EMCORE Corporation (EMKR) on Q1 2021 Results - Earnings Call Transcript
Operator: Good day and welcome to the EMCORE First Quarter 2021 Earnings Conference Call. Today's conference is being recorded. All participants are in a listen-only mode. . At this time, I would like to turn the conference over to Tom Minichiello, EMCORE's Chief Financial Officer. Please go ahead. Tom Minichiello: Thank you, Marion. Good morning, everyone, and welcome to our conference call to discuss EMCORE's fiscal 2021 first quarter results. The news release we issued yesterday afternoon is posted on our website emcore.com. On this call, Jeff Rittichier, EMCORE's President and Chief Executive Officer, will begin with a discussion of our business highlights. I'll then update you on our financial results for the quarter, and we'll conclude by taking questions. Jeff Rittichier: Thank you, Tom, and good morning everyone. From a revenue standpoint, EMCORE's first fiscal quarter was nearly identical to the previous quarter. However GAAP profits increased from $0.02 to $0.09 per share. This combination of top-line consistency and expense control resulted in a non-GAAP operating profit of $3.4 million or 10% of revenue. The EMCORE team executed well, improving our financial results from Q4. Tom Minichiello: Thank you, Jeff. Consolidated revenue in the 2021 fiscal first quarter was $33.4 million essentially flat when compared to $33.5 million in the 2020 fiscal fourth quarter. Aerospace and Defense segment revenue was $13.6 million this quarter lower by 6% when compared to $14.5 million in the prior-quarter. The sequential quarter revenue change was due primarily to program timing for our QMEMs navigation products. Revenue for Defense Optoelectronics was essentially flat. Broadband segment revenue was $19.8 million, up 4% when compared to $19 million the quarter before, driven by the continued surge in demand for our Cable TV transmitters and components, as MSOs continued to expand their networks to meet increased bandwidth demands. Turning to the rest of the operating results. On a non-GAAP basis, consolidated gross margin was 38% in fiscal 1Q, the same as the prior-quarter. Segment gross margins changed slightly consistent with the sequential revenue trends. Broadband's gross margin was 43% compared to 42%, the quarter before, while A&D was at 31% compared to 32% last quarter. OpEx improved again this quarter to $9.3 million and 28% of revenue compared to $9.7 million and 29% of revenue in the prior-quarter. The lower OpEx was primarily due to reduced project-related R&D expenses. Moving to the bottom line, as a result of another strong quarterly performance to revenue and gross margin, combined with the lower OpEx, we grew non-GAAP operating profit in the December quarter to $3.45 million and operating margin to 10% compared to $2.9 million and 9% the quarter before. Adjusted EBITDA, which adds back depreciation also improved to $4.4 million or 13% in 1Q compared to $4 million or 12% in the prior-quarter. December quarter's net income and EPS on a non-GAAP basis was $3.4 million and $0.12 per share compared to $2.9 million and $0.10 per share the quarter before. Net income and EPS on a GAAP basis was $2.6 million and $0.09 per share compared to $700,000 and $0.02 per share in the September quarter. Turning to the balance sheet. Net cash net of a loan payable of $24.7 million at December 31st compared to $24 million at September 30. The cash generated during the quarter was the result of $1.6 million from operations less $900,000 in CapEx. So with that, we'll now open up the call for your questions. Operator: Thank you. . We'll take the first question from Jaeson Schmidt from Lake Street. Jaeson Schmidt: Hey, guys, thanks for taking my questions. Jeff, you mentioned some delays in air freighting customs. Just curious if you could quantify the revenue impact you think that had in December, and I guess relatedly how much you think that is impacting the March quarter guide as well? Jeff Rittichier: If I had to take a swing at it, it would probably be close to $0.5 million. And as far as how much additionally, it would affect March, it's a little hard to say. At the end of the year, we have issues with the Holidays, right, and people wanting to take time-off. And that tends to not be as big of an issue in the March quarter. So make it a little bit of improvement there. But it would purely be random. So I don't think it's going to get any worse. I mean, what we've done. Jaeson is double book across several different carriers. And we've had to enlist customer help to expedite shipments through customs in places where that has been a problem. But just to give you an example, shipping one product from sorry, one piece of CapEx, from the U.S. to Beijing incurred an eight-week delay in getting it through customs. And, I mean these things happen. But I don't think it's going to get any worse. We'll call it a steady-state number for now. So that's roughly, roughly there. Jaeson Schmidt: Okay, no, that's helpful. And then it sounds like you guys are seeing some nice traction in the sensing opportunities. Just curious, if you could help us to quantify or think about what the potential size of these opportunities could be? Jeff Rittichier: Yes. So it depends on the customer. I would say at the low-end, where you've got, where the design win is, where we got identified programs, not just with our subsystems, but with all -- going all the way out to the buyer of a near autonomous vehicle, 10s of 1000s of units a year, but pretty good ASPs on those, we're still working all that out. So I hesitate to give a hard number there. Some of the longer-term opportunities where people are really trying to put them into mainstream cars. First, is safety systems, and then, as autonomous driving tools. Those are in the 100s or 1000s or millions a year. You're just not going to see them on every Volkswagen; they're going to show up at the high-end luxury vehicles first. This technology does pretty much as everything from parking sensors to analog grey stacks. And, this is going to roll-out over period of years. Automotive qualification is no joke. And, the fit rates that they're looking for, failure and time rates that they're looking for are superior to some of the toughest telecom applications and approach submarine pump laser sort of stuff. So, it's going to take its time, but it's going to be a good, good steady rollout. Like I said, FY 2022, we're going to get some volume out of it. And how fast it ramps up to that depends on a lot of factors that are pretty hard to