Q4 2019 Earnings Call
Ladies and gentlemen, thank you for standing by and welcome to the EMCORE Corporation fiscal fourth quarter and full year 2019 earnings conference call.
This time all participants are in a listen only mode. Later, we will conduct a question answer session and instructions will be given at that time as a reminder, today's call is being recorded at this time I would like to turn the call over to Eric median.
Jim. Please go ahead.
Thank you and good morning, everyone. Before we begin we would like to remind you that information provided she ran may include forward looking statements within the meaning of section 20, Sevena <unk> Securities Act of 1933 and section 21 each of the exchange. After 1934. These forward looking statements are largely based on.
Our current expectations and projections about future events and trends affecting our business such forward. Looking statements include in particular projections about future results statements about plans strategies business process changes and trends in the business and in the market in which we operate.
Management cautions that these statements relate to future events or future financial performance and are subject to finish economic and other risks and uncertainties, both known and unknown that may cause actual results level of activity performance or achievements of the business or industry to be materially different from those expressed.
On slide by any forward looking statements.
We caution you not to rely on these statements involve the considered the risks and uncertainties associated with these statements and the business [laughter] excuse me that are included in the company's filings with the U.S. Securities and Exchange Commission that are available on the FTC website located at Www Dot FTC dotcom.
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How many 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 believes provide meaningful supplemental information to both management and investors. The non-GAAP measures reflect the companies or ongoing operating performance and facilitates comparisons across reporting periods investors Darren.
First review these non-GAAP measures as well as explanation <unk> reconciliation of these measures to the most comparable GAAP measures included at the end of our earnings press release included as exhibit 99.1 to the form 8-K, we furnished to the FCC yesterday.
These materials can also be accessed in investor section of our website at www dot and or Dot com.
With me today from him for our Jeff Richer, President and Chief Executive Officer, and Tom Millichap, Many Chello Chief Financial Officer.
Jeff will begin with a review of the fourth quarter and the business highlights and Tom will review the financial results before opening the call up for questions now I will turn the call over to Jeff.
Thank you hear a good and good morning, everyone first of all I'd like to introduce Tom and a jello to all of you Who's our Chief Financial Officer, Tom strong technical skill his ability to communicate and his roll up your sleeves and get to work style or already having an impact on the company improving our financial discipline having.
Introduce Tom I'll move on to discuss our Q4 results.
Data of our profitability and cash flow initiatives that we're now on our last call is well provide guidance for the current quarter airplane to reach profitability.
Revenue for the fourth quarter came in at 24 point Threemillion just above the high end of our guidance range more importantly, the continued strength the demand for Emcores aerospace and defense products combined with a full quarters contribution from me SCR acquisition resulted in nearly 60.
Our sense of revenues coming from aerospace and defense.
Cable television was approximately 34% of revenue and shifts and while we were about 6% combined.
As expected cable TV I missed so spending remains soft in the fourth fiscal quarter, while our share remains high and unchanged.
Within the chip market.
Demand levels remain muted given the ongoing trade disputes with China, and the 25% import tariffs. We believed that this trade dispute well not and any time soon nor will the aftereffects of decisions to exclude U.S. made ships for new design wins.
As discussed last quarter, given the uncertainty around mid to long term demand within this market we've chosen to exit many of the lower margin products earlier than planned and focus our efforts on the smaller subset of higher margin products aimed at 25 G applications.
Within the Encor aerospace and defense product lines, which include navigation products across both facilities and defense Opto electronics, formerly sat com.
Customer demand and new program wins remains strong.
We were especially pleased with the progress we made in the fourth quarter related to the integration I bet you got it nominally reached EBITDA neutral in Q4, a quarter ahead of schedule.
This was the full first full quarter of contribution and the business continues to meet our expectation.
Customer demand remains strong well operational initiatives are on pace to improve margin and drive synergies with L. hambrick.
In the fourth quarter, we continued to build prototype fog I end use inertial measurement for.
Or completely new targeting platform that will be first introduced on the U.S. 18 strike fighter and is planned to be introduced on the other important systems thereafter.
Customers very pleased with the performance of the unit and look forward to moving onto the flight testing as soon as possible I.
