EMCORE Corporation

Good day, and thank you for standing by. Welcome to the MCOR Corporation Fiscal 2023 First Quarter Results Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1 1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1 1 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 Minichiello, Chief Financial Officer.

Thank you, and good afternoon, everyone, and welcome to our conference call to discuss MCOR's fiscal 2023 first quarter results. The news release we issued this afternoon is posted on our website, MCOR.com. On this call, Jeff Richard, MCOR's President and Chief Executive Officer, will begin with the discussion of our business highlights. I'll then update you on our financial results 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 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, and 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 and on-gap measures, as well as the explanation and reconciliation of these measures to the most comparable gap measures included in our news release.

With that, I will now turn the call over to Jeff. Thank you, Tom, and good afternoon, everyone.

Q1 continued MCOR's strategic transformation into an aerospace and defense business. Consolidated revenue for fiscal Q1 was $25 million, with 87% coming from aerospace and defense. Only 13% came from broadband, and cable television represented less than 6% of the company's revenue. There were encouraging improvements in the business as it continued to work through the operating challenges of such a significant transformation, generating a gap operating loss of $11.5 million. However, our non-GAAP operating loss was $8 million, and adjusted non-GAAP EBITDA improved from negative $9.4 million to negative $6.5 million. Tom will provide color on Q1's gross margin, but I will start out by saying that aerospace and defense margins showed significant improvement at 22% with inertial navigation higher than that. Not much has changed with respect to the cable television industry and the inventory glut of head-end transmitters. In our last call, we pointed out that ATX publicly announced that they had licensed the entire Prisma 2 technology platform from Cisco, allowing that technology to move forward. Although ATX's entry continues to be an encouraging opportunity over the long term, we do not see any short-term catalyst for improved demand although we do see some signs of improvement in the underlying inventory positions within our customer base. Semiconductor availability continued to tamp down shipments for wireless and chips within broadband in Q1, as our customers were still not able to get enough silicon to ship transceivers and distributed antenna systems to meet their internal projections. Consistent with what we said in December, our chip business continued to get additional traction with customers in the form of engagements and planned growth and shipments. Going forward in 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 comments about broadband, I'd like to return to a statement from our last call in which I made the point that cable television was increasingly incongruent with our strategic direction. Consistent with these objectives, MCOR is in discussions with several interested parties to divest our non-strategic product lines. We are also exploring other strategic alternatives. Turning now to aerospace and defense, I'll begin my comments by stating that demand for our inertial navigation products continues to build nicely. In Q1, our book to build in aerospace and defense was approximately 1.2. In particular, we're seeing increased demand for AMPV in real-world situations experiencing GPS denial, such as in the Ukraine. International bookings were strong for turret-based platforms, stemming from our supplier position in both CROWS and Escobano's Guardian 2 programs. We also received additional interest in the Middle East for long dormant large scale armored vehicle navigation programs. On the naval side of our business, we are leveraging our expertise in critical lightweight and heavyweight torpedo programs such as the Mark 48 and 54 by supporting next generation torpedo platforms. Finally, we rewarded a follow on order in a precision-guided munition program that continues to gain momentum in international markets. Chicago's book to bill was actually better than the overall 1.2 that I mentioned earlier, with stronger visibility for key programs in all four branches of service. Beyond program capture, we're seeing important signs of acceleration of key programs into their LRIP phase, low rate of initial production. This is a leading indicator of long-term growth. In particular, infrared search and track has become a key area of focus across the services, and our multiple design wins in this application stand to benefit in terms of production timing. As I stated in December, the efforts of the extended engineering teams in Bud Lake and Concord allow shipments for two critical programs to begin in the December quarter, and greater volumes are projected for the March quarter. The Space and Navigation Team has started to build multiple TAMU inertial measurement units in support of the design validation and qualification 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 inertial measurement unit used for navigation. Critical milestones for TAMU must be met over the next few months, 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're expected to produce 20 to 25 million in revenue per year and are also expected to significantly contribute to gross margins. QMEMS suffered from some unexpected test set problems in late December, and we're expecting QMEMS revenue to bounce back in the March quarter. We saw a steady stream of orders for QMEMS from our major programs of record, along with the precision guided munitions order that I mentioned earlier. As we've said before, PGMs are the largest market segment in inertial navigation and are expected to be a significant area of growth for MCOR in FY23. We remain bullish on these applications. Before I move on to guidance, I'd like to provide an update on integration, which is a key area of focus. As of today, Space and Navigation is now running a common ERP system within the rest of MCOR and has made the cutover from L3Harris' IT systems. This will enable us to exit the cost of the transition service agreement that was part of the transaction. We are expecting the transition for Chicago to complete in the June quarter, but we've already moved the Rhode Island engineering team out of the KVH building. We began rolling out CAMSTAR MES for shop floor control in Alhambra and expect to integrate it 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, costs, and lower inventory. Turning now to guidance for the current quarter, we're expecting that inertial navigation will see some growth, largely driven by increased production in Chicago and Concord. This will be partially offset by continued weakness in cable television and wireless. Consequently, we're expecting revenue to be within the $27 to $29 million range for the March quarter. With that, I will turn the call back over to Tom. Thank you, Jeff.

