Q1 2022 EMCORE Corp Earnings Call

Speaker 1: is being recorded and at this time I'd like to turn the call over to Mr. Tom Minicello, Chief Feminine Officer. Please go ahead, sir.

At this time I'd like to turn the call over to Mr. Tom and his fellow Chief Financial Officer. Please go ahead Sir.

Thank you.

Speaker 2: Thank you and good afternoon everyone and welcome to our conference call to discuss M-Corps fiscal 2022 first quarter results. The news release we issued this afternoon is posted on our website, Mcorps.com. On this call, Jeff Ritcher, M-Corps President and Chief Executive Officer will begin with the discussion of our business highlights. I will then update you on our financial results and will conclude by taking questions.

And good afternoon, everyone and welcome to our conference call to discuss <unk> fiscal 2022 first quarter results.

The news release, we issued this afternoon is posted on our website <unk> Dot com on this call, Jeff <unk>, President and Chief Executive Officer will begin with the discussion of our business highlights I will then update you on our financial results and we'll conclude by taking questions.

Speaker 2: 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.

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 at $19 33, 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.

<unk> trends affecting the business.

Speaker 2: Such forward-looking statements include, in particular, projections about future results, statements about plans, strategies, business prospects, and changes and trends in the business and the markets in which we operate.

Such forward looking statements include in particular projections about future results statements about plans strategies business prospects and changes and trends in the business and the markets in which we operate.

Speaker 2: 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 statement.

Management cautions that these forward looking statements relate to future events or our 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.

Rest 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 .

Speaker 2: 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.

Speaker 2: 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.

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.

Speaker 2: 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 investment.

Speaker 2: The non-GAAT measures reflect the company's core ongoing operating performance and facilitates comparisons across reporting periods.

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 is included in our news release.

Speaker 2: 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...

With that I'll now turn the call over to Jeff.

Speaker 2: Thank you, Tom. And good morning. Well, actually, good afternoon, everyone. First of all, I'd like to offer up a quick apology for my cough. Half a dozen tests say it's not COVID and enough other tests have been run that we know it's not anything serious, but nevertheless, it can be annoying. So I apologize for any loss of clarity here.

Thank you Todd and good morning actually good afternoon, everyone first of all I'd like to offer a quick apology for by costs.

Half dozen test based on the Covid.

Enough other tests have been run that we know anything serious but nevertheless, it can be annoying so I apologize.

Loss of clarity here.

And of course first.

Speaker 2: Quarter revenue was down about 4% from Q4 coming in at 42.2 million. non-GAAP earnings were 5.3 million and adjusted EBITDA was 6.3 million. Semiconductor price increases and supply chain shortages affected our gross margin, bringing it down to 38% in 39.

Quarter revenue was down about 4%.

From Q4.

Coming in at $42 2 million non-GAAP earnings were $5 3 million and adjusted EBITDA was $6 3 million semiconductor price increases and supply chain shortages affected our gross margin, bringing it down to 38% to 39.

Speaker 2: M-core continued to form well financially despite unpredictable supply chain headwinds and increased component costs.

EMCORE continues to perform well financially despite.

Unpredictable supply chain headwinds.

Increased component costs.

Speaker 2: Honey conductor availability was generally adequate during the quarter, but prices were definitely up across the board. The same sort of unpredictable logistics challenges we saw in Q4 remained with us in Q1 causing pushouts of material.

Semiconductor availability was generally adequate during the quarter, but prices were definitely up across the board.

Same sort of unpredictable logistics challenges we saw in Q4.

With us in Q1, causing push outs of material.

Speaker 2: We expect to see these problems persist going forward and don't see a catalyst to drive predictability into the supply chain in short term. We are temporarily moving to increase safety stock levels, but given the lumpy flow material, this move isn't a perfect head for the situation.

We expect to see these problems persist going forward.

And don't see a catalyst to drive predictability into the supply chain in the short term.

We are temporarily moving to increase safety stock levels, but given the lumpy flow material. This move is a perfect perfect hedge for the situation.

Speaker 2: On the cable TV side, I would point out that even though we are no longer producing cable TV transmitters in China, we are paying close attention to some of the conductor inventories and expect few problems in the current quarter.

The cable TV side, I would point out that even though.

We are no longer producing cable TV transmitters in China.

We are paying close attention to.

Let me conductor inventories and expect few problems in the current quarter.

Speaker 2: The shutdown of transmitter builds in China and the final transfer to Thailand was completed in the December quarter as we previously pointed out, CATV inventory levels have already made a drop downward.

The shutdown of transmitter builds in China, and the final transfer Thailand was.

It was completed in the December quarter, as we previously pointed out CA TV inventory levels have already.

Made a drop downward.

Speaker 2: New laser module starts in China were concluded before Chinese New Year as planned the remaining material in the line will flow through within two weeks or so And then the laser module manufacturing tools will move to Thailand as well

New laser module starts in China work concluded before Chinese new year as planned the remaining material in the wine will flow through within two weeks or so and then the laser module manufacturing tools, we will move to Thailand as well from that point.

Speaker 3: From that point, a much smaller group of Chinese personnel.

A much smaller group of Chinese personnel will remain focused on CATV production support manufacturing engineering.

Speaker 3: will remain focused on CATV production support and manufacturing engineering.

Speaker 3: With this transition complete, we will solve all of the CDATD production assets and immatureness. It will be buying products from our EMS supplier to express.

With this transition complete we will have sold all of the CVA CATV production assets.

An image of course.

It will be buying product from our E&S supplier to fixed price.

Speaker 3: Turning to individual business areas, cable TV continue to drive performance in the broadband unit in Q1.

Turning to individual business areas cable TV continue to drive.

Performance in the broadband unit in Q1.

Speaker 3: Beyond table TV, the broadband business received two more chip development contracts with their own NRE funding bringing the total to five such contracts. We have additional business developments underway and expect to continue to expand this business.

Beyond cable TV broadband business received two more chip development contracts with their own <unk> funding, bringing the total to five such contracts, we have additional business developments underway and expect to continue to expand this business.

Speaker 3: As we stated last quarter, the first and possibly the second of these new chip products are expected to start shipping in fiscal Q3 and Q4 of FY22, and are expected to contribute 10 millions in revenue by 2025.

As we stated last quarter, the first and possibly the second of these new chip products are expected to start shipping.

In fiscal Q3, and Q4 of FY 'twenty two.

Are expected to contribute tens of millions in revenue by 2025.

Speaker 3: These development programs are an important business for M-Core because they will help drive consistent fab utilization despite C-A-T-D cyclical nature and will result in strong growth margins in the broadband business.

These development programs are an important business for EMCORE, because they will help drive consistent fab utilization. Despite catv's cyclical nature and will result in strong gross margins in the broadband business.

Speaker 3: Aerospace and defense declined again, primarily due to continued supply chain delays with the new EMS provider in our defense optical electronic business. FOG was up about 20% quarter of a quarter with two men down, primarily due to bottlenecks with test equipment near the holidays. You'll get improved.

Aerospace and defense declined again, primarily due to continued supply chain delays with the new EMS provider.

In our defense electronics business.

<unk> was up about 20% quarter over quarter with Q Mems down primarily due to bottlenecks with test equipment near the holidays yields did improve.

But we were a bit backend loaded and just couldnt get everything through testing that we wanted to we're expecting Q Mems mixed issue to ease up over the next quarter or two.

Speaker 3: But we were bit back and loaded and just couldn't get everything through testing that we wanted to. We're expecting the Q-MEMS mixed issue to ease up over the next quarter.

On the business development side of aerospace and defense Covid outbreak made it a bit difficult to keep testing and qualification on schedule for new programs.

Speaker 3: On the business development side of aerospace and defense, COVID outbreaks made it a bit difficult to keep testing and qualification on schedule for new programs. Omicron hit hard and fast, derailing our customers plans, and some flight testing. Going forward, we're already starting to see the situation ease up and expect it to normalize by early spring.

<unk> hit hard and fast derailing, our customer's plans.

And some flight testing going forward, we're already starting to see the situation ease up and expect it to normalize by early spring.

Speaker 3: Multiple negotiations with international defense contractors have continued with target volumes ranging from 1 to 4K units per year.

Multiple negotiations with international defense contractors have continued with target volumes ranging from 1% to <unk> unit per year.

Speaker 3: Most of these higher biome products will be used in precision guided munitions.

Are these higher volume products will be used in precision guided munitions.

Speaker 3: We fully expect these applications will be the primary growth drivers for M-Core's A&D business within the next two years with incremental revenue in excess $30 million.

We fully expect.

These applications will be the primary growth drivers for <unk> A&D business within the next two years with incremental revenue in excess of $30 million.

Speaker 3: The SDC 500 is also undergoing qualification testing for several domestic and international programs with a service in the market of one to 2000 units per year. Taken together, these results demonstrate the growing momentum for Q-MEMS navigation products and future growth beginning this year.

The SEC 500 is also going undergoing qualification testing for several domestic and international programs.

With a service local market of 1% to 2000 units per year taken together. These results demonstrate the growing momentum for Q Mems navigation products and future growth beginning this year.

Speaker 3: Our thought products are also gaining traction. We completed the first phase of pre-production for our new airborne pods, where awarded the final pre-production phase, I think in December , which we expect to complete within calendar year 22. Low-level production of for this program is expected to begin in 23, fiscal 23, and the total value for the program estimates are unchanged to about $70 million over seven years.

Our fog products are also gaining traction we completed the first phase of pre production for a new airborne pods were awarded the final preproduction phase I think in December , which we expect to complete within calendar year 'twenty two low level of production for this program is expected to begin in 2000.

Three fiscal 'twenty, three and the total value for the program estimates are unchanged at about $70 billion over seven years.

The newly Ruggedized <unk> 300, <unk> is being vetted by more than 10 primes and laboratories in the U S and abroad approximately doubling the size of its originally intended application space.

Speaker 3: The newly-regidized EM 300, IMU, is being vetted by more than 10 crimes, and laboratories in the US and abroad approximately doubling the size of its originally intended application space.

Speaker 3: Although we're disappointed that COVID threw a wrench into our business development efforts in defense, we already see signs that this is temporary.

Although we're disappointed the COVID-19 threw a wrench into our business development efforts in defense.

We already see signs that this is temporary.

Speaker 3: Over the next several quarters, we expect to make several important announcements about the growth of our navigation business.

Over the next several quarters, we expect to make several important announcements about the growth of our navigation business.

Now I'll move on to guidance for the second fiscal quarter as we've stated before CA CATV visibility is at its worst in the March quarter, especially early in the March quarter with capital budgets, just being released and winter weather interfering with installations. Nevertheless, we've conducted extensive customer and channel checks.

Speaker 3: Now I'll move on to guidance for the second fiscal quarter. As we've stated before, the CATV visibility is at its worst in the March quarter, especially early in the March quarter, with capital budgets just being released and winter weather interfering with installations. Nevertheless, we've conducted extensive customer and channel checks to try to understand FY22 demands us and determine the true amount of inventory in the channel.

To try to understand FY 'twenty, two demands to us and determine the true amount of inventory in the channel.

Speaker 3: It's clear to us that a substantial amount of transmitter inventory is tied up in the channel, probably due to competitive positioning between our customer at one MSO.

It's clear to us that are substantial.

Mount a transmitter inventory is tied up in the channel probably due to competitive positioning between our customer at one MSL.

Speaker 3: From what we can gather today, we should expect this to clear out by around the end of the calendar year.

From what we can gather today, we should expect this to clear out by around the end of the calendar year.

Speaker 3: I would remind everyone that camel TV is notoriously cyclical and the C-A-T-V-Boo that was driven by COVID-19 lasted nearly two years. Now we're requiring an inventory correction.

I would remind everyone that cable TV is notoriously cyclical and the CATV boom that was driven by Covid lasted nearly two years.

Now requiring an inventory correction.

Speaker 3: Taking all of this into consideration with some of the supply chain challenges we're seeing, we currently expect revenue for the March quarter to be in the range of 32 to 34 million. With that, I will turn the...

