Q3 2021 EMCORE Corp Earnings Call
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On this call Jeopardy, and of course, President and Chief Executive Officer will begin with a discussion of our business highlights and I.
I will then update you on our financial results for the quarter 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 27, a of the Securities Act of 1933 and section 21 E 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 and.
Such forward looking statements include in particular projections about future results statements about plans strategies and business prospects and changes and trends in the business and the markets and 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 can.
The risks and uncertainties associated with these statements and the business, which are included and the company's filings available on the SEC's website located at SEC Dot Gov, including the sections entitled Risk factors and 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 changes and 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 reflected and 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.
Now I'll turn the call over to Jeff. Thank.
Thank you John.
And good morning, everyone.
And of course third fiscal quarter revenue grew 11% over Q2 coming in at $42.7.
Non-GAAP profitability grew even faster showing and 18% increase from 17 to 20 per diluted share.
And our strong top line growth and disciplined expense control and continued to produce excellent flow through the P&L, producing and non-GAAP operating profit of $7.9 million or 18% of revenue.
This represents and of course fourth consecutive quarter of growth profitability and earnings demonstrating the strong operating leverage and our business we.
We achieved this strong performance against the backdrop of Covid challenges and semiconductor shortages.
Semiconductor availability tightened during the quarter and surprise push outs of orders materialized as expected.
While we believe that we're in good shape in terms of inventory for the current quarter, we expect to continue to redesign certain products to accommodate ongoing problems and the semiconductor supply chain.
Inventory levels increased a bit quarter over quarter. However, we expect the fiscal resolve itself completely as we finish the transfer process from Beijing to Taiwan.
And as I laid out in our last call. We added transmitter manufacturing equipment to increase capacity and Taiwan. As a result, we saw significant production increases and Thailand during the June quarter with high yields.
And this milestone enables us to shutdown and transmitter built in China starting in October.
<unk> outbreaks and Bangkok have caused turbulence and our CATV production output our manufacturing lines are back up and running.
And from the restrictions for foreign workers into Thailand, and remained significant hindrance to getting our <unk> in the Bangkok. However, we've continued to make progress on production yields.
Nonetheless.
Turning to our individual business areas cable TV drove strong performance in the broadband unit shipped were up slightly as well.
And the growth and cable TV grew despite the record pace of shipments and we continue to enjoy strong backlog and cable TV and although we will always be cautious about is cyclical in nature.
Broadly, our lidar and sensitive components continue to garner interest from a wide variety of potential customers.
And I'd have something we signed a contract for a new highly differentiated chip product, which could be a major source of revenue source of revenue growth beyond FY 'twenty 2.
Overall, we are encouraged by the continued demand that we see for our new chip and sensing products and see a bright future for the broccoli and business unit beyond as cable TV.
Aerospace and defense declined slightly due to startup delays and our new EMS provider to our defense Opto electronics business.
And our previous supplier decided to relocate their Socal Assembly facility to the Bay area.
And which left us define and qualified and new supplier on short notice.
<unk> and cloud revenue were both up slightly and Q Mems margins improved substantially EBIT breakthrough and manufacturing engineering and profit.
Our pace of innovation.
And navigation has remained high.
And has produced some important results are.
<unk> <unk> hundred which has 10 ex the performance of competitive thawed products recently released improvements, which will expand the range of applications from targeting platforms to more vibration intensive environments.
Customers are increasing their activities to evaluate and qualify our.
Of course men's product based on the compelling test results reported by both foreign and U S Defense laboratories, where the STI 500 came out number 1 against 18 other items.
We've made steady progress and design validation and qualification testing for our fog products.
And see a slow return to normal operations within our customer base.
Clearly the Delta has injected caution into the plans and businesses everywhere.
With that said, we continue to see evidence of improvement, while we're not out of the woods, yet even in states like Texas and Florida.
Progress on qualification and integration continues over the next several quarters, we expect to make important announcements about the growth of our navigation business.
Moving onto the overall guidance for the second fiscal quarter third fiscal quarter.
And ended the fourth we expect to see similar performance and our cable TV business with slightly increased revenues from our other product lines.
And as noted caution remain tied to COVID-19 infection rates and semiconductor supply.
