Q1 2024 EMCORE Corp Earnings Call
Participants
Thomas Minichiello; Chief Financial Officer; EMCORE Corp
Jeffrey Rittichier; Chief Executive Officer, Director; EMCORE Corp
Richard Shannon; Analyst; Craig-Hallum Capital Group LLC
Presentation
Operator
Good day, and thank you for standing by, and welcome to the Amcor Corporation fiscal 2024 first quarter results conference call. At this time, all participants are in a listen only mode. As speakers' presentation, there will be a question and answer session. You ask a question. During the session, you'll need to press star one on your telephone. You will then hear an automated message device, in your hand is raised to withdraw your question, please press star one again.
Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Tom Mann, CELLO Amcor's Chief Financial Officer. Please go ahead.
Thomas Minichiello
Thank you, and good afternoon, everyone, and welcome to our conference call to discuss Amcor's fiscal 2024 first quarter results. The news release we issued this afternoon is posted on our website, amcor.com. On this call, Jeff richer, Amcor's President and Chief Executive Officer, will begin with the discussion of our business highlights, and then I will update you on our financial results, and we'll conclude by taking Quest before we begin, we would like to remind you that the information provided herein may include forward-looking statements within the meaning of Section 27 A. of the Securities Act of 1933 and Section 21 E. 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 the business. Such forward-looking statements include projections about future results, statements about plans, strategies, business prospects and 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 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 statements. We caution you not to rely on these statements and to also consider the risks and uncertainties associated with these statements in the business, which are included in the company's filings available on the SEC's website located at SEC.gov, including the sections entitled Risk Factors in the Company's annual report on Form 10-K. The Company assumes no obligation to update any forward-looking statements to conform these statements to actual results or to changes in our expectations, except as required by applicable law or regulation. In addition, references will be made during this call to non-GAAP financial measures, which we believe provide meaningful supplemental information to both management and investors. The non-GAAP measures reflect the company's core ongoing operating performance and facilitates comparisons across reporting periods. Investors are encouraged to read these non-GAAP measures as well. The explanation and reconciliation of these measures to the most comparable GAAP measures included in our news release.
Now I'll turn the call over to Jeff.
Jeffrey Rittichier
Thank you, Tom, and good afternoon, everyone. In Q1, inertial navigation revenue shifted substantially between facilities totaling 21 -- $24.1 million with a gross margin of 29%. Non-gaap Chicago, Concord and Alhambra revenue grew in quarter one, but not enough to make up for the revenue drop and Bud Lake. Tom will provide additional financial details in his remarks.
Book-to-bill came in under 1.0 due to the shortened holiday season. However, none of those orders were lost and all are expected to book in the current quarter, combining to produce a book-to-bill significantly higher than 1.0. While our booking performance is expected to be quite strong this quarter, the requested ship dates are expected to stent extend out longer than normal. This strengthens the book for the out quarters at the expense of near term shipments, damping prospects for short term growth. For example, we recently booked an order for $8 million that will be part of a very long term contract. However, the customer's request dates will actually cover two full years, the net effect of which is to provide more predictable long-term performance at the expense of any short term bump in revenue at quarter's end, backlog in the business was approximately $51 million compared to the September quarter. And adjusted for team who this represents about a 10% reduction that we expect to fully resolve in the marks March quarter as we work with interested buyers of our wafer fabrication facility in Alhambra. Although we had expected to complete the sale by the end of December quarter. Negotiations have taken longer than expected, and we now have additional incoming interest. That said, we're working to close the transaction ASAP. But in the meantime, we continue to benefit from cash that the last time sales of chips to customers provide.
Moving on to the business, I'll begin my comments by stating that although we had strong performance from Tinley Park, Concord and Alhambra seasonal issues and holiday shortened quarter presented headwinds that were bigger than expected, preventing us from backfilling for Bud Light, in particular, delayed export licenses caused us to push out about $750,000 worth of shipments. And although we were able to bill nearly $800,000 in nonrecurring engineering for another program. It did not count as revenue. The principal reason for this delay was a defective lot of circuit boards that could not be ramped remanufactured before the supplier shutdown for the holidays. Mix and margins held up well and we expect similar margins in the March quarter. It has been widely reported in the press that actual cash funding to replace munitions and systems allocated to the Ukraine is dangerously low. This has contributed to some of the budget tug of war that's going on between the service branches. It has contributed to some of the timing delays that we've seen in contracting. Operating expenses were a bright spot sales and marketing and G&A came in as expected, but R&D was significantly reduced, showing nearly a $600,000 improvement. We are mindful of our high internally funded research and development, otherwise known as I read spending and expect to continue to drive this down in the coming quarters through NRE contracts from our customers.