Taking all of this into consideration with some of the supply chain challenges. We're seeing we currently expect revenue for the March quarter to be in the range of $32 million to $34 million.

With that I will turn the call back over to Tom.

Thank you Jeff.

Speaker 2: Thank you, Jeff. As you may have seen in our news release, that we issued this afternoon, we delivered another strong quarter in fiscal 1Q. Consolidated revenue was 42.2 million, of which 32.3 million came from the broadband business segment and 9.9 from aerospace and defense.

As you may have seen in our news release that we issued this afternoon, we delivered another strong quarter in fiscal <unk>.

Consolidated revenue was $42 2 million of which $32 3 million came from the broadband business segment and $9 nine from aerospace and defense.

Speaker 2: Broadband revenue increased slightly when compared to the fourth fiscal quarter of 2021.

Broadband revenue increased slightly slightly when compared to the fourth fiscal quarter of 2021.

Speaker 2: cable TV products perform at a high level again this quarter, representing 88% of total broadband segment revenue.

Cable TV products performed at a high level again, this quarter, representing 88% of total broadband segment revenue.

In addition, chip level sensing products were sequentially higher in the December quarter.

Speaker 2: In addition, chip level sensing products were sequentially higher in the December quarter.

Speaker 2: Aerospace and defense segment revenue decreased when compared to the 11.7 million in the prior quarter.

Aerospace and defense segment revenue decreased when compared to the $11 7 million in the prior quarter.

Speaker 2: As was the case in the September quarter, the sequential A&D revenue change in the December quarter was attributable to our enforcement's product line primarily due to a shift to a product with lower production yields and defense of optoelectronics products primarily due to supply chain disruptions.

As was the case in the September quarter, the sequential A&D revenue change in the December quarter was attributable to our quartz Mems product line, primarily due to a mix shift to a product with lower production yields and defense Opto electronics products, primarily due to supply chain disruptions.

Speaker 2: Partially offsetting these changes was higher fog revenue driven by an increase in orders for our single access gyro

Partially offsetting these changes was higher fog revenue driven by an increase in orders for our single axis gyro.

Let me now turn to the rest of the operating results the focus of which will be on a non-GAAP basis.

Speaker 2: Let me now turn to the rest of the operating results, the focus of which will be on a non-gap face.

Speaker 2: Consolidated gross margin was 38% in fiscal 1Q compared to 39% to quarter before.

Consolidated gross margin was 38% in fiscal <unk> compared to 39% the quarter before.

Speaker 2: Broadband's gross margin, still very strong at 44%, was slightly lower on a sequential quarter basis, due to a variety of small changes in material costs, mix, and overhead cost absorption.

Broadband gross margin still very strong at 44% was slightly lower on a sequential quarter basis due to a variety of small changes in material cost mix and overhead cost absorption.

While there was no change in the A&D gross margin on a sequential basis. The 18%. This quarter was primarily due to the revenue decrease and the lower than normal production yields at our Concord operation.

Speaker 2: While there was no change in the AMD gross margin on a sequential basis, the 18% this quarter was primarily due to the revenue decrease and the lower the normal production yields at our concrete operation.

Speaker 2: On a trailing 12-month basis, broadband and AND gross margins were 45% and 25% respectively.

On a trailing 12 month basis broadband in A&D gross margins were 45% and 25% respectively.

Speaker 2: Operating expenses were 10.6 million in fiscal 1Q compared to 10.5 million in the prior quarter. GNA expenses were up due to higher professional services fees and a few other one-time items. This was partly offset by decreased R&D due to lower project material expenses.

Operating expenses were $10 6 million in fiscal <unk> compared to $10 5 million in the prior quarter G&A expenses were up due to higher professional services fees and a few other one time items. This was partly offset by decreased R&D due to lower project material expenses.

Speaker 2: Opix as a percent of revenue was well below the 30% mark for the quarter coming in at 25% of revenue

Opex as a percent of revenue was well below the 30% mark for the quarter coming in at 25% of revenue.

Moving to the bottom line operating profit was very strong again in the December quarter at $5 3 million for an operating margin of 13% adjusted EBITDA at $6 3 million was 15% of revenue.

Speaker 2: Moving to the bottom line operating profit was very strong again in December quarter at 5.3 million for an operating margin of 13%.

Speaker 2: The adjusted EBITDA at 6.3 million was 15% of revenue. Net income in EPS was 5.3 million and 14 cents per diluted share.

Net income and EPS was $5 3 million and <unk> 14 per diluted share.

Speaker 2: Shifting to the gap results for a moment, fiscal 1K unit income and EPS was 2.4 million and six cents per diluted share. This included a $1.3 million charge for servants costs associated with the planned shutdown of manufacturing operations in China.

Shifting to the GAAP results for a moment fiscal <unk> net income and EPS was $2 4 million and <unk> <unk> per diluted share. This included a $1 $3 million charge for severance costs associated with the planned shutdown of manufacturing operations in China.

Turning to the balance sheet, we had $76 million at December 31.

Speaker 2: Turning to balance sheet, we had $76 million at December 31st compared to $71.7 million at September 30th.

Impaired to $71 7 million at September 30.

Speaker 2: quarterly cash increase of 4.3 million, consisted of 6.2 million of operating cash flow, less 1.9 million used for CAPEX.

Quarterly cash increase of $4 3 million consisted of $6 2 million of operating cash flow less $1 9 million used for capex.

Speaker 2: on a trailing 12 month basis, N4 has generated $16 million in cash from operations. And with that, we are now.

On a trailing 12 month basis, <unk> has generated $16 million in cash from operations.

And with that we are now opening up the call for your questions.

Speaker 1: Thank you. If you'd like to ask a question, please sign up by pressing star one on your telephone keypad. If you're on speakerphone, make sure your meet function is turned off to allow your signal to reach your equipment. Again, press star one to ask a question.

Thank you if you'd like to ask a question. Please signal by pressing star one on your telephone keypad and you are on Speakerphone. Please make sure. Your mute function is turned off to allow your signal to reach our equipment again press star one to ask a question.

Speaker 1: And we will go first to the Judgment of Lake Street, Capitol,

And we will go first to Jason Smith of Lake Street capital markets.

Speaker 4: Hey, guys, thanks for your time, my questions. Just wanna start with guidance. And I mean, first of all, it seems like some of the softness here in March, that's entirely related to demand and less on the supply side. Is that correct? And then I guess, relatedly, if it's not how much of, can you quantify sort of the supply chain impact you expect here in March?

Hey, guys. Thanks for taking my questions just wanted to start with guidance.

First of all it seems like some of the softness here in March that's entirely related to demand and less on the supply side is that correct and then I guess relatedly. If it's not how much of can you quantify sort of the supply chain impact do you expect here in March.

Speaker 3: Yeah, the supply chain problems would largely be over in A&D and could contribute, you know, call it a couple million dollars to three. The primary point that you made about demand, yes, it is cable TV transmitters, again, probably geared for one MSO.

Yes.

The supply chain problems with largely be over in A&D and could contribute caught a couple of million dollars to three.

The primary.

The point that you made about demand, yes. It is cable TV transmitters again, probably gear or one MSR.

Okay understood and then just sticking with guidance based on our previous comments about that cable order book continuing to extend throughout calendar 2002, <unk> now obviously appears like there were some double ordering going on.

Speaker 4: Okay, understood. And then just sticking with guidance, I mean, based on her previous comments about that table order book continuing to extend throughout calendar 22. And now, obviously, if there is like, there was some double ordering going on. I mean, how confident are you that this issue is gonna actually be work through in the relatively near term?

Confident are you that those issues could actually be worked through in the relatively near term.

Speaker 3: Well, great question. The order book is continuing to move forward on laser modules, which are...

Well.

Great question.

The order book is continuing to move forward.

On laser modules.

Which are sort of.

Speaker 3: which are used by one customer that goes to another one of the largest MSOs in the world.

Which are used by one customer that goes to another one of the largest msos in the world.

Speaker 3: So that part we feel pretty good about because there are orders that go out, you know, over a quarter and that's strong, comparatively. When you look at, you know, call it the probability that everything on the transmitter side will clear out by the end of the calendar year. Of course, we have to...

So that part we feel pretty good about because they are orders that go out over a quarter and thats strong comparatively.

When you look at.

Call it the probability.

That everything on the transmitter side will clear out by the end of the calendar year.

Of course, we have to.

Sure.

Speaker 3: You know, we're not 100% confident in that because our calculations are based on customer forecasts and we've gone in and seen some movement in terms of where their inventory is going that gives us confidence that

We're not 100% confident of that because.

Our calculations are based on customer forecasts and.

We've gone in and seen.

Some movement in terms of where their inventory is going that gives us confidence that.

We're going to see the transmitter but will get cleared out by the end of the year, but it ain't over till its over.

Speaker 3: We're gonna see the transmitter bubble get cleared out by the end of the year, but it ain't over-pillow sober. Right? I mean, it's, you know, forecast change. Yeah.

Right I mean, it's.

Forecast change.

And again.

Yes.

Speaker 3: There's no more share to take with taking it all. Look at AOI's margin.

There's no more share to take we've taken it all look at AOS margins.

We've.

<unk> not lost a deal to anyone that.

Speaker 3: you know, not lost a deal to anyone that we shouldn't have lost a deal to in terms of competitors. And so there's no more share to think, right? Our options are limited, you know, but that's the nature of cable. And for us, it's about, you know, getting our manufacturing operations to fix expense, which is where we're at. not really enough.

We shouldnt have lost the deal too.

In terms of competitors.

So there is no more share to take rate our options are limited.

But that's the nature of cable and for US, it's about getting our manufacturing operations to fixed.

Expense, which is where we're at.

So that margins are hit very much as.

Speaker 3: so that margins aren't hit very much as we ride this thing out.

As we ride this thing out.

Okay. No. That's helpful. And then just the last question for me and I'll jump back into queue.

Speaker 4: Okay, now that's helpful. And then just the last question for me and I'll jump back into Q, in regards to some margins. How should we think about gross margin trending here? I guess in the March quarter and then maybe as we progress throughout fiscal 22. Yeah, Jason, Tom here. How are you?

In regards to margins how should we think about gross margin trending here I guess in the March quarter, and then maybe as we progress throughout fiscal 'twenty two.

Yes, Jason Tom here, how are you.

The way to think about it so you can start with A&D.

Speaker 2: You can start with A&D. The last couple of quarters, we've been at 18%, and certainly that's not indicative of the normal gross margin for that business weave.

Last couple of quarters, we've been at 18% and certainly.

That's not indicative of the.

The normal.

Gross margin for that business, we've had a mix to a different product that has caused us to take a little bit of a setback on yields because we were making really good progress throughout most of last year, it's improving it's going to take another quarter or two like Jeff said.

Speaker 2: had a mix to a different product that has caused us to take a little bit of a step back on yields because we were making really good progress throughout most of last year. It's improving. It's going to take another quarter or two, like Jeff said.

Speaker 2: to get that back up, but we also have to move the top line up. So 18%, I don't think we're going to see that in the next quarter and after, we should be...

To get that back up but we also have to move the top line up so 18% I don't think were going to see that in the next quarter and after we should be.

Speaker 2: making our way back into like let's call it like the mid 20s.

Making our way back into like let's call it like the mid twenties and on the broadband side.

Speaker 2: And on the broadband side, you know, with the challenges ahead.

With the with the challenges ahead.

Speaker 2: The cable TV P&L within broadband is gonna stay strong because we'll be pretty much at variable class model At almost a hundred percent towards the end of this quarter

The cable TV P&L within broadband is going to stay strong because we'll be pretty much at variable cost model.

Almost 100% towards the end of this quarter and so and the transmitters are already there so.

Speaker 2: And so, I'm the transmitters are already there, so...

Speaker 2: but we'll have a fab absorption situation that we've enjoyed, you know, very good, the last four or five quarters, and that's likely to be not as good. So, you know, look for that margin to, that's to affect the broadband margin. So overall, to repeat 38% again in this quarter is

We'll have a fab absorption situation that we've enjoyed.