Consolidated revenue for fiscal 1Q was $25 million, with 87% coming from aerospace and defense and 13% from broadband. Aerospace and defense segment revenue was 21.7 million, a $700,000 increase when compared to the prior quarter. A&D achieved sequential quarter growth despite shipping delays for our QMEMS product line as the rest of the A&D portfolio performed well. This included the first full quarter of results for the inertial navigation operation in Tinley Park that was acquired during the prior quarter and the space and nav operation in Bud Lake that posted another solid quarter. Additionally, the fog product line in Alhambra, along with defense optoelectronics, both increased over the prior quarter. Broadband revenue is 3.3 million, a 1.3 million sequential quarter decrease due to a further drop in sales of optical transmitters and lasers sold into the cable TV infrastructure market. To add some perspective on the severity of the current down cycle, cable TV product revenue this quarter was $1.6 million compared to $28.5 million in the year-ago quarter and $21 million when looking back to just the March 2022 quarter. As mentioned on our last call, we are in a much deeper cable TV down cycle this time around than the company has experienced in at least the last 10 years. Broadband revenue was also affected by lower non-recurring engineering or NRE revenue associated with next-generation chip development. Let me now turn to the rest of the operating results, the focus of which will be on a non-GAAP basis. A and D gross margin rebounded to 22%, driven by A, the return to historical gross margins for the recently acquired operations in Tinley Park and Bud Lake, B, one-time QMEMS inventory valuation charges in the prior quarter, and C, better QMEMS manufacturing yields at our Concord site. Conversely, the very low level of revenue for the broadband segment combined with higher fixed costs under absorption resulted in an overall consolidated gross margin of 15%. Operating expenses overall came in lower than anticipated at $11.8 million in the December quarter compared to $11.2 million in the prior quarter. While we added a full quarter of results for the inertial NAV business, project-related R&D costs, which tend to be uneven quarter to quarter, were lower than average in 1Q. As mentioned during our last call, MCOR has undergone a momentous and rapid change to the revenue profile. During the first half of fiscal 22, broadband accounted for 75% of the business. And just a couple of quarters later, in fourth quarter of fiscal 22 and first quarter of fiscal 23, this has completely flipped to over 80% of revenue coming from aerospace and defense. The company is now better positioned for higher growth with a broader base portfolio over inertial navigation products, expanded customer reach, and in a substantially larger and more stable marketplace than the highly cyclical cable TV market. While the December quarter was better compared to the prior quarter, fiscal 1Q results still reflected the significant and swift changes to the size and mix of the top line. 1Q operating loss was 8 million compared to 10.8 million the quarter before. Adjusted EBITDA improved to negative 6.5 million Net loss was 8.2 million or 22 cents per share compared to 10.9 million or 29 cents per share in the prior quarter. Shifting over to GAAP results for a minute, fiscal 1Q net loss was 11.7 million or 31 cents per share. This included acquisition-related costs of 2.1 million, severance charges of $475,000, and a $1.2 million book gain associated with the sale and leaseback transaction of the Tinley Park property obtained as part of the inertial navigation asset acquisition from KVH. Turning to the balance sheet, we had cash of $24.2 million at December 31 compared to $26.1 million at September 30. The $1.9 million net decrease consisted of $6.5 million used to fund regular business operations, $3.5 million used for financing activities, consisting of a $3.2 million loan balance reduction and $300,000 in debt service costs, $1.4 million for acquisition-related costs, and $800,000 for CapEx. Offsetting these uses of cash was $10.3 million in net cash proceeds received from the sale and leaseback of the Tinley Park property. Before we get to the Q&A, I'd like to share with everyone that both Jeff and I plan to be at the Cowan Aerospace Defense and Industrials Conference on Thursday, February 16th in Arlington, Virginia, including a presentation and in-person investor meetings. We plan on providing further details prior to the event. And with that, we are now opening up the call for your questions.

Thank you. As a reminder, to ask a question, please press star 1 1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1 1 again.

Our first question comes from Richard Shannon with Craig Hallam.

You may proceed.

Well, hi, Jeff and Tom. Thanks for taking my questions. I think my first couple will probably be more for Tom here. Just looking at the December quarter results here on gross margins, broadband gross margin is actually negative, and it seems odd or interesting that revenues went down $1.3 million and gross profit down almost the same amount, which seems like pretty high leverage. I know it's high going up and down, but it seems like dramatically below what I would have expected. So can you help us understand that dynamic? Is that temporary, or what was going on there?

Well, the reason why there was a sort of little bit of a disjointment that you're referring to is the absorption of the costs are based on production activity during the quarter, not revenue. So in the quarter before, the underabsorption in the FAB, Richard, was not as low as it was this quarter, even though the revenue was lower this quarter. So that accounts for, I think that accounts for the gap that you're asking about. And then, but, you know, revenue does have, you know, we went, we did go from, you know, four and a half to 3.3. So that is, you know, obviously a factor as well.

Okay. The activity levels you're referring to, are these at a bottom in the December quarter or... or not. I guess that'll fall into a couple of questions I have a little later in gross margin going forward. But the activity levels are improving from here? You referred to activity levels being even lower in December. There's a driver for gross margin. So are those activity levels bottomed out here in December or not necessarily as we get into March and later? Likely has bottomed out. Okay. Excellent. That's helpful. A couple questions on how to look at the March quarter here. I just want to make sure I got the dynamics here right. Obviously, some nice growth coming in A&D. I'm just wondering if I'm reading right that broadband could be flat even down in the quarter. Is that the right way to interpret your comments?

It's going to stay right around where it is in the December quarter, Richard. I mean, maybe some small changes.

There's no catalyst to move it in either direction.

Yeah, yeah.

So it's going to look very similar. Okay. That's what I figured. I just want to make sure. So let's dig in here to the gross margins as you look through March quarter. If you want to draw some conclusions we should think about going forward, that would be great here. But you just talked about activity levels bottoming out in the broadband business coming forward into March here. You're growing in A&D, which has nice fall through margins here. So how do we think about gross margins for this quarter? We talked about five weeks ago in your last earnings call, you talked about a goal of getting to 20%. And so I'm wondering if that's a number that we should be thinking about, or how do you help kind of peg down what you're thinking for gross margins this quarter?

Yeah, I think overall consolidated, that 20% number that you're referring to is a good way to look at it, Richard. The Like we just said, the broadband segment is going to look similar. That's our expectation in the March quarter. But A&D will be expected to see the growth in top line and in margin. Things are getting better in Concord. The extra volume alone will also help absorb some other overhead costs in some of the other facilities. You know, the A&D business could very well do a gross margin, call it, you know, somewhere between 25 and 30, you know, somewhere in the middle of that range. And, you know, do the math, you can see that that would probably come out to about a 20% consolidated margin if we execute towards that and we get the mix that we think we're going to get for the quarter.

