EMCORE Corporation

Thank you for standing by, and welcome to MCOR Corporation's fiscal 2023 fourth quarter results conference call. At this time, all participants are on listen-only mode. After the speaker's presentations, there will be a question and answer session. To ask a question at that time, please press star 11 on your telephone. As a reminder, today's call is being recorded. I would now like to turn the conference over to your host, Mr. 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 2023 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, and then I'll be updating 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 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 gap measures included in our news release. With that, I'll now turn the call over to Jeff.

Thank you, Tom, and good afternoon, everyone. In the fourth quarter, our inertial navigation business continued to show progress with another strong top line performance at 26.8 million and gross margin at 31% non-gap. Tom will provide additional financial details in his remarks. Look to Bill came in under 1.0 due to concerns about the government shutdown. However, the majority of those expected orders were received in October. Therefore, the backlog in the business remained steady at approximately 67 million. With the closing of the sale of the linear business to Photonic Foundries in early October and the shutdown of the Indium Phosphide Wafer Fab, the operational components of the restructuring plan that we announced in April are complete. MCOR is now a pure play aerospace and defense business. In our press release, we announced that we have entered into a non-binding letter of intent to sell the indium phosphide wafer fab. This agreement is secured with a deposit and also includes an obligation for the buyer to assume the lease obligations of two buildings on the Alhambra campus resulting in a reduction in long-term liabilities and cash outflow for MCOR. We expect to complete this sale by the end of the December quarter. Moving on to the business, I'll begin my comments by stating that we had strong performance from Space and Navigation and Tinley Park. Concord and Alhambra operations came in low, but largely due to mixed changes and timing of orders. In the current quarter, we expect that the book to bill will recover and believe that Q2 will be stronger yet. Operating expenses came in below budget for R&D and sales and marketing. We are mindful of our high internally funded research and development spending, otherwise known as IRAD, and are working to drive this down substantially. Excuse me.

Operating expenses came in below budget

and are working to drive this down substantially in the coming quarters through non-recurring engineering contracts from our customers. I will address this in more detail later on in the discussion. In October, we announced an agreement with Kratos to provide inertial navigation systems for four of their high-performance drones. In particular, the XQ58 Valkyrie contains multiple MCOR systems. Developed under the LCAT program between Kratos and the Air Force Research Labs, this extraordinary, stealthy, AI-driven platform can serve as a loyal wingman to advanced pilot-operated aircraft. The Air Force has stated that it wants to acquire a fleet of at least 1,000 of these systems. The Navy also directly awarded us additional business for the Mark 48 torpedo, and we have been notified that we will need to nearly double production in FY24. We are expecting significant upside business for our EN300 products, the return of orders for MTSBs, and expect to make our first low rate of initial production shipments of an advanced targeting system this quarter. depending on the receipt of circuit boards that are late by a month. During the quarter, we received additional production orders for precision guided munitions program and expect this to transition into a growing yearly order pattern. Business from the Ukraine is also expected to expand. Beyond program capture, we are nearing completion of pre-production units for Raytheon's advanced EOIR pods, We expect to complete the current phase of our MMS program in June, along with several smaller programs over the next six to 12 months. This year, we are expecting non-recurring engineering funding from our customers to be at least $7 million, of which 70% is already booked. Unfortunately, L3Harris informed us that they received a demand letter from the United Launch Alliance for breach of contract and that L3Harris was terminating our development contract for TAMU for convenience. I don't have any additional details to share at this time and must refrain from making additional comments until we fully evaluate our options. Obviously, we are disappointed by this development and are considering all remedies available to us. but we believe that upside from our other unrelated programs from other product families can substantially offset the loss of TAMU in FY24. We have three high confidence programs alone which could offset at least 10 million out of the approximately 14 million in TAMU revenue that was expected in FY24. I'd like to provide additional insight into our integration programs and our continued work on optimization, all of which are key areas of focus this year. With Chicago and Bud Lake now on site line 10, we will now transition Alhambra in March and Concord in June, unifying the company's ERP systems. Beyond ERP, we should complete the product line and product data management in Bud Lake in the March quarter, which will complete the unification of our product data systems. CAMSTAR manufacturing execution systems will be integrated into Concord and Chicago facilities starting in the new year. Beyond the integration programs that I mentioned, MCOR has begun its initiative to leverage its state-of-the-art inertial measurement unit and INS architecture from Bud Lake across the entire company. A singular focus on this common architecture will streamline our operations, reduce development expense, and improve our ability to create new component technologies. Component technology differentiation is the key to gross margin in this business. Beyond these actions, we are working to reduce the amount of floor space that we require. With the wafer fab sale, Alhambra will be down to just one building from five. Concord will have its footprint cut in half, and we are working on a plan to right-size the Blood Lake facility. It is tempting to think that reducing floor space is as simple as relocating processes and equipment. However, there are expensive structural, power, gas, and environmental systems required to support any move, and not all of these exist in some of our facilities. Customers also require significant requalification efforts to certify new equipment in new facilities. Requalification is typically done during block changes, and the timing is driven by their schedules and the needs of end users, not ours. Nevertheless, we are working to drive down the amount of floor space we require within the capital and qualification limits in the business. Turning now to guidance, I'd like to remind everyone that any chip sales which will occur in the quarter will be logged as part of discontinued operations and are not a part of guidance. Given that Q4 came in above expectations, and we do expect to see some short-term impact of the TAMU shutdown, we expect that revenue for the December quarter will be within the range of 26 to 28 million, which represents 35% year-over-year growth at the midpoint of the range. As we look to the full year, we see a solid order book and a funnel that should support revenue in the range of 115 to 125 million, which would be a 23% year over year growth at the midpoint of the range. And with that, I will turn the call back over to Tom.