Taking all of this into consideration. We currently expect revenue for the fourth quarter to be and the range of $42 million to $44 million.
With that said I will turn the call back over to Tom.
Thank you Jeff.
Consolidated revenue and the fiscal third quarter was $42.7 million and increase of $4.3 million or 11% when compared to $38.4 million and the fiscal second quarter.
Aerospace and defense segment revenue was $12.3 million this quarter compared to $13.1 million and the prior quarter and the overall lower A&D revenue was attributable to our defense Opto electronics product line due to the timing of customer orders and transitioning to a new contract manufacturer.
This was partly offset by increased revenue for our navigation business as both the Q Mems and <unk> product lines were up and <unk> versus the quarter before.
Broadband segment revenue was $33 million and increase of $5 million or 20% when compared to the $25.3 million last quarter.
<unk> and performance was driven by continued strong demand for our cable TV products.
Through the first 3 quarters of fiscal 2021 consolidated revenue was $114.5 million, which is already higher than the total for all of the prior fiscal year.
Let me now turn to the rest of the operating results for the quarter, the focus of which will be on a non-GAAP basis.
The A&D segment gross margin and <unk> was 33% compared to 30% the quarter before drill.
Driven primarily by improved Q Mems margins.
The growth of our broadband business resulted and its gross margin coming and Sean again and <unk> at 44%.
Slightly better than the 43% last quarter.
Segment gross margins on a trailing 12 month basis for A&D, and broadband were 31% and 43% respectively.
Given the overall shift this quarter to a higher mix of broadband revenue the consolidated gross margin increased to 41% and fiscal <unk> compared to 39% and the prior quarter.
On a year to date basis, our consolidated gross margin of 39% is significantly ahead of the 31% during the same period a year ago.
Operating expenses were $9.6 million and fiscal <unk> compared to $8.9 million reported in the prior quarter.
This was primarily due to R&D expense as noted on our last call due to a higher level of NRL contract revenue in fiscal <unk>. The Opex reported for that quarter excluded some engineering labor expenses that were recorded as cost of goods sold.
This quarter due to lower contract revenue those costs remained and R&D expense and.
In addition, R&D project material cost for both business segments were up and <unk> compared to <unk>.
It is important to keep our opex level and perspective during the first 3 quarters of fiscal 2021 operating expenses were 24% of revenue significantly better than the 39% of revenue during the same period last year.
Moving to the bottom line as a result of rising revenue and continued gross margin strength. We grew operating profit and the June quarter to $7.9 million and operating margin to 18% compared to $5.9 million and 15% the quarter before.
On sequential revenue growth of 11% operating profit grew 33%.
Adjusted EBITDA increased to $8.9 million or 21% and 3 Q compared to $6.9 million or 18% and the prior quarter.
Adjusted EBITDA on a trailing 12 month basis was $24.3 million or 16%.
Net income and EPS was $7.9 million and <unk> 20 per diluted share compared to $5.9 million and <unk> 17 per diluted share the quarter before.
Shifting to the GAAP results for a moment there are a couple of items I'd like to point out.
Net income and EPS reported for the quarter was $13.6 million and 35 per diluted share and.
And included 2 non recurring gains totaling $7.4 million 1 was for $6.4 million due to the extinguishment of debt associated with our previously disclosed <unk>.
<unk> loan forgiveness.
And the second 1 was for $1 million related to the exploration of uncertain foreign tax reserves.
Excluding both of these onetime items <unk> GAAP net income and EPS would've been $6.2 million and <unk> 16 per diluted share compared to $4.4 million and 13.
And <unk>.
Turning to the balance sheet, we had cash of $68.3 million at June 30, compared to $65.3 million at March 31 the.
And the cash increase of $3 million consisted of $5 million of operating cash flow less $1.9 million used for Capex and 100000 for financing activities.
And third quarter now marks the fifth consecutive quarter of positive cash from operations.
And with that and we are now opening up the call for questions.
Thank you and you would like to ask a question. Please signal by pressing star 1 on your telephone keypad and you use.
Using a speaker phone. Please make sure your mute function is turned off to allow.
How your signal to reach our equipment.
And again press Star 1 to ask a question, we'll pause for just a moment and to allow everyone an opportunity to signal for questions.