In October, we talked about the creatives, our XQ 58 Valkyrie, the Navy's mark 48 torpedo business increase and a few other programs that are continuing to progress nicely this quarter, we are expecting several other long-term contracts to be awarded in addition to the Navy's Mark 54 Mode one torpedo as it enters production. As we flagged in last quarter's comments, the delays in receiving circuit boards did impact shipments of an advanced IMU. for Raytheon's EO IR parts, but we are now expecting to complete the full contract and all of our engineering obligations under that contract. At the end of the quarter, we expect to complete the current phase of our MMS. program, along with several smaller programs roughly within the next six to 12 months. We continue to expect nonrecurring engineering funding from our customers to be at least $7 million in calendar '24, with additional growth expected starting in September and proceeding through FY25.
I'd like to provide some additional insight into our integration programs and our continued work on optimization and consolidation, all of which are a key area of focus this year remain on. We remain on track to complete the ERP upgrades for Alhambra and Concord unifying the Company's ERP systems. Beyond ERP, we should complete the product line management product, data management migration and Bud late in the March quarter, and this will complete the unification of product data. Manufacturing execution systems will be integrated into Concord and Chicago facilities starting this year. We've also made good progress on moving to a common IMUINS. architecture, having its roots in the former L-3 aerospace and navigation team and Bud Lake. This common architecture will streamline our development programs and improve our ability to create new component technologies with less engineering expense. As I've said before, component technology differentiation is the key to gross margin, and we are moving to design the next generation closed-loop FOG components as well as new closed loop human sensors to improve cost size, weight and power for all of our products beyond boom engineering consolidation, we're working to reduce the amount of floorspace we require with the expected wafer fab sale. Alhambra is now moving all of its optical component assembly technology into a single Alhambra building that we now occupy. This is down from five buildings a year ago. Concord will have its footprint by approximately 50%, and we are working on a plan to rightsize the blood Lake facility I wish the consolidation problem was as simple as cutting floor space and relocating processes and equipment. However, as I pointed out before, there are very expensive structural power, gas and environmental systems required to support these moves, not all of which exist in some of our facilities. Customers also require significant requalification efforts to certify processes on new equipment and new facilities, requalification is typically done during block changes and timing is driven by their schedules and the needs of end users, not ours. Nevertheless, we've made good progress on reducing the amount of floor space, but we require within the capital and requalification limits in the business and expect that effort to continue until we reach an optimal configuration.
Finally, and Turning now to guidance. March quarter is expected to be flat compared to December with a range of $23 million to $25 million. This is just largely due to order timing and some of the expected delivery dates that we're seeing in our order book.
With that, I will turn the call back over to Tom.
Thomas Minichiello
Thank you, Geoff. First, a reminder that the results from our legacy business, namely the former Broadband segment and the defense optoelectronic products are reported in the income statement under discontinued operations. As previously reported, all of these operations, except for the Alhambra indium phosphide wafer fab and associated chip business, which remain on the balance sheet as assets held for sale were sold in October.
With that, I'll move to a discussion of the results from continuing operations, which is exclusively commercial navigation business. Revenue in fiscal 1Q was $24.1 million compared to the prior quarter's $26.8 million. Tinley Park shipments continued on a path of continuous steady growth each quarter since the acquisition over a year ago. Concord and Hamburg, while up compared to the quarter before fell short of our expectations largely attributable to, as Jeff noted, export license and product delays towards the end of the quarter. Additionally, Bud Light revenue was down primarily due to the team loss we outlined on our last call.
Let me now turn to the rest of the operating results, which will be on a non-GAAP basis. Gross margin held up at 29% in 1Q, despite the lower revenue, contributing to the favorable margin was improved fixed overhead absorption in Tinley Park and Concord and an overall favorable mix.
Operating expenses were $9.5 million in fiscal 1Q compared to $10.1 million in fiscal 4Q. The improved OpEx was largely driven by an increase in customer funded, nonrecurring engineering or NRE, in which the associated engineering expense is moved, the cost of goods sold to match up with the corresponding revenue. This lowered internally funded R&D or I read, which remains as part of OpEx operating loss in the December quarter was $2.6 million compared to the September quarter is $1.9 million negative adjusted EBITDA was $1.7 million compared to $900,000 last quarter, net loss was $2.6 million, or $0.03 per share. Sequential changes for all three of these metrics were all primarily attributable to the lower revenue.
Turning to the balance sheet, reported cash was $21.1 million at December 31st, 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, Amcor cash was $19 million at the end of the quarter compared to $26.7 million at September 30th to $7.7 million decreased during the quarter consisted of the following negative $1.7 million adjusted EBITDA, $1.5 million associated with discontinued operations, a $1.3 million litigation settlement, $2 million for financing activities, including a $1.7 million debt reduction on our revolving line of credit, $700,000 for severance and a combined total of $500,000 for working capital CapEx and litigation related costs. Litigation settlement was one-time in nature. And going forward, we expect a significant drop off in cash used for discontinued ops and severance.