Thank you, Jeff. Let me start with making mention of the fact that starting in the fiscal fourth quarter, the results from our legacy business namely the former broadband segment and the defense optoelectronic products are now reported in the income statement under discontinued operations. And as of September 30th on the balance sheet as assets and liabilities held for sale. So with that, I'll move to a discussion of the results from continuing operations, which is now exclusively the inertial navigation business. And to facilitate apples to apples comparisons, Any references to previous period earnings are also solely on inertial navigation only. Revenue in fiscal 4Q was $26.8 million near the high end of the guidance range provided during our last quarterly call and the sixth consecutive quarter of sequential growth. Revenue from the two most recently acquired operations in Tinley Park and Bud Lake led the way. both achieving their best revenue quarters since their acquisitions. And while Concord and Alhambra were sequentially lower in 4Q, both of these operations are expected to pick up significantly in fiscal 24. For the full 2023 fiscal year, inertial navigation revenue was $97.7 million. Let me now turn to the rest of the operating results, which will be on a non-GAAP basis. Gross margin was 31% in 4Q compared to 30% in 3Q. The slight improvement was largely driven by the Bud Lake revenue increase, including a significantly more favorable mix that was due to a large percentage of revenue coming from a repair and support contract. The continued steady Tinley Park growth also contributed favorably to the overall 4Q margin performance, while Concord and Alhambra were below average due to the lower volumes already mentioned. Operating expenses were 10.1 million in fiscal 4Q. Operating loss in the September quarter was 1.9 million. Adjusted EBITDA improved to negative 900,000. Net loss was 2 million or 3 cents per share. Shifting for a moment to the GAAP results, fiscal 4Q from continuing operations was 28.8 million or 42 cents per share. GAP results from continuing operations included asset impairment charges totaling $22.6 million, which included goodwill, TAMU IP R&D, and ROU or right of use leases associated with vacating space in Alhambra. Turning to the balance sheet, we had cash of $26.7 million at September 30th compared to 20.2 million at June 30th. The $6.5 million net increase consisted of 15.6 million in net cash proceeds received from the financing completed in August, offset by 9.1 million used during the quarter as follows. 900,000 negative adjusted EBITDA, 2.2 million associated with the lost on discontinued operations, 3.5 million for working capital, $700,000 for severance, $500,000 for M&A related costs, $800,000 for financing activities, and $500,000 for CapEx. Outstanding debt on our credit facility was $10.6 million at September 30th compared to $11.7 million at June 30th. The $10.6 million as of September 30th consisted of $6.4 million on a revolving line of credit, and a $4.2 million balance on the term loan component. The overall $1.1 million reduction during the quarter included $860,000 in proceeds from equipment sales that went directly to paying down the term loan. With that, we're now ready to open up the call for your questions.