Additionally, you have 300 production units have shipped into additional programs with flight testing starting because as soon as our customers can execute.
[noise] within defense Opto electronics demand remains strong as applications for these products move beyond their route in satellite ground stations. The Navy ships radar systems in similar application.
Significantly expanding the market opportunities that we see.
The project to modernize EFI a control towers continues as planned with the first shipments of these products beginning in the December quarter.
We've also been awarded new orders for specialized chips, such as our lithium niobate iOS, the biopsies, where the aerospace and defense market.
See the as an excellent growth opportunity going forward.
Moving onto our cash and profitability improvement initiatives in our last call. We outlined four major actions that we're taking to reduce the breakeven point for our legacy Alhambra products I will now give you an update on the status of these efforts.
First of all you know that we would move to it you have enough model for manufacturer. This initiative is designed to eliminate the under absorption from our Chinese operation removed tariffs reduced working capital requirements and improve margins.
We projected that this would take three quarters to complete from its inception.
This is currently on schedule to finish at approximately the end of the March quarter.
Customer qualification samples are being built and submitted for qualification approval as they become available the gating activity on this action is largely driven by the number of hours that these qualifications samples must operate before passing qualification criteria.
During this transition period, we must keep the Beijing facility operating in parallel to ensure that we can ship product without negatively impacting revenue.
In late October we announced that high Terra was purchasing all of the manufacturing equipment.
From our Chinese facility, which will result in a positive cash impact, but at least $5.5 million.
It's also important to note that moving CMS enables a variable cost model, where we pay a landed cost for the finished product that includes high fare as Marco.
Preliminarily, we believe that occurring cable TV volumes, we should expect to see an improvement of about 2% to the consolidated gross margin from these cost reductions.
In addition to these cost improvements we will also eliminates the under absorption that we see during weak quarters for reference typical under absorption at EEI has been about $500000 a quarter or about another 2% of gross margin at the consolidated level.
We view this partnership with high Terra is crucial to the long term success in manufacturing commercial cable television in wireline wireless products.
Secondly, we stated that we would reduce our fab operations to a single shift to reduce fab under absorption as we emphasize our higher margin chip products. This was completed in fiscal Q4.
However, we are still continuing to analyze how we can reduce fab expenses further from these levels.
Thirdly, we stated that we would reduce the size of the cable TV organization. This was completed in Q4, however, as with the bad we're investigating additional actions that we can take to drive expenses downward.
Fourth we're looking to accelerate the operating synergies between our two U.S. facilities to maximize cost savings and our opportunities first among these is the implementation of our legacy ERP system in conquered which will eliminate redundant staff and accounting and supply chain.
Secondly, we are ahead of plan for consolidating suppliers I, reducing material cross cost across facility.
Finally, the integration of our manufacturing team is showing this where additional savings can be realized through the use of common production processes.
These activities will manifest themselves as cost savings as they're completed over the next few quarters.
Well, we're encouraged by the progress we're making on these four initiatives. We're also acutely aware of the need to drive additional changes to the business to accelerate our return to cash flow generation and profitability.
Before discussing the outlook for next quarter I'd like to discuss the changes inside and four at a macro level less than five years ago cable television was 90% of Emcores revenue and carried 90% of the company's assets in cost.
Today cable television is roughly a third of revenue dictating that management. They make D. Structural changes that you eliminate at least the same percentage of cost from the business. These structural changes imply the elimination of buildings fixed assets with an inventory as well as the personnel to do.
The work.
Simultaneously were challenged to build a highly specialized set of these same asset types to grow our aerospace and defense business.
We've had a lot of moving pieces on our chessboard over the past few years, but this was necessary to fundamentally transform our business.
For the December quarter, the major M.S. those have indicated that their capital expenditures will increase from calendar Q3.
However, we remain cautious as to the timing is slope of the rebound.
I'd expect the only modest improvement in cable TV demand in the near term.
With demand for cable TV products now reset to new lower levels exiting fiscal 19 were just a few months away from the transition to be a variable cost producer of cable TV products.
This will have an important positive impact on gross margins.