Total outstanding debt was reduced by $2 million during the quarter to $8.6 million when compared to $10.6 million at September 30th. The $8.6 million as of as of December 31st, consisted of $4.6 million on the line of credit and a $4 million balance on the term loan component. There is currently about $3 million available for borrowing on the line before we get to the Q&A. And as announced this past Tuesday, we plan to be at the Cowen Aerospace and Defense Conference next week on Wednesday, February 14th in Arlington, Virginia, including a presentation and investor meetings. A link to the live webcast of the presentation was included in Tuesday's announcement. With that, we are now opening up the call for your questions.
Question and Answer Session
Operator
And thank you.
As a reminder, to ask a question, please press star one on your telephone and wait for your name to be announced. To withdraw your question, please press star one. Again, please stand by while we compile the Q&A roster. And one moment, Barbara question.
And our first question comes from Richard Shannon from Craig-Hallum Capital. Your line is now well.
Richard Shannon
Hi, Jeff and Tom, thanks for taking my questions. Let's just start off with a few tactical questions here. Kind of quickly here. So obviously, the December quarter revenues were a bit low here. And you talked about some push-outs and some supplier supplies issues here. And I know you talked about some bookings are a little bit farther out here, but I guess it would seem like that the like would have come back within this quarter. It doesn't seem like that's represented in the numbers. I'm not sure if I'm reading this right here, but why wouldn't we see some of that come back? And then how does this help us think about, as you said in the press release about returning to growth in the June quarter?
Jeffrey Rittichier
Yes, sure. So let me let me tackle bluntly. So bundling was the primary home site that was working on a new and a pretty significant fraction of their revenue was associated with that program itself in the very short term. And I'm talking about now over the next six months and there isn't another program to take place until the mass motion sensor, what we call MMS. are on production, and that will happen starting in early 24, right? So we'll be building all of the optical components here in our Hamburg, integrating them here. And then over in blood Lake, they will be doing all of the assembly and checkout. So, you know, effectively that program should be a pretty good job of replacing that revenue. So the name of the game really for us in the short term is replacing the lock in revenue with other programs on that are running in our Concord Tinley Park and Alhambra and just a little bit of timing issues on those. We're expecting it's going to be a little bit hard to get some of those into production this quarter, which is why we pointed towards June as a resumption of growth. So in the short term, before that mass motion sensor hits production, it's really about maximizing the revenue out of the other three facilities. So it makes sense.
Richard Shannon
Yes, I think so maybe just put this in bigger context of what you said last quarter, where I think you're talking about a funnel that would support kind of [$115 million to $125 million] for this. I believe it was referring to the fiscal year, and I think that was already taking into account the loss of team here. How does that how does that number sit with you now?
Jeffrey Rittichier
Yes.
So I would say it's just pushed off approximately a quarter or two. So at some point, when we have a little more certainty on exactly what's going on, we will update the yearly guidance and it's just timing, right. Part of it is driven by this tug of war between the services, no programs have been water.
No, no competitive issues at the last minute or anything like that it's just timing. And again, just give you one example, the Mark 54 on new version, the Mode one supposed to go into production is click to go into production 18 months ago. And it was largely contracting delays getting into Raytheon that were responsible for, you know, them telling us that, hey, guys, you have to have the go button. So this is just sort of the macro environment that we find ourselves in right now. Fundamentally, all of the programs are doing well. There's been nothing to comment on as far as any losses. It's just, you know, the it's just the short term stuff. I mean, I could see a situation where we exit the March quarter with backlog that I think would be a very, very pleasant surprise challenges that I take a look at it.
Okay.
Well, how much of this is due within the next quarter?
Right. We're not we're not worried about buying much at all, if there is clearly the short-term gap from team move. And that's what's just proven to be a little bit more difficult from a timing perspective.
That's all.
Richard Shannon
Okay.
Of course.
Fair enough. Let's see here. Just quickly on the wafer fab sale here. Is that something you so to get done this quarter? I mean, you talked about or Tom mentioned the deposit rate here. So it seems like there's confidence to some degree on both sides here. What is your confidence in closing this quarter? And what's the what's the delay or anything you can share there?
Jeffrey Rittichier
Yes. I think we've got a reasonable degree of confidence we've now got multiple on your exclusivity was lost because of delays. And so there's no other inbound interest and, you know, like the old saying goes, sometimes you need, you know, two deals to make the one go through. And so how should we get it done this quarter?
Gosh, I hate to be the broken clock. That's right twice a day and we are working to close it as quickly as we can.