Thank you. Again, ladies and gentlemen, if you'd like to ask a question, please press star 1-1 on your telephone. Again, to ask a question, please press star 1-1.

One moment, please.

Thank you. Our first question comes from the line of Shadi Minwali of Craig Hallam. Your line is open.

Hey, guys. Thanks for taking my question. This is Shadi filling in for Richard Shannon. Got a few questions here. May, starting off on your guys' gross margins, it was solid for the September quarter. And do you guys expect that positive trend continuing into the December quarter? And if so, what do you think will contribute to that?

Let me tackle that one first. Short answer is yes, we do. The biggest thing is that, you know, we still have facilities which have a lot of locked up operating leverage. So as volumes go up, you know, there's a significant component of contribution margin well in excess of the gross margin line. So all you got to do is crank the volume and margins start to improve. Current quarter, we're expecting that the product mix is equivalent to favorable. So, yeah, we will expect to see the trend continue. Okay, thanks.

Fair enough. And then, just another question on the December quarter, but what do you expect the cash burn to be for December, and how much of that do you expect to be from the non-core operations?

Yeah, I got it, Jeff. So it's going to look similar to the fourth quarter. We are still digging out from, you know, all the restructuring, the, the severance payments alone are, you know, we're not paid out all at one time. They're paid out over time. So that'll continue. We still carried the legacy business into the month of October and, And while the fab was shut down, you know, there's still some costs associated with that, that, that lingered through. Uh, and, uh, you'll notice in our gap results, we also had an accrual for a legal settlement, um, in the P and L in September that, uh, got paid out in early October. That was around 1.3 million. Um, and there'll be some additional working capital needs. So overall, it's going to look similar in cash use to, uh, what I just, uh, ran through for the fourth quarter.

Fair enough. And then maybe one last question on book to bill. It came under one for the September quarter, and you guys expect it to improve for the December quarter. Are you able to give any more color on if you expect the book to bill to be over one for the next quarter?

Yeah, when we say recover, it would mean over one. The it's just, you know, there's there's a lot of unusual dynamics right now with the way that the Pentagon is allocating funds. Again, you know, it's easy to look at, OK, you know, Congress authorizes X amount of aid to the Ukraine. And really what that means is we're sending stuff from our inventory platforms, weapon platforms, munitions, etc., And then the service branches need the cash to go recover that. And there's a lot of give and take. And occasionally, you know, that pushes out some of the actual contracting timelines. I'll give you an example. We were told by the Navy, by the contracting authority, that the Mark 54 contract was going to be let in March of 2022. And, you know, the most recent thoughts we have from them are, yeah, it is going to get done here in December. So, you know, we expect it to recover. There's a lot of good things that can happen even better than that in the March quarter. You know, you get hampered a little bit by the holidays, but, yeah, we think we'll be up back over one. And, you know, we look at a strong March quarter after that. on the booking side.

Awesome. Thanks, guys, for taking my questions, and I'll hop back in the queue.

Thank you. One moment, please.

Our next question comes from the line of Tim Savageau of Northland Capital Markets. Your line is open.

Our next question comes from Tim Savageau of Northland Capital Markets.

Hi, sorry about that. And you've guided revenues for the year, and I imagine that's reflective of some offsets from the TAMU cancellation. It's really not too far off what we might have originally expected. That's correct, yeah. Yeah, I don't know if you've explicitly stated in the past, I think the expectation was to achieve positive EBITDA exiting the year. Given the positives on gross margin, correct me if I'm wrong, when you say expect this trend to continue, that would be the trend of sequential improvement in gross margins for the December quarter. And you did have a nice little bounce up in September. Probably not the same order of magnitude.

But how should we be thinking about that

you know, positive EBITDA target in light of maybe a stronger gross margin environment and, you know, likely a change in mix. When do you think you can get the positive EBITDA and maybe positive cash flow?

Thanks. I'll go ahead with that one, Tom. So this quarter is going to be close, as we said. You know, it's a little more favorable you know, on the gross margin line, tiny bit less on the revenue line. The only thing we got to be mindful of is, you know, these called once in a year OpEx things like additional costs from auditing, right? Because, you know, we're trying to get the K filed here as quickly as we can. So, you know, on the adjusted EBITDA basis, if you're not there this quarter, it's certainly next, but it's, you know, we're going to be close. As far as getting to cash flow break even, what we've said is, you know, one to two quarters after that. It's really just a function of moving the top line a little bit.