Well take our first question from Jason Smith with Lake Street.
Hey, guys. Thanks for taking my questions I just wanted to look at the cable TV business I think Jeff last quarter, you mentioned that order book extended through March 'twenty 2 quarter, just curious if theres any update on how far that extends out today.
Yes, I think the best way.
Describe it as it continues to push out to the right.
The rate at which the court the backlog is growing has slowed a bit but overall.
You have to take a little bit of domestic.
And in context, because the March quarter is the slowest 1 of all and.
So as companies look at placing orders for the cost of winter.
2022, you would always expect to see something happened and it's a little slower.
But we're not.
At this point, we don't believe it's part of a significant trend.
Okay. That's helpful and just following up on your supply chain comments on redesigning some certain products is that causing some demand to also be pushed to the right.
So far no.
And what it really boils down to Jason is the latest comp package types and micro <unk> that are very very dense or in the.
The strongest demand and.
And so.
<unk>.
And we're shifting too.
Packaged types that are a little bit bigger and have better availability.
So it's not like it's a major issue.
Just a lot of detail involved with it.
Okay that makes sense and the last 1 from me and I'll jump back into queue. I know, there's a lot of moving parts with the manufacturing move, but just curious how we should think about gross margin going forward.
At this point I wouldn't expect gross margin to change a lot.
And what we're suggesting.
And here is a suggested.
The plan is right after we're done with the.
Fiscal year and the.
The transmitter bills.
And that are currently.
Occurring both in.
Beijing and.
And we'll switch 100% to Thailand and.
And so we'll lose some fixed costs and.
And because the box build which is the major part of the bill of materials.
We will no longer be owned by us until the very end of the process.
We also expect to see inventory come down and cash.
Work its way back into.
Tom.
Corp Little Hart.
So I don't think youre going to see gross margins change much at all.
They're good.
Costs are stable and we are always going to be a little mindful of the wildcard if and to use just.
When you are buying parts from brokers and <unk> got the opportunity to see purchase price periods go against you for a period of time and.
And.
It is what it is everybody's dealing with it.
Yes, just to add Jason and I think 1 for it and then we're in a good spot on the broadband gross margin and I think once we're at full outsourcing.
And then largely be a function of the mix the product mix and.
Absorption and the fab.
Okay. That's helpful. Thanks, a lot guys.
Okay.
We'll take our next question from Paul Silverstein with Cowen.
And so Amit, beating a dead horse I, just want to make sure that.
<unk> share and from what you just said it had zero impact from virtually no impact from either revenue or on margin structure and.
Boats and referring both through the quarter, you reported and looking forward.
Yes, that's true.
We've got for example, Paul we've got 1.
Product that's nearly through qualification, it's just the change to microprocessor too.
Accommodate supply chain issues on NXP devices, which are pushed out 52 weeks.
Just a lot of detail associated with any recall, but that's not expected to cause much turbulence and the gross margin line and it affected.
Affected us in terms of.
And what we're able to ship.
We've been pretty.
Careful about making sure supplies on hand.
Yes.
The cases that we build our production model around as opposed to when manufacturers are telling us the delivery dates.
And we're going to materialize, because theyre not accurate not even close.
So.
Certainly.
A source of a lot of problems, but it hasnt hurt us yet and we.
We think <unk> occur.
And I heard your comments on cable television and your expectations with respect to.
Ongoing strength, albeit slow down and the rate of growth.
But I would think from the comments of Comcast and charter and particularly off the earnings calls and.
And I'd love to get your ticket.
Meyer it sounded relatively positive and.
In terms of implications for ongoing demand strength.
And I'd like to hear your take a true.
You are fully aware of what they're thinking and I'm sorry.
Yes, we are.
<unk>.
And we get.
The incestuous nature of the cable TV business I mean, you have guys who used to be customers that are now.
Looking in the Msos.
I'll have.
Conversations and between quarters long and short of it is.
<unk>.
Sure.
Confidence.
And that's the bandwidth growth requirements are not going away.
The msos are continuing to invest for the reasons that you heard.
If we're focusing on anything in terms of.
Rate limiting steps for them.
Availability of trucks and.
