations during the first quarter. Early last year, I articulated two broad objectives for our business, to be a leader in 100 gigabit product solutions and to deliver sustained profitability. I believe our first quarter results demonstrate our strong execution towards these goals and our commitment to identifying new operational improvement opportunities as we go forward. NeoPhotonics is a market share leader for key products used in coherent transmission, at 100 gigabits, 200 gigabits and 400 gigabits per second and our products include Integrated Coherent Receivers and Narrow Line-width Tunable Lasers. Our broad suite of 100 gigabit products are used in long haul and metro transport and also in data center interconnect and enterprise applications. We believe our product and technology leadership in advanced hybrid photonic integration is second to…

Thank you, Tim, and good afternoon. We experienced record Q1 revenue, margin and profitability. Revenue for the first quarter totaled $81.4 million, representing an increase of 19% from the year ago period and up 3% from the fourth quarter of 2014. This included approximately $12 million of revenue from EMCORE products, which was better than our forecast. We will not be breaking out EMCORE revenue going forward. Overall, we generated non-GAAP earnings of $0.13 per fully diluted share, up substantially from the $0.30 non-GAAP loss in the prior year period. This was above the high end of our outlook range of a $0.09 loss to earnings of $0.02. Our Non-GAAP gross margin was strong at 31%. This was up 9 percentage points compared to the prior year period, and up approximately 1 percentage point versus the fourth quarter of 2014, coming in above our projected range of 26% to 30%. For the last three quarters we have expanded our non-GAAP gross margins. Moving on to operating expenses, total non-GAAP operating expense for the quarter was $20.2 million, representing a decrease of 12% versus the prior year period and an increase of 5% versus the December quarter. The increase from the fourth quarter of 2014 primarily reflects the acquisition and integration of the personnel and associated costs of the tunable laser product line acquired from EMCORE as of January 2, 2015. Our quarterly non-GAAP operating expense run rate continues to reflect the vigilant management and controls we established in the second half of last year to be consistent with our target model and as we drive for overall profitability improvement. For the last three quarters, we have operated at our target model of 25% for operating expenses. Non-GAAP operating income for the first quarter was $5.3 million, or 7% of revenue,…

Thank you, Ray. We have made significant progress on improved profitability, solid cash flow generation and operating expense reduction. And we will continue to focus on these points going forward. I would like to provide some specific updates related to our recent SEC filings. We had an obligation to register 4.9 million shares by May 2014 that were sold in a private placement transaction in 2012. However, we were not on file with the SEC in May 2014.Therefore, we agreed last December with the holder to register these shares by April 15, 2015, as previously disclosed. On April 6, we fulfilled this obligation as we filed a Form S-1 for this purpose. There has been no sale of shares associated with this registration. Relatedly, we have been developing a manufacturing presence in Russia. We have made considerable progress, with well over one third of our total investment already completed. As planned with our partner, the balance of our investment is expected to be done over approximately five years. We are optimistic for 2015. We believe our 100 gigabit business will continue to accelerate as we see metro launches and switching growth, such as Verizon’s launch of CDC ROADMs including MCS switching, plus additional strength from Data Center Interconnection deployments of 100 gigabit coherent systems. Additionally, 100 gigabit deployments remain strong in China as well, and we are adding capacity where needed to support demand. Further, our access business continues to be stronger than expected. While some of this growth is offset by our product pruning initiatives which will be largely complete by the end of the second quarter, at this time and including our EMCORE product acquisition, we believe there are a number of potential accelerators to our business and we are optimistic that our 2015 revenue can approach 10% growth over 2014. We are focused on sustained profitability and we will continue to work toward this goal, as well as toward greater alignment with our target operating model. This concludes our formal comments and now I would like to ask the operator to open up the line for questions. Robert?

[Operator Instructions] And we will take our first question from Richard Shannon with Craig-Hallum Capital.

I guess my first question is regarding your first quarter, you had a very nice finish for the quarter here. You guided only about three and a half weeks before the end of the quarter and you talked about some upside coming 100 gig business, I think you mentioned, from EMCORE, is that just a result of getting to know their customer base a little better or was there some specific new piece of business that popped up at the end of the quarter?

The overall market in 100 gigabit area has been pretty strong. And so we saw strong build of backlog and it was for all of our 100 gig suite as well as for the EMCORE products. So not exclusively to EMCORE, but we do see strength in the micro-ITLA product. We’re in the process of increasing capacity there. And in a lot of cases, I think you know Richard, we have products which ship at end of quarter that are based in better managing inventory toward a VMI location. So there is some variability at the end of the quarter. But generally speaking, it was strong throughout.

And following up on the commentary regarding your gross margins, which were very nice for the first quarter, is that due to mix or more cost reductions, or can you characterize the improvement versus original guidance?

I would say that from the middle of last year, we talked on a couple of conference calls about some structural changes that we’re doing. And so, those have largely been fully realized. And I would say that with respect to improved margins, certainly mix matters, but in this particular case, I would talk about mix as an engineered mix change. We’ve driven a lot of cost reduction, we’ve driven volume increases through our capacity adds, we’ve implemented structural changes and then the product pruning which we talked about in our script which is in the range of $20 million of low gross margin products that will be completed this quarter, all of those things have contributed to the margin expansion that you’re seeing.

And then just following up on that question, your midpoint of guidance for the second quarter in gross margin is a little bit below what you reported in the first, it’s an atypical cadence. Is that just being conservative or you’re seeing some sort of mix shift here that’s driving that? I think you mentioned something about pricing in your prepared remarks, but just want to clarify what’s going on there.