Okay. Okay. That is very helpful. I see a couple questions. I'll jump back into queue here. Just touching quickly on the topic of divestiture of potential businesses here, I guess a two-part question for you, Jeff. How should we think about timing here? I know you're not going to talk about what kind of eventual outcome, including proceeds we might see from this, but any comments on kind of the end customer here? I think you may have mentioned something about his strategic partner for this one. And let's just start with there and get your thoughts, Jeff, please.

Yeah, I think, you know, the likely scenario is somewhere within a quarter of where we are right now. Could be, you know, more toward the end, could be, you know, sooner. It just depends on, you know, due diligence with the parties and how long that takes, but I think that's a reasonable way of looking at it. The other thing is just to clarify one other thing, and I just got done looking at it before I sat down. The cable TV business did have some, you know, excess and obsolete that was a little bit unusually large. We wouldn't expect that to happen again. That was part of the thing that dragged down their gross margins. So, but back to your original question, the, yeah, I would say within three months is probably a quite reasonable way of looking at it.

Okay. And just to be clear on that, Jeff, is this contemplating just the cable TV business or other elements of the broadband segment?

There are other pieces as well.

Okay. Perfect. One last question for me. I will jump out of line. Let's talk about the chip business here. I guess two pieces. Maybe you can talk about some of the new engagements that you have going on here, you know, types of customers, applications, et cetera, when those might hit, as well as I think you mentioned a ramp you're kind of getting this summer. How many customers and what's kind of your expectation or thought process that we can think about as we get into fiscal 24 about revenues per quarter on that?

Yeah, so... If you took a look at the total number of customers for custom chips and the engagements, some are shipping, some are not, I think five or six seems about right. There is one customer that has multiple programs with us, and I can't say more than that. Again, what I would say is that all of these programs are targeted into customers the data center and possibly even telecom space. And so they really don't, you know, other than common design expertise and manufacturing assets, they really don't have an impact over what the things we're doing over in A&D. As we exit 23 and going into 24, you know, I think you can look at revenue from uh from those products sort of getting into the three or four million dollars a quarter range right and that'll that'll have a pretty significant impact on the absorption okay excellent we look forward to seeing that i will jump back in the queue but thanks tom sure thank you our next question comes from tim savandro with northland you may proceed

Hi, good afternoon. The question on, hey, on the operating spend side came in nicely lower than at least I expected here. I don't know if that's, you know, some measure of synergy or acquisition integration. But, you know, as you look forward, you know, is there anything kind of anomalous about that OPEX and what kind of outlook do you have heading forward here for for OPEX to hang around this level or maybe ramp up a little bit with revenue?

Probably will go a little bit higher than where we finished. Most of the OPEX, Tim, is pretty steady, except you get into certain line items like project costs. This is material used in R&D that tends to be uneven. Sometimes there's NRE to cover it. Sometimes there isn't. So that's really the thing that makes it move around from quarter to quarter. The rest of it, the salaries and the people and all those kind of costs are very steady. So what you're likely to see is a little bit of a bounce back up to, I would say, maybe the 12 range, because materials are likely to go a little higher. I mean, they were well below average this quarter. And even if they just go back up to average, It will be over 12. But, you know, we also, if you recall last quarter, we announced a reduction in force. We got a little bit of the benefit of that only in the last few weeks of the quarter because we took the action in early December. We will get a full quarter of that both in cost of goods sold and in OPEX, and that should, you know, keep the OPEX right around the 12 number per quarter.

Yeah, Tim, as Tom pointed out, the only wild card in this is – where the non-recurring engineering contracts land. Sometimes, depending on the deliverables, we have to record those as an offset against R&D, in which case you'll see a movement down in OPEX. In other cases, those dollars just get billed out through cost of goods. And there's enough NRE in there. It could start to move the numbers around. So Don't be surprised if for some reason it looks a little better. I think Tom captured the spirit of where we're headed with this. Operationally, we've wrung out a fair bit of synergies in headcount. So a few more we might get here and there, especially as we finish some of the systems work. But most of those synergies are now going to come from

improvements in the way the manufacturing operation works so you'll see that in Cox probably starting in the summer but in you know it'll it'll continue an improvement from there got it thanks and Jeff you mentioned some signs over up back on on the broadband side some signs of improvement in inventory situation you know we've seen pretty strong finish to the year in terms of what the big operators are doing and obviously charter moving into a major upgrade cycle here. Kind of real time. I wonder if you could be more specific on what you're referencing with regard to those signs of improvement and should we assume that's a result of some of this increased network investment activity or how do you see that playing out?

I think you've You touched on part of it, Tim, which is the fact that actually the primary glut of transmitters out there are what are called linear EMLs. Those were primarily consumed by charter, and we see evidence that that is changing and that other MSOs are using those instead of DFBs. So that's part of it. The other thing is that... You know, one of the things you find when you've had a glut of inventory is that the OEMs, you know, misforecast the channel plan a bit. And so you can start to see, based on, you know, the odd wavelengths that are ordered, what's really going, and you have a pretty good idea where it's going. So that's, you know, those are the signs that I mentioned in the call.

Thanks. And one more for me. I think you mentioned a 1.2 book to bill in the December quarter for A&D and higher in certain areas. I wonder if you can comment on what you're seeing from an order perspective thus far this quarter and whether you expect that relatively robust order flow to continue and enable you to grow A&D revenues sequentially throughout the year.

Yeah, so it was really a good performance across the board. Again, inertial NAV leading the way. And in the current quarter, it may come down a little bit. We still expect it to be north of one. And in the June quarter, based on program timings, we're expecting to see something significantly better. Um, and that's just based on, you know, what the program offices are telling us. But, you know, the, the point that I've made is oftentimes in cable, we're running with six weeks worth of backlog. Um, and it's, it's maddening at times. I look at our backlog report now and it's greater than six months. Um, and, and we see that starting to build in some of these larger programs. So, you know, the visibility is dramatically different. We didn't have six months visibility at any time in MCOR for cable TV except during COVID, period. And we expect that this kind of visibility is the norm rather than the exception in A&D.