Very good the last four or five quarters.

And that's likely to be not as good so look for that margin to that to affect the broadband margins. So overall.

To repeat 38% again in this quarter is.

Speaker 2: Not likely a couple of points below that is more in the range.

Not likely a couple of points below that is more in the range.

Speaker 3: Yeah, the other thing to note Jason is that the NRE that comes in with these development programs, chip development programs does get spent in the FAB, which is helpful.

Yes, the other the other thing to note Jason is that.

The NRC that comes in with these development programs Chip development programs does get spent in the fab which is helpful.

Speaker 3: So within reason, of course, our ability to bring those in does help. But with Q3 and Q4, and that's our fiscal, starting to see shipments of components. The first two of the five programs, we think the situation resolves itself, certainly as we're exiting the year.

So within reason of course.

Our ability to bring those in does help.

With Q3, and Q4 and Thats our fiscal <unk>.

Starting to see shipments of components.

The first two of the five programs.

We think the situation resolves itself.

Certainly as we're exiting the year.

Speaker 3: in terms of any fab absorption, you know, seeing that depressed a little bit for a while. Okay, thanks a lot guys, appreciate the color.

In terms of any fab absorption.

Seeing that depressed a little bit for a while.

Yes.

Okay. Thanks, a lot guys I appreciate the color.

And we'll go next to Sam Peterman of Craig Hallum Capital Group.

Hi, guys. Thanks for taking my question.

Speaker 5: Hi guys, thanks for taking my question. I guess a couple for me, I wanted to start.

I guess a couple for me I wanted to start.

First on cable television I don't want to beat a dead horse here, but I wanted to just trying to understand.

Speaker 5: First on cable TV, I don't want to be that force here, but I want to just try to understand maybe how we should be modeling speed and hourly throughout the year. I know March can be a tough quarter, and it looks like it's going to be, do you, you know, do you have any visibility into kind of at the low point? Should we model normal speed and hourly? Or is it kind of hard to say at this point, just with the inventory dynamic to describe?

Maybe how we should be modeling seasonality throughout the year I know.

March can be a tough quarter.

And it looks like it's going to be do you.

Do you have any visibility into kind of is that the low point should we model a normal seasonality or is it kind of hard to say at this point just with the inventory dynamics you've described.

Speaker 3: I think it's a little hard to have families to jump. It's a little hard to say.

I think it's a little hard to.

Sam This is Jeff.

It's a little hard to say.

Sure.

Sure.

And the reason is.

Speaker 3: And the reason is, you know, we're looking at this as, you know, a three-quarter problem, whether or not it is determines, you know, where the low point is, and we don't have an answer to that. What I would say if we had to go and make a staff, Tom, at, you know, the remainder of the year.

We've we're looking at this as.

A three quarter problem, whether or not it is determined is where the low point is we don't have an answer to that.

What I would say if we had to go and make a stab Tom.

The remainder of the year.

Speaker 3: keep it roughly, you know, where the results are the, the guidance is for, uh,

Keep it roughly where the results or the guidance is for.

Speaker 2: for the March quarter? Yeah, I think that's right. I think in the absence of any other sort of way to look at it. I think that's a good way to think about it. Sam.

For the March quarter, Yes, I think thats right I think.

In the absence of any other sort of wait and look at it I think thats a good way to think about it Sam.

Speaker 5: Okay, Sarah, that's helpful guys. Second, I wanted to go back to the Girl's margins, but specifically the A&D Girl's margin. I know, you know, last quarter was in the teens and kind of thought that'd be a one or two quarter.

Okay Fair enough that's helpful guys.

Okay.

I wanted to go back to the gross margins specifically the A&D gross margin.

<unk>.

Last quarter was on the team.

That would be a one or two quarter phenomenon in small business.

Speaker 5: phenomenon and some oddity and a test. A quote I think was coming in that.

Equivalent I think it was coming in.

Speaker 5: You saw that how often so, I think I just want to get a little more color off.

You saw that help and so on.

I just want to get a little more color on.

Speaker 5: You know, is it not equivalent to not come in yet? The ability to that mix, the 30-unique huge energy kind of resolving, and just if you walk through a little bit more, simply the A&D gross margin, that'd be great.

We thought equivalent not coming yet do you have visibility into that mix, that's hurting you and <unk> kind of resolving.

If you walk through a little bit more specifically about the A&D gross margin that'd be great.

Speaker 3: Yeah, so you know, when a lot of folks think about gross margin, they think about ASP declines, they think about component costs, you know, causing issues. But in our case, more than anything, it's overhead absorption that's driving the gross margins.

Yes so.

And a lot of folks think about gross margin they think about ASP declines as they think about component costs.

Causing issues, but in our case more than anything its overhead absorption that's driving the gross margins.

Speaker 3: can affect us a bit in terms of some of the scrap that we see in quartz maps, but that's generally not the major thriving factor. So in the December quarter,

Affect us a bit in terms of some of the scrap that we see in quartz Mems.

But that's generally not.

The major driving factor okay. So.

In the December quarter.

Speaker 3: We had largely beaten back some of the yield issues. The good news is we did it in October . The bad news is that, you know, some of the products take three months from that point to get all the way through the system. And so these vibration tests which occur in the, at the very tail end of the process, we just didn't have the capacity to get everything through.

We have largely.

Beaten back some of the yield issues.

The good news is we did it in October the Bad news is is that.

Some of the products take three months from that point to get all the way through the system and so.

These vibration test which occur in the.

At the very tail end of the process. We just didn't have the capacity to get everything through.

Speaker 3: Alhamber now has its vibration table set up. It hasn't quite been commissioned yet within the next week or two at will, and the upgrades in Concord, which will provide additional capacity. Those are expected to be installed within the next month.

Alhambra now has it.

<unk> table set up.

It hasnt quite been commissioned yet within the next week or two it will and the upgrades in Concord, which will provide additional capacity.

Those are expected to be installed within the next month.

Speaker 3: And again, you know, this is the environment where COVID induced friction really screws things up.

And again this is the.

Environment, where COVID-19 induced friction.

Really screws things up.

Speaker 3: the, that shaker, those shaker tables with these, you know, really expensive hydrostatic bearings sat in the port of Long Beach for almost a month and could not be unloaded.

<unk>.

That Shaker Shaker tables.

With these really expensive hydrostatic bearings sat in the port of long beach for almost a month and could not be unloaded.

Speaker 3: And then when we were ready to go get them installed,

And then when we were ready to go get them installed.

There is nobody down a building and safety to issue the permits.

Speaker 3: There's nobody down at building in safety to issue the permit.

Speaker 3: And, you know, you deal with all this stuff, right? But the point is that this constant friction of everybody slowing down hurts you in ways that you don't necessarily expect at the beginning of a project.

And you deal with all this stuff right, but the point is this.

Constant friction of everybody's slowing down hurts you in ways that you don't necessarily expect at the beginning of a project.

Speaker 3: So the good news is that these issues are being beaten back. The bad news is that there's someone unpredictable in nature.

So the good news is that these issues.

Our being beaten back the bad news is that there is somewhat unpredictable in nature.

Speaker 3: You know, this shaker tables come in from B&K over Europe . And...

Shaker tables coming from.

<unk> over in Europe .

Yes.

Just no way around it.

Speaker 3: Did that answer your questions, Sam? Or is there a specific place you want me to provide some more color?

Did that answer your question Sam or is there a specific place you want me to provide some more color.

Speaker 5: No, I think that's really helpful. That's great color, I think, wool.

No I think thats really helpful.

That's great color and I think we will.

Just help investors get a subsidy.

Speaker 5: just help investors get a sense of the puts and takes there. So thanks for that. And then I did want to ask on broadband growth margins a little bit just looking at this quarter. Looks like you came down almost a little bit more than 300 basis points, which last quarter was very, very high. And it still very profitable for the segment as a whole in broadband. But I'm curious, if you're seeing

The puts and takes there. So thanks for that and then I did want to ask on broadband gross margins a little bit just looking at this quarter. It looks like it came down almost a little bit more than 300 basis points, which.

Last quarter was very very high and its still very.

Profitable for the segment as a whole.

And broadband, but im curious if youre seeing.

Speaker 5: both lower volumes and I guess kind of a mix shift to maybe more of these modules versus the transmitter. What kind of effect does that have on the broadband growth margin and should we still expect that to hang around and kind of the load mid 40s like it's been the last couple of quarters or is that maybe a lot to miss we're given just kind of the product next I'll look.

Both lower volumes and I guess kind of a mix shift to maybe more of these modules versus the transmitter.

What kind of effect does that have on the progress broadband gross margin should we still expect that to hang around and kind of.

The low to mid Forty's like it's been the last couple of quarters or is that maybe a little optimistic given just kind of the product mix outlook.

Speaker 2: Yes, Sam. That's the calm. So, similarly to what I just answered to Jason on his school.

Yes.

So similar to what.

Just answer to Jason.

On his similar question.

Speaker 2: As you know, we've been talking a lot about our outsourcing for our cable TV products. So we're at the end of being 100% in outsourcing by the middle of this quarter. The transmitters are already there. So what that means is that the cable TV gross margin within broadband will remain at a very healthy clip, call it, or right around the 40%, plus or minus given the mix.

As you know we've been talking a lot about our outsourcing for our cable TV product. So we're at the.

At the end of.

Being 100% announced sourcing.

By the middle of this quarter. The transmitters are already there. So what that means is that the cable TV gross margin within broadband will remain at a very healthy clip call it right around the 40%.

Plus or minus given the mix and we've had good mixes lately that has.

Speaker 2: And we've had good mixes lately that have, you know, had it going even a lot higher than that. But the other thing that's in the segment is the wafer fat, which like I just...

<unk> and even a lot higher than that but.

The other thing Thats in this segment is the wafer fab, which like I was telling Jason that is something that we've been absorbing and in some cases over absorbing over the last call. It the last year and so.

Speaker 2: telling Jason that is something that we've been absorbing. And in some cases, over absorbing over the last call, the last year. And so that situation, if it changes, and it's likely to change at least for the March quarter.

That situation.

If it changes and it's likely to change at least for the March quarter.

Speaker 2: and potentially the third fiscal quarter, second calendar, quarter June , will cause the broadband margin to be lower than what the cable TV gross margins are.

Potentially the second.

Third fiscal quarter second calendar quarter June .

We will cause the broadband margin to be lower than what the cable TV gross margins are so youre likely to see something lower than where we've been.

Speaker 2: You're likely to see something lower than where we've been.

Speaker 3: How much lower will depend on a little, it's always dependent on mix, but it will be more dependent on fab absorption. So again, just to amplify this point because it is important, the historical, what's called the structural issue with cable TV at M4 was that,

How much lower will depend on.

It's always dependent on mix.

But it will be more dependent on fab absorption.

So again just to amplify this point because it is important.

The historical let's call it a structural issue with cable television EMCORE was that.

Speaker 3: On the assembly side, we owned all of our own assets and inventory and so operating leverage was great on the way up, but it always worked against you on the way down and well that problem is now solved. Okay, on the way for FAB, you have the same issue, right? Because you have a large fixed asset that is, it's largest depend on the amount of utilization.

On the assembly side, we owned all of our own assets and inventory and so operating leverage was great on the way up but it always worked against you on the way down that that problem is now solved.

The on the wafer fab you have the same issue right because you have a large fixed asset that is its margins depend on the amount of utilization.

Speaker 3: And so for the past two years, pardon me, we have been working with...

And so for the past two years.

Pardon me, we have been working with.

A group of.

Speaker 3: a group of very important customers to bring far from commodity actually.

Very important customers to <unk>.

Bring.

Far from commodity actually.

Speaker 3: you know, custom high margin chips into our fab and the first two of those are expected to shift to model numbers of those, our expected shift in the June and September quarter. So, as those pick up,

Custom <unk>.

Margin chips into our fab.

As the first two of those are expected to shift to model numbers of those.

Our expected to ship in the June and September quarter.

So.

As those pick up.

Speaker 3: The cable TV absorption in the fab also goes away.