The Pope's <expletive> and whole new fiber and <unk>.
Get things up on Poles. So.
For right now I would say status quo is probably right.
We have heard.
As we've had conversations that strength is going to materialize or keep going all the way through 'twenty 2 maybe into 2003, we've heard people that are on the short side of that argument and so we view it as sort of trying to integrate all the comments.
We still see a very positive environment for cable.
And the nice thing is for us as we continue to shed fixed costs and bring the inventory back into the cash line and the balance sheet.
Our financial performance will continue to improve.
And so.
I don't have a lot of counter arguments to what we heard from Comcast and charter I've only skim through the transcripts.
And so I'm going to read through them, a little more carefully but I didn't see anything in there that I would have disagreed with.
And 1 last question if I may.
Any incremental and so as you can offer on the Anda pipeline.
I'm sorry, Paul.
And that 1 didn't quite come through.
Any incremental color you can offer regarding pipeline activity and.
Yes, there is a couple of points I can make.
What we're expecting to see this quarter for example.
Over and the broad line.
Youre going to see roughly.
5 new customers start shipping and very small volumes.
And 3 hundreds.
We're starting to see bits and pieces of the commercial aircraft business come back.
1 of the first things, we got clobbered with Covid, where the biz jet upgrades and Bo and Triple 7 ex Collins aerospace.
Aerospace with snap part of Raytheon is taking more product.
And we see more signs of life from those guys and their revenue got clobbered by 90% in fiscal 'twenty.
And the other point I would make is that were now actually having visits with customers that we haven't been able to physically see and 12 to 18 months, we've got a team over in England right now working with a major customer we've got another group leading 4.
Turkey.
The larger group this week to talk to major customers about the opportunities. So what we're seeing Paul is a combination of let's call. It.
Small shipments of net products that are a good harbinger of things to come and more aggressive engagements by companies that are starting to open their doors.
Despite some of the Covid.
Wet blanket that's being thrown on everything.
I appreciate the responses hotels and more thank you.
Welcome.
And again, if you would like to ask a question. Please press star 1.
That is star 1 if you would like to ask a question.
I would now like to take our next question from Richard Shannon with Craig Hallum.
And Jeff and Tom Thanks for taking my questions as well.
Maybe I'll follow up on the cable TV topic here, you've obviously had a great improvements over the last few to several quarters here and Youre.
And Youre guiding cable T flattened in the quarter.
And with it didn't make backlog here and your thoughts you just convey Jeff here would you kind of view your cable TV business as a kind of a steady level here for a while obviously taking into your into accounts seasonality that you mentioned or would you have us think about any sort of other trajectory and this business for the next year or so.
Interesting perspective, and inside that question, Richard I think <unk> got it largely right.
And I don't see a lot of things changing albeit issues.
And as you hit the winter and you've got the normal sort of seasonality impact to speed of installs.
We will expect to see some level of moderation, but.
Overall, I think things and cable are are steady and they're good they're a powerful source of cash and profit.
And.
Really giving us the chance to.
And especially with the weather the Covid storm as much as it is.
These patients through the process of our defense customers opening the doors there.
I think they've been some of the most cautious folks.
In terms of the way that they've looked at.
Opening up their facilities.
Hosting business and when.
And you're going to see some of these integration tasks.
And doing things over the phone doesn't really.
And it's nowhere near as effective as having a couple of engineers.
Sitting down with instrumentation and front of something that isn't quite working the way we expected.
And integration issues little software things.
Those are the sort of plug and Bruce.
And with schedules to the right, but we're now seeing signs again what that is.
Improving.
And yes steady as she goes with cable, but again from my standpoint, we've talked about this.
Dismantling the fixed cost structure inside of cable is a top priority for me and Tom.
Getting debt working capital.
And back into cash.
And.
Cutting inventory down and this is the time to do it.
And I would like to say or from an ancient Chinese profit rate dig and well before you're thirsty.
So long weighted answer 2 good questions.
Okay. That's helpful.
From a follow up on the prior questions here and then navigation sensor business.
If you look at the sales trend here last few quarters spend roughly and a flattish line here the reasons why.
Talked about liberally here, maybe give us a sense of where you where you might see.
And the sources of a breakout from these levels here.