We accomplish the same transition in defense Opto electronics about two years ago and now manufacture these products in the U.S. facility that is qualified to build I tar products. This leaves us with captive wafer fabrication and navigation assembly in or U.S. operation. These are jobs that are highly.
Specialized technically challenging and are well matched to a more expensive workforce.
Consequently, the combination of operating initiatives and continued top line growth should allow us to drive a marked improvement in financial performance in the coming quarters.
As we look forward into the coming fiscal year and based on the latest comments from the NSS. We expect the cable TV spending will improve somewhat from the depressed 2019 levels.
Our latest channel checks have not reveal any excess inventory that could create an overhang that would depressed demand. Further. Furthermore, we continue to see only spotty evidence of remote phy field trials and do not see this as a major threat over the next year. We do see addition.
No activity pointing to the adoption of remote five shelf products, which we are well positioned to provide.
Cable TV demand should be stronger in calendar 20 than it was in 19.
Our aerospace and defense products are also position for growth in the coming here.
The courts Mems navigation products from our corporate facility are seeing strong demand in the U.S.
This product will be bolstered in Q2 by the release of non I car versions of the S.T.I. 500, inertial measurement unit for sale outside the U.S. market.
We also expect it to Boeing Triple seven acts.
Which contains five FDI 300, I end use and each aircraft will start production this year.
We're working on getting design into several important new weapons systems that we can't because the discuss yet and are excited to see that our copper products have larger market opportunities than we expected for example, our STG 7000, navigates drill head in high temperature oil and gas applications.
While our QRS family is used to stabilize a variety of industrial products.
Our fog products have been growing nearly 100% compounded annual growth rate over the past five years growing from about $800000 in revenue to nearly 14 million last year, reaching an important inflection point.
We have five major product development programs, which will launch into production this year.
Although these drove R&D and material expense to high levels. In Q4, we expect that this will taper off by Q2.
These products span applications ranging from munitions guidance two primary navigation of aircraft. We look forward to seeing flight testing commenced in the near future on multiple programs, but investors need to understand that we don't control the timing of these key milestones.
Our defense Opto electronics business also continues to perform well and is expected to move the essay Controltower program into production beginning this quarter and complete over the next two years, we continued to see strong orders for our shipboard high frequency products and expect to field advanced satellite communication systems.
Using new few and V band for low Earth orbit satellites.
[noise] visibility in aerospace and defense represents a stark contrast to cable television our defense Opto electronic products are currently booked out several quarters.
Conquered has orders that arrive in multi quarter or yearly purchase amount.
Passed the majority of its your book like Q1.
Our faade product book in the same quarterly or yearly chunks as well in F 120, Aerospace and defense will become an even larger and more important part of the company and we will offer better predictability at the same time.
Before I move onto revenue guidance for Q1, I'd like to address the question of what it will take for us to reach breakeven.
Given that Q3 will be the first quarter in which we realized the savings from the Dms transition and breakout of the usual seasonal cable TV weakness Q3 is our target for breakeven on an adjusted EBITDA basis.
Depending on mix, we will need to hit a topline number $30 million range with gross margins approaching 30%, while maintaining good operational and expense discipline.
Tom is going to expand on the margin and topic points in his comments, but other revenue side of things will need an additional $6 million in revenue from the Q4 numbers given seasonal variations in cable television, we would still expect to see about 2 million of that come from people tail television.
About 3 million from aerospace and defense products and the remaining 1 million from non cable TV broadband.
Consistent with this view, we expect revenues to be in the range of 25 million to 27 million in fiscal Q1.
Reflecting continued strength in our aerospace and defense market with stable demand for broadband products with that I will turn the call over to Tom.
Thanks, Jeff and good morning, everyone.
Let me provide some added color on our results for the fiscal fourth quarter.
Revenue was 24.3 million, an increase of 7.1 million or 41% when compared to the 17.2 million in Threeq you.
The sequential increase was driven by 5.8 million dollar increase you're not reported revenue for Sci.
Fourth you was our first full quarter reporting FDIC results as compared to Threeq you. When it only included the last three weeks of Jim.