Got it. Thanks very much.

Thank you. Our next question comes from Paul Silverstein with Cowan. You may proceed.

Asked and answered. Richard did a fine job. Thanks, guys.

Hi, Paul. Hey, Paul.

Thank you. And as a reminder, to ask a question, you will need to press star 1-1 on your telephone.

Our next question comes from Richard Shannon with Craig Hallam.

You may proceed.

Hey, guys. Two more follow-ups from me. I want to follow up on Tim's last question and your response here about thinking about, you know, growth throughout the rest of the year, maybe thinking about it in another way. And, Jeff, taking some of your comments from your prepared remarks about some of these, you know, products, I think you're kind of taking it mostly on a product-by-product basis rather than programs. Talk about Taimou and Borg and some QMEMS products. Broadly speaking, can you kind of fit those products into the quarter or quarters where you might see some outsized growth and ultimately kind of fit us into the scenario where you get to break even? How do we get there? Can you kind of help us put those things together a little bit more carefully, I guess?

Sure. Well, you know, again, one of the points that we've made is, you know, I called it, I think, the 30-30 point, which is we want to have gross margin in the low 30s and revenue in the low 30s in order to get to EBITDA. So let's just take the midpoint of the range, call it 28 that we forecasted, and you say, okay, Jeff, you need another five. Where are you going to go get it? Okay. In my prepared comments, I mentioned that just all by itself, TAMU could provide $20 to $25 million worth of revenue a year. And that's, you know, so there's my five per quarter. And that is just one program. So there are other programs which are ramping up. Programs for Lockheed in infrared search and track we're seeing pushes by other branches of service with Raytheon for their own products like that. We're starting to see the work regarding the M1A2C Abrams tank, which we're a part of, with Commander Gunner's sites start to move forward. And so, you know, the interesting thing, Richard, is, you know, this is really different for us at this point compared to, say, where we were two years ago, is we've won the program's that we need to ramp. So this isn't a case where it's really speculative, go-gets on program wins. It's executing on low rates of initial production, getting things qualified, and then into production. So that's the answer to the first part of your question about revenue. Getting into the question about gross margin, again, you know, there's The thing that we've always talked about is that we're volume sensitive. And so we get hit with these under absorption charges, and those are in the fab primarily, but they also occur within the assembly areas in the business. So as we ramp up production and start generating this absorption, right, of the overhead, Even without a change in the bill of material, even without a change in the product sales price, margins go up. Period. End of story. So there's, again, you know, if you look at the P&L in the current quarter, yeah, there was some cable TV stuff we decided to write off. There was really not much of it in A and D. And, you know, scrapping most of the business was fine. I think all we've got to do is execute on the fundamentals and get the volume up, and the gross margin problem largely takes care of itself.

That's helpful, Jeff.

Maybe one quick follow-up on the topic, especially the thing that stood out here in terms of the size, saying that can gap you all the way to breakeven here. In the last call, you talked about a breakeven point maybe early next fiscal year. I guess it was my understanding that TAMU was going to be more of a calendar 24 story, so I would assume we've got other drivers, maybe smaller each individually, that helps us kind of gap up there, whereas TAMU is more of a calendar 24 story. Am I misunderstanding this?

Yeah, so it's not quite that black and white, Richard, because what has to happen, for example, is there's a big ramp up in activity of purchasing materials, some of which we actually get to recognize some revenue for, albeit with just a material overhead rate on top of it, well prior to that production happening. So you'll start to see signs of a ramp before the actual delivery of multiple units per quarter. And you'll see a little bit of that in March. But the other programs that are out there in terms of uh new orders for mark 54 ramps on infrared search and track ramps on this layering munitions program those are the things that are going to continue to move the needle between now and the time where i'm telling you hey you know we were able to ship 24 uh t moves in a given quarter okay so there are there is no hockey stick there is no step function it's you're going to see steady improvement I use the TAMU production as an example because it's so definitive. We know what the Kuiper launch rates are. We know when ULA is expecting us to get done. And when I say expecting, I mean needing us to get done and get this thing out the door to them with a very high degree of quality, and there's no room for error. But the reality is, you know, we talked about this book to build 1.2, and we are going to be, you know, giving you some color on that going forward. You know, the other programs are there to continue to close the gap. And we ultimately believe that TAMU will be a bit of icing on the cake. But between now and then, you're going to see continued signs of growth. And in the quarter, we've just forecasted, you know, that's what we've said.

Fair enough. That's a great explanation. Thanks for all that detail, Jeff. My last quick question for both of you. The stock at the valuations that it's been trading at in the recent past year are fairly low, and I think people are worried about a dilutive capital to raise. You talked about the path and potential timing of break-even. We've got a potential divestiture that should yield some amount of money. I don't know how to speculate on that, and you're not going to tell us what that is. But with the things that you know, what do you think the odds are of having to raise external equity capital versus being self-funded so you get to break even?

Yeah, you know, that's really not something I can comment on today. Obviously, you know, with the capital levels the way that we are or where we're at, you know, you look at what Wall Street thinks. And on one hand, I think there's a view that, well, You know, I may get to see this thing on the bottom or on the way down if there's a raise. But on the other hand, there are, say, deep value longs that say, well, we need to make sure this thing is funded so that we don't have a problem, that we can see our investment thesis play out. And so, you know, it's probably not something I feel comfortable commenting on today.

That is fair enough. Just wanted to hear your best guess, and I think we've heard that, so I appreciate all the answers today, Jeff. That's all for me.

Thank you. This concludes the Q&A session, and I'd like to turn the call back over to Jeff Ritticher for any closing remarks.

Well, I just want to close by thanking all of you for your interest in MCOR. And as I usually do, I want to recognize the team for the absolute dogged efforts and perseverance as we reinvent the company as an aerospace and defense business. And thank you all for joining us today.

