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Edited Transcript of EMKR earnings conference call or presentation 4-Dec-18 1:00pm GMT

Q4 2018 EMCORE Corp Earnings Call

ALBUQUERQUE Jan 11, 2019 (Thomson StreetEvents) -- Edited Transcript of EMCORE Corp earnings conference call or presentation Tuesday, December 4, 2018 at 1:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Jeffrey S. Rittichier

EMCORE Corporation - CEO, President & Director

* Jikun Kim

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Conference Call Participants

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* Jaeson Allen Min Schmidt

Lake Street Capital Markets, LLC, Research Division - Senior Research Analyst

* Lee T. Krowl

B. Riley FBR, Inc., Research Division - Associate Analyst

* Timothy Paul Savageaux

Northland Capital Markets, Research Division - MD & Senior Research Analyst

* Erica L. Mannion

Sapphire Investor Relations, LLC - President

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Presentation

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Operator [1]

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Ladies and gentlemen, thank you for standing by, and welcome to the EMCORE Corporation Fiscal Fourth Quarter and Full Year 2018 Earnings Conference Call. (Operator Instructions) As a reminder, today's call is being recorded.

At this time, I'd like to turn the call over to Erica Mannion of Sapphire Investor Relations. Please go ahead.

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Erica L. Mannion, Sapphire Investor Relations, LLC - President [2]

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Good morning. Before we begin, we would like to remind you that the information provided herein may include forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Exchange Act of 1934. These forward-looking statements are largely based on our current expectations and projections about future events and trends affecting our business. Such forward-looking statements include, in particular, projections about future results, statements about plans, strategies, business prospects, changes in trends in the business and the markets in which we operate. Management cautions that these forward-looking statements relate to future events or our future financial performance and are subject to business, economic and other risks and uncertainties, both known and unknown, that may cause actual results, levels of activity, performance or achievements of the business or our industry to be materially different from those expressed or implied by any forward-looking statement.

We caution you not to rely on these statements and to also consider the risks and uncertainties associated with these statements and the business that are included in the company's filings with the SEC, the U.S. Securities and Exchange Commission, that are available on the website located at www.sec.gov, including the sections entitled Risk Factors in the company's annual report on Form 10-K and quarterly reports on Form 10-Q. The company assumes no obligation to update any forward-looking statement to conform such statements to actual results or to changes in our expectations, except as required by applicable law or regulation.

In addition, references will be made on this call to non-GAAP financial measures. Investors are encouraged to review these non-GAAP financial measures as well as the explanation and reconciliation of these measures to the comparable GAAP financial measures included at the end of our press release included as Exhibit 99.1 to the Form 8-K we furnished to the SEC today. These materials can also be accessed in the Investors section of our website at www.emcore.com.

With me today from EMCORE are Jeff Rittichier, President and Chief Executive Officer; and Jikun Kim, Chief Financial Officer. Jikun will review the financial results and Jeff will discuss business highlights and the fiscal first quarter guidance before we open the call up for questions.

Now I will turn the call over to Jikun.

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Jikun Kim, [3]

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Thank you, Erica, and good morning, everyone. Today, I will focus my discussion on EMCORE's FY '18 Q4 and full year financial results ending September 30, 2018.

Consolidated revenue for the quarter came in at $25.2 million, more than $3.2 million above the midpoint of our initial guidance range of $21 million to $23 million provided on our third quarter earnings call and at the upper end of our revised guidance range of $24.2 million to $25.2 million provided in October. Driving the revenue upside in the quarter was larger-than-expected cable TV order related to our LEML product line, which we received late in the third -- late in the fourth quarter. Coupled with the expected return to normalized customer inventory levels of our legacy cable TV products and the completion of the long-term navigation supply agreement, revenues grew 42% sequentially. In Q4, our cable TV revenues were 71% of revenues and our noncable TV revenues were 29% of revenues. Chips were 10%, Satcom video and wireless revenues were approximately 9% and navigation was at 10% of revenues. All of our end markets grew sequentially in the quarter, with cable TV driving the largest upside within the broadband market and chips and navigation products growing in line with expectations.