The cable TV absorption in the Fab also goes away.

Right. It would have been great if the bubble would have.

Speaker 3: Right, it would have been great if the bubble would have...

Speaker 3: you know given us another order too you may not have even noticed it but it is what it is

Given us another quarter or two you may not have even noticed it.

But it is what it is.

So it makes sense there.

Speaker 5: Yep, yeah, that makes sense. Thanks for clarifying that on to me guys. I asked one last quick one here on the chip contract he mentioned. I think last quarter you had three and that you expected two more to close and it sounds like those two did close this quarter. I guess my question is are those additional two engagements? Are those the same or different customers from the customers behind the initial three chip contracts? Yeah, that's correct.

Yes, yes that makes sense. Thanks for clarifying that for me guys.

Sure and I'll ask one last quick one here on the chip contracts you mentioned I think last quarter you had three.

You expect that to more of a closed then it sounds like those two did close this.

This quarter.

I guess my question is are those additional two engagements are those with the same or different customers from the.

The customers behind the initial III ship contracts.

Those are different customers.

Speaker 5: I know those also in kind of the same telecom did come. And I'll speak exactly. Yeah, that's okay.

And those also in Canada.

The same telecom datacom.

Exactly.

Yes, okay.

Thanks, guys.

Youre welcome.

And as a reminder, you May press star one on your telephone keypad. If you do have a question at this time, we will go next to Tim <unk> of Northland capital markets.

Speaker 1: You may press star one on your telephone keypad if you do have a question at this time. We'll go next to Tim Savjo of Northland Capital Markets.

Alright, hi, good afternoon.

Hey, Tim.

Hey, good too.

Speaker 6: starting a little bit later here, although better news early in the morning I guess, so.

Starting a little bit later here, although better news early in the morning, I guess so.

Yes, maybe that was maybe that was it.

Speaker 6: Yeah, yeah, maybe that was the key and we just blew it. Yeah. So I want to follow up on that last discussion there. And so I wonder if you could be more specific as, you know, the two new guys.

Here, we just fluid.

Yes.

So I wanted to follow up on that last discussion there.

And so I'm wondering if you could be more specific.

Two new guys are they both telecom.

Or how does that look in.

Speaker 6: You know, can you estimate now that you've got five of these guys in house, kind of the aggregate amount of NRE that you're associated with this on kind of a run rate basis or however you want to do it? And it's...

Can you estimate now that you've got five of these guys in house kind of the aggregate amount of NRG.

That's associated with this.

Kind of a run rate basis, or however, you want to do it.

And it sounds like.

To the extent that you've got what.

$10 million hole here for cable short term.

As you begin to ramp these two initial contracts or are they of such magnitude that could fill a substantial portion of that hole is that what you meant to suggest when you said you might not have even noticed given different timing.

Speaker 6: Now as you begin to ramp these two initial contracts, I mean are they of such magnitude that they could fill a substantial portion of that hole, is that what you meant to say?

Speaker 3: No, but it's an important point to make. So, you know, the overhead absorption for chip product would be highly selective toward the wafer fat, right? Which gets rolled up into broadband. So my point was that as these chip products roll out and start to hit production, what you'll see it in is the broadband margin and it will tend to push it up.

No.

The important.

Important point to make so.

The overhead absorption for chip product would be highly selective toward the wafer fab right, which gets.

Sure.

<unk> rolled up into broadband.

So my my point was that as these chip.

Products roll out.

And start to hit production, what Youll see it in is the broadband margin and it will tend to push it up okay.

Speaker 3: Okay. I know the total value of the contracts, but I don't know where we are as far as how much we've spent.

I know the total value of the contracts that I took note where we are as far as how much we've spent.

Speaker 3: So as far as estimating the run rate and duration, I don't have that.

So as far as estimating the run rate and duration.

I don't have that in front of me.

Speaker 3: But if we said, you know, it's gonna be...

But if we said it was going to be.

Speaker 3: hundreds of thousands of dollars a quarter, you have a few hundred thousand, that would probably be right. It's mostly to pay for lots of waifers running through the fab. Design efforts are pretty much completed.

Hundreds of thousands of dollars a quarter a few hundred thousand.

That would probably be right, it's mostly to pay four lots.

Wafers running through the fab right design.

Efforts are pretty much completed.

Okay.

And so I guess you were.

Youre, saying you might not have noticed the fabs under absorption dynamic, yes that was what I meant with the difference in timing.

Speaker 6: under absorption dynamics. Yeah, that was what I met with the difference.

Speaker 3: Yeah, so when you talk about the size of those contracts, I don't think they generate that kind of revenue for a year or two. Got it.

Yes.

When you talk about the size of those contracts I don't think they generate.

That kind of revenue.

For a year or two.

Got it.

And then others drop in come in as well.

Right right.

Two initial and then get your.

Speaker 6: Yeah, there's three. Yeah. All right, so I don't know if you meant to imply in response to another question.

Following the other three.

Alright.

If you mean meant to imply.

In response to another question.

Speaker 6: and I realize there's some uncertainty as to when and where cable bought on.

I realize there is some uncertainty as to when and where cable bottoms.

Speaker 6: But when you were talking about kind of a flatish outlook for the balance of the year, was that a comment about the company in general? Hopefully.

When you were talking about kind of a flattish outlook for the balance of the year was that a comment about the company in general.

Or broadband or cable TV in particular.

Speaker 6: particular and as you look at either this quarters guy to that outlook, you know, are there any offsets built in to that thinking?

And as you look at either this quarter's guide or that outlook are there any offsets built in to that thinking.

Relative to the cable weakness from.

Speaker 6: Aerospace and defense improving or at least some of these

Aerospace and defense improving or at least some of these early chip shipments.

Yes, I think Tim Tom here more near term next quarter or two it's more overall, we're going to we're going to face a couple of challenging quarters here on the broadband slash cable TV side.

Speaker 2: Yeah, I think Tim Tom here, more near term, next quarter or two.

Speaker 2: more overall, you know, we're gonna face a couple of challenging quarters here on the broadband slash cable TV side until, you know, call it the back half of the calendar year and we're towards the end of the calendar year. The chip business kicking in can obviously help that a lot.

Until.

Call it the back half of the calendar year more towards the end of the calendar year.

<unk> business kicking in can obviously helped that a lot.

Speaker 2: But for the next few quarters, think of it as a little bit more of a balance between broadband and aerospace and defense.

But for the next few quarters think of it as.

A little bit more of a balance between broadband in aerospace and defense with the the total being relatively.

Speaker 2: with the total being relatively flat to the current guidance.

Flat to the current guidance.

Got it.

Speaker 3: So there is some leverage over day and day, Tim. We're not counting on all of it. But there's a lot of really good stuff going on.

So there is some leverage over at AAD Tim.

Not counting on all of it.

But there's a lot of really good stuff going on.

Got it and last question.

The inventory correction in cable and I think you'd mentioned you feel like you've lost any share or any deals but yes.

Speaker 6: the inventory correction in cable and i think you mentioned you feel like you'd lost any share of the deals but you know what about what i'd be looking at the right this the right way to assume that your customer has lots of share or some deals and you know

Yes.

I'd be looking at this the right way to assume that your customer has.

Lost some share or some deals.

And.

And whether that might be.

Speaker 6: know, the onset of some of this next generation technology we've been waiting for for quite some time, which does appear to be a ramp.

The onset of some of this next generation technology, we've been waiting for for quite some time, which does appear to be ramping in.

Speaker 6: So I guess, you know, can we discern between an inventory? I knew it was coming. I knew it was coming. Well, I mean, it's been waiting five years. So, you know, I'm going to put the ball back. Yeah. Yeah, I see. I seem to have cured your cough there, too, which is good.

So I guess can we just turn between.

Inventory.

I do as well.

Well I mean, we've been waiting five years.

Alright.

Yeah.

Okay.

I seem to have carried your cough, there too which is good.

Speaker 6: And so, you do get a sense of business that's not coming back and part of a technology transition or, you know,

And so.

Do we get a sense is this business, it's not coming back and part of a technology transition or.

No.

Speaker 3: competitive, you know, competitive dynamic in current technology or maybe you could dive down a little deeper into what you think the Dynasties might be there. Okay. There are. Let's call it MSO customer, customers that have made decisions about, you know, whose technology they're going with.

Competitive competitive dynamic in current technology, or maybe you could dive down a little deeper into what do you think that that yet either.

Okay.

There are.

Let's call it MSL customer customers.

That have made decisions about.

Whose technologies are going with.

Speaker 3: to some degree, based upon availability to shift immediately from stock, okay?

To some degree based upon availability.

To shift immediately from stock okay. So.

Speaker 3: So, you know, that has put a premium on...

That has put a premium on.

On.

Both of our major customers to have plenty of inventory available to ship at a moment's notice.

Speaker 3: both of our major customers to have plenty of inventory available to ship at a moment's notice. And obviously, only one's going to win or win the primary slot, right?

And obviously only one is going to win or when the primary slot right.

Speaker 3: But this is the root of what to us looks like, a double ordering problem.

But.

This is the route.

Of what to us looks like.

A double ordering problem.

So at this point.

Speaker 3: I wouldn't say that it has anything to do with roll out of remote five.

I wouldn't say that it has anything to do with rollout.

Remote phy.

Speaker 3: Remote-Fi is certainly gaining traction and some credibility with Comcast. Not so sure about everybody else. And so, you know, looking at the whole market in a homogeneous way, and I'm not sure gets us to where we want to be.

Remote phy.

Is certainly gaining traction and some credibility with Comcast not so sure about everybody else.

And so.

Looking at the whole market in a homogeneous way I'm not sure gets us to where we want to be.

Speaker 3: because these architectural decisions are being made by the different MSOs are very different.

Because these architectural decisions are.

Being made by the different msos are very different.

Speaker 3: So, you know, our view of all of this, and I believe I said this, is, you know, for seven years, we've been able to take a heck of a lot of profit out of the business.

So.

Our view of all of this and I believe I've said this is.

For seven years, we've been able to take a heck of a lot of profit out of the business.

Speaker 3: out of this market by sticking with linear optics, right? So, you know, from past seven years, it's been a pretty good bet. That means it's always going to be a linear optics driven world, of course not.

Out of this market by sticking with linear optics right. So for the past seven years has been a pretty good bet that mean, it's always going to be a linear optics driven world of course not.

Speaker 3: Could this be, you know, the beginning of a turning point? Maybe with one MSO, but I'm not sure I'd go any further than that at this point. Is that fair to?

Could this be the beginning of a turning point.

Maybe with one MSL, but I'm not sure I'd go any further than that at this point.

So that fair too.

Yes, that's great color I really appreciate it thanks.

Yes.

Okay.

And with no further questions in the queue I would now like to turn the call back over to Jeffrey Archer for any additional or closing comments.

Speaker 1: And with no further questions in the queue, I would now like to turn the call back over to Jeff Reddichir for any additional or closing comments.

Speaker 3: Again, my apologies for hacking my way through the call. Whatever I've got, we've got enough tests to know it's nothing serious, but it's certainly annoying. So thank you for bearing with me.

Again my.

My apologies for hacking my way through the call.

Whatever I've got we've got enough tests to know it's nothing serious but it is certainly annoying. So thank you for bearing with me.

Speaker 3: and your interest in M4. Team put in a lot of hard work this past quarter and dealing with

And your interest in EMCORE team.

<unk> put in a lot of hard work.

Past quarter.

And.

Dealing with.

Speaker 3: You know, some of the COVID issues, and I want to recognize all of their efforts.

Some of the Covid issues and I want to recognize all of their efforts.

Speaker 3: And wish you all a great evening. Please stay safe.

And wish you all a great evening.

Please stay safe and goodbye.

And this concludes today's call. Thank you for your participation you may now disconnect.

Speaker 1: And this concludes today's call. Thank you for your participation. You may now disconnect.

[music].

[music].

[music].

Speaker 1: Good day and welcome to the M-Corp first quarter 2022 earnings call. Today's conference is being recorded. And this time I'd like to turn the call over to Mr. Tom Inichello. Chief Financial Officer, please go ahead, sir.