Thank you. That concludes today's conference call. Thank you for participating. You may now disconnect. you Thank you. Thank you. Thank you. Thank you. Good day, and thank you for standing by. Welcome to the MCOR Corporation Fiscal 2023 First Quarter Results Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1 1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1 1 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 Minichiello, Chief Financial Officer.

Thank you, and good afternoon, everyone, and welcome to our conference call to discuss MCOR's fiscal 2023 first quarter results. The news release we issued this afternoon is posted on our website, MCOR.com. On this call, Jeff Richard, MCOR's President and Chief Executive Officer, will begin with the discussion of our business highlights. I'll then update you on our financial results 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 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, and 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 and on-gap measures, as well as the explanation and reconciliation of these measures to the most comparable gap measures included in our news release.

With that, I will now turn the call over to Jeff. Thank you, Tom, and good afternoon, everyone.

Q1 continued MCOR's strategic transformation into an aerospace and defense business. Consolidated revenue for fiscal Q1 was 25 million, with 87% coming from aerospace and defense. Only 13% came from broadband, and cable television represented less than 6% of the company's revenue. There were encouraging improvements in the business as it continued to work through the operating challenges of such a significant transformation, generating a gap operating loss of $11.5 million. However, our non-GAAP operating loss was $8 million, and adjusted non-GAAP EBITDA improved from negative $9.4 million to negative $6.5 million. Tom will provide color on Q1's gross margin, but I will start out by saying that aerospace and defense margins showed significant improvement at 22% with inertial navigation higher than that. Not much has changed with respect to the cable television industry and the inventory glut of head-end transmitters. In our last call, we pointed out that ATX publicly announced that they had licensed the entire Prisma 2 technology platform from Cisco, allowing that technology to move forward. Although ATX's entry continues to be an encouraging opportunity over the long term, we do not see any short-term catalyst for improved demand although we do see some signs of improvement in the underlying inventory positions within our customer base. Semiconductor availability continued to tamp down shipments for wireless and chips within broadband in Q1, as our customers were still not able to get enough silicon to ship transceivers and distributed antenna systems to meet their internal projections. Consistent with what we said in December, our chip business continued to get additional traction with customers in the form of engagements and planned growth and shipments. Going forward in 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 comments about broadband, I'd like to return to a statement from our last call in which I made the point that cable television was increasingly incongruent with our strategic direction. Consistent with these objectives, MCOR is in discussions with several interested parties to divest our non-strategic product lines. We are also exploring other strategic alternatives. Turning now to aerospace and defense, I'll begin my comments by stating that demand for our inertial navigation products continues to build nicely. In Q1, our book to build in aerospace and defense was approximately 1.2. In particular, we're seeing increased demand for AMPV in real-world situations experiencing GPS denial, such as in the Ukraine. International bookings were strong for turret-based platforms, stemming from our supplier position in both CROWS and Escobano's Guardian 2 programs. We also received additional interest in the Middle East for long dormant large-scale armored vehicle navigation programs. On the naval side of our business, we are leveraging our expertise in critical lightweight and heavyweight torpedo programs such as the Mark 48 and 54 by supporting next generation torpedo platforms. Finally, we rewarded a follow-on order in a precision-guided munition program that continues to gain momentum in international markets. Chicago's book to bill was actually better than the overall 1.2 that I mentioned earlier, with stronger visibility for key programs in all four branches of service. Beyond program capture, we're seeing important signs of acceleration of key programs into their LRIP phase, low rate of initial production. This is a leading indicator of long-term growth. In particular, infrared search and track has become a key area of focus across the services, and our multiple design wins in this application stand to benefit in terms of production timing. As I stated in December, the efforts of the extended engineering teams in Bud Lake and Concord allow shipments for two critical programs to begin in the December quarter, and greater volumes are projected for the March quarter. The Space and Navigation Team has started to build multiple TAMU inertial measurement units in support of the design validation and qualification 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 inertial measurement unit used for navigation. Critical milestones for TAMU must be met over the next few months, 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're expected to produce 20 to 25 million in revenue per year and are also expected to significantly contribute to gross margins. QMEMS suffered from some unexpected test set problems in late December, and we're expecting QMEMS revenue to bounce back in the March quarter. We saw a steady stream of orders for QMEMS from our major programs of record, along with the precision guided munitions order that I mentioned earlier. As we've said before, PGMs are the largest market segment in inertial navigation and are expected to be a significant area of growth for MCOR in FY23. We remain bullish on these applications. Before I move on to guidance, I'd like to provide an update on integration, which is a key area of focus. As of today, Space and Navigation is now running a common ERP system within the rest of MCOR and has made the cutover from L3Harris' IT systems. This will enable us to exit the cost of the transition service agreement that was part of the transaction. We are expecting the transition for Chicago to complete in the June quarter, but we've already moved the Rhode Island engineering team out of the KVH building. We began rolling out CAMSTAR MES for shop floor control in Alhambra and expect to integrate it 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, costs, and lower inventory. Turning now to guidance for the current quarter, we're expecting that inertial navigation will see some growth, largely driven by increased production in Chicago and Concord. This will be partially offset by continued weakness in cable television and wireless. Consequently, we're expecting revenue to be within the $27 to $29 million range for the March quarter. With that, I will turn the call back over to Tom.