The balance of the sequential increase was primarily driven by a rebound in our cable TV revenue from the historically low level the quarter before.
Over the past several years EMCORE has been working to diversify its end market exposure.
To align our reporting with this strategic focus and in the manner in which we are now operating the business. We plan to report two segments starting in fiscal 2020.
Aerospace and defense, which will consist of our navigation product lines and defense Opto electronics, and broadband which will include cable TV chips and wireless.
As a part of this strategic alignment and as a result of continuing softness in the broadband market.
Some of the cable TV related actions, we've taken to date resulted in charges recognized in for acute.
We reduced the size of our Alhambra basic cable TV team, including reducing capacity of the wafer fab to one ship.
These actions, resulting in a fourth you charge of 400000 and are expected to result in annual savings of approximately 3 million.
Additionally in light of recent trends that have resulted in cable TV revenues flattening out at significantly lower levels than originally forecasted our year end review resulted in a noncash $4.7 million write down of cable TV inventory.
Consisting predominantly of components that were either in excess of the now lower expected demand or that off and no longer align with today's networks.
Total charges associated with the transition of our cable TV operation netted to 4.8 million in Fourq you contributing to the GAAP net loss of 15 million or 52 cents per share compared to 10.5 million and 37 cents per share in three kids.
Now moving onto the rest of the operating results on a non-GAAP basis.
Gross margin was 19% in Fourq, you compared to 23% in Threeq you.
About two thirds of the lower Fourq you gross margin was due to startup production yields related to our navigation products.
The remaining one third was the result of year end physical inventory adjustments.
On a go forward basis stripping out the year end physical inventory adjustment and the startup yields as we ramp up navigation production, we should see further gross margin expansion, including 1% from the full quarter impact of the cable television reductions in L. hambrick.
And the additional to present, we expect from the move to a variable Vms model.
Well just these improvements we moved closer to 30% before considering other factors such as revenue growth and better fixed cost absorption.
non-GAAP operating expenses increased 3.3 million to 12.4 million in Fourq, you compared to 9.1 million in Threeq you.
About 2 million or the increase was attributable to the full quarter of Sci.
800000 was due to R&D project cost for our five product lines.
And about 500000 was the result of higher professional service fees related primarily to the FDI acquisition.
Going forward, removing the nonrecurring Sci expenses and some of the additional project costs as well as accounting for the full quarter impact of the cable television reductions, we would expect a non-GAAP opex reduction of around 1 million.
Now back to the fourth quarter, well sequential quarter revenue increased the lower gross margin and higher Opex resulted in a non-GAAP operating loss of 7.7 million compared to 5.1 billion the quarter before.
non-GAAP net loss and he asked was 7.7 million and 27 cents per share in Fourq, you compared to 5 million at 18 cents per share in Threeq you.
Adjusted EBITDA was negative 5.7 million imports you compared to negative 3.3 million in Threeq you.
Turning to the balance sheet cash totaled 22 million at September Thirtyth 2019, compared to 20.7 million at June Thirtyth.
Net of short term borrowings of 5.5 million our cash used during for Q was 4.2 million of which 4 million was used to fund operating activities.
Going forward there are several cash related items that I like the brings your attention.
In October we made a $4.4 million payment as a result of an arbitration ruling on the Phoenix litigation matter the details of which were outlined in our 8-K filing in June .
The accounting charge for this payment was recognized in third quarter GAAP results.
Regarding the equipment sale to high Terra we've already begun shipments and received our first payment of 1.9 million in October but.
The total sales approximately 5.5 million, we expect to receive the bulk of the remaining cash of 3.6 million during the first half of calendar 2020.
Our actually I acquisition included a 100000 square foot facility and Concord, California.
We're currently marketing the building with the intention of entering into a sale leaseback arrangement from which we would anticipate receiving net cash proceeds in excess of 10 million.
So with that we'd like to now open up the call for your questions.
Thank you Sir.
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Oh for just a moment to allow everyone the opportunity to signal for questions.
Our first question comes from Jason Smith with Lake Street capital market.
Hey, guys. Thanks for taking my questions I, just wanted to start with the cable business and trying to reconcile some of your comments, Jeff I know historically December is seasonally weak, but just given the depressed corridors you've seen in June and September could the cable TV business actually Corona.