GAAP gross profits in Q4 were approximately $4.4 million or 17.5% of revenue, up from 6.8% in the prior quarter. The sequential increase in gross margin was largely driven by a number of unique events in the third quarter, which we -- did not repeat themselves in the fourth quarter, offset by additional E&O charges due to accelerating adoption of our LEML products, incremental long-term inventory impairments as well as a expedite charges related to sourcing of raw materials for the LEML order, which I referenced earlier. Taken together, these expenses totaled approximately $1.5 million or 6% of sales. Pro forma for these expenses, our gross margins would have been 23.5% in the quarter, within the -- within our expectations as we continue to increase chip capacity and transition to LEML-based transmitters, which in the near term, carry a lower-than-overall corporate average gross margins.

The GAAP operating expenses for R&D and SG&A were $10 million, $0.9 million higher than the prior quarter and $1.1 million higher than the prior year. In Q4, we continued to increase our R&D investments in navigation products, while SG&A was primarily impacted by an increase in consulting and litigation-related expenses. On a GAAP basis, the consolidated operating loss for the fourth quarter was $5.6 million.

Our non-GAAP operating loss from continuing operations after excluding certain adjustments, all of which are set forth in the non-GAAP tables included in today's press release, was $3.3 million, a $3.4 million increase compared to the prior quarter, principally driven by top line growth and improved gross margin performance. As a percent of revenue, Q4 FY '18 non-GAAP operating income was a negative 13.9%. Our non-GAAP pretax loss from continuing operations was $3.3 million.

Moving on to the balance sheet and cash flow statements. At the end of Q4 FY '18, the company's cash and cash equivalents, including restricted cash, were approximately is $63.2 million or a decrease of $2.3 million quarter-over-quarter.

Regarding our working capital metrics, DSOs were at 82 days, an increase compared to 61 days in the prior quarter. Net inventory turns, including noncurrent inventory, was at 2.7x. Capital expenditures in the quarter was $2.8 million and depreciation in the quarter was $1.5 million.

For the full year FY '18, consolidated revenues totaled $85.6 million, which is 30% lower than the prior year, driven primarily by cable TV inventory correction, which impacted our performance throughout the year. GAAP gross profits in FY '18 were $18.5 million or 21.6% of revenues, a decrease of 13 percentage points over the prior year as a result of factory underloading, product mix shift and various unique items, which we have discussed during the year.

Total GAAP operating expenses was $36.8 million, approximately $2 million higher than the prior year. R&D investments increased $2.8 million year-over-year, driven by investments in new navigation products. SG&A decreased approximately $0.8 million, driven by reduction in annual performance bonuses, offset by higher bad debt and legal expenses.

On a GAAP basis, the consolidated pretax loss for 2018 was $17.9 million compared to an income of $8.4 million in the prior year.

Our non-GAAP pretax loss from continuing operations after excluding certain adjustments, which are set forth in our non-GAAP tables included in today's press release, was $11.3 million compared to an income of $14.3 million in the prior year.

Our non-GAAP EPS for 2018 was a loss of $0.41 compared to a earnings of $0.52 in the prior year.

Finally, before I turn the call over to Jeff, this morning, the company announced that I would be resigning to tend to some personal obligations. I've enjoyed my time here at EMCORE, both in working with a quality team and being part of the transformation the company is undertaking.

With that, I will turn the call over to Jeff.

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Jeffrey S. Rittichier, EMCORE Corporation - CEO, President & Director [4]

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Thanks, Jikun. First of all, on behalf of all of us here at EMCORE, it's been a sincere pleasure working with you. We truly appreciate the numerous contributions you've made to the company, but while it's unfortunate to see you go, we wish you all the best.

Turning to our fourth quarter results. As Jikun highlighted, we experienced significant strength in the cable TV market, driven by both the increasing adoption of our LEML-based solutions and the resumption of orders from one of our cable TV customers who is working through an inventory overhang throughout much of fiscal 2018.

