EMCORE Corporation

Good day and welcome to the MCOR third quarter 2021 earnings call. Today's conference is being recorded. At this time, I would like to turn the conference over to Tom Minichiello. Please go ahead, sir.

Thank you. Good morning, everyone, and welcome to our conference call to discuss MCOR's fiscal 2021 third quarter results. The news release we issued yesterday afternoon is posted on our website at mcorr.com. On this call, Jeff Riddicher, MCORR's President and Chief Executive Officer, will begin with the discussion of our business highlights. I will then update you on our financial results for the quarter, and we'll conclude by taking questions. 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 the business. Such forward-looking statements include, in particular, 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 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 in 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 and 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 such statements to actual results or 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 review these non-GAAP measures, as well as 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.

Thank you, Tom. Pardon me. And good morning, everyone. M-Corp's third fiscal quarter revenue grew 11% over Q2, coming in at $42.7 million. Non-GAAP profitability grew even faster, showing an 18% increase from $0.17 to $0.20 per diluted share. Our strong top line growth and disciplined expense control continued to produce excellent flow through in the P&L, producing a non-GAAP operating profit of $7.9 million or 18% of revenue. This represents M4's fourth consecutive quarter of growing profitability and earnings, demonstrating the strong operating leverage in our business. We achieved this strong performance against the backdrop of COVID challenges and semiconductor shortages. Semiconductor availability tightened during the quarter and surprised pushouts of orders materialized as expected. While we believe that we're in good shape in terms of inventory for the current quarter, we expect to continue to redesign certain products to accommodate ongoing problems in the semiconductor supply chain. Inventory levels increased a bit quarter over quarter. However, we expect that this will resolve itself completely as we finished the transfer project from Beijing to Thailand. As I laid out in our last call, we added transmitter manufacturing equipment to increase capacity in Thailand. As a result, we saw significant production increases in Thailand during the June quarter with high yields. Achieving this milestone enables us to shut down transmitter builds in China starting in October. While COVID-19 outbreaks in Bangkok have caused turbulence in our CATV production output, our manufacturing lines are back up and running. Entry restrictions for foreign workers into Thailand have remained a significant hindrance to getting our Beijing team into Bangkok. However, we continue to make progress on production yields nonetheless. Turning to our individual business areas, cable TV drove strong performance in the broadband unit. Ships were up slightly as well. Our order book in cable TV grew despite the record pace of shipments. We continue to enjoy strong backlog in cable TV, although we will always be cautious about its cyclical nature. Broadly, our LIDAR and sensing components continue to garner interest from a wide variety of potential customers. Outside of sensing, we signed a contract for a new highly differentiated chip product which could be a major source of revenue growth beyond FY22. Overall, we are encouraged by the continued demand that we see for our new chip and sensing products and see a bright future for the broadband business unit beyond its cable TV route. Aerospace and defense declined slightly due to startup delays in a new EMS provider to our defense optoelectronics business. Our previous supplier decided to relocate their SoCal assembly facility to the Bay Area, which left us to find and qualify a new supplier on short notice. QM's and FOD's revenue were both up slightly, and QM's margins improved substantially due to a breakthrough in manufacturing engineering in Concord. Our pace of innovation in navigation has remained high, and has produced some important results. Our EN300, which has 10x the performance of competitive fog products, recently released improvements which will expand the range of applications from targeting platforms to more vibration-intensive environments. Customers are increasing their activities to evaluate and qualify our Quark MEMS products based on the compelling test results reported by both foreign and U.S. Defense Laboratories, where the SDI-500 came out number one against 18 other IMUs. We've made steady progress in design validation and qualification testing for our FARG products and see a slow return to normal operations within our customer base. Clearly, the Delta variant has injected caution into the plans of businesses everywhere, but with that said, we continue to see evidence of improvement. While we're not out of the woods yet, even in states like Texas and Florida, progress on qualification and integration continues. Over the next several quarters, we expect to make important announcements about the growth of our navigation business. Moving on to overall guidance for the second fiscal quarter, third fiscal quarter, and into the fourth, we expect to see similar performance in our cable TV business with slightly increased revenue from our other product lines. Our biggest notes of caution remain tied to COVID-19 infection rates and semiconductor supplies. Taking all of this into consideration, we currently expect revenue for the fourth quarter to be in the range of 42 to 44 million. With that said, I will turn the call back over to Tom.