Good day and welcome to the EMCORE first quarter 2022 earnings call. Today's conference is being recorded and at this time I'd like to turn the call over to Mr. Tom and his fellow Chief Financial Officer. Please go ahead Sir.

Speaker 2: Thank you and good afternoon everyone and welcome to our conference call to discuss M. Quarters fiscal 2022 first quarter results. The news release we issued this afternoon is posted on our website mcore.com. On this call, Jeff Ruddichert, M. Quarters President and Chief Executive Officer will begin with the discussion of our business highlights. I will then update you on our financial results and we'll conclude by taking questions.

Thank you and good afternoon, everyone and welcome to our conference call to discuss <unk> fiscal 2022 first quarter results.

The news release, we issued this afternoon is posted on our website <unk> Dot com on this call, Jeff richer <unk>, President and Chief Executive Officer will begin with the discussion of our business highlights I will then update you on our financial results and we'll conclude by taking questions.

Speaker 2: Before we begin, we would like to remind you that the information provided herein may include forward looking statements within the meeting 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.

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 at $19 33, 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.

<unk> trends affecting the business.

Speaker 2: such forward-looking statements include, in particular, projections about future results, statements about plans, strategies, business prospects, and changes and trends in the business and the markets in which we operate.

Such forward looking statements include in particular projections about future results statements about plans strategies business prospects and changes and trends in the business and the markets in which we operate.

Speaker 2: Management cautions that these forward-looking statements relate to future events or future financial performance in our 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 and applied by any forward-looking statement.

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.

Asked or implied by any forward looking statements.

Speaker 2: because you do not 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 10K.

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 Dot 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.

Speaker 2: 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.

Speaker 2: 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 investment.

Speaker 2: The non-get measures reflect the company's core ongoing operating performance and facilitates comparisons across reporting periods.

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.

Speaker 2: Investors are encouraged to review these non-GAT measures, as well as the explanation and reconciliation of these measures to the most comparable GAT measures included in our news release. With that, we'll now...

With that I'll now turn the call over to Jeff.

Speaker 3: Thank you, Tom. And good morning. Well, actually good afternoon, everyone. First of all, I'd like to offer up a quick apology for my clock, half a dozen test days, not COVID. And enough other tests have been run that we know it's not anything serious, but nevertheless, it can be annoying. So I apologize for any loss of clarity here.

Thank you Tom and good morning actually good afternoon, everyone first of all I'd like to offer a quick apology for by cost.

Half dozen test based on our Covid and enough other tests have been run that we know anything serious but nevertheless, it can be annoying so I apologize.

Lots of clarity here.

And of course first quarter revenue was down about 4%.

Speaker 3: quarter revenue was down about 4% from Q4 coming in at 42.2 million. Non-GAP earnings were 5.3 million and adjusted. EBITDA was 6.3 million. Some of the conductor price increases and supply chain shortages affected our gross margin, bringing it down to 38% to 39%.

From Q4.

Coming in at $42 $2 million non-GAAP earnings were $5 3 million and adjusted EBITDA was $6 3 million semiconductor price increases and supply chain shortages affected our gross margin, bringing it down to 38% from $39.

Speaker 3: M-Core continued to form well financially, despite unpredictable supply chain headwinds and increased component costs. Semiconductor availability was generally adequate during the quarter, but prices were definitely up across the board. The same sort of unpredictable logistics challenges we saw in 2-4 remained with us in 2-1, causing pushouts of material.

EMCORE continues to perform well financially despite.

Unpredictable supply chain headwinds and increased component costs.

Semiconductor availability was generally adequate during the quarter.

But prices were definitely up across the board.

Same sort of unpredictable logistics challenges we saw in Q4.

And with us in Q1, causing push outs of material.

Speaker 3: We expect to see these problems persist going forward and don't see a catalyst to drive predictability into the supply chain in short term. We are temporarily moving to increase safety stock levels, but given the lumpy flow material, this move isn't a perfect head for the situation.

We expect to see these problems persist going forward.

And don't see a catalyst to drive predictability into the supply chain in the short term.

We are temporarily moving to increase safety stock levels, but given the lumpy flow material. This move isn't a perfect perfect hedge for the situation.

Speaker 3: On the cable TV side, I would point out that even though we are no longer producing cable TV transmitters in China, we are paying close attention to semi-conductor inventories and expect few problems in the current quarter.

While the cable TV side, I would point out that even though.

We are no longer producing cable TV transmitters in China.

We are paying close attention to.

Semiconductor inventories and expect few problems in the current quarter.

Speaker 3: The shutdown of transmitter builds in China and the final transfer to Thailand was completed in the December quarter as we previously pointed out, CATV inventory levels have already made a drop downward.

The shutdown of transmitter built in China, and the final transfer Thailand.

It was completed in the December quarter, as we previously pointed out CA TV inventory levels have already.

Made a drop downward.

Speaker 3: New laser module starts in China were concluded before Chinese New Year as planned. The remaining material in the line will flow through within two weeks or so And then the laser module manufacturing tools will move to China. Thailand as well

New laser module starts in China work concluded before Chinese new year as planned the remaining material and the line will flow through within two weeks or so and then the laser module manufacturing tools will move to violate as well from that point.

Speaker 3: From that point, a much smaller group of Chinese personnel.

A much smaller group of Chinese personnel will remain focused on CATV production support manufacturing engineering.

Speaker 3: will remain focused on CATV production support manufacturing engineering.

Speaker 3: With this transition complete, we will solve all of the C-A-T-D production assets and image correction. It will be buying products from our EMS supplier to fix price.

With this transition complete we will have sold all of the CBA CATV production asset.

An image of course.

It will be buying product from our EMS supplier to fixed price.

Speaker 3: Turning to individual business areas, cable TV continue to drive performance in the broadband unit in Q1.

Turning to individual business areas cable TV continue to drive.

Performance in the broadband unit in Q1.

Speaker 3: Beyond cable TV, the broadband business received two more chip development contracts with their own NRE funding, bringing the total to five such contracts. We have additional business developments underway and expect to continue to expand this business.

Beyond cable TV broadband business received two more chip development contracts with their own <unk> funding.

Bringing the total to five such contracts, we have additional business developments underway and expect to continue to expand this business.

Speaker 3: As we stated last quarter, the first and possibly the second of these new chip products are expected start shipping in fiscal Q3 and Q4 of FY22, and are expected to contribute 10 millions in revenue by 2025.

As we stated last quarter, the first and possibly the second of these new chip products are expected to start shipping.

In fiscal Q3, and Q4 of FY 'twenty two.

Are expected to contribute tens of millions in revenue by 2025.

Speaker 3: These development programs are an important business for M-Core because they will help drive consistent bag utilization despite C-A-T-D cyclical nature and will result in strong gross margins in the broadband business.

These development programs are an important business for EMCORE, because they will help drive consistent fab utilization, despite catv's cyclical nature and won't result in strong growth gross margins in the broadband business.

Speaker 3: Aerospace and Defense declined again, primarily due to continued supply chain delays with the new EMS provider in our defense after electronic business. Bog was up about 20% quarter of a quarter, with two men down, primarily due to bottlenecks with test equipment near the holidays. yields did improve.

Aerospace and defense declined again, primarily due to continued supply chain delays with the new EMS provider.

And our defense Opto electronic business.

<unk> was up about 20% quarter over quarter with Q Mems down primarily due to bottlenecks with test equipment near the holidays yields did improve.

Speaker 3: But we were bit back and loaded and just couldn't get everything through testing that we wanted to. We're expecting the Q-MEMs mixed issue to ease up over the next quarter.

But we were a bit backend loaded and just couldnt get everything through testing that we wanted to we're expecting Q Mems mixed issue to ease up over the next quarter or two.

Speaker 3: On the business development side of aerospace and defense, COVID outbreaks made it a bit difficult to keep testing and qualification on schedule for new programs. Omicron hit hard and fast, derailing our customers' plans, and some flight testing. Going forward, we're already starting to see the situation ease up and expect it to normalize by early spring.

On the business development side of aerospace and defense Covid outbreak made it a bit difficult to keep testing and qualification on schedule for new programs.

<unk> hit hard and fast derailing, our customer's plans.

And some flight testing going forward, we're already starting to see the situation ease up and expect it to normalize by early spring.

Speaker 3: Multiple negotiations with international defense contractors have continued with target volumes ranging from 1 to 4K units per year.

Multiple negotiations with international Defense contractors have continued with target volumes ranging from 1% to <unk> unit per year. Most of these higher volume products will be used in precision guided munitions.

Speaker 3: Most of these higher volume products will be used in the precision guided munitions.

Speaker 3: We fully expect these applications will be the primary growth drivers for M-Core's AMD business within the next two years with incremental revenue in excess $30 million.

We fully expect.

These applications will be the primary growth drivers for EMCORE as A&D business within the next two years with incremental revenue in excess of $30 million.

Speaker 3: The SDC 500 is also undergoing qualification testing for several domestic and international programs with a service in the market of one to 2000 units per year. Take a together of these results demonstrate the growing momentum for Q-MEMS navigation products and future growth beginning this year.

The FTC 500 is also going undergoing qualification testing for several domestic and international programs.

With the service livable market of 1% to 2000 units per year taken together. These results demonstrate the growing momentum for Q Mems navigation products and future growth beginning this year.

Speaker 3: Our thought products are also gaining traction. We completed the first phase of pre-production for our new Airborne Pod where awarded the final pre-production phase, I think in December , which we expect to complete within calendar year 22. Low-level production of for this program is expected to begin in 23, fiscal 23, and the total value for the program estimates have are unchanged about $70 million over seven years.

Our fog products are also gaining traction we completed the first phase pre production for a new airborne pod were awarded the final preproduction phase I think in December , which we expect to complete within calendar year 'twenty two low level of production for this program is expected to begin in 2000.

Three fiscal 'twenty, three and the total value for the program estimates are unchanged at about $70 billion over seven years.

Speaker 3: The newly-regardized EM 300, IMU, is being vetted by more than 10 crimes, and laboratories in the US and abroad approximately doubling the size of its originally intended application space.

The newly Ruggedized <unk> 300, <unk> is being vetted by more than 10 primes and laboratories in the U S and abroad approximately doubling the size of its originally intended application space.

Speaker 3: Although we're disappointed that COVID threw a wrench into our business development efforts in defense, we already see signs that this is temporary.

Although we're disappointed the COVID-19 threw a wrench into our business development efforts in defense.

We already see signs that this is temporary.

Speaker 3: Over the next several quarters, we expect to make several important announcements about the growth of our navigation business.

Over the next several quarters, we expect to make several important announcements about growth our navigation business.

Speaker 3: Now I'll move on to guidance for the second fiscal quarter. As we've stated before, the CATV visibility is at its worst in the March quarter, especially early in the March quarter, with capital budgets just being released and winter weather interfering with installations. Nevertheless, we've conducted extensive customer and channel checks to try to understand FY22 demands to us and determine the true amount of inventory in the channel.

Now I'll move on to guidance for the second fiscal quarter as we've stated before CA CATV visibility is at its worst in the March quarter, especially early in the March quarter with capital budgets, just being released and winter weather interfering with installations. Nevertheless, we've conducted extensive customer and channel checks to try.

To understand FY 'twenty, two demands to us and determine the true amount of inventory in the channel.

Speaker 3: It's clear to us that a substantial amount of transmitter inventory is tied up in the channel probably due to competitive positioning between our customer at one MSO.

It's clear to us that are substantial.

Mount a transmitter inventory is tied up in the channel probably due to competitive positioning between our customer at one MSL.

Speaker 3: From what we can gather today, we should expect this to clear out by around the end of the calendar year.

From what we can gather today, we should expect this to clear out by around the end of the calendar year.

Speaker 3: I would remind everyone that cable TV is notoriously cyclical and the CATV boom that was driven by COVID lasted nearly two years. Now we're requiring an inventory correct.

I would remind everyone that cable TV is notoriously cyclical and the CATV boom that was driven by Covid lasted nearly two years.

