EMCORE Corporation (EMKR) Q1 2024 Earnings Call Transcript
Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Overview
The earnings call reveals concerning financial metrics: increased operating loss, negative EBITDA, and a significant drop in cash balance. The backlog reduction and delayed revenue recovery, alongside supply issues, further compound the negative outlook. Management's vague responses about the wafer fab sale and short-term revenue recovery add uncertainty. Although optimistic guidance for future growth and new programs are noted, the immediate financial health and lack of clear short-term solutions suggest a negative sentiment.
Key Financial Performance
Revenue $24.1 million (down from $26.8 million in the prior quarter), a decrease attributed to export license and product delays, as well as a revenue drop in Budd Lake.
Gross Margin 29% (unchanged from the previous quarter), supported by improved fixed overhead absorption in Tinley Park and Concord, along with a favorable product mix.
Operating Expenses $9.5 million (down from $10.1 million in the prior quarter), primarily due to an increase in customer-funded nonrecurring engineering (NRE) which lowered internally funded R&D.
Operating Loss $2.6 million (compared to a loss of $1.9 million in the prior quarter), mainly due to lower revenue.
Adjusted EBITDA Negative $1.7 million (compared to negative $900,000 in the prior quarter), primarily driven by lower revenue.
Net Loss $2.6 million or $0.03 per share (compared to the previous quarter), with changes attributed to lower revenue.
Cash $21.1 million (down from $26.7 million at September 30), with a decrease of $7.7 million during the quarter due to negative adjusted EBITDA, discontinued operations, litigation settlement, financing activities, severance, and working capital.
Total Outstanding Debt $8.6 million (down from $10.6 million at September 30), with a reduction of $2 million during the quarter.
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Operating Highlights
Inertial Navigation Revenue: In Q1, Inertial Navigation revenue totaled $24.1 million with a gross margin of 29% non-GAAP.
Nonrecurring Engineering Funding: Expected nonrecurring engineering funding from customers to be at least $7 million in calendar '24.
IMU Development: Expecting to complete the current phase of the MMS program and several smaller programs within the next six to 12 months.
Backlog: At quarter's end, backlog was approximately $51 million, representing about a 10% reduction expected to resolve in the March quarter.
Long-term Contracts: Several long-term contracts expected to be awarded, including the Navy's Mark 54 Mod one torpedo.
Operational Efficiencies: Operating expenses reduced by nearly $600,000, with a focus on driving down internally funded R&D.
ERP Upgrades: On track to complete ERP upgrades for Alhambra and Concord, unifying the company's ERP systems.
Facility Consolidation: Alhambra moving all optical component assembly technology into a single building, reducing from five buildings.
Wafer Fabrication Facility Sale: Negotiations for the sale of the wafer fabrication facility in Alhambra are ongoing, with additional incoming interest.
Market Positioning: Focus on component technology differentiation to improve gross margin and streamline development programs.
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Risk or Challenges
Revenue Shift and Facility Performance: In Q1, Inertial Navigation revenue shifted substantially between facilities, totaling $24.1 million with a gross margin of 29%. Revenue drop in Budd Lake was not compensated by growth in other facilities.
Book-to-Bill Ratio: Book-to-bill came in under 1.0 due to a shortened holiday season, but all orders are expected to book in the current quarter, leading to a stronger future book.
Delayed Shipments: Delayed export licenses caused a push out of approximately $750,000 worth of shipments, impacting revenue.
Supply Chain Issues: A defective lot of circuit boards could not be remanufactured before the supplier's holiday shutdown, contributing to shipment delays.
Cash Funding for Defense: Reported cash funding to replace emissions and systems allocated to Ukraine is dangerously low, contributing to budget delays and contracting timing issues.
Facility Consolidation Challenges: Consolidation of facilities involves expensive structural, power, gas, and environmental system requirements, along with significant requalification efforts for customers.
Operating Loss: Operating loss in the December quarter was $2.6 million, primarily due to lower revenue.
Cash Decrease: Cash decreased by $7.7 million during the quarter, attributed to negative adjusted EBITDA, discontinued operations, litigation settlement, and severance.
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Guidance & Outlook
Backlog: At quarter's end, backlog in the business was approximately $51 million, representing about a 10% reduction that is expected to fully resolve in the March quarter.
Wafer Fabrication Facility Sale: Negotiations for the sale of the wafer fabrication facility in Alhambra are ongoing, with additional incoming interest.
