Yahoo Finance EMCORE Corporation (NASDAQ:EMKR) Q2 2024 Earnings Call Transcript
EMCORE Corporation (NASDAQ:EMKR) Q2 2024 Earnings Call Transcript May 8, 2024
EMCORE Corporation isn't one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Thank you for standing by. My name is Benjamin, and I will be your conference operator today. At this time, I would like to welcome everyone to EMCORE Corporation's Fiscal 2024 Second Quarter Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. [Operator Instructions] Thank you. I would like to turn the call over to Tom Minichiello, EMCORE's Chief Financial Officer. Please go ahead.
Tom Minichiello: Thank you, Benjamin and good afternoon, everyone, and welcome to our conference call to discuss EMCORE's fiscal 2024 second quarter results. The news release we issued this afternoon is posted on our website, emcore.com. Joining me on the call today is Cletus Glasener, Chairman of the Board; and Matt Vargas, Vice President of Sales, Marketing and Business Development. As we'll talk about in a few minutes, Matt will be taking on an exciting and important new role effective today. I'll get things going with the review of the financial results, followed by Cletus who will discuss recent developments. And we'll conclude by taking questions. Before we begin, we would like to remind you that the information provided herein may include forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Exchange Act of 1934.
These forward-looking statements are largely based on our current expectations and projections about future events and trends affecting the business. Such forward-looking statements include projections about future results, statements about plans, strategies, business prospects and changes in trends in the business and the markets in which we operate. Management cautions that these forward-looking statements relate to future events or future financial performance and are subject to business, economic and other risks and uncertainties, both known and unknown, that may cause actual results, levels of activity, performance or achievements of the business or in our industry to be materially different from those expressed or implied by any forward-looking statements.
We caution you not to rely on these statements and to also consider the risks and uncertainties associated with these statements in the business, which are included in the Company's filings available on the SEC's website located at sec.gov, including the sections entitled Risk Factors in the Company's annual report on Form 10-K. The Company assumes no obligation to update any forward-looking statements to conform statements to actual results or to changes in our expectations, except as required by applicable law or regulation. In addition, references will be made during this call to non-GAAP financial measures, which we believe provide meaningful supplemental information to both management and investors. The non-GAAP measures reflect the Company's core ongoing operating performance and facilitates comparisons across reporting periods.
Investors are encouraged to read these non-GAAP measures as well as the explanation and reconciliation of these measures to the most comparable GAAP measures included in our news release. Before we get into the March quarter results, I want to start with a recap of our recently reported sale of the discontinued Chips business line and Alhambra indium phosphide wafer fab that we shut down last September. The deal closed on April 30th and included an all cash sale price of $2.92 million which consisted of a $1 million deposit received back in October and a $1.9 million cash proceeds received last week at closing. And a sublease involving two buildings on the Alhambra campus, along with the buyer assuming related end of lease remediation obligations.
This transaction represents the final and complete close out of the Company's legacy businesses. I'll now move on to revenue for fiscal 2Q, which was $19.6 million compared to the prior quarter's $24.1 million. Lower than expected revenue in the March quarter was primarily due to the following three factors. The first one involves our two torpedo programs, the Mark 54 and the Mark 48 that both use our tactical grade Quartz MEMS inertial measurement units or IMUs. In the case of the Mark 54 finished goods were ready to ship in March, but the order and delivery was pushed into April. These IMUs have now been shipped. The Mark 48 units were also ready to go, but shipment was held up as a result of testing at the customer site. The second one has to do with late arriving material and early stage transitioning to production that resulted in delays in completing a navigation grade fiber optic gyroscope or FOG IMU for a different program.
And third was the continued decline in revenue from our Budd Lake site following the cancellation of the Chicago project late last year. Let me now turn to the rest of the operating results, which will be on a non-GAAP basis. Gross margin was 15% in fiscal 2Q compared to 29% the quarter before, primarily due to the lower revenue as well as production yield issues at our QMEMS operation in Concord. Operating expenses were $9.8 million in fiscal 2Q compared to $9.5 million in fiscal 1Q. R&D expense was sequentially higher due largely to a lower level of nonrecurring engineering or NRE revenue when compared to the quarter before, resulting in higher internally funded R&D or IRAD which remains part of OpEx. This was slightly offset by lower SG&A, primarily driven by tighter overall expense management.