Now requiring an inventory correction.

Speaker 3: Taking all of this into consideration with some of the supply chain challenges we're seeing, we currently expect revenue for the March quarter to be in the range of 32 to 34 million. With that, I will turn the call.

Taking all of this into consideration with some of the supply chain challenges. We're seeing we currently expect revenue for the March quarter to be in the range of $32 million to $34 million.

With that I will turn the call back over to Tom.

Speaker 2: Thank you, Jeff. As you may have seen in our news release, that we issued this afternoon, we delivered another strong quarter in fiscal 1Q. Consolidated revenue was 42.2 million, of which 32.3 million came from the broadband business segment and 9.9 from aerospace and defense.

Thank you Jeff.

As you may have seen in our news release that we issued this afternoon, we delivered another strong quarter in fiscal <unk>.

Consolidated revenue was $42 2 million of which $32 3 million came from the broadband business segment and $9 nine from aerospace and defense.

Speaker 2: Broadband revenue increased slightly when compared to the fourth fiscal quarter of 2021.

Broadband revenue increased slightly slightly when compared to the fourth fiscal quarter of 2021.

Speaker 2: cable TV products perform at a high level again this quarter, representing 88% of total broadband segment revenue.

Cable TV products performed at a high level again, this quarter, representing 88% of total broadband segment revenue.

Speaker 2: In addition, chip level sensing products were sequentially higher in the December quarter.

In addition, chip level sensing products were sequentially higher in the December quarter.

Speaker 2: Aerospace and defense segment revenue decreased when compared to the 11.7 million in the prior quarter.

Aerospace and defense segment revenue decreased when compared to the $11 7 million in the prior quarter.

Speaker 2: As was the case in the September quarter, the sequential A&E revenue change in the December quarter was attributable to our fourth MEMS product line primarily due to a mixed shift to a product with lower production yields and defense of optioelectronics products primarily due to supply chain disruption.

As was the case in the September quarter, the sequential A&D revenue change in the December quarter.

Our <unk> product line, primarily due to a mix shift to a product with lower production yields and defense Opto electronics products, primarily due to supply chain disruptions.

Speaker 2: Partially off-setting these changes was higher fog revenue driven by an increase in orders for our single axis gyro.

Partially offsetting these changes was higher fog revenue driven by an increase in orders for our single axis gyro.

Speaker 2: Let me now turn to the rest of the operating results, the focus of which will be on a non-gap face.

Let me now turn to the rest of the operating results the focus of which will be on a non-GAAP basis.

Speaker 2: Consolidated gross margin was 38% in fiscal 1Q compared to 39% to quarter before.

Consolidated gross margin was 38% in fiscal <unk> compared to 39% in the quarter before.

Speaker 2: Broadband's gross margin, still very strong at 44%, was slightly lower on a sequential quarter basis due to a variety of small changes in material costs, mix, and overhead cost absorption.

Broadband gross margin still very strong at 44% was slightly lower on a sequential quarter basis due to a variety of small changes in material cost mix and overhead cost absorption.

Speaker 2: While there was no change in the AMD gross margin on a sequential basis, the 18% this quarter was primarily due to the revenue decrease and the lower the normal production yields at our conquered operation.

While there was no change in the A&D gross margin on a sequential basis. The 18%. This quarter was primarily due to the revenue decrease and the lower than normal production yields at our Concord operation.

Speaker 2: Our trailing 12-month basis brought in an A&D gross margins were 45% and 25% respectively.

On a trailing 12 month basis broadband in A&D gross margins were 45% and 25% respectively.

Speaker 2: Operating expenses were 10.6 million in fiscal 1Q compared to 10.5 million in the prior quarter. GNA expenses were up due to higher professional services fees and a few other one-time items.

Operating expenses were $10 6 million in fiscal <unk> compared to $10 5 million in the prior quarter G&A expenses were up due to higher professional services fees and a few other one time items. This was partly offset by decreased R&D due to lower project material expenses.

Speaker 2: This was partly offset by decreased R&D due to lower project material expense.

Speaker 2: Offix as a percent of revenue was well below the 30% mark for the quarter coming in at 25% of revenue

Opex as a percent of revenue was well below the 30% mark for the quarter coming in at 25% of revenue.

Speaker 2: Moving to the bottom line operating profit was very strong again in December quarter at 5.3 million for an operating margin of 13%.

Moving to the bottom line operating profit was very strong again in the December quarter at $5 3 million for an operating margin of 13% adjusted EBITDA at $6 3 million was 15% of revenue net.

Speaker 2: Adjusted EBITDA at 6.3 million was 15% of revenue. Net income in EPS was 5.3 million and 14 cents per diluted share.

Net income and EPS was $5 3 million and <unk> 14 per diluted share.

Speaker 2: Shifting to the gap results for a moment, fiscal 1Q net income and EPS was 2.4 million and six cents per diluted share. This included a $1.3 million charge for servants costs associated with the planned shutdown of manufacturing operations in China.

Shifting to the GAAP results for a moment fiscal <unk> net income and EPS was $2 4 million and <unk> <unk> per diluted share. This included a $1 $3 million charge for severance costs associated with the planned shutdown of manufacturing operations in China.

Speaker 2: Turning to balance sheet, we had $76 million at December 31st compared to $71.7 million at September 30th.

Turning to the balance sheet, we had $76 million at December 31, compared to $71 7 million at September 30.

Speaker 2: quarterly cash increase of 4.3 million, consisted of 6.2 million of operating cash flow, less 1.9 million used for CAPA.

Our quarterly cash increase of $4 3 million consisted of $6 2 million of operating cash flow less $1 9 million used for capex.

Speaker 2: on a twirling 12 month basis and four has generated $16 million in cash from operations. And with that, we are now

On a trailing 12 month basis, <unk> has generated $16 million in cash from operations.

And with that we are now opening up the call for your questions.

Speaker 1: Thank you. If you'd like to ask a question, please sign up by pressing star one on your telephone keypad. And if you're on speakerphone, please make sure your meet function is turned off to allow your signal to reach your equipment. Again, press star one to ask a question.

Thank you if you'd like to ask a question. Please signal by pressing star one on your telephone keypad and if you're on speaker phone. Please make sure. Your mute function is turned off to allow your signal to reach our equipment again press star one to ask a question.

Speaker 1: And we will go first to Jason Schmidt of Lake Street, Capitol, Mark.

And we will go first to Jason Smith of Lake Street capital markets.

Speaker 4: Hey, guys, thanks for your taking my questions. Just want to start with guidance. And I mean, first of all, it seems like some of the softness here in March, that's entirely related to demand and less on the supply side. Is that correct? And then I guess, relatedly, if it's not, how much of, can you quantify sort of the supply chain impact you expect here in March?

Hey, guys. Thanks for taking my questions just wanted to start with guidance and I mean first of all it seems like some of the softness here in March that's entirely related to demand and less on the supply side is that correct and then I guess relatedly if.

It's not how much of can you quantify sort of the supply chain impact do you expect here in March.

Speaker 3: Yeah, the supply chain problems would largely be over an AMD and could contribute, you know, call it a couple million dollars to three. The primary point that you made about demand, yes, it is cable TV transmitters again, probably geared for one MSO.

Yes.

The supply chain problems with largely be over in A&D and could contribute caught a couple of million dollars to three.

The primary.

The point that you made about demand yes. It is cable TV transmitters again, probably geared for one <unk>.

Speaker 4: Okay, understood. And then just sticking with guidance, I mean, based on her previous comments about that table order book continuing to extend throughout calendar 22. And now, obviously, a period like there was some double order in going on. I mean, how confident are you that this issue is going to actually be work through in the relatively near term?

Okay understood and then just sticking with guidance based on our previous comments about that cable order book continuing to extend throughout calendar 2002, <unk> now obviously it appears like there were some double ordering going on.

Confident are you that those issues can actually be worked through in the relatively near term.

Speaker 3: Well, great question. The order book is continuing to move forward on laser modules, which are...

Well.

Great question.

The order book is continuing to move forward.

On laser modules.

Which are sort of.

Speaker 3: which are used by one customer that goes to another one of the largest MSOs in the world.

Which are used by one customer that goes to another one of the largest msos in the world.

Speaker 3: So that part we feel pretty good about because there are orders that go out, you know, over a quarter and that's strong, comparatively. When you look at, you know, call it the probability that everything on the transmitter side will clear out by the end of the calendar year. Of course, we have to...

So that part we feel pretty good about because they are orders that go out over a quarter and thats strong comparatively.

When you look at.

Call it the probability.

That's everything on the transmitter side will clear out by the end of the calendar year.

Of course, we have to.

Sure.

Speaker 3: We're not 100% confident in that because our calculations are based on customer forecasts. And we've gone in and seen some movement in terms of where their inventory is going. That gives us confidence that

We're not 100% confident of that because.

Our calculations are based on customer forecasts and.

We've gone in and seen.

The movement in terms of where their inventory is going that gives us confidence that.

Speaker 3: We're going to see the transmitter bubble get cleared out by the end of the year, but it ain't over-pillow sober. Right? I mean, it's, um, you know, forecast change.

We're going to see the transmitter but will get cleared out by the end of the year, but it ain't over till its over.

Right I mean, it's.

Forecast change.

And again.

Yes.

Speaker 3: There's no more share to take with taking it all. Look at AOI's margin. We've.

<unk>.

There's no more share to take we've taken it all look at AOS margin.

We've.

Speaker 3: you know, not lost a deal to anyone that we shouldn't have lost a deal to in terms of competitors. And so there's no more share to think, right? Our options are limited, you know, but that's the nature of cable. And for us, it's about, you know, getting our manufacturing operations to fix expense, which is where we're at.

<unk> not lost a deal to anyone that.

We shouldnt have lost the deal too.

In terms of competitors.

So there's no more share to fit right our options are limited.

But that's the nature of cable and for US, it's about getting our manufacturing operations to fixed.

Expense, which is where we're at.

Speaker 3: so that margins aren't hit very much as we ride this thing out.

So that margins are hit very much as.

As we ride this thing out.

Speaker 4: Okay, no, that's helpful. And then just the last question for me, and I'll jump back into Q, in regards to some margins. How should we think about gross margin trending here? Guess in the March quarter, and then maybe as we progress throughout fiscal 22? Yeah, Jason, Tom here. How are you?

Okay. No. That's helpful. And then just the last question for me and I'll jump back into queue.

In regard to some margins how should we think about gross margin trending here I guess in the March quarter, and then maybe as we progress throughout fiscal 'twenty two.

Yes, Jason Tom here, how are you.

Yes.

The way to think about it so you can start with A&D.

Speaker 2: You can start with A&D. The last couple of quarters we've been at 18%, and certainly that's not indicative of the normal gross margin for that business weave.

Last couple of quarters, we've been at 18% and certainly.

That's not indicative of the <unk>.

<unk>.

Gross margin for that business, we've had a mix to a different product that has caused us to take a little bit of a setback on yields because we were making really good progress throughout most of last year, it's improving it's going to take another quarter or two like Jeff said.

Speaker 2: had a mix to a different product that has caused us to take a little bit of a step back on yields because we were making really good progress throughout most of last year. It's improving. It's going to take another quarter or two, like Jeff said.

Speaker 2: a lot to get that back up, but we also have to move the top line up. So 18%, I don't think we're going to see that in the next quarter and after, we should be...

To get that back up but we also have to move the top line up so 18% I don't think were going to see that in the next quarter and after that we should be.

Speaker 2: making our way back into like let's call it like the mid 20s.

Making our way back into like let's call it like the mid twenties and on the broadband side.

Speaker 2: And on the broadband side, you know, with the challenges ahead.

With the with the challenges ahead.

Speaker 2: The cable TV, P&L within broadband is going to stay strong because we'll be pretty much at variable class model at almost 100% towards the end of this quarter.

The cable TV P&L within broadband is going to stay strong because we'll be pretty much at variable cost model.

Almost 100% towards the end of this quarter and so the transmitters are already there so.

Speaker 2: And so, I'm the transmitters are already there, so...