Okay, thanks very much. Thank you. One moment, please.

Okay, our next question comes from the line of Shadi Mewali of Craig Hallam. Your line is open.

Please make sure your phone isn't on mute. One moment, please.

Our next question comes from the line of Brian Kingslinger of Alliance Global Partners. Your line is open.

Great. Thanks for taking my question. If I heard you correctly, I think you said three contracts you have that can offset $10 million of the $14 million of revenue that was expected for the TAMU cancellation. Could you help tell us which three contracts those are, if you're able to? And then the second part of that question, whether you are or not, were those contracts previously in the backlog or they're expected to get into the backlog in the short term?

So I already did tell you one. When we talked about Mark 48 production doubling in the year, right? So that's one of them. The other two we did not name. But when I say high confidence programs, they are things that we have made and shipped before for specific programs. And orders are being worked up inside of the system or are being, we just got additional volume that's going to come with that. So I'd rather not name the other two. It's a competitive world out there. But when we say high confidence, orders, that's what we mean, things we're already doing. Right.

So one essentially is booked and in the backlog, and the other two, some sort of negotiation or in business development you think are highly likely. Is that accurate?

Not quite. So what I said was that we've been notified by the Navy that we are going to be ramping doubling production for the Mark 48 program in fiscal calendar 24. And so we expect to get an order from them early in the year. With that said, you know, we've got a bunch of other open orders with them. So it's not like, you know, it's really going to slow us down at all, but we haven't actually booked the order. So that's the only point of clarification. Great. Understood. Thank you.

Thank you. I'm showing no further questions at this time. I'd like to turn the call back over to Jeff Riddicher for any closing remarks.

Thank you. Thank you all for your interest in MCOR. I also want to recognize the team for completing the restructuring plan we announced in April, positioning MCOR as a pure play aerospace and defense business. Thanks again and happy holidays.

Thank you. Ladies and gentlemen, this does conclude today's conference. Thank you all for participating. You may now disconnect. Have a great day. Thank you. Bye. Thank you. Thank you. Thank you for standing by, and welcome to MCOR Corporation's fiscal 2023 fourth quarter results conference call. At this time, all participants are on listen-only mode. After the speaker's presentations, there'll be a question and answer session. To ask a question at that time, please press star 11 on your telephone. As a reminder, today's call is being recorded. I would now like to turn the conference over to your host, Mr. 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 2023 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, and then I'll be updating 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 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. With that, I'll now turn the call over to Jeff.

Thank you, Tom, and good afternoon, everyone. In the fourth quarter, our inertial navigation business continued to show progress with another strong top line performance at 26.8 million and gross margin at 31% non-GAAP. Tom will provide additional financial details in his remarks. Book to Bill came in under 1.0 due to concerns about the government shutdown. However, the majority of those expected orders were received in October. Therefore, the backlog in the business remained steady at approximately 67 million. With the closing of the sale of the linear business to Photonic Foundries in early October and the shutdown of the Indium Phosphide Wafer Fab, the operational components of the restructuring plan that we announced in April are complete. MCOR is now a pure play aerospace and defense business. In our press release, we announced that we have entered into a non-binding letter of intent to sell the indium phosphide wafer fab. This agreement is secured with a deposit and also includes an obligation for the buyer to assume the lease obligations of two buildings on the Alhambra campus resulting in a reduction in long-term liabilities and cash outflow for MCOR. We expect to complete this sale by the end of the December quarter. Moving on to the business, I'll begin my comments by stating that we had strong performance from Space and Navigation and Tinley Park. Concord and Alhambra operations came in low, but largely due to mixed changes and timing of orders. In the current quarter, we expect that the book to bill will recover and believe that Q2 will be stronger yet. Operating expenses came in below budget for R&D and sales and marketing. We are mindful of our high internally funded research and development spending, otherwise known as IRAD, and are working to drive this down substantially. Excuse me.