Our LEML product line continues to perform beyond expectations with record volumes of LEML transmitters shipped in the quarter, including production shipments of all 7 of the LEML design wins that we previously announced. This is an important milestone for EMCORE as it further validates the competitive advantage that the LEML provides. By enabling substantially higher transmission efficiency versus legacy DFB solutions, our LEML transmitters give MSOs a cost-effective powerful tool to break bottlenecks in their networks without ripping up and replacing their existing linear-based infrastructure. To this end, in the fourth quarter, we received a sizable LEML order, which was well above our customer's original forecast. While we do not expect this level of activity to repeat in the first quarter, we're encouraged by the overall pace at which the industry is moving to this technology.

Independent of the ramp in LEML, in the fourth quarter, we also began to see resumption in normal ordering patterns for our legacy DFB products. With the inventory overhang now exhausted, we expect demand for these products to serve as a baseline to cable TV product revenue as our customers transition to LEML solutions.

Outside of cable, as Jikun mentioned, our other broadband products grew quarter-over-quarter with Satcom driving the increase. Our development work within the wireless DAS market is continuing on plan. And while project engagements remain robust, our expectations for production revenue continues to be a late 2019 to 2020 event when 5G deployments move beyond trial phases.

Moving on to the chip market. In the fourth quarter, we continued to experience sequential growth driven by increased demand in 2.5 GPON products within China. We see this growth trend accelerating substantially in the fourth quarter with strengthening demand in both PON and non-PON-related products driving the increase.

Finally, within the navigation market, on the production front, in the fourth quarter, we completed the 4-year sole source supply agreement with Raytheon, providing us with fixed volume commitments through fiscal 2022. As we've discussed previously, beyond the improved visibility this contract provides, we view it as a further validation of the competitive strength of our technology and our ability to win share in this market. On the new program side of our navigation business, we recently announced 2 new contracts, which together demonstrated our 2-pronged approach for further penetrating the navigation market. EMCORE's primary strategy is to provide superior CSWaP solutions, which is cost, size, weight and power, for existing sockets with form, fit and function replacement for competition legacy products. In the case of the product announcement that we made for the EN-1000, EMCORE is targeting a legacy product with a total available market of nearly 10,000 navigation-grade units. Our patented technology creates a compelling alternative for customers, eliminating the need for them to source navigation equipment from competitors.

Another key portion of our strategy is to use common technical building blocks from our sockets business to design custom solution for next-generation navigation systems. This is significant as it not only represents an opportunity to enter new programs, but it also allows EMCORE to expand our already advanced technical capabilities. For the second program that we recently announced, we're leveraging technology developed for the EMCORE Orion series of Fiber Optic Gyro-based micro Inertial Navigation Systems which are capable of delivering stand-alone aircraft-grade navigator performance at 1/3 the size of legacy or competing systems. The CSWaP benefits of this solution are an industry first in this class of IMU and demonstrate EMCORE's ability to provide truly differentiated solutions to the market.

As we've discussed previously, given the long qualification, design and product lifetimes in the navigation business, it's useful to think of each program as a layer over a technical foundation. Each new program adds revenue over many years compared to their commercial counterparts. EMCORE continues to build layer upon layer on its technical and production foundation, which in turn creates meaningful growth opportunities as individual production programs take hold. It's easy to see why we are excited about EMCORE's prospects in navigation.

Now turning to the outlook for our business, I'd like to address some big-picture components for the year going forward before discussing the outlook for Q1. Approximately 1 year ago, I stated that Remote PHY would not have any measurable impact on our cable TV products in FY '18 nor was it likely to have a meaningful impact in FY '19. With the benefit of hindsight, we can see our prediction about Remote PHY in F '18 -- FY '18 was correct and would like to take this opportunity to reaffirm that we see no meaningful impact to our business from Remote PHY in FY '19. On the contrary, we've seen growing requests for a second-generation LEML in our new 1.8-gigahertz transmitter products, both of which are currently in development. Linear optics has a long future ahead of it.