Speaker 2: but we'll have a fab absorption situation that we've enjoyed at very good, the last four or five quarters, and that's likely to be not as good. So look for that margin to affect the broadband margin. So overall, to repeat 38% again in this quarter is

We'll have a fab absorption situation that we have enjoyed.

Very good the last four or five quarters.

And that's likely to be not as good so look for that margin to that to affect the broadband margins. So overall.

I repeat 38% again in this quarter is.

Speaker 2: Not likely a couple of points below that is more in the range.

Not likely a couple of points below that is more in the range yes.

Speaker 3: Yeah, the other thing to note Jason is that the NRE that comes in with these development programs, chip development programs does get spent in the fab, which is helpful.

Yes, the other the other thing to note Jason is that.

The NRC that comes in with these development programs Chip development programs does get spent in the fab which is helpful.

Speaker 3: So within reason, of course, our ability to bring those in does help. But with Q3 and Q4, and that's our fiscal, starting to see shipments of components. The first two of the five programs, we think the situation resolves itself, you know, certainly as we're exiting the year.

So within reason of course.

Our ability to bring those in does help.

With Q3, and Q4 and Thats our fiscal <unk>.

Starting to see shipments of components.

The first two of the five programs.

We think the situation resolves itself.

Certainly as we're exiting the year.

Speaker 3: in terms of any fat absorption, seeing that depressed a little bit for a while. Okay, thanks a lot guys, appreciate the caller.

In terms of any fab absorption.

Seeing that depressed a little bit for a while.

Yes.

Okay. Thanks, a lot guys I appreciate the color.

And we'll go next to Sam Peterman of Craig Hallum Capital Group.

Speaker 5: Hi guys, thanks for taking my question. I guess a couple for me, I wanted to start.

Hi, guys. Thanks for taking my question.

I guess a couple for me I wanted to start.

Speaker 5: First on cable TV, I don't want to be that force here, but I want to just try to understand maybe how we should be modeling speed and hourly throughout the year. March can be a tough quarter, and it looks like it's going to be, do you, you know, do you have any visibility into kind of at the low point? Should we model normal speed and hourly? Or is it kind of hard to say at this point just with the inventory dynamics you described?

First on cable television I don't want to beat a dead horse here, but I wanted to just trying to understand.

Maybe how we should be modeling seasonality throughout the year I know March can be a tough quarter.

And it looks like it's going to be do you.

Do you have any visibility into kind of is that the low point should we model a normal seasonality or is it kind of hard to say at this point just with the inventory dynamics you've described.

Speaker 3: I think it's a little hard to has family to jump. It's a little hard to say.

I think it's a little hard to Sam This is Jeff.

It's a little hard to say.

Yes.

Speaker 3: And the reason is, you know, we're looking at this as, you know, a three-quarter problem, whether or not it is determines, you know, where the low point is, and we don't have an answer to that. What I would say if we had to go and make a stab, Tom, at, you know, the remainder of the year.

And the reason is.

We're looking at this as you know.

A three quarter problem, whether or not it is determined is where the low point is and we don't have an answer to that.

What I would say if we had to go and make a stab Tom.

The remainder of the year.

Speaker 3: keep it roughly, you know, where the results are the, the guidance is for, uh,

Keep it roughly where the results or the guidance is for.

Speaker 2: for the March quarter. Yeah, I think that's right. I think in the, so then the other sort of way to look at it, I think that's a good way to think about it. Sam.

For the March quarter, Yes, I think thats right I think.

The absence of any other sort of.

Way to look at it I think thats, a good way to think about it Sam.

Speaker 5: Okay, Sarah, that's helpful guys. Second, I wanted to go back to the Gross margins, but specifically the AMD Gross margin. I know, you know, last quarter was in the team, so you can't stop that via a 1 or 2 quarter.

Okay Fair enough that's helpful guys.

Kent.

I wanted to go back to the gross margins specifically the A&D gross margin.

<unk>.

Last quarter was in the teens kind of thought that would be a one or two quarter.

Speaker 5: phenomenon and some oddity and a test a quote I think was coming in that

A nominal in small business.

Equivalent I think it was coming in that.

Speaker 5: You saw that health and so I think I just want to get a little more color off.

You thought would help them so.

I think I, just want to get a little more color on.

Speaker 5: You know, is it not equipment or not, come in yet? The ability to that mix, the 30-unique huge hands kind of resolving, and just if you walk through a little bit more, simply the A&D gross margin, that'd be great.

Thought equivalent not coming yet.

You have visibility to that mix. That's hurting you in Q again, it's kind of resolving and just if you could walk us through a little bit more specifically.

R&D gross margin that'd be great.

Speaker 3: Yeah, so, you know, when a lot of folks think about gross margin, they think about ASP declines, they think about component costs, you know, causing issues. But in our case, more than anything, it's overhead absorption that's driving the gross margins.

Yes so.

Lot of folks think about gross margin they think about ASP declines we think about <unk>.

<unk> cost.

Causing issues, but in our case more than anything its overhead absorption that's driving the gross margins.

Speaker 3: can affect us a bit in terms of some of the scrap that we see in quartz maps, but that's generally not the major driving factor. So in the December quarter,

Could affect us a bit in terms of some of the scrap that we see in quartz Mems, but that's generally not.

The major driving factor okay. So.

In the December quarter.

Speaker 3: We had largely beaten back some of the yield issues. The good news is we did it in October . The bad news is that some of the products take three months from that point to get all the way through the system. And so these vibration tests which occur in the, at the very tail end of the process, we just didn't have the capacity to get everything through.

We have largely.

Beaten back some of the yield issues.

The good news is we did it in October the Bad news is is that.

Some of the products take three months from that point to get all the way through the system. So.

These vibration test which occur in the.

At the very tail end of the process. We just didn't have the capacity to get everything through.

Speaker 3: Alhamber now has its vibration table set up. It hasn't quite been commissioned yet within the next week or two at will, and the upgrades in Concord, which will provide additional capacity. Those are expected to be installed within the next month.

Alhambra now has its vibration table set up.

It hasnt quite been commissioned yet within the next week or two it will and the upgrades in Concord, which will provide additional capacity.

Those are expected to be installed within the next month.

Speaker 3: And again, you know, this is the environment where COVID induced friction really screws things up.

Again this is the.

Environment, where COVID-19 induced friction.

Really screws things up.

Speaker 3: the, that shaker tables, those shaker tables with these, you know, really expensive hydrostatic bearings, that in the port of Long Beach for almost a month and could not be unloaded.

That shaker those shaker tables.

With these really expensive hydrostatic bearings sat in the port of long beach for almost a month and could not be unloaded.

Speaker 3: And then when we were ready to go get them installed,

And then when we were ready to go get them installed.

Speaker 3: There's nobody down at building and safety to issue the permit.

There is nobody down a building and safety to issue the permits.

Speaker 3: And, you know, you deal with all this stuff, right? But the point is that this constant friction of everybody slowing down hurts you in ways that you don't necessarily expect at the beginning of a project.

And you deal with all this stuff right, but the point is this.

Constant friction of everybody's slowing down hurts you in ways that you don't necessarily expect at the beginning of a project.

Speaker 3: So the good news is that these issues are being beaten back. The bad news is that there's somewhat unpredictable in nature. You know, these shaker tables come in from being K over Europe . And...

So the good news is that these issues.

Our being beaten back the bad news is that there is somewhat unpredictable in nature.

Shaker tables come in from <unk>.

<unk> over in Europe .

Yes.

Just no way around it.

Speaker 3: I did not answer your question, Sam, or is there a specific place you want me to provide some more color?

Did that answer your question Sam or is there a specific place you want me to provide some more color.

Speaker 5: No, I think that's really helpful. That's great color, I think.

No I think that's really helpful.

That's great color and I think we will.

Speaker 5: just help investors get a sense of the puts and takes there. So thanks for that. And then I did want to ask on broadband growth margins a little bit just looking at this quarter. Looks like it came down almost a little bit more than 300 basis points, which last quarter was very, very high. And it's still very profitable for the segment as a whole in broadband. But I'm curious if you're seeing.

Just help investors get a sense of.

Puts and takes there. So thanks for that and then I did want to ask on broadband gross margins a little bit just looking at this quarter. It looks like it came down almost a little bit more of them 300 basis points, which last quarter was very very high and its still very.

Profitable throughout the segment as a whole.

And broadband, but im curious if youre seeing.

Speaker 5: Both lower volumes and I guess kind of a mix shift to maybe more of these modules versus the transmitter. What kind of effect does that have on the broadband gross margin and should we still expect that to hang around and kind of the load mid 40s like it's been the last couple quarters or is that maybe a lot to miss for a given just kind of the product mix outlook.

Lower volumes and I guess kind of a mix shift to maybe more of these modules versus the transmitter.

What kind of effect does that have all the broadband gross margin and should we still expect that to hang around and kind of the low to mid 40, if I can spend the last couple of quarters or is that maybe a little optimistic given.

Kind of a product mix outlook.

Speaker 2: Yes, Sam. This is Tom. So, similarly to what I just answered to Jason on his school.

Yes.

So similar to what.

Answer to Jason.

Similar question.

Speaker 2: As you know, we've been talking a lot about our outsourcing for our cable TV products. So we're at the end of being 100% in outsourcing by the middle of this quarter. The transmitters are already there. So what that means is that the cable TV gross margin within broadband will remain at a very healthy clip, call it, or right around the 40%, plus or minus, given the mix.

As you know we've been talking a lot about our outsourcing for our cable TV product. So we're at the.

At the end of being 100% announced sourcing.

By the middle of this quarter. The transmitters are already there. So what that means is that the cable TV gross margin within broadband will remain at a very healthy clip call it right around the 40%.

Plus or minus given the mix and we've had.

Speaker 2: And we've had good mixes lately that have, you know, had it going even a lot higher than that. But the other thing that's in the segment is the way for FAP, which like I...

Good mixes lately that has.

<unk> and even a lot higher than that but.

The other thing Thats in this segment is the wafer fab, which like I was telling Jason that is something that we've been absorbing and in some cases over absorbing over the last call. It the last year and so.

Speaker 2: telling Jason that is something that we've been absorbing and in some cases over absorbing over the last call the last year and so that situation, if it changes and it's likely to change at least for the March quarter.

That situation, if it changes and it likely to change at least for the March quarter.

Speaker 2: and potentially the third fiscal quarter, second calendar quarter June , will cause the broadband margin to be lower than what the cable TV gross margins are.

The second.

The third fiscal quarter second calendar quarter June .

Will cause the broadband margin to be lower than what the cable TV gross margins are so youre likely to see something lower than where we've been.

Speaker 2: You're likely to see something lower than where we've been.

Speaker 3: How much lower will depend on a little, it's always dependent on mix, but it will be more dependent on to have absorption. So again, just to amplify this point because it is important, the historical, what's called the structural issue with cable TV at M4 was that,

How much lower will depend on.

It's always dependent on mix.

But it will be more dependent on fab absorption.

So again just to amplify this point because it is important.

The historical let's call it a structural issue with cable television EMCORE was debt.

Speaker 3: On the assembly side, we owned all of our own assets and inventory and so operating leverage was great on the way up, but it always worked against you on the way down. Well, that problem is now solved. Okay. On the wafer fab, you have the same issue, right? Because you have a large fix that is, it's largest depend on the amount of utilization.

On the assembly side, we owned all of our own assets and inventory and so operating leverage was great on the way up but it always worked against you on the way down that problem is now solved.

On the wafer fab you have the same issue right because you have a large fixed asset that is its largest depend on the amount of utilization.

Speaker 3: And so for the past two years, pardon me, we have been working with,

And so for the past two years.

Pardon me, we have been working with.

Speaker 3: a group of very important customers to bring far from commodity actually.

A group of.

Very important customers.

To bring.

Far from commodity actually.

Speaker 3: you know, custom high margin ships into our bath and the first two of those are expected to shift, two model numbers of those are expected to shift in the June and September quarter. So as those pick up.

Custom high margin chips into our fab.

And the first two of those are expected to shift to model numbers of those.