Operating expenses came in below budget

and are working to drive this down substantially in the coming quarters through non-recurring engineering contracts from our customers. I will address this in more detail later on in the discussion. In October, we announced an agreement with Kratos to provide inertial navigation systems for four of their high-performance drones. In particular, the XQ58 Valkyrie contains multiple mCore systems. Developed under the LCAT program between Kratos and the Air Force Research Labs, this extraordinary, stealthy, AI-driven platform can serve as a loyal wingman to advanced pilot-operated aircraft. The Air Force has stated that it wants to acquire a fleet of at least 1,000 of these systems. The Navy also directly awarded us additional business for the Mark 48 torpedo, and we have been notified that we will need to nearly double production in FY24. We are expecting significant upside business for our EN300 products, the return of orders for MTSBs, and expect to make our first low rate of initial production shipments of an advanced targeting system this quarter. depending on the receipt of circuit boards that are late by a month. During the quarter, we received additional production orders for precision guided munitions program and expect this to transition into a growing yearly order pattern. Business from the Ukraine is also expected to expand. Beyond program capture, we are nearing completion of pre-production units for Raytheon's advanced ELIR pods, We expect to complete the current phase of our MMS program in June, along with several smaller programs over the next six to 12 months. This year, we are expecting non-recurring engineering funding from our customers to be at least $7 million, of which 70% is already booked. Unfortunately, L3Harris informed us that they received a demand letter from the United Launch Alliance for breach of contract and that L3Harris was terminating our development contract for TAMU for convenience. I don't have any additional details to share at this time and must refrain from making additional comments until we fully evaluate our options. Obviously, we are disappointed by this development and are considering all remedies available to us. but we believe that upside from our other unrelated programs from other product families can substantially offset the loss of TAMU in FY24. We have three high confidence programs alone which could offset at least 10 million out of the approximately 14 million in TAMU revenue that was expected in FY24. I'd like to provide additional insight into our integration programs and our continued work on optimization, all of which are key areas of focus this year. With Chicago and Bud Lake now on site line 10, we will now transition Alhambra in March and Concord in June, unifying the company's ERP systems. Beyond ERP, we should complete the product line and product data management in Bud Lake in the March quarter, which will complete the unification of our product data systems. CAMSTAR manufacturing execution systems will be integrated into Concord and Chicago facilities starting in the new year. Beyond the integration programs that I mentioned, MCOR has begun its initiative to leverage its state-of-the-art inertial measurement unit and INS architecture from Bud Lake across the entire company. A singular focus on this common architecture will streamline our operations, reduce development expense, and improve our ability to create new component technologies. Component technology differentiation is the key to gross margin in this business. Beyond these actions, we are working to reduce the amount of floor space that we require. With the wafer fab sale, Alhambra will be down to just one building from five. Concord will have its footprint cut in half, and we are working on a plan to right-size the Blood Lake facility. It is tempting to think that reducing floor space is as simple as relocating processes and equipment. However, there are expensive structural, power, gas, and environmental systems required to support any move, and not all of these exist in some of our facilities. Customers also require significant requalification efforts to certify new equipment in new facilities. Requalification is typically done during block changes, and the timing is driven by their schedules and the needs of end users, not ours. Nevertheless, we are working to drive down the amount of floor space we require within the capital and qualification limits in the business. Turning now to guidance, I'd like to remind everyone that any chip sales which will occur in the quarter will be logged as part of discontinued operations and are not a part of guidance. Given that Q4 came in above expectations, and we do expect to see some short-term impact of the TAMU shutdown, we expect that revenue for the December quarter will be within the range of 26 to 28 million, which represents 35% year-over-year growth at the midpoint of the range. As we look to the full year, we see a solid order book and a funnel that should support revenue in the range of 115 to 125 million, which would be a 23% year-over-year growth at the midpoint of the range. And with that, I will turn the call back over to Tom.