In December .
Yeah, I think it can you know what you tend to see is almost a thought pattern.
But the bottom of the thought to being in the March quarter and be a top of the sauces being in the calendar Q4. So yeah I think we'll see an uptick in the current quarter, we're just being cautious about projecting.
You know big rebound in that business.
But the chemists so those are spending more money we see it.
And sticking with that business have you seen any significant changes from a pricing standpoint.
Oh, no not at all I mean as a matter of fact, you know even without without trying to give away too much yeah, we see a movement toward more premium products in the in the network as oppose to you know some of the legacy Dsps that.
You know have.
That's been around for a very long time. So in this price premium you know is actually better from a price performance standpoint.
But no there's there's really no pricing erosion to speak up.
Okay.
And the last one from me and I'll jump back into it you can you just just got so why you're seeing so much success in the aerospace and defense business Y O Y you've won some of these programs and I guess related Lee I know when you initially made the S.T.I. purchase you guys rethinking sorry, 10% growth for that.
Business now that you've had another quarter of it under your belt is that still sort in the ballpark target.
I'm sure. So so the defense or the defense business. In General you know is is interesting it's a completely different animals and the way cable television works.
The good news is once you get projects going they take a very long time to stop the challenges some of the delays and other projects or other reasons why funding gets delayed could be maddening to deal with as I pointed out to to someone before you know the Epay control tower project.
Started in 2011.
We were awarded the design win in 2015, and then saw you know 40 years of excessive push outs.
So some of it is just being a little bit patient, but the reality is were among the very few people that can supply. These high frequency links between say the radar systems in an airport and the.
The control towers, which have these large digital displays.
It really the defense Opto electronics success, largely is driven by our ability to handle this you know.
Linear slash analog a set of radio signals silver fiber is better than anybody else I mean, we're the only guys that do this that have their own fab.
So you know as we take a look at Ah you know the common things with Epay control tower with the shipboard replacement of high frequency lengths Big wave guys. You know it all plays into our wheel house in the central linear technology and I think that's the reason why it's it's driving some.
The success there as far as the far projects go you know we've been working for very long time to get more.
More sophisticated projects complete Tom alluded to some cost that we we incurred to try to get some things into production. We're already seeing the benefit in the current quarter of you know some of the breakthroughs that we've had that are going to enable us to start shipping these things and larger volumes.
So it's really then you know a very carefully orchestrated effort to take advantage of our ability to manufacture these things and we believe we're doing it in the way that that our competitors are gonna have a hard time matching and and the competitors are chiefly Honeywell and Northrop Grumman.
Finally on the on the Sci side, you know the interesting thing about the course mems products projects or products.
Is that that company originally was more driven toward automotive and as those.
Opportunities dried up and were lost two seem off.
S T I get kept getting pushed into higher and higher Apple and applications and now we're seeing as we.
You don't get into the market that there's there's even more demand than we thought. So for example, one of the problems is then that that the vast majority of S.P.I. products had I tar restrictions, making them.
Require very stringent export licenses to even get into NATO countries over in Europe .
We're now producing are starting to produce units that do not have that I tar.
Requirement they have to more than less stringent EA our.
Licensing requirements that go through the Commerce Department, where everything is is more streamlined. So the point is it's going to be easier for our customers in Europe major non NATO allies over in in Asia to buyer products than ever before so you know, it's a combination of factors, but that's a good thing because it implies that there.
Strength across you know the defense off though the conquered products as well as the fog business and Alhambra.
So long winded answer to a good question.
No I appreciate that thanks, a lot guys.
Mhm.
Thank you. Our next question comes from Tim Savageaux.
Capital markets.
Hey, Good morning first question for me good morning.
In terms of the business breakdown for the quarter, you mentioned in the sense products. It.
The percentage of total revenue.
I imagine that might include reclassification relative to your prior reporting I think you mentioned that [noise].
Standalone EMCOR and correct me if I'm wrong in the defense side coming in at 14 million you called out the year FBI.
I forget.