We spend a great deal of time talking with OEMs and MSOs about the state of the market, its economic drivers as well as technical developments, which affect the larger cable television business. With that said, it seems the production deployments of DOCSIS 3.1 equipment are moving forward according to plan. We will certainly be vigilant about the state of demand in the industry, but outside of normal seasonal swings, we see a solid FY '19 in cable TV. The Satcom market also looks to be robust and, despite any lumpiness in orders, should outperform FY '18 nicely. Our order backlog is currently strong and several important programs are in the funnel with good prospects

Our chip products should also experience substantial growth this year due to a broader product line, more efficient supply chain and expansion of our chipmaking capabilities. Margin should improve substantially over the next 4 quarters as the product mix becomes more favorable.

For the navigation market, in FY '19, we are expecting substantial growth as well for the reasons that I already described. We entered FY '19 with nearly 140% of our entire FY '18 revenue result already in backlog.

Operationally, we're making substantial improvements in our U.S. operations to improve the capacity and efficiency of our navigation product assembly facilities. We expect to continue the modernization of our wafer fab equipment and physical plant to improve our ability to build advanced 25G products and beyond as well as chip-level products across multiple material systems. We embarked on a general campus upgrade that was long overdue and will complete this in phases over the next 2 years or so. I would also like to point out that we'll continue to optimize the geographic footprint of our EMS supply chain to increase the leverage that we have with suppliers and to minimize any tariff impacts. As you all know, the tariff situation is fluid, but given what we know today, we do not expect a material impact from these changes in the short term and feel that we have a solid strategy for staying ahead of the issue.

Finally, I'd like to comment on the outlook for the first fiscal quarter. Taking into consideration the unusually large LEML spike, which occurred in the fourth quarter, we expect revenue to be in the range of $23 million to $25 million. Essentially, we're expecting growth in all 3 of our noncable TV products to help offset a more normalized demand environment within the cable TV market.

Now I will turn the call over to the operator to open up for questions. Operator?

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Questions and Answers

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Operator [1]

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(Operator Instructions) We will now take our first question from Jaeson Schmidt of Lake Street Capital Markets.

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Jaeson Allen Min Schmidt, Lake Street Capital Markets, LLC, Research Division - Senior Research Analyst [2]

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Jeff, just want to start with the CATV business. It sounds like you guys have increasing confidence going into fiscal '19. So is it fair to say that visibility has significantly improved over the past 3 months, and you have confidence that this inventory correction at your large customer is finally over?

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Jeffrey S. Rittichier, EMCORE Corporation - CEO, President & Director [3]

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Jaeson, yes. I would say that's true, although I'd also point out that in terms of the actual meaning of the term visibility, I mean, I think we called it correctly when we said that we would be past that roughly in the middle of Q4. So I don't think there were any surprises there other than the initial discovery of the inventory at EMS. But yes, we see a solid FY '19 as far as the number of links go and don't see any headwinds right now.

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Jaeson Allen Min Schmidt, Lake Street Capital Markets, LLC, Research Division - Senior Research Analyst [4]

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Okay. That's helpful. And if you wouldn't mind just commenting your thoughts on the CommScope-ARRIS acquisition and how that would impact you guys.

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Jeffrey S. Rittichier, EMCORE Corporation - CEO, President & Director [5]

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Sure. CommScope was an EMCORE customer back in FY '16 for RFoG units until they sold the business in roughly the summer of '16 to ADTRAN. So since that time, CommScope has sort of reverted back to its traditional product mix, and they actually don't have any headend equipments at all that they sell in the fiber optic business nor do they have anything over on the -- actives over in the -- on the CPE side. So we don't see any overlap at all in the product lines. We've got some conversations scheduled with ARRIS that as it is right now, it won't have any impact on ordering or product road maps or anything else.

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Jaeson Allen Min Schmidt, Lake Street Capital Markets, LLC, Research Division - Senior Research Analyst [6]

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Okay, that makes sense. And the last one from me, and I'll jump back in the queue. What percentage of revenue in September was from your LEML portfolio? And if we look towards the end of fiscal '19 or calendar '19, what do you think that percentage will be?