Thank you, Jeff. Let me start with making mention of the fact that starting in the fiscal fourth quarter, the results from our legacy business namely the former broadband segment and the defense optoelectronic products are now reported in the income statement under discontinued operations. And as of September 30th on the balance sheet as assets and liabilities held for sale. So with that, I'll move to a discussion of the results from continuing operations, which is now exclusively the inertial navigation business. And to facilitate apples to apples comparisons, Any references to previous period earnings are also solely on inertial navigation only. Revenue in fiscal 4Q was $26.8 million near the high end of the guidance range provided during our last quarterly call and the sixth consecutive quarter of sequential growth. Revenue from the two most recently acquired operations in Tinley Park and Bud Lake led the way. both achieving their best revenue quarters since their acquisitions. And while Concord and Alhambra were sequentially lower in 4Q, both of these operations are expected to pick up significantly in fiscal 24. For the full 2023 fiscal year, inertial navigation revenue was $97.7 million. Let me now turn to the rest of the operating results, which will be on a non-GAAP basis. Gross margin was 31% in 4Q compared to 30% in 3Q. The slight improvement was largely driven by the Bud Lake revenue increase, including a significantly more favorable mix that was due to a large percentage of revenue coming from a repair and support contract. The continued steady Tinley Park growth also contributed favorably to the overall 4Q margin performance, while Concord and Alhambra were below average due to the lower volumes already mentioned. Operating expenses were 10.1 million in fiscal 4Q. Operating loss in the September quarter was 1.9 million. Adjusted EBITDA improved to negative 900,000. Net loss was 2 million or 3 cents per share. Shifting for a moment to the GAAP results, fiscal 4Q from continuing operations was 28.8 million or 42 cents per share. Gap results from continuing operations included asset impairment charges totaling $22.6 million, which included goodwill, TAMU IP R&D, and ROU or right of use leases associated with vacating space in Alhambra. Turning to the balance sheet, we had cash of $26.7 million at September 30th compared to 20.2 million at June 30th. The $6.5 million net increase consisted of 15.6 million in net cash proceeds received from the financing completed in August, offset by 9.1 million used during the quarter as follows. 900,000 negative adjusted EBITDA, 2.2 million associated with the lost on discontinued operations, 3.5 million for working capital, $700,000 for severance, $500,000 for M&A related costs, $800,000 for financing activities, and $500,000 for CapEx. Outstanding debt on our credit facility was $10.6 million at September 30th compared to $11.7 million at June 30th. The $10.6 million as of September 30th consisted of $6.4 million on a revolving line of credit, and a $4.2 million balance on the term loan component. The overall $1.1 million reduction during the quarter included $860,000 in proceeds from equipment sales that went directly to paying down the term loan. With that, we're now ready to open up the call for your questions.

Thank you. Again, ladies and gentlemen, if you'd like to ask a question, please press star 1-1 on your telephone. Again, to ask a question, please press star 1-1.

One moment, please.

Thank you. Our first question comes from the line of Shadi Minwali of Craig Hallam. Your line is open.

Hey, guys. Thanks for taking my question. This is Shadi filling in for Richard Shannon. Got a few questions here. May, starting off on your guys' gross margins, it was solid for the September quarter. And do you guys expect that positive trend continuing into the December quarter? And if so, what do you think will contribute to that?

Let me tackle that one first. Short answer is yes, we do. The biggest thing is that, you know, we still have facilities which have a lot of locked up operating leverage. So as volumes go up, you know, there's a significant component of contribution margin well in excess of the gross margin line. So all you got to do is crank the volume and margins start to improve. Current quarter, we're expecting that the product mix is equivalent to favorable. So, yeah, we will expect to see the trend continue. Okay, thanks.

Fair enough. And then, just another question on the December quarter, but what do you expect the cash burn to be for December, and how much of that do you expect to be from the non-core operations?

Yeah, I got it, Jeff. So it's going to look similar to the fourth quarter. We are still digging out from, you know, all the restructuring. The severance payments alone are, you know, we're not paid out all at one time. They're paid out over time. So that'll continue. We still carried the legacy business into the month of October and And while the fab was shut down, you know, there's still some costs associated with that, that, that lingered through. Uh, and, uh, you'll notice in our gap results, we also had an accrual for a legal settlement, um, in the P and L in September that, uh, got paid out in early October. That was around 1.3 million. Um, and there'll be some additional working capital needs. So overall, it's going to look similar in cash use to, uh, what I just, uh, ran through for the fourth quarter.

Fair enough. And then maybe one last question on book to bill. It came under one for the September quarter, and you guys expect it to improve for the December quarter. Are you able to give any more color on if you expect the book to bill to be over one for the next quarter?