Thank you, Jeff. Consolidated revenue for fiscal 1Q was $25 million, with 87% coming from aerospace and defense and 13% from broadband. Aerospace and defense segment revenue was $21.7 million, a $700,000 increase when compared to the prior quarter. A&D achieved sequential quarter growth despite shipping delays for our QMEMS product line as the rest of the A&D portfolio performed well. This included the first full quarter of results for the inertial navigation operation in Tinley Park that was acquired during the prior quarter, and the space and nav operation in Bud Lake that posted another solid quarter. Additionally, the fog product line in Alhambra, along with defense optoelectronics, both increased over the prior quarter. Broadband revenue is 3.3 million, a 1.3 million sequential quarter decrease due to a further drop in sales of optical transmitters and lasers sold into the cable TV infrastructure market. To add some perspective on the severity of the current down cycle, cable TV product revenue this quarter was $1.6 million compared to $28.5 million in the year-ago quarter and $21 million when looking back to just the March 2022 quarter. As mentioned on our last call, we are in a much deeper cable TV down cycle this time around than the company has experienced in at least the last 10 years. Broadband revenue was also affected by lower non-recurring engineering or NRE revenue associated with next-generation chip development. Let me now turn to the rest of the operating results, the focus of which will be on a non-GAAP basis. A and D gross margin rebounded to 22%, driven by A, the return to historical gross margins for the recently acquired operations in Tinley Park and Bud Lake, B, one-time QMEMS inventory valuation charges in the prior quarter, and C, better QMEMS manufacturing yields at our Concord site. Conversely, the very low level of revenue for the broadband segment combined with higher fixed costs under absorption resulted in an overall consolidated gross margin of 15%. Operating expenses overall came in lower than anticipated at $11.8 million in the December quarter compared to $11.2 million in the prior quarter. While we added a full quarter of results for the inertial NAV business, project-related R&D costs, which tend to be uneven quarter to quarter, were lower than average in 1Q. As mentioned during our last call, MCOR has undergone a momentous and rapid change to the revenue profile. During the first half of fiscal 22, broadband accounted for 75% of the business. And just a couple of quarters later, in fourth quarter of fiscal 22 and first quarter of fiscal 23, this has completely flipped to over 80% of revenue coming from aerospace and defense. The company is now better positioned for higher growth with a broader base portfolio over inertial navigation products, expanded customer reach, and in a substantially larger and more stable marketplace than the highly cyclical cable TV market. While the December quarter was better compared to the prior quarter, fiscal 1Q results still reflected the significant and swift changes to the size and mix of the top line. 1Q operating loss was 8 million compared to 10.8 million the quarter before. Adjusted EBITDA improved to negative 6.5 million Net loss was 8.2 million or 22 cents per share compared to 10.9 million or 29 cents per share in the prior quarter. Shifting over to GAAP results for a minute, fiscal 1Q net loss was 11.7 million or 31 cents per share. This included acquisition-related costs of 2.1 million, severance charges of $475,000, and a $1.2 million book gain associated with the sale and leaseback transaction of the Tinley Park property obtained as part of the inertial navigation asset acquisition from KVH. Turning to the balance sheet, we had cash of $24.2 million at December 31 compared to $26.1 million at September 30. The $1.9 million net decrease consisted of $6.5 million used to fund regular business operations, $3.5 million used for financing activities, consisting of a $3.2 million loan balance reduction and $300,000 in debt service costs, $1.4 million for acquisition-related costs, and $800,000 for CapEx. Offsetting these uses of cash was $10.3 million in net cash proceeds received from the sale-leaseback of the Tinley Park property. Before we get to the Q&A, I'd like to share with everyone that both Jeff and I plan to be at the Cowan Aerospace Defense and Industrials Conference on Thursday, February 16th in Arlington, Virginia, including a presentation and in-person investor meetings. We plan on providing further details prior to the event. And with that, we are now opening up the call for your questions.

Thank you. As a reminder, to ask a question, please press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again.

Our first question comes from Richard Shannon with Craig Hallam.

You may proceed.

Well, hi, Jeff and Tom. Thanks for taking my questions. I think my first couple will probably be more for Tom here. Just looking at the December quarter results here on gross margins, broadband gross margin is actually negative, and it seems odd or interesting that revenues went down $1.3 million and gross profit down almost the same amount. It seems like pretty high leverage. I know it's high going up and down, but it seems like dramatically below what I would have expected. So can you help us understand that dynamic? Is that temporary, or what was going on there?

Well, the reason why there was a sort of little bit of a disjointment that you're referring to is the absorption of the costs are based on production activity during the quarter, not revenue. So in the quarter before, the underabsorption in the FAB, Richard, was not as low as it was this quarter, even though the revenue was lower this quarter. So that accounts for, I think that accounts for the gap that you're asking about. And then, but, you know, revenue does have, you know, we went, we did go from, you know, four and a half to 3.3. So that is, you know, obviously a factor as well.

Okay.

Are the activity levels you're referring to, are these at a bottom in the December quarter or... or uh or not i guess uh that'll fall into a couple of questions i have a little later in gross margin going forward but the activity levels start improving from here again uh you refer to activity levels being even lower in december there's the driver for gross margins so are those activity levels bottomed out here in december or or not necessarily as we get into march and later uh likely has has bottomed out okay Excellent. That's helpful. A couple questions on how to look at the March quarter here. I just want to make sure I got the dynamics here right. Obviously, some nice growth coming in A&D. I'm just wondering if I'm reading right that broadband could be flat even down in the quarter. Is that the right way to interpret your comments?

It's going to stay right around where it is in the December quarter, Richard. I mean, maybe some small changes.

There's no catalyst to move it in either direction.

Yeah, yeah. So it's going to look very similar.

Okay. That's what I figured. I just want to make sure. So let's dig in here to the gross margins as you look through March quarter. If you want to draw some conclusions we should think about going forward, that would be great here. But you just talked about activity levels bottoming out in the broadband business coming forward into March here. You're growing in A&D, which has nice fall through margins here. So how do we think about gross margins for this quarter? We talked about five weeks ago in your last earnings call, you talked about a goal of getting to 20%. And so I'm wondering if that's a number that we should be thinking about, or how do you help with kind of peg down what you're thinking for gross margins this quarter?

Yeah, I think overall consolidated, that 20% number that you're referring to is a good way to look at it, Richard. The Like we just said, the broadband segment is going to look similar. That's our expectation in the March quarter. But A&D will be expected to see the growth in top line and in margin. Things are getting better in Concord. The extra volume alone will also help absorb some other overhead costs in some of the other facilities. You know, the A&D business could very well do a gross margin, call it, you know, somewhere between 25 and 30, you know, somewhere in the middle of that range. And, you know, do the math, you can see that that would probably come out to about a 20% consolidated margin if we execute towards that and we get the mix that we think we're going to get for the quarter.