Our expected to ship in the June and September quarter. So.

As those pick up.

Speaker 3: The cable TV absorption in the fab also goes away.

The cable TV absorption in the Fab also goes away.

Speaker 3: Right, it would have been great if the bubble would have

Right. It would have been great if the bubble would have.

Speaker 3: you know given us another quarter or two you may not have even noticed it but it is what it is

Given us another quarter or two you may not have even noticed it.

But it is what it is.

So it makes sense there.

Speaker 5: Yep, yeah, that makes sense. Thanks for clarifying that on for me guys. I'll ask one last quick one here on the chip contract you mentioned. I think last quarter you had three and that you expected two more to close and it sounds like those two did close this quarter. I guess my question is are those additional two engagements? Are those the same or different customers from the customers behind the initial three chip contracts?

Yes, yes that makes sense. Thanks for clarifying that for me guys.

Sure and I'll ask one last quick one here on the chip contracts you mentioned I think last quarter you had three.

We expect two more to close it sounds like those two did close this.

This quarter.

I guess my question is are those those additional two engagements are those with the same or different customers from the.

The customers behind the initial III ship contracts.

Those are different customers.

Speaker 5: I know those also in kind of the same telecom data time. And I'll speak exactly. Yeah, that's okay.

And those also in Canada.

The same telecom datacom.

Exactly.

Yes, okay.

Got it thanks guys.

Youre welcome.

And as a reminder, you May press star one on your telephone keypad. If you do have a question at this time, we will go next to Tim <unk> of Northland capital markets.

Speaker 1: If you have a question at this time, we will go next to Tim Savjo of Northland Capital Markets.

Alright, hi, good afternoon.

Hey, Tim.

Hey, good too.

Speaker 6: starting a little bit later here, although when better news early in the morning I guess, so...

Starting a little bit later here.

Better news earlier in the morning, I guess so.

Speaker 6: Yeah, yeah, maybe that was the, maybe that would be it. We just blew it. Yeah. So I want to follow up on that last discussion there. And so I want to be more specific as, you know, the two new guys.

Yes, maybe that was great.

Maybe that was a key and we just fluid.

Yes.

So I wanted to follow up on that last discussion there.

And so I'm wondering if you could be more specific is the two new guys are they both telecom.

<unk>, how does that look.

Speaker 6: You know, can you estimate now that you've got five of these guys in house, kind of the aggregate amount of NRE that you're associated with this on kind of a run rate basis or however you want to do it? And it...

Can you estimate now that you've got five of these guys in house kind of the aggregate amount of NRG.

It's associated with this.

Kind of a run rate basis, or however, you want to do it.

And it sounds like.

To the extent that you've got what.

$10 million hole here for cable short term.

Speaker 6: Now as you begin to ramp these two initial contracts, I mean are they of such magnitude that they could fill a substantial portion of that hole is that what you meant to say?

As you begin to ramp these two initial contracts.

They are of such magnitude that could fill a substantial portion of that hold is that what you meant to suggest when you said you might not have even noticed given different timing.

Speaker 3: No, but it's an important point to make. So, you know, the overhead absorption for chip product would be highly selective toward the wafer fat, right? Which gets rolled up into broadband. So my point was that as these chip products roll out and start to hit production, what you'll see it in is the broadband margin and it will tend to push it up.

No.

It's important.

Important point to make so.

The overhead absorption for chip product would be highly selective toward the wafer fab right, which gets.

Sure.

<unk> rolled up into broadband.

So my my point was that as these chip.

Products roll out.

And start to hit production, what Youll see it in is the broadband margin and it will tend to push it up okay.

Speaker 3: Okay. I know the total value of the contracts, but I don't know where we are as far as how much we've spent.

I know the total value of the contracts that I know, where we are as far as how much we've spent.

Speaker 3: So as far as estimating the run rate and duration, I don't have that.

So as far as estimating the run rate and duration.

I don't have that in front of me.

Speaker 3: But if we said, you know, it's gonna be...

But if we said it was going to be.

Speaker 3: 100's of thousands of dollars a quarter, you have a few hundred thousand, that would probably be right. It's mostly to pay for lots of waifers running through the fat. Right, design efforts are pretty much completed.

Hundreds of thousands of dollars a quarter a few hundred thousand.

That would probably be right, it's mostly to pay four lots.

<unk> wafers running through the fab right design efforts.

Efforts are pretty much completed.

Okay.

And so I guess you were.

You said you might not have noticed the fabs under absorption dynamic, yes that was what I meant with the difference in timing.

Speaker 6: Yeah, that was what I met with the difference.

Speaker 3: Yeah, so when you talk about the size of those contracts, I don't think they generate that kind of revenue for a year or two. Got it.

Yes so.

Can you talk about the size of those contracts, Tim I don't think they generate.

That kind of revenue.

For a year or two.

Got it.

And then others drop in come in as well.

Alright, alright, so as those two initial and then.

Got you.

Speaker 6: following. Yeah, there's three. Yeah. Alright, so it's and I don't know if you mean meant to imply in response to another question.

Following the other three.

Alright.

If you meant to imply.

In response to another question.

Speaker 6: I realize there's some uncertainty as to when and where cable bought us.

I realize there is some uncertainty as to when and where cable bottoms.

Speaker 6: But when you were talking about kind of a flatish outlook for the balance of the year, was that a comment about the company in general? Oh.

When you were talking about kind of a flattish outlook for the balance of the year was that a comment about the company in general.

Or broadband or cable TV in particular.

Speaker 6: particular and as you look at either this quarter sky or that outlook, you know, are there any offsets built in to that thinking relative to the cable weakness from

And as you look at either this quarter's guide or that outlook are there any offsets built in to that thinking.

Relative to the cable weakness from.

Aerospace and defense improving or at least some of these early chip shipments.

Speaker 2: Yeah, I think Tim Tom here, more near term, next quarter or two.

Yes, I think Tim Tom here more near term next quarter or two it's more overall, we're going to we're going to face a couple of challenging quarters here on the broadband slash cable TV side.

Speaker 2: more overall, you know, we're gonna, we're gonna face a couple of challenging quarters here on the broadband slash cable TV side until, you know, call it the back half of the calendar year and more towards the end of the calendar year. The chip business kicking in can obviously help that a lot.

Until.

Call it the back half of the calendar year more towards the end of the calendar year.

<unk> business kicking in can obviously helped that a lot.

Speaker 2: But for the next few quarters, think of it as a little bit more of a balance between broadband and aerospace and defense.

But for the next few quarters think of it as.

A little bit more of a balance between broadband in aerospace and defense with the the total being relatively.

Speaker 2: with the total being relatively flat to the current guidance.

Flat to the current guidance.

Speaker 3: So there is some leverage over day and day, Tim. We're not counting on all of it. But there's a lot of really good stuff going on. And I'll enjoy this class then.

Got it.

So there is some leverage over at A&D Tim.

We're not counting on all of it.

But there's a lot of really good stuff going on.

Got it and last question.

Speaker 6: the inventory correction in cable and I think you mentioned you didn't feel like you'd lost any share or any deals but yeah what about what I'd be looking at the right way to assume that your customer has lost some share or some deals and you know

The inventory correction in cable and I think you'd mentioned you feel like you've lost any share or any deals but yes.

Yes.

I'd be looking at this the right way to assume that your customer has.

Lost some share or some deals.

And.

And whether that might be.

Speaker 6: know, the onset of some of this next generation technology we've been waiting for for quite some time, which does appear to be a ramp.

The onset of some of this next generation technology, we've been waiting for for quite some time, which does appear to be ramping in.

Speaker 6: So I guess, you know, can we discern between an inventory? I knew it was coming. I knew it was coming. Well, I mean, it's been waiting five years. So, you know, I know, I can't. Put the ball back. Yeah. Yeah. So I seem to have cured your cough there too, which is good.

So I guess can we just turn between.

Inventory.

I do as well.

Well I mean, we've been waiting five years or so.

Alright.

Yeah.

Okay.

I seem to have carried your cough, there too which is good.

Speaker 6: And so, you're, do we get a sense, this business that's not coming back and part of a technology transition or, you know,

And so.

Do we get a sense of this business it is not coming back and part of a technology transition or.

Speaker 3: competitive, you know, competitive dynamic in current technology or maybe could dive down a little deeper into what you think the Dynasties might be there. Okay. Um, there are. Let's call it MSO customer, customers that have made decisions about, you know, whose technology they're going with.

<unk>.

Competitive competitive dynamic in current technology, or maybe you could dive down a little deeper into what do you think that that yet either.

Okay.

Sure.

There are.

Let's call it MSL customer customers.

That have made decisions about.

<unk> technologies are going with.

Speaker 3: to some degree, based upon availability to shift immediately from stock. Okay?

To some degree based upon availability.

To shift immediately from stock okay. So.

Speaker 3: So, you know, that has put a premium on...

That has put a premium on.

On.

Speaker 3: both of our major customers to have plenty of inventory available to ship at a moment's notice. And obviously, only one's going to win or win the primary slot, right?

Both of our major customers to have plenty of inventory available to ship at a moment's notice.

And obviously only one is going to win or when the primary slot right.

Speaker 3: But this is the root of what to us looks like, a double ordering problem.

But.

This is the route.

Of what to us looks like.

A double ordering problem.

So at this point.

Speaker 3: I wouldn't say that it has anything to do with, you know, a roll out of, of, uh, remote five. Remote five is certainly gaining traction and some credibility with Comcast. Not so sure about everybody else. And so, um, you know, looking at the whole market in a homogeneous way, and I'm not sure guess us to where we want to be.

Yeah.

I wouldn't say that it has anything to do with rollout of.

Remote phy.

Remote phy.

Is certainly gaining traction and some credibility with Comcast not so sure about everybody else.

And so.

Looking at the whole market in a homogeneous way and I am not sure gets us to where we want to be.

Speaker 3: because these architectural decisions are being made by the different MSOs are very different.

Because these architectural decisions are.

Being made by the different msos are very different.

Speaker 3: So, you know, our view of all of this, and I believe I said this, is, you know, for seven years, we've been able to take a heck of a lot of profit out of the business.

So.

Our view of all of this and I believe I've said this is.

For seven years, we've been able to take a heck of a lot of profit out of the business.

Speaker 3: out of this market by sticking with linear optics, right? So, you know, from past seven years, it's been a pretty good bet. Does that mean it's always going to be a linear optics driven world? Of course not.

Out of this market by sticking with linear optics right. So for the past seven years has been a pretty good bet that mean, it's always going to be a linear optics driven world of course not.

Speaker 3: Could this be, you know, the beginning of a turning point? Maybe with one MSO, but I'm not sure I'd go any further than that at this point. So that fair, too.

Could this be the beginning of a turning point.

Maybe with one MSL, but im not sure I would go any further than that at this point.

So is it fair to.

Yes, that's great color I really appreciate it thanks.

Yes.

Okay.

Speaker 1: And with no further questions in the queue, I would now like to turn the call back over to Jeff Reddichir for any additional or closing comments.

And with no further questions in the queue I would now like to turn the call back over to Jeffrey <unk> for any additional or closing comments.

Speaker 3: Again, my apologies for hacking my way through the call. Whatever I've got, we've got enough testimony. It's nothing serious, but it's certainly annoying. So thank you for bearing with me.

Again my.

My apologies for hacking my way through the call.

Whatever I've got we've got enough test to know it's nothing serious but it is certainly annoying. So thank you for bearing with me.

Speaker 3: and your interest in M4. Team put in a lot of hard work this past quarter and dealing with

And your interest in EMCORE team.

<unk> put in a lot of hard work.

Past quarter.

And.

Dealing with.

Speaker 3: You know, some of the COVID issues and I want to recognize all of their efforts.

Some of the Covid issues and I want to recognize all of their efforts.

Speaker 3: And wish you all a great evening. Please stay safe.

And wish you all a great evening.

Please stay safe and goodbye.

Speaker 1: And this concludes today's call. Thank you for your participation. You may now disconnect.

And this concludes today's call. Thank you for your participation you may now disconnect.