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Jeffrey S. Rittichier, EMCORE Corporation - CEO, President & Director [7]

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Jikun, do you have that number?

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Jikun Kim, [8]

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No. We can go get that for you, Jaeson.

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Jeffrey S. Rittichier, EMCORE Corporation - CEO, President & Director [9]

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Yes. It's certainly well above -- Jaeson, it is certainly well above 50%. I think as we take a look at FY '19, LEML revenues as a percentage of all of cable TV could be somewhere between 60% and 80%. So the whole revenue picture has changed pretty dramatically.

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Operator [10]

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Our next question is from Tim Savageaux of Northland Capital Markets.

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Timothy Paul Savageaux, Northland Capital Markets, Research Division - MD & Senior Research Analyst [11]

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Can you hear me?

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Jeffrey S. Rittichier, EMCORE Corporation - CEO, President & Director [12]

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Yes.

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Timothy Paul Savageaux, Northland Capital Markets, Research Division - MD & Senior Research Analyst [13]

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Great. A couple of questions. And I really want to focus on gross margins to start with and the implications of LEML on the rest of the mix. Last time you were around this level -- revenue level, your gross margins were above 30%. You called out some specific items impacting margins in the quarter. It sounds like you've got some positive mix dynamics heading into fiscal Q1 with cable TV coming back a bit and the rest of the product line growing. But in general, I'd say if you can give us some qualitative guidance from the direction of gross margins, seems like they should be heading up from here, and any sort of targets there with regard to where overall current levels of OpEx are and, I guess, when you expect the business to breakeven.

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Jeffrey S. Rittichier, EMCORE Corporation - CEO, President & Director [14]

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Sure. I'll tackle the first part, and we'll see if we can get you what you need. There have been a series of transition costs, as you can imagine, with the movement to LEML being as aggressive as it has been. We've pointed in the past to inventory that we needed to write down because as LEML takes up a larger portion of our cable TV business, necessarily some of the DFB inventory has to go into excess even if it's not obsolete. And so some parts of that we end up getting back later, although the timing on that is sort of indeterminate. It also affected the amount or the value, if you will, of long-term inventories, Jikun pointed out, because the LEML offers virtually equivalent performance in many respects to externally modulated transmitters. So we had to take some write-downs on the modulator inventory because of that, and we're taking some very aggressive steps to try to make sure that doesn't happen again, but no guarantees. So the first group of things I would call transition costs in a big technology shift, and I think we have most of those behind us. The second part, as Jikun pointed out, in the quarter, it was a little unusual, was that we incurred substantial expedite charges to bring in a very large order for one of our customers and it was well within lead time, I think, on average, it was -- we turn these things around in 6 weeks, which is a very difficult thing to do, but we had some expedite charges because of that. Third factor, which also we expect to see improving through the year, is let's call it the gross margin mix. The LEML products are rapidly improving the gross margin, and this is just sort of normal with getting up the manufacturing experience curve. We see the continued improvement in the chip business as well as navigation. And some of these things actually have a -- can have a short-term negative impact in the form of cap variances. If you go -- well, standard -- because if you become more efficient, it can affect the value of inventory sometimes in a way that's harmful in the short term to gross margin, but again, those are noncash charges. So it's perhaps not quite as important, but it's something that we are actively trying to manage through without hitting the P&L like we did this quarter. And I think going forward, we've got some better knobs to turn to keep that down. So the final point is volume sensitivity. In the fourth quarter, we came -- we put most of the issues regarding underabsorption of fixed costs behind us. And I think at this level, we're going to be able to turn additional volume into greater gross profit. So all of these things combine, Tim, to produce a trend, which gets us back towards some of those historic margins. Depending on exactly what the mix looks like in Q3, Q4, we could get there, but we'll have to see what the reality of the mix is versus a long-range crystal ball view. But there's nothing fundamentally at work here that should cause us to have continued low margins. We've just got to manage our way through what has been a very, very big technical transition in product mix. So hopefully that helps answer the question.