Integration Programs: The company is on track to complete ERP upgrades and product data management migration, which are key areas of focus this year.
Cost Reduction Initiatives: The company is working to reduce floor space and optimize operations, including moving optical component assembly technology into a single building.
Engineering Consolidation: The company is moving to a common IMU, INS architecture to streamline development programs and improve cost efficiency.
Revenue Guidance: The March quarter is expected to be flat compared to December with a revenue range of $23 million to $25 million.
Nonrecurring Engineering Funding: The company expects nonrecurring engineering funding from customers to be at least $7 million in calendar '24, with growth expected starting in September.
Cash Position: Reported cash was $21.1 million at December 31, with a net cash of $19 million after accounting for third-party cash.
Debt Reduction: Total outstanding debt was reduced by $2 million during the quarter to $8.6 million.
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Shareholder Return Plan
Shareholder Return Plan: None
Cash Position: Reported cash was $21.1 million at December 31, which temporarily included $2.2 million of third-party cash associated with the sale of the legacy business and a deposit on the potential sale of the wafer fab. Net of these items, EMCORE cash was $19 million at the end of the quarter.
Debt Reduction: Total outstanding debt was reduced by $2 million during the quarter to $8.6 million when compared to $10.6 million at September 30.
Nonrecurring Engineering Funding: We expect nonrecurring engineering funding from our customers to be at least $7 million in calendar '24.
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Key Q&A
Q:Why wouldn't we see some of the Budd Lake revenue come back this quarter?
A:Budd Lake was primarily associated with a program that won't have a replacement until the mass motion sensor hits production in early '24. The focus is on maximizing revenue from other facilities in the short term.
Q:Is the wafer fab sale expected to close this quarter?
A:There is reasonable confidence in closing the sale this quarter, but there are delays and other inbound interests.
Q:What is the outlook for cash burn in the quarter?
A:The cash balance improved in the December quarter due to large collections, but there will be more use of working capital this quarter.
Q:Can you provide a sense of magnitude for cash burn this quarter?
A:It's likely to be more towards the upper end of the $3 million to $5 million range.
Q:What is the comfort level for the ending cash number this quarter?
A:The comfort level is $20 million, but they are operating below that, which is manageable.
Q:What is the visibility on adding contracts and opportunities?
A:There are delays due to external factors like export licenses, but there are other opportunities available.
Q:Review of Unclear Management Responses
A:Management's response regarding the wafer fab sale lacked clarity on the specific timeline for closing and the reasons for the delays. Additionally, the explanation of cash burn and its impact on operations was somewhat vague, lacking specific figures or detailed projections.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
Aerospace
Budd Lake
ERP
Park
Tuesday
assembly
component
consolidation
date
degree
delay
drop
engineering expense
example
expense term
export license
facility
floor space
holiday
issue
line question
litigation settlement
loop
motion sensor
presentation
product
program term
push out
sense
shipment
stuff
system
technology
term contract
timing
tug war
EMKR Transcript
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EMCORE Corporation (EMKR) Q1 2024 Earnings Call Transcript
Unknown2-9
The earnings call reveals concerning financial metrics: increased operating loss, negative EBITDA, and a significant drop in cash balance. The backlog reduction and delayed revenue recovery, alongside supply issues, further compound the negative outlook. Management's vague responses about the wafer fab sale and short-term revenue recovery add uncertainty. Although optimistic guidance for future growth and new programs are noted, the immediate financial health and lack of clear short-term solutions suggest a negative sentiment.
EMCORE Corporation (EMKR) Q4 2023 Earnings Call Transcript
Unknown12-12
The earnings call presents a mixed outlook. Positive aspects include consistent revenue growth in inertial navigation, improved gross margins, and expectations of a positive EBITDA soon. However, challenges such as restructuring costs, cash burn, and contracting delays pose risks. The Q&A section confirmed continued gross margin improvement and a positive book-to-bill ratio, but management's lack of detail on certain contracts and cash burn adds uncertainty. Overall, the positive and negative factors balance out, resulting in a neutral sentiment.
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Frequently Asked Questions
Where does this earnings call transcript come from?
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They are generated by a specialized financial-language model trained exclusively on 15+ years of earnings transcripts. The model extracts financial figures, guidance, and tone with 97%+ accuracy and is regularly validated against human analysts. The full raw transcript always remains available for verification.