From Q Mems or fog.
Type of customers anything you can kind of give us a sense of.
We expect and breakout of revenues and that segment.
Yes.
So from.
Turning to a couple of ideas for concrete catalysts.
1 of them is a return of business from.
Commercial aviation.
Into Q Mems.
Lost a couple million Bucks, a year and revenue.
As Colin first fit and we're now seeing.
And forecast that look considerably better and order rates that are picking up from Collins.
As we take a look at navigation on the fog side.
Again, and you've got about 5 customers that are going to be taking low level production orders this quarter and.
It's.
The bad news is it takes a little while to get to full production and the good news is that once that happens to also hard to slow down.
We've got a major program, we announced in the press a couple of months ago. This was for and Airborne pod was $1 billion contract, there's going to be another 1 to accommodate some additional design changes and the customer wants and that's going to move into a higher rate of production.
Probably in the second half of 'twenty 2.
And so it's a wide variety of things Richard if not just any 1 day.
Okay.
Amplify the point I made.
About <unk> hundred.
It offers up to 10 ex.
Accuracy and bias.
Inaccuracy.
<unk>.
Over temperature compared to other products.
And now we've expanded the vibration range that it works and so you can get it off the airborne.
Targeting systems and into places where vibration matters a lot more.
Ground applications.
Et cetera et cetera.
I know it seems a bit prehistoric but you've got to worry about alien zone.
But you have to be able to do it with GPS denied.
Environments and it turns out.
The ability of <unk> hundred 2.
Handle that application is important and shock and vibe matters a lot so when I talk about.
Expectations that we're going to have some more important announcements, it's going to come from those areas.
Okay that is helpful commentary as well Jeff.
Next question here is on your your chip business here.
I think you mentioned you signed a new contract for an exciting area that you didn't.
And maybe if you could give us a little bit more details on application and when we might see that come to fruition here and then any other progress and and the lidar space either from existing customers or progress or even.
New customers line that signed up there.
Sure so.
And providing colors, a little bit hard in.
In terms of who it is and what they're doing with it.
But its certainly.
Got it the essentials to be.
Our multiple 7 figure a year sort of a product it's a big deal.
Starting to hit us at the end of 2002 or soonest, a lot of samples are going out.
Sort of large numbers of samples 50 at a time 100 and the time.
So I think the big takeaway there Richard is just that.
There are non automotive uses for the light or products, which are now starting to think the radar that are on a shorter integration.
Time passed and cars.
When we have something to say about that we'll certainly.
Announcements to out there.
We look forward to hearing about that.
My last question.
And I'm just looking at your Nap censor business here you you you obviously have added to a and internal business here with and acquisition and a couple of years ago, what are what you're seeing out there in terms of potential bolt ons here to help out either technology wise red and the new technologies or gain some scale just any thoughts about the potential there and what the environment looks.
<unk>.
Sure so.
Dark cloud and yellow pork debt.
And I have spent a lot of time on this.
There's 1 company that we.
Really made a hard run at and they're just not interested in.
Any kind of a combination of relationship that makes sense.
When you get past the Grumman and Honeywell the market starts to get fragmented in a hurry, but with that said what we're seeing is.
Large vertically integrated guys that have an interest in carving out parts of their business devoted naff and we've seen some synergies which could.
Make those attractive.
Acquisitions for us, there's less and a handful of those 3.5 maybe top various sizes.
Ranging from.
I don't know, 10% to $50 million a year and revenue.
And Mark and I are working on.
And those efforts as they become actionable there are also.
There is a.
Way of looking at the market.
A little differently and if you ever heard about resilient Pnp, you'll know what I mean.
And we are also investigating how those.
Product lines could be integrated underneath and and for umbrella as well.
Okay.
Very interesting I appreciate the thoughts that's all for me Thanks a lot.
Thanks Richard.
And that concludes today's question and answer session speakers at this time I will turn the conference back over to you for any additional are closing remarks.
Thank you I would like to thank all of you for your interest and EMCORE and tuning in so early.
And finally, I would love to recognize and our team for a terrific quarter and producing outstanding financial results for our shareholders. Please stay safe everyone and goodbye.
This concludes today's call. Thank you for your participation you may now disconnect.
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