It seems like you might move stuff overcoming the satcom area or not or did you see just an incredible amount of strike.
In the defense business in or organic EMCORE to get to that.
60%.
Huh.
A couple in the quarter I mean, just kind of clarify that Renaud go from there.
Sure no you're exactly right as we've taken a look at what Satcom really is that business has migrated from being a ground station business. It was originally the ground station equipment that the emmis those would by for their head end.
But when you take a look at the major programs that are running in that business. They are virtually 100% defense related other than the you know nickel and dime level.
Yeah product requested will come in through distributors and so because they address common applications with common customers Raytheon is our largest customer in that business area.
We put them in with the other aerospace and defense projects, because or other products because.
You know of of the commonality with the end user base.
Got it perimeter and okay. So beyond that you'd say that's.
Both on the.
Ah DST Guy and a on the fog front.
That your business develop kind of inline with your expectations Burger and the in the September quarter and heading forward.
Yes, absolutely.
And if anything I think the FBI opportunities were a little eye opening.
While we knew is we were doing due diligence that I car was a significant hurdle to selling over in Europe .
What we didn't understand was how straight forward it would be to resolve that problem and in fact, you know we've done that we've already submitted a request to the department of state, which controls the ice her licenses for these new products to begin moving them over into the Commerce Department with the.
He our restrictions which are are far simpler to get licenses for basically with NATO countries is it's a very straight forward you know the only takes a couple of weeks.
And this matches what you know our customers in Europe , while you know they don't want to deal with iPhone unless they absolutely have to.
Great if I can follow up.
Therapy or to focus on the gross margins.
I think you mentioned you a couple of factors driving some downside I guess, what what would be the baseline.
There when you mentioned either one third and in two thirds it sounds like both of those factors out too.
Dissipate pretty quickly I imagine that you're obviously, the Cisco inventory should be gone in the current quarter.
It is that.
Relative to the prior quarter or where you might have expected yeah, we've kinda hatcher looking into high Twentys.
Versus the 19, so how do I you know what what's my baseline for that comparison.
It sounds like you're saying you can you are with the removal of those factors.
Hi, good revenue growth you can put on something on the order of a thousand pace. This supports the gross margin through a three year fiscal Q3 sort of.
Reiterate that's true the guy.
Yeah. Good good morning, 10, so if you look at the recent history here, you'll see a non-GAAP basis, which we've now provided a in the information that we included in our press release yesterday.
You will see a relatively consistent sort of 23% grew a lot of different changes in the business.
In the fourth quarter, we were lower at 19 for the reasons I mentioned, we had this year end adjustment due to a physical inventory.
And then we are up you know the typical yield issues regarding the new products and the fog area right. So we're already seeing and improvement on the yields as we are ramping up production.
So just bridging you from Threeq to Fourq you Oh, it was those two items, but as we look forward. If you add back the physical inventory adjustment, which is not a repeatable thing.
And the improvement in the yields you're back to 23, and then you attack on.
The actions that we're now taking a in our cable TV business.
To streamline and improve the profitability there right you've got.
The information that I gave in the prepared remarks about two percentage points of gross margin improvement on the outsourcing to an E.M.S. model and then we also did the a reduction here in L. Hambrick and that's another point, so now you're moving up.
Into the 20, 627% range and that's before revenue growth in fixed cost absorption and down the road. Some other items like synergies with a with conquered and other cost reduction so.
We're marching towards 30%. When you you know you consider that that walk down that I just gave you.
Are those immensely helpful. Thank you and.
Just wanted to close with Uh huh.
Make sure I heard correctly, it was sort of a late comment.
You're selling in L. hambrick facility for 10 million. So he said I'm just sort of make sure I got that.
No Cocker, Tim Okay conquered facility right the newly acquired yes already.
Okay.
Got it and what's the with the timing on that.
Well, we've had we've heard up from marketing that starting in the beginning of the quarter. We've had good interest and have a multiple offers and you know we're in the middle of of negotiating and just leave it at that for now.
Okay.
Thank you.
Thank you again as a reminder, if he would like to ask a question. Please press star one.
Our next question comes from Dave Kang with B. Riley FBR.
Thank you good morning.