A couple of things on second quarter. First of all, we generally do expect to see some level of improvement in the second quarter versus the first quarter, subject to differences of one-time events or yield or variances, but this year one of the one-time events in the first quarter was the addition of the EMCORE product line. Of course, we won’t be adding an acquired product line in the second quarter. We are seeing some minor ASP adjustments that flow through in the second quarter, just timing issues, and then we also have, as I talked about, we have stronger than expected access business which tends to be a bit lower margin and tends to be a little bit lower in the first quarter than during the summer quarters, i.e., our calendar second and third quarters. So all of those are factored into our second quarter margin guidance.

Given the better than expected access here in the second quarter, I know that’s somewhat lumpy and difficult to predict, but any reason why we shouldn’t expect you to be able to reach your 35% pro forma gross margin number this year, which you said your third quarter is your best quarter. Is that something we should expect or is that more of a goal still?

Richard, that’s our target model, 35% goal for the company. What we’re positioning the company for is to be able to achieve that on a sustained basis than kind of an annual average as we move into 2016. So as you recall, we had our interim model, our target model, interim model was mid-year 2015, target model was – and that was a 30%, we’re at the interim model today. And then achieving our target model at the end of 2015, into 2016. So this is going to keep moving up our sleeves, blocking and tackling, do what’s necessary to get our margins up to the target model here over the next six months or so.

One last question from me and I’ll jump out of line. Lot of discussion out there from your peers reporting in the last couple of weeks regarding the metro opportunity, I want to get your latest sense on when do you expect to see the timing of that, how well you’re positioned there and then specifically, Tim, regarding your comments on the MCS or Multi-Cast Switch, want to get a sense of how we should think about that in the context of the metro builds here?

Let me deal with those in reverse order. So the CDC ROADM deployment, that is really a 2016 ramp, where everything is in small quantity today, but it will make difference for 2016. So you shouldn’t expect that to be materially different for the next couple of quarters. With respect to the metro, I’d actually like to expand that to two topics: one is metro and then other is data center interconnect, because our network equipment manufacturing customers are deploying some forms of what could be described as metro-like systems now and so that is increasing volumes. But generally speaking, the metro deployments per se, we would say certainly by the fourth quarter and all of 2016, it will be a real strong contributor. It’s a contributor now, but in smaller numbers, but it’s ramping. But those systems do affect metro and data center interconnect.

[Operator Instructions] We will go next to Dave Kang with B. Riley.

First question is on the product revenue, $25 million, so can you give some numbers like how much has been pruned first quarter and I guess the rest will be pruned off second quarter, so third quarter will be normalized run rate?

What we had previously said was that pretty much completed by the end of the second quarter and we’re probably at the 80% level right now. So it’s a small amount to go, probably less than $5 million. We said that $5 million would be the revenue for these products in first half of 2015 and we’re right on that plan. So a lot of it’s done and some tail for the remaining part of this quarter.

As far as breaking out revenue, so you’re not breaking out access revenue anymore?

No, we’re just breaking – actually, just for comparison as we’ve done it in the past, our speed and agility would have been about 73% and our access would have been 20%, but the way we’re grouping it for 2015 going forward is the products that we call high-speed products are 100 gigabit and above and we noted that there is one change and that does not include 40 gigabit products now. We put 40 gigabits with all other, which is essentially what was access, other telecom and the lower-speed portion of speed and agility. So again, 57% for high-speed products, those are 100 gigabit and beyond; 43% for what we call network products and solutions, that will be products that are at data rates below 100 gigabits.

And then I just wanted to clarify, did you say that this year you’re expecting 10% revenue growth. Did I hear that right?

We think that through the course of the year and inclusive of some of the accelerators that we’re experiencing, also including EMCORE and including the reductions from the pruning, we think we can be in the high single digits and approach 10%, yes.

And then also another clarification, when you talked about MCS, you alluded to about TAM of $200 million, is that the TAM for MCS or I just wanted to – the definition of $200 million right there?

That would be – what we view, the TAM can be when we’re deploying at full scale. It’s not the near term, but it’s the annual at full scale, yes. The point is, as TAM, we’re looking at the deployment of Multi-Cast Switches as system portion, these are actually shipped as blade, they are not just shipped as component modules. So it’s a subsystem product, essentially it’s a switch module that’s installed in a blade and that total market can be in the range of $200 million a year.

And as far as JDS, who are other notable competitors?

I think JDS certainly is one, there may be others that are smaller

So it’s really you and JDS at this point?

I think we would factor in NAL in Japan as well.

But then, I guess for like a Verizon opportunity, NAL wouldn’t be in it, would they be?

I think they will sell their products to any network manufacturer in the world.

And then lastly just on China, I think last quarter you talked about some OEMs getting together for network sharing. What’s the latest on that?

There are some interesting things going on that’s probably more in the wireless space. We’ve seen, for example, some announcements in China where you’ve got urban real estate for tower deployment getting a bit crowd as it goes to smaller cell coverage and you’ve got three major carriers all trying to do that. So there are plans that are intended to take the wireless tower business and combine them into a new combined company. So that has impact on how people are looking on the wireless business in China. That would be part of the network sharing I think that you are referring to.

And one last question actually for Ray. So OpEx, you kind of made a sound like OpEx will be going down in the second quarter from first quarter. Is that right?

Actually I think it’s going up in the second quarter. So depending on how you want to look at it, but the non-GAAP operating expenses in the first quarter were $20.2 million and I think the midpoint of our range for the second quarter would be $21 million plus, slightly up.

And there are no other questions from the phone at this time. I will turn the call back to Tim Jenks for closing remarks.

Thank you, Robert. In closing, I would like to thank everyone for taking time today to join our call and I want to thank our employees for their dedication in helping us achieve our goals. We look forward to updating you on our progress on our next quarterly call. Thank you very much.