EMCORE Corporation

Good day, and thank you for standing by. And welcome to MCOR Corporation Fiscal 2024 First Quarter Results Conference Call. At this time, all participants are on 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'll need to press star 11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 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, MCOR's Chief Financial Officer. Please go ahead.

Thank you, and good afternoon, everyone, and welcome to our conference call to discuss MCOR's fiscal 2024 first quarter results. The news release we issued this afternoon is posted on our website, MCOR.com. On this call, Jeff Redicher, MCOR's President and Chief Executive Officer, will begin with the discussion of our business highlights, and then I will update you on our financial results, and we'll conclude by taking 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, 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 in the business which are included in the company's filings available on the SEC's website located at sec.gov, including the sections entitled Risk Factors in the company's annual report on Form 10-K. The company assumes no obligation to update any forward-looking statements to conform statements to actual results or to changes in our expectations except as required by applicable law or regulation. In addition, references will be made during this call to non-GAAP financial measures, which we believe provide meaningful supplemental information to both management and investors. The non-GAAP measures reflect the company's core ongoing operating performance and facilitates comparisons across reporting periods. Investors are encouraged to read these non-GAAP measures, as well as the explanation and reconciliation of these measures to the most comparable GAAP measures included in our news release.

Now I'll turn the call over to Jeff. Thank you, Tom, and good afternoon, everyone. In Q1, inertial navigation revenue shifted substantially between facilities, totaling $24.1 million, with a gross margin of 29% non-GAAP. Chicago, Concord, and Alhambra revenue grew in quarter one, but not enough to make up for the revenue drop in Bud Lake. Tom will provide additional financial details in his remarks. Book to bill came in under 1.0 due to the shortened holiday season. However, none of those orders were lost and all are expected to book in the current quarter, combining to produce a book to bill significantly higher than 1.0. While our booking performance is expected to be quite strong this quarter, the requested ship dates are expected to extend out longer than normal. This strengthens the book for the out-quarters at the expense of near-term shipments, damping prospects for short-term growth. For example, we recently booked an order for $8 million that will be part of a very long-term contract. However, the customer's request dates will actually cover two full years, the net effect of which is to provide more predictable long-term performance at the expense of any short-term bump in revenue. At quarter's end, backlog in the business was approximately 51 million. Compared to the September quarter and adjusted for TAMU, this represents about a 10% reduction that we expect to fully resolve in the March quarter. As we work with interested buyers of our wafer fabrication facility in Alhambra, although we had expected to complete the sale by the end of December quarter, negotiations have taken longer than expected and we now have additional incoming interest. That said, we're working to close a transaction ASAP, but in the meantime, we continue to benefit from cash that the last time sales of chips to customers provide. Moving on to the business, I'll begin my comments by stating that although we had strong performance from Tinley Park, Concord, and Alhambra, Seasonal issues and holiday short and quarter presented headwinds that were bigger than expected, preventing us from backfilling for Bud Lake. In particular, delayed export licenses caused us to push out about $750,000 worth of shipments. And although we were able to bill nearly $800,000 in non-recurring engineering for another program, it did not count as revenue. The principal reason for this delay was a defective lot of circuit boards that could not be remanufactured before the supplier shut down for the holidays. Mix and margins held up well, and we expect similar margins in the March quarter. It has been widely reported in the press that actual cash funding to replace munitions and systems allocated to the Ukraine is dangerously low. This has contributed to some of the budget tug of war that's going on between the service branches and has contributed to some of the timing delays that we've seen in contracting times. Operating expenses were a bright spot. Sales and marketing and G&A came in as expected, but R&D was significantly reduced, showing nearly a $600,000 improvement. We are mindful of our high internally funded research and development, otherwise known as IRAD, spending, and expect to continue to drive this down in the coming quarters through NRE contracts from our customers. In October, we talked about the Kratos XQ58 Valkyrie, the Navy's Mark 48 torpedo business increase, and a few other programs that are continuing to progress nicely. This quarter, we are expecting several other long-term contracts to be released awarded in addition to the Navy's Mark 54 Mod 1 torpedo as it enters production. As we flagged in last quarter's comments, the delays in receiving circuit boards did impact shipments of an advanced IMU for Raytheon's EOIR pods, but we are now expecting to complete the full contract and all of our engineering obligations under that contract at the end of the quarter. We expect to complete the current phase of our MMS program along with several smaller programs roughly within the next six to 12 months. We continue to expect that non-recurring engineering funding from our customers to be at least $7 million in calendar 24 with additional growth expected starting in September and proceeding through FY25. I'd like to provide some additional insight into our integration programs and our continued work on optimization and consolidation, all of which are a key area of focus this year. We remain on track to complete the ERP upgrades for Alhambra and Concord, unifying the company's ERP systems. Beyond ERP, we should complete the product line management, product data management migration in Bud Lake in the March quarter, and this will complete the unification of product data. Manufacturing execution systems will be integrated into Concord and Chicago facilities starting this year. We've also made good progress on moving to a common IMU, INS architecture, having its roots in the former L3 aerospace and navigation team in Bud Lake. This common architecture will streamline our development programs and improve our ability to create new component technologies with less engineering expense. As I've said before, component technology differentiation is the key to gross margin and we are moving to design the next generation closed-loop fog components as well as new closed-loop QMEM sensors to improve cost, size, weight, and power for all of our products. Beyond engineering consolidation, we're working to reduce the amount of floor space we require. With the expected wafer fab sale, Alhambra is now moving all of its optical component assembly technology into a single Alhambra building that we now occupy. This is down from five buildings a year ago. Concord will have its footprint by approximately 50%, and we are working on a plan to right-size the Bud Lake facility. I wish the consolidation problem was as simple as cutting floor space and relocating processes and equipment. However, as I pointed out before, There are very expensive structural power, gas, and environmental systems required to support these moves, not all of which exist in some of our facilities. Customers also require significant requalification efforts to certify processes on new equipment and in new facilities. Requalification is typically done during block changes, and timing is driven by their schedules and the needs of end users, not ours. We've made good progress on reducing the amount of floor space that we require within the capital and requalification limits in the business and expect that effort to continue until we reach an optimal configuration. Finally, in turning now to guidance, the March quarter is expected to be flat compared to December with a range of $23 to $25 million. This is just largely due to order timing and some of the expected delivery dates that we're seeing on our order book. With that, I will turn the call back over to Tom.