Okay. That is very helpful. I see a couple questions. I'll jump back into queue here. Just touching quickly on the topic of divestiture of potential businesses here, I guess a two-part question for you, Jeff. How should we think about timing here? I know you're not going to talk about what kind of eventual outcome, including proceeds we might see from this, but any comments on kind of the end customer here? I think you may have mentioned

something about his strategic uh partner for this one um and uh let's just start with there and get your thoughts jeff please yeah i think um you know the likely scenario is somewhere within a quarter of where we are right now could be you know more toward the end could be you know sooner it just depends on um you know due diligence with the parties and and how long that takes, but I think that's a reasonable way of looking at it. The other thing is just to clarify one other thing, and I just got done looking at it before I sat down. The cable TV business did have some, you know, excess and obsolete that was a little bit unusually large. We wouldn't expect that to happen again. That was part of the thing that dragged down their gross margins. So, but back to your original question, the, yeah, I would say within three months is probably a quite reasonable way of looking at it.

Okay. And just to be clear on that, Jeff, is this contemplating just the cable TV business or other elements of the broadband segment?

There are other pieces as well.

Okay. Perfect. One last question for me. I will jump out of line. Let's talk about the chip business here. I guess two pieces. Maybe you can talk about some of the new engagements that you have going on here, types of customers, applications, et cetera, when those might hit, as well as I think you mentioned a ramp you're kind of getting this summer. How many customers and what's kind of your expectation or thought process that we can think about as we get into fiscal 24 about revenues per quarter on that?

Yeah, so... If you took a look at the total number of customers for custom chips and the engagements, some are shipping, some are not, I think five or six seems about right. There is one customer that has multiple programs with us, and I can't say more than that. Again, what I would say is that all of these programs are targeted into the data center, and possibly even telecom space. And so they really don't, you know, other than common design expertise and manufacturing assets, they really don't have an impact over what the things we're doing over in A&D. As we exit 23 and going into 24, you know, I think you can look at revenue from uh from those products sort of getting into the three or four million dollars a quarter range right and that'll that'll have a pretty significant impact on the absorption okay excellent we look forward to seeing that i will jump back in the queue but thanks tom joe sure thank you our next question comes from tim savandro with northland you may proceed

Hi, good afternoon. The question on, hey, on the operating spend side came in nicely lower than at least I expected here. I don't know if that's, you know, some measure of synergy or acquisition integration, but, you know, as you look forward, you know, is there anything kind of anomalous about that OPEX, and what kind of outlook do you have heading forward here for for OPEX to hang around this level or maybe ramp up a little bit with revenue?

Probably will go a little bit higher than where we finished. Most of the OPEX, Tim, is pretty steady, except you get into certain line items like project costs. This is material used in R&D that tends to be uneven. Sometimes there's NRE to cover it. Sometimes there isn't. So that's really the thing that makes it move around from quarter to quarter. The rest of it, the salaries and the people and all those kind of costs are very steady. So what you're likely to see is a little bit of a bounce back up to, I would say, maybe the 12 range, because materials are likely to go a little higher. I mean, they were well below average this quarter. And even if they just go back up to average, It will be over 12. But, you know, we also, if you recall last quarter, we announced a reduction in force. We got a little bit of the benefit of that only in the last few weeks of the quarter because we took the action in early December. We will get a full quarter of that both in cost of goods sold and in OPEX, and that should, you know, keep the OPEX right around the 12 number per quarter.

Yeah, Tim, as Tom pointed out, the only wild card in this is – you know, where the non-recurring engineering contracts land. Sometimes, depending on the deliverables, you know, we have to record those as an offset against R&D, in which case you'll see a movement down in OPEX. In other cases, those dollars just get billed out through cost of goods. So, and there's enough NRE in there. It could start to move the numbers around. So, Don't be surprised if, for some reason, it looks a little better. I think Tom captured the spirit of where we're headed with this. Operationally, we've wrung out a fair bit of synergies in headcount. There's a few more we might get here and there, especially as we finish some of the systems work. But most of those synergies are now going to come from

improvements in the way the manufacturing operation works so you'll see that in Cox probably starting in the summer but in you know it'll it'll continue an improvement from there got it thanks and Jeff you mentioned some signs over a back on on the broadband side some signs of improvement in inventory situation you know we've seen You know, pretty strong finish to the year in terms of what the big operators are doing and obviously charter moving into a major upgrade cycle here. Kind of real time. I wonder if you could be more specific on what you're referencing with regard to those signs of improvement and, you know, should we assume that's a result of some of this increased network investment activity or how do you see that playing out?

I think you... You touched on part of it, Tim, which is the fact that actually the primary glut of transmitters out there are what are called linear EMLs. Those were primarily consumed by charter, and we see evidence that that is changing and that other MSOs are using those instead of DFBs. So that's part of it. The other thing is that... You know, one of the things you find when you've had a glut of inventory is that the OEMs, you know, misforecast the channel plan a bit. And so you can start to see, based on, you know, the odd wavelengths that are ordered, what's really going, and you have a pretty good idea where it's going. So that's, you know, those are the signs that I mentioned in the call.

Thanks. And one more for me. I think you mentioned a 1.2 book to bill in the December quarter for A&D and higher in certain areas. I wonder if you can comment on what you're seeing from an order perspective thus far this quarter and whether you expect that relatively robust order flow to continue and enable you to grow A&D revenues sequentially throughout the year.

Yeah, so it was really a good performance across the board. Again, inertial NAV leading the way. And in the current quarter, it may come down a little bit. We still expect it to be north of one. And in the June quarter, based on program timings, we're expecting to see something significantly better. Um, and that's just based on, you know, what the program offices are telling us. But, you know, the, the point that I've made is oftentimes in cable, we're running with six weeks worth of backlog. Um, and it's, it's maddening at times. I look at our backlog report now and it's greater than six months. Um, and, and we see that starting to build in some of these larger programs. So, you know, the visibility is dramatically different. We didn't have six months visibility at any time in MCOR for cable TV except during COVID. Period. And we expect that this kind of visibility is the norm rather than the exception in A&D.