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Timothy Paul Savageaux, Northland Capital Markets, Research Division - MD & Senior Research Analyst [15]

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It does. It helps a lot, actually. And just my overall view is to the extent that you expect to grow sequentially throughout the year and given the step down in cable and then the likely step back up, that seems highly likely with OpEx around current levels, you would certainly need to see margins getting back up toward those historic levels to reattain profitability. So that math all works. And I guess, one potential driver for that you mentioned backlog commentary in the navigation business being 140% of last year's revenue. I wonder if you can give us a little more color of what you're kind of expectations are of the sort of lead times project-wise to add to that in fiscal '19? Or how we should think about that business, the rate of growth there given the lead times involved in some of these projects? Or you've just announced a bunch of them, but can we see that backlog increasing throughout the year as well as revenue shift on that backlog?

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Jeffrey S. Rittichier, EMCORE Corporation - CEO, President & Director [16]

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Yes. We're very excited about navigation. The interesting thing about it that's so different from cable is that when we think about how the quarter is going to go forward, virtually 100% of the navigation product that we plan on shipping or billing in the case of some of the NRE, it's all got to be in by the beginning of the quarter. So where cable has been highly unpredictable, once you get the programs in navigation, they become highly predictable, provided that we can execute well on some of the developments, that the customer side of things keeps pace because, of course, they could slow down or -- not so much slowdown, they can have their own delays, which can prevent us from shipping, if you will, or billing nonrecurring engineering. But overall, I think prospects for increasing the backlog in navigation looks good. Our new Hawkeye products are receiving terrific reviews with customers, actually have solved long-standing spec limitations that existed with the original product, and we are actively out pushing them all over the world. I'd also point out that there are some significant activities going on with some of our newer products, the IMUs, the EN-150 and EN-300, which we will expect to announce sometime in the next few months. But navigation is a big bet for us. It's one of the reasons why we've run R&D heavy in the organization, but it's all organic growth at this point, and we see -- it's not huge absolute numbers because FY '18 was relatively small, I think it's $7 million and change. But on a percentage basis, it easily hit triple digits and maybe more within this year. But overall, we're real happy with the navigation business and expect it to be a major growth driver both in this year and beyond.

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Timothy Paul Savageaux, Northland Capital Markets, Research Division - MD & Senior Research Analyst [17]

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Got it. And one more from me, and I'll pass it along. And then that's over on the chip side of the business. It looks like revenues were flat sequentially there, although your anecdotal commentary spoke to some acceleration on the GPON side. I don't know if you were kind of focused on Q1 or forward-looking in those comments. And you also mentioned strength in some other areas of the laser chip business besides GPON. So I'm wondering if you could kind of go back to that acceleration commentary, kind of where that focus was from a product timing standpoint and also talk about some of those other product categories within the chip business.

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Jeffrey S. Rittichier, EMCORE Corporation - CEO, President & Director [18]

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Sure. So difference between Q3 and Q4, it was about flat. I think it was a little bit up. But sometimes the product mix shifts around a little bit underneath us even quarter-over-quarter. And for example, if there is a bigger mix of gain shift, you tend to see a bigger revenue rise because they're much more expensive devices. But we are broadening the product line. As we talk about going from Q4 to Q1, the products outside of GPON, more 10G stuff is actually starting to ship. We are seeing a broader range of wavelengths. There's a bunch of 1490 stuff. We have a lot of new part EML sampling. So the -- some of the applications are PON, Tim. They're going to be 10 GPON as well as 2.5G, but there are also products that are outside of the traditional PON space. More things going on over with telecom devices, and I can't really talk about the specifics of what those are because there are a bit competition sensitive, but what we're going to expect to see is far less reliance as we exit the year on GPON compared to where we are right now. I mean, we're sampling 25G detectors. We expect to be sampling 25G lasers here in the next quarter or 2. And we've got lots of people interested in the things that we're building.

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Operator [19]

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We will now take our next question from Dave Kang of B. Riley FBR.

