EMCORE Corporation

on your telephone. Please be advised that today's conference may be recorded. I would now like to hand the conference over to your speaker today, Tom Minichiello, Chief Financial Officer. Please go ahead.

Thank you, and good afternoon, everyone, and welcome to our conference call to discuss MCOR's fiscal 2022 fourth quarter results. The news release we issued this afternoon is posted on our website, mcor.com. On this call, Jeff Ritticher, MCOR's President and Chief Executive Officer, will begin with the discussion of our business highlights. I will then update you on our financial results and will conclude by taking questions. But 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 projections about future results, statements about plans, strategies, business prospects and changes and trends in the business and in 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 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 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 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. I will now turn the call over to Jeff.

Thank you, Tom, and good afternoon, everyone. Q4 represented a major turning point for MCOR as it accelerated its move into aerospace and defense with the purchase of KVH and the continued integration of the former L3Harris space and navigation team. MCOR is now the largest independent provider of inertial navigation solutions, putting us on a runway to being a much larger business in the future. Consolidated revenue for fiscal Q4 was $25.6 million, with 82% coming from aerospace and defense and 18% coming from broadband. Cable TV represented less than 8% of the company's revenue. Changes of this magnitude present significant operating challenges under any circumstances, and in Q4, the changes created significant turbulence in our operating results. generating an operating loss of 10.8 million and adjusted EBITDA of negative 9.4 million. Our non-GAAP operating loss was 6.3 million and adjusted non-GAAP EBITDA was negative 5.1 million. Tom will provide color on Q4's gross margin, but I will start off by saying that margins were affected by a number of events that are not expected to repeat themselves going forward. In the aftermath of COVID, the cable TV industry itself continues to struggle underneath the overhang of a demand bubble that caused nearly five years worth of products that were built within a two-year period. The players in the industry are also changing as well. In our last call, we pointed out that Cisco decided to exit the cable TV equipment business. However, just last week, ATX publicly announced that they licensed the entire Prisma 2 technology platform from Cisco, allowing that technology to move forward. While these developments are expected to improve cable DV demand over the longer term, we don't expect them to provide a meaningful catalyst for recovery in the next few quarters. Semiconductor availability slowed down shipments for wireless and chips, within broadband in Q4 as our customers were not able to get enough silicon to ship transceivers and dash systems to meet their own internal projections. With that said, our chip business continued to get additional traction with customers in the form of engagements and planned growth and shipments. Going forward on the chip business, we expect to see the ramp get a bit steeper during the summer setting the stage for a much stronger FY24. To conclude my statements about broadband, I'd like to return to a statement from our last call in which I made the point that cable TV was increasingly incongruent with our strategic direction. Today, I would update this to say that we've made meaningful progress on resolving the strategic mismatch between non-core assets and our direction in aerospace and defense. Turning now to aerospace and defense, I'll begin my comments with our Chicago operation, which was formerly owned by KVH. During Q4, the Chicago team met the shipment goals we set during due diligence and began the integration process. We subsequently identified two development programs that needed help to get back on schedule and were able to get them back on track. The combined efforts of the extended engineering teams in Bud Lake and Concord allowed shipments of these new products to begin in the December quarter. We also began to lean on coil winding technology and supply agreements that originated in Chicago, validating important scalability and cost synergy arguments that we made in favor of the transaction last summer. Chicago has a strong book of orders and is now able to begin the production ramp for several of their new products. I would also point out that they were recently awarded several new contracts, the largest of which is for over $30 million for five years' worth of production. The space and navigation team continued to make solid progress on the new TAIMU, or TAMU, long-term navigation-grade IMU, even as it continues to meet shipment targets for Borg. These two systems are critical to the launch schedule for United Launch Alliance. Borg is part of the boost stage flight control for Atlas, Centaur, and Vulcan launch vehicles, while TAMU will be the primary IMU used for navigation. Critical milestones for TAMU are set to happen in the March quarter, as well as the beginning of product builds in Alhambra. Our expectation is to complete qualification late in the calendar year to enable significant volume builds and launches in calendar year 24. When these products hit full production, they are expected to produce $20 to $25 million annually in revenue. The QMEMS product line continues to recover its order book from the civil aviation downdraft that happened during COVID. We are getting more 777X orders along with a significant uptick of demand for inertial systems used in business and regional jets. In Q4, we shipped all of a critical precision guided munition or PGM order for an important international customer. We're expecting that this will enable us to be qualified for larger domestic contracts as well as exports. As we've said before, PGMs are the largest market segment for inertial measurement systems and are expected to be an area of significant growth for MCOR in FY23. Beyond this customer, we are working to test and qualify the SDI-170 with defense contractors worldwide. In a recent international trip, I was advised that annual target volumes range from 1 to 4,000 units per year with a total value of approximately $30 million. Before I move on to guidance, I'd like to focus a few comments on the integration of Space and Navigation and the former KBH team. One of our key objectives in this year is to make all four of our manufacturing facilities work like a single entity. As of today, Space and Navigation is now running a common ERP system with the rest of MCOR and has made the cutover from L3Harris' IT system. This will enable us to exit the cost of the transition services agreement that was part of the transaction. Chicago is running about a quarter behind Space and Navigation, but we've already moved the Rhode Island engineering team out of the KVH building. While cutting costs is important, the true benefits of scale are only realized when we have all the facilities on common ERP, MES, and PLM systems. We began rolling out CamStar MES for shop floor control in Alhambra and expect to integrate this into the other facilities after we complete the ERP upgrades and exit transition services. Ultimately, this will make MCOR more efficient and will help us improve our processes and reduce OPEX and inventory. Turning now for guidance to the current quarter, we continue to see weakness in the cable TV and wireless markets. Although we will make modest gains in chip revenue, it won't be enough to offset the weakness in cable TV. Inertial navigation will see growth largely driven by a full quarter's performance out of Chicago. Consequently, we're expecting revenue in the $25 to $27 million range for the December quarter. With that, I will turn the call back over to Tom.