Got it. Thanks very much.

Thank you. Our next question comes from Paul Silverstein with Cowan. You may proceed.

Asked and answered. Richard did a fine job. Thanks, guys.

Hi, Paul. Hey, Paul.

Thank you. And as a reminder, to ask a question, you will need to press star 1-1 on your telephone.

Our next question comes from Richard Shannon with Craig Hallam.

You may proceed.

Hey, guys. Two more follow-ups from me. I want to follow up on Tim's last question and your response here about thinking about, you know, growth throughout the rest of the year, maybe thinking about it in another way. And, Jeff, taking some of your comments from your prepared remarks about some of these, you know, products, I think you're kind of taking it mostly on a product-by-product basis rather than programs. Talk about Taimou and Borg and some QM's products. You know, broadly speaking, can you kind of fit, you know, those products into the, you know, the quarter or quarters where you might see some outsized growth and ultimately kind of fit us into the scenario where you get to break even? How do we get there? Can you kind of help us put those things together a little bit more carefully, I guess?

Sure. Well, you know, again, one of the points that we've made is, you know, I called it, I think, the 30-30 point, which is we want to have gross margin in the low 30s and revenue in the low 30s in order to get to EBITDA. So let's just take the midpoint of the range, call it 28 that we forecasted, and you say, okay, Jeff, you need another five. Where are you going to go get it? Okay. Okay. In my prepared comments, I mentioned that just all by itself, TAMU could provide $20 to $25 million worth of revenue a year. And that's, you know, so there's my five per quarter. And that is just one program. So there are other programs which are ramping up. Programs for Lockheed in infrared search and track we're seeing pushes by other branches of service with Raytheon for their own products like that. We're starting to see the work regarding the M1A2C Abrams tank, which we're a part of, with Commander Gunner's sites start to move forward. And so, you know, the interesting thing, Richard, is, you know, this is really different for us at this point compared to, say, where we were two years ago, is we've won the program's that we need to ramp. So this isn't a case where it's really speculative, go-gets on program wins. It's executing on low rates of initial production, getting things qualified, and then into production. So that's the answer to the first part of your question about revenue. Getting into the question about gross margin, again, you know, there's The thing that we've always talked about is that we're volume sensitive. And so we get hit with these under-absorption charges, and those are in the fab primarily, but they also occur within the assembly areas in the business. So as we ramp up production and start generating this absorption of the overhead Even without a change in the bill of material, even without a change in the product sales price, margins go up. Period. End of story. So there's, again, you know, if you look at the P&L in the current quarter, yeah, there was some cable TV stuff we decided to write off. There was really not much of it in A and D. And, you know, scrapping most of the business was fine. I think all we've got to do is execute on the fundamentals and get the volume up, and the gross margin problem largely takes care of itself.

That's helpful, Jeff.

Maybe one quick follow-up on the topic, especially the thing that stood out here in terms of the size, saying that can gap you all the way to breakeven here. In the last call, you talked about a breakeven point maybe early next fiscal year. I guess it was my understanding that TAMU was going to be more of a calendar 24 story, so I would assume we've got other drivers, maybe smaller each individually, that helps us kind of gap up there, whereas TAMU is more of a calendar 24 story. Am I misunderstanding this?

Yeah, so it's not quite that black and white, Richard, because what has to happen, for example, is there's a big ramp up in activity of purchasing materials, some of which we actually get to recognize some revenue for, albeit with just a material overhead rate on top of it, well prior to that production happening. So you'll start to see signs of a ramp before the actual delivery of multiple units per quarter. And you'll see a little bit of that in March. But the other programs that are out there in terms of uh new orders for mark 54 ramps on infrared search and track ramps on this loitering munitions program those are the things that are going to continue to move the needle between now and the time where i'm telling you hey you know we were able to ship 24 uh t moves in a given quarter okay so there are there is no hockey stick there is no step function it's you're going to see steady improvement I use the TAMU production as an example because it's so definitive. We know what the Kuiper launch rates are. We know when ULA is expecting us to get done. And when I say expecting, I mean needing us to get done and get the thing out the door to them with a very high degree of quality, and there's no room for error. But the reality is, you know, we talked about this book to build 1.2, and we are going to be, you know, giving you some color on that going forward. You know, the other programs are there to continue to close the gap. And we ultimately believe that TAMU will be a bit of icing on the cake. But between now and then, you're going to see continued signs of growth. And in the quarter we've just forecasted, you know, that's what we've said.

Fair enough. That's a great explanation. Thanks for all that detail, Jeff. My last quick question for both of you. The stock at the valuations that it's been trading at in the recent past year are fairly low, and I think people are worried about a dilutive capital to raise. You talked about the path and potential timing of break-even. We've got a potential divestiture that should yield some amount of money. I don't know how to speculate on that, and you're not going to tell us what that is. But With the things that you know, what do you think the odds are of having to raise external equity capital versus being self-funded so you get to break even?

Yeah, you know, that's really not something I can comment on today. Obviously, you know, with the capital levels the way that we are or where we're at, you know, you look at what Wall Street thinks. And on one hand, I think there's a view that, well, You know, I may get to see this thing on the bottom or on the way down if there's a raise. But on the other hand, there are, say, deep value longs that say, well, we need to make sure this thing is funded so that we don't have a problem, that we can see our investment thesis play out. And so, you know, it's probably not something I feel comfortable commenting on today.

That is fair enough. Just wanted to hear your best guess, and I think we've heard that, so I appreciate all the answers today, Jeff. That's all for me.

Thank you. This concludes the Q&A session, and I'd like to turn the call back over to Jeff Ritticher for any closing remarks.

Well, I just want to close by thanking all of you for your interest in MCOR. And as I usually do, I want to recognize the team for the absolute dogged efforts and perseverance as we reinvent the company as an aerospace and defense business. And thank you all for joining us today.

Thank you. That concludes today's conference call. Thank you for participating. You may now disconnect.