Yeah, I do have some questions on gross margin as well so.
Regarding our fiscal first quarter I know you didn't talk about it but ER should we be speaking about of course margin as.
Back to 20, 324% or should we add a couple of more lines because of the.
Hi, Brad reduction and then yeah, Miss so maybe mid Twentys, how should we think about of course marching for first quarter.
Yeah, I think you're thinking about it right, Dave because the the implement the full implementation of the outsourced model is another quarter away. So.
You know sort of middle fiscal 2020, but.
Your thoughts here in the the way you phrased the question our right way to think about it in terms of timing.
Got it and just similarly on not that how should we think about opex going forward can you talk about the leverage I think it was around 12 million last fiscal quarter.
Correct, Yes. So we were at 12.4 in the fourth quarter on a non-GAAP opex basis, and like I said.
You know, we're looking at some non repeatable items related to the FBI acquisition, and we had the reductions.
Here are now hamper related to the cable TV transition you remember those reductions of around 3 million annualize, we're about half and cost of goods sold on the margin side and the other half coming on the Opex side. We did have some of that benefit already in the fourth quarter for about a third of it so you're going for.
And we'll see the full quarter impact of that so think about it as.
You know somewhere in the five or 10% reduction or like I've said in the prepared remarks about a million lower.
You know there's other lot of other pieces of the Opex that are moving parts, you know up and down but I think that's a good way to think about it.
And then when you get to around 30 million or you know.
In fiscal third quarter with a 30% gross margin or should we expect opex to be it kind of.
Around that you know a 12 million there so 11 to 12 million or.
Can you talk about the variability.
Yeah, that's probably a good range and a good way to think about it yeah. The only other thing.
We'll expect to see a little bit less in project costs, a material cost for new projects as as these things taper off in beginning Q2 with the launch of new stuff into manufacturing right. So you don't see the engineering materials. It has been going into it in starting in Q4.
Got it and my last question is on cable TV, Jeff how should we think about cable TV or what should our expectations be sounds like it's kind of bottoming at an $8 million, you know where could the peak b and by when.
Well you know this is a $64000 question first of all it directly answer your.
Your point, we've got evidence that it did bottom and that we're we're moving back up.
You know were little cautious on the ramp just because of are being built in so badly with the you know the way that things went down I mean, the M.S. those did not spend anywhere near as much as they said they would in the beginning of the year right. So.
We're taking this all with the grain of Salt and it's also important to note that when we do get guidance from the M.S. those it and you talk about infrastructure, it's not even a perfect proxy for you know what we sell because there are other parts of the system things like the cable modem termination system. The this.
He caps that that go in and so just because everybody is doing well with those doesn't mean, it's a great quarter for transport. So you just got to take a little bit of grain of salt with this.
Well Thats all that said.
We've gone in pretty carefully looked at the various channels one of our major customer uses distributors one does not.
And we don't see an overhang.
Like the one there was there was a bit of an overhang last year and so I think we're going to see.
A decent uptick into calendar 20.
When you take a look at the comments the BNS those have made they said that they're going to spend in a more linear pattern.
Than they did in the in 19.
What does that translate to an absolute dollars again visibility is really limited at this point I will say that as we look into current quarter. You know we've seen evidence of a a decent uptick wary about going much further because the march quarter for all the new shareholders is.
Always a seasonally weak quarter, because you know at least a third maybe as much as a half the country you can't do installs in the winter right just because of weather.
So it's going to be better Dave you just can't put a our hands on exactly how much until we hear what the M.S. So those are going to project as far as their capital spend goes and we'll expect to see some of that information.
Next month.
Got it thank you.
Thank you I'm currently showing no further questions in the queue and I would like to turn the call back over to Jeff richer CEO for closing remarks.
In closing I'd like to thank all of you for a for waking up early specially the west coast folks and you're interested EMCORE.
I'd also like to acknowledge our employees and thank them for their hard work and commitment it's really been a team effort to try to get.
Back to profitability and we look forward the challenge of completing the job.
Thank you very much and we'll talk to you all soon.
Thank you ladies and gentlemen. This concludes today's teleconference. You may now disconnect.
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