As a result of the lower revenue and gross profit, operating loss in the March quarter was $6.9 million compared to the December quarter's $2.6 million. Negative adjusted EBITDA was $5.8 million compared to $1.7 million last quarter. Net loss was $7 million or $0.08 per share. Shifting to the fiscal 2Q GAAP numbers for a moment, these results included a $1 million restructuring charge to cover severance costs associated with personnel reductions during the March quarter. Annualized savings from these actions are estimated to be approximately $2 million of which about 80% benefits gross profit. Turning to the balance sheet, cash balance was $12 million at March 31st, compared to $20 million net of third-party funds at December 31st. Total outstanding debt was $8.3 million at March 31st compared to $8.6 million at the end of December.
The $8 million cash decrease during the quarter was largely due to the negative $5.8 million adjusted EBITDA. We also used cash during the quarter for the following items. $700,000 associated with discontinued ops, $600,000 as part of financing activities, $500,000 for severance and a combined total of $400,000 for CapEx and litigation related costs. Now to guidance. We anticipate the quarterly revenues based on factors we know today to be flat to slightly up between the back half of fiscal '24 and early fiscal '25. For the June quarter, we expect revenue to be in the range of $19 million to $21 million. Longer term, our current book of business, backlog and opportunity pipeline points to an expected return to top line growth beginning in the first half of fiscal '25.
We are intently focused right now on bottom line growth, which requires swift actions to right size the cost structure of the business. We have already started taking such actions, are moving as quickly as possible and we intend to provide an update on this important activity once the full plan takes shape. So with that, I'll now turn the call over to Cletus.
Cletus Glasener: Thank you, Tom. I request to participate on this call, in order to discuss some of the recent developments that we've taken to improve the performance of the Company. As Tom mentioned, the Company completed the sale of the remaining legacy business. The transaction is complete, the additional consideration of $2 million has been received, and this completes all of the actions required to exit the legacy business with only minor expenses to go. We also announced last week that the Company's debt was assigned by the prior lender, which is Wingspire to Hale Capital. The Company simultaneously entered into an agreement with the new lender which will provide for additional flexibility to make necessary changes. The Company also created a restructuring committee of the Board with the authority to direct management to make the necessary cost reductions and restructuring with the objective of becoming adjusted cash flow breakeven, excluding restructuring costs, by the end of the quarter ending September 2024.
These actions have already begun and will continue. The restructuring committee intends to continue to evaluate additional actions to best achieve the targeted results. In addition, the Board will be exploring alternatives to shore up the Company's liquidity, including potentially raising additional capital to facilitate and possibly accelerate these restructuring actions. And finally, the Company's CEO, Jeffrey Rittichier, has decided to step down after serving the Company since 2014. Jeff will also leave the board. He will continue to consult with the Board and assist with the transition to a new CEO. We thank Jeff for his service and appreciate his willingness to remain an advisor to the Board and wish him the very best. Your Board has already begun the search for a new CEO, and we will take the necessary time to complete this search.
In the meantime, the Company is establishing an office of the CEO that will be comprised of senior executives responsible for driving EMCORE's operations and performance improvement. Additionally, the Board has asked Matt Vargas to assume the role of interim CEO until the search for a permanent CEO is completed. The Board has great confidence in Matt's demonstrated leadership, his team building and his communication abilities, and the newly created restructuring committee looks forward to working with him in the office of CEO to accelerate the Company's restructuring plans and path to profitability. Finally, although the Board is not satisfied with our results for the second fiscal quarter, we're committed to take the necessary actions to best position the Company for success moving forward.
We have much left to do, and we have difficult decisions to make in the future, but we believe the recent actions we've taken demonstrate the determination to execute on the Company's pure play aerospace and defense strategy. The Board understands the urgency of the situation and is focused on building a sustainable model that best positions the Company to execute on its strategy with the help of our new leadership. Thank you for your interest in the Company. And with that, we'll open up the call for questions. Operator?
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