Yeah, when we say recover, it would mean over one. The it's just, you know, there's there's a lot of unusual dynamics right now with the way that the Pentagon is allocating funds. Again, you know, it's easy to look at, OK, you know, Congress authorizes X amount of aid to the Ukraine. And really what that means is we're sending stuff from our inventory platforms, weapon platforms, munitions, etc., And then the service branches need the cash to go recover that. And there's a lot of give and take. And occasionally, you know, that pushes out some of the actual contracting timelines. I'll give you an example. We were told by the Navy, by the contracting authority, that the Mark 54 contract was going to be let in March of 2022. And, you know, the most recent thoughts we have from them are, yeah, it is going to get done here in December. So, you know, we expect it to recover. There's a lot of good things that can happen even better than that in the March quarter. You know, you get hampered a little bit by the holidays, but, yeah, we think we'll be up back over one. And, you know, we look at a strong March quarter after that. on the booking side.

Awesome. Thanks, guys, for taking my questions, and I'll hop back in the queue.

Thank you. One moment, please. Our next question comes from the line of Tim Savage of Northland Capital Markets.

Your line is open.

Our next question comes from Tim Savage of Northland Capital Markets.

Hi, sorry about that. And you've guided revenues for the year, and I imagine that's reflective of some offsets from the TAMU cancellation. It's really not too far off what we might have originally expected. That's correct, yeah. Yeah, I don't know if you've explicitly stated in the past, I think the expectation was to achieve positive EBITDA exiting the year. Given the positives on gross margin, correct me if I'm wrong, when you say expect this trend to continue, that would be the trend of sequential improvement in gross margins for the December quarter. And you did have a nice little bounce up in September. Probably not the same order of magnitude.

But how should we be thinking about that

you know, positive EBITDA target in light of maybe a stronger gross margin environment and, you know, likely a change in mix. When do you think you can get the positive EBITDA and maybe positive cash flow?

Thanks. I'll go ahead with that one, Tom. So this quarter is going to be close, as we said. You know, it's a little more favorable you know, on the gross margin line, tiny bit less on the revenue line. The only thing we got to be mindful of is, you know, these called once in a year OpEx things like additional costs from auditing, right? Because, you know, we're trying to get the K filed here as quickly as we can. So, you know, on the adjusted EBITDA basis, if you're not there this quarter, it's certainly next, but it's, you know, we're going to be close. As far as getting to cash flow break even, what we've said is, you know, one to two quarters after that. It's really just a function of moving the top line a little bit.

Okay, thanks very much. Thank you. One moment, please.

Okay, our next question comes from the line of Shadi Mewali of Craig Highland. Your line is open.

Please make sure your phone isn't on mute. One moment, please.

Our next question comes from the line of Brian Kingsler of Alliance Global Partners. Your line is open.

Great. Thanks for taking my question. If I heard you correctly, I think you said three contracts you have that can offset $10 million of the $14 million of revenue that was expected for the TAMU cancellation. Could you help tell us which three contracts those are, if you're able to? And then the second part of that question, whether you are or not, were those contracts previously in the backlog or they're expected to get into the backlog in the short term?

So I already did tell you one. When we talked about Mark 48 production doubling in the year, right? So that's one of them. The other two we did not name. But when I say high confidence programs, they are things that we have made and shipped before for specific programs. And orders are being worked up inside of the system or are being, we just got additional volume that's going to come with that. So I'd rather not name the other two. It's a competitive world out there. But when we say high confidence, orders, that's what we mean, things we're already doing. Right.

So one essentially is booked and in the backlog, and the other two, some sort of negotiation or in-business development you think are highly likely. Is that accurate?

Not quite. So what I said was that we've been notified by the Navy that we are going to be ramping doubling production for the Mark 48 program in fiscal calendar 24. And so we expect to get an order from them early in the year. With that said, you know, we've got a bunch of other open orders with them. So it's not like, you know, it's really going to slow us down at all, but we haven't actually booked the order. So that's the only point of clarification. Great. Understood. Thank you.

Thank you. I'm showing no further questions at this time. I'd like to turn the call back over to Jeff Riddicher for any closing remarks.

Thank you. Thank you all for your interest in MCOR. I also want to recognize the team for completing the restructuring plan we announced in April, positioning MCOR as a pure play aerospace and defense business. Thanks again and happy holidays.

Thank you. Ladies and gentlemen, this does conclude today's conference. Thank you all for participating. You may now disconnect. Have a great day.