Richard Shannon
Okay. Fair enough. One or two quick questions here for Tom. How are we thinking about cash burn in the quarter? I think you kind of alluded to maybe that cash balance improving in this quarter based on working capital, it doesn't sound like that necessarily should change, but please tell me if your views are different there and then what's included in terms of the cash burn for the wafer fab or the discontinued operations, should it be around for the full quarter?
Thomas Minichiello
So you may have noticed, Richard, that that's that cash balance at the end of December. We had talked about this on the last call, and we had forecasted a larger amount of cash used in the December quarter than what actually ended up happening and a part of that was we received some rather large collections from customers thought in advance and attributed to probably they're trying to close out the year and use some budget money perhaps and a lot of that happened on December 29th, the last day of the quarter and up to that moved, Tom, that gave us a much more favorable working capital in December than we were anticipating go to. The other side of that is it's going to flip over into this quarter an impact this quarter in a way that home we didn't foresee it. So they'll be the results based on the guidance we just gave is, as Jeff said, and this to the December quarter and you're likely to see similar results down the P&L and into adjusted EBITDA. Tom will have more use of working capital this quarter. The other good news is that a lot of the discontinued ops stuff, which from a cash perspective was over $1 million this past quarter is likely to come down significantly, likely under $0.5 million, maybe even $100,000 less than that from our best estimates at this stage on the rest of it is CapEx and financing. So there will be a use this quarter based on the revenue that we're projecting.
I'm just kind of giving you the major bullet points here, and I hope I answered your question.
Jeffrey Rittichier
(multiple speakers) Richard, one other thought you said was about cash use in the wafer fab. It's shut down, right? So it's really sort of maintenance level stuff that's going on in there. And so there's no appreciable impact there. Again, we're going to get a few hundred thousand dollars a quarter on last time chip buys. That helps us offset that. But it just doesn't show up in revenue, right. It's discontinued operations.
Richard Shannon
Okay.
And maybe just a follow-up to specifically, Tom, here you said it's going to be your cash will be down. Any can you give us any sense of magnitude? It looks like it was $5.5 million in gross terms September to December here with a deposit that came in, I mean, so you're going to be down more than $3 million or $5 million in this quarter or just want to get a sense of what your.
Thomas Minichiello
Yeah. it's going to be.
That's not a bad range to think about it probably more towards the upper end of that range.
Richard Shannon
Okay.
Jeffrey Rittichier
(multiple speakers) And where do you worry me?
That is going to be exclusive of some of the things we're doing to tried to go and drive working capital out of the corporate inventory and so on. I think Tom's got a good handle on it, but we're going to trying to do a fair bit better.
Richard Shannon
Okay.
And that ending cash number here in this quarter. To what degree is that above or the limits of your comfort level here as you as you need operate the business?
Thomas Minichiello
Well, we like who we like $20 million as a good comfort level, but we are operating below that, which is doable and it can sustain should be as long as we meet our business goals.
Richard Shannon
Okay, fair enough. Let me ask one question. I'll jump on lines if there's other questioners here, but just kind of looking at the top line here, Jefferson, and as we talked about last quarter, you're trying to backfill the team who lost. That's obviously substantial. And it seems like we've got some pushouts of some programs related to a number of issues here that really seem to be outside of your control, but how about in terms of adding things into the front side of that funnel or even getting towards the end of getting contracts awarded here, what's the visibility? And how do we think about those opportunities here to see an acceleration to the end of the fiscal year?
Jeffrey Rittichier
Yes. So on one of the things and I mentioned this, I'll give you a little more color on it. So for example, one of the export licenses that was delayed in December was core to Unit four a international customer that needs a lot of product and they've got to run through with small incremental or dealt with qualification. And those things are still drilling on the loading dock right now because we know a fair amount of commerce is doing what they're doing. And so, you know, it's a case where there's just not something we can do about it as soon as they give us a go, we can start producing this stuff and sometimes the chips, it just happens that way you can you can execute to your best of best level of ability. And when you have outside factors that interfere, you know, your ability to respond is limited. There are other opportunities out there. And again, that's why I just here we are almost midway through the March quarter and it's just time necessary to build and ship that up more than go against any particular problems from a we know product demand standpoint and where we are, I'm not really concerned at all. It's just timing.
Richard Shannon
Okay, fair enough. I will jump the line, guys.
Thank you.
Operator
And thank you.
And I'm showing no further questions. I would now like to turn the call back over to Jeff richer for closing remarks.
Jeffrey Rittichier
Thank you. I'd also like to thank all of you for your interest in Amcor arm and a special recognition for production and engineering teams for the extraordinary effort they put in over the holidays. They guys were coming into work through Christmas Eve and New Year's Eve to maximize shipments. And I just want to give you guys a big public. Thank you, and thank you all very much.
Operator
This concludes today's conference call. Thank you for participating. You may now correct.