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Lee T. Krowl, B. Riley FBR, Inc., Research Division - Associate Analyst [20]

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This is actually Lee Krowl on for Dave Kang. Just a couple of expense and spending questions first off. Just kind of curious on the trend of R&D through fiscal '19. You obviously have a lot of different opportunities out ahead of you. But just curious if the R&D trends up through the whole year, and then also just specifically on navigation, whether the R&D expenses associated with current products. Or if you are kind of investing ahead of positioning yourself for competing for new contracts?

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Jeffrey S. Rittichier, EMCORE Corporation - CEO, President & Director [21]

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Jikun, you want to tackle that?

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Jikun Kim, [22]

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Yes, sure. So in general, the R&D expenditures will continue to be elevated closer to the fourth quarter levels for FY '19, trending up as we go through the year. The R&D investments are, obviously, we invest across all of our product lines. Navigation does seem to have a primary focus here with newer products and all of the new to-be-determined and to-be-announced products on the nav side. The chip investments are substantial, and we continue to make investments in those.

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Lee T. Krowl, B. Riley FBR, Inc., Research Division - Associate Analyst [23]

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Got it. And then...

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Jeffrey S. Rittichier, EMCORE Corporation - CEO, President & Director [24]

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On the more qualitative side though, I will say that -- so there is a fair bit of R&D going on in navigation right now. And a significant fraction of it is being absorbed in R&D contracts which already exist. So it is an outsized group right now. We expect as revenue grows and as we capture some new programs, it's going to gradually ease down, but I wouldn't expect to see a big move in the current fiscal year.

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Lee T. Krowl, B. Riley FBR, Inc., Research Division - Associate Analyst [25]

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Got it. And then just handing off to some of the commentary on CapEx additions to kind of meet the near-term demand. Does CapEx also trend up through the year? Or is there a level of investment that you have to tackle near-term, and then maybe it tails off or flattens in the back half?

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Jikun Kim, [26]

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Yes. So last year, FY '18, we spent, I believe, $6.6 million in CapEx, with $2.8 million of it in the fourth quarter. We do anticipate elevated levels of CapEx spending in '19 probably commensurate with more the $2.8 million levels versus the lower levels we saw in the earlier quarters. So a lot of that is upgrades to add capacity to our navigation business as well as upgrade our wafer fab factory.

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Jeffrey S. Rittichier, EMCORE Corporation - CEO, President & Director [27]

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The other piece to point out is that the campus here in Alhambra has not had an upgrade to make it more efficient. I mean, it's really chopped up and it's sort of an inefficient place. And one of the things we felt we needed to tackle was in conjunction with, call it, a more efficient manufacturing space, it was also just a general set of upgrades on the campus, and so that's also contributing, but we're trying to keep that at a modest peak. As I said, it's going to be a modest rate. We're going to be doing this over a period of 2 years, that piece of it.

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Lee T. Krowl, B. Riley FBR, Inc., Research Division - Associate Analyst [28]

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Okay. And then you guys did provide a fair amount of outlook color for 2019, but I was just curious if maybe you wanted to commentary on revenue mix exiting the year. I know it's been a major effort of yours for revenue diversification. So I was curious if you want to take a shot at maybe the mix as some of these new projects come online.

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Jeffrey S. Rittichier, EMCORE Corporation - CEO, President & Director [29]

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Yes. It's a bit of a crystal ball sort of exercise. If we had to guess, probably 30% to 40% would be noncable TV, maybe a little bit more, but I think that's a reasonable range given what we're seeing. If we're over 40% then we've really done an outstanding job. I mean, when you consider that in FY '17, cable TV was 100 out of 122, you really start to see the changes that have been made here in terms of the product mix.

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Operator [30]

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It appears there are no further questions at this time. I would now like to turn the call back to our hosts for any additional or closing remarks.

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Jeffrey S. Rittichier, EMCORE Corporation - CEO, President & Director [31]

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Thank you. In closing, I'd like to thank all of you for your time this morning and your interest in EMCORE. I'd also make -- like to make a final announcement of our best wishes for Jikun and a final thank you as well as to our employees and Board of Directors for the hard work and commitment that they make to the company. Thank you very much.

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Operator [32]

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This concludes today's call. Thank you for your participation. You may now disconnect.