convey. Jaeson Schmidt: Okay, that makes sense. And then just last one for me, and I'll jump back in the queue. Looking at the gross margin line, another nice improvement here in December, how should we think about gross margin trending the rest of this fiscal year with all the moving parts? Jeff Rittichier: So again, you know, as I pointed out in the script, we're volume sensitive. So our contribution margin to gross margin spread is, means that as volume increases will flow more through the P&L. So in the places where we don't normally don't have great absorption, we will see better absorption. And I do think there's some upward pressure on gross margins. It all depends on exactly how much in the way of say lasers, we shipped out of Alhambra. And some of the other products that that we're going to use EMCORE California personnel to build as opposed to EMS, just because we need the volume. And we've got trained people here we can move them between different functions, I mean, even between the wafer fab and certifying assembly processes. So I would say there's some light upward pressure on margins. Tom do you have any other color on that? Tom Minichiello: Yes, no, I think it's well said. Great. Operator: . We'll now take the next question from Tim Savageaux from Northland Securities. Tim Savageaux: Outstanding pronunciation there, kind of an all-time record for conference call pronunciation. Yes, good morning, congratulations. I guess couple of questions on each side of the business? Jeff Rittichier: Could you speak up a little bit, Tim? We're having a hard time picking you up. Tim Savageaux: Okay. What about now? Jeff Rittichier: Better. Thank you. Tim Savageaux: All right. I'm in landline too. Okay, sorry about that. On the Cable TV Optic side, we've once again moved out another quarter. You began a couple of quarters ago talking about March visibility than June, now we're into September. So obviously that business continues strong. I assume that's the primary driver of your much better than seasonal growth in March. But feel free to provide color on that. But I guess the broader question is I guess we have visibility into continued order strength. But do we have visibility as to kind of the peak of this cycle, if you will, to some degree? Historically, I think you've gotten up to around $20 million a quarter on the Cable side; you're pretty close right now. Can that business continue to grow throughout that September timeframe? Or do you see it more kind of steady in an elevated level for a period of time? Jeff Rittichier: Great questions. So first of all, you hit it -- hit the nail on the head, as far as March quarter contribution. Second thing as far as the ultimate duration of the cycle, this is an area where we've spent an awful lot of time, not just jockeying our own spreadsheets around talking to our major customers. One of the interesting things that that we've discussed with them, is the difference between 2017 where Cable TV and where we are now and there's a really interesting story underneath it, which is the principal volume of parts that were shipped in 2017 were laser modules, right, with an ASP of roughly $220 something like that. If you take a look at the mix, now, it's overwhelmingly linear EMLs with an ASP of $600. So if you say okay in Q1, EMCORE did roughly 20 million bucks in Cable, and at peak, EMCORE did about 20 million bucks in Cable, when we take the old RF over glass stuff out, you say, wow, we're running off the end of the clip, except when you correct for the fact that we're selling a much more expensive part, you see that the actual volume of links is considerably smaller. And so that is what I would call, one of the indicators that this could run considerably longer than just being a spike, or even a surge. As we talk to customers, and their customers, what they're telling us is scalable infrastructure is the priority for CapEx. The reason why they love the Linear EML is, it's just more bang for the buck. It's more bandwidth for every transmitter that's installed when compared to DSP. And since we're the only guys in the world that can build these things, it has an outsized impact on us. So you hit on this dynamic, spot on, Tim. What we're saying is, hey, we're completely covered with the order book through September. Reality is it's already leaking over into Q1. So we certainly don't expect a big slowdown there. But the question is, are we at the peak? I think the answer is that part of it is that we're a little bit production constrained. Customers would probably like more product from us than we can provide. But I also think that there are catalysts within the MSO CapEx strategies that could make this go considerably longer. It's just a little bit early to talk about. So I doubt that I really gave you everything you were looking for. But hopefully, that helped. Tim Savageaux: That was actually a ton. And I really suggested, given the unit volume ASP dynamics that you can continue to grow. Jeff Rittichier: Yes. Tim Savageaux: And then, more broadly, it seems like we're in relatively early stages in a lot of this node split activity as you continue for quite a while. Jeff Rittichier: Yes, you're right. Tim Savageaux: So . Yes, go ahead. Jeff Rittichier: Yes, no, you hit the nail in the head again. And the -- as we take a look at, because oftentimes, node splitting is limited by budget tracks, right. And there's a time available to go out and hang the fiber and get everything installed. The other thing is that the tools that the MSOs use to predict where the problems are in the network, in terms of congestion, I think it improved dramatically. And it showed us the weaknesses that possible they didn't know they had. I had explained the way a crisis like this will surface these sorts of things. Tim Savageaux: Got it. Thanks for that. Other question over on the -- coming off that sort of sensing discussion, and really maybe more focused on other applications, obviously, you've got laser capability that feeds several aspects of your business. Right, that includes your parts of the Defense business, standalone laser chips, for comms and other applications. And we've just discussed this kind of sensing dynamic. So over on the sensing side, there's a lot of different approaches to doing this at least from a light-source perspective, some guys are using VCELS, some guys are using things that look more like Telecom lasers. Some guys are using diodes, and there's a lot of different approaches. And I wonder if you might take us through the pros and cons of using kind of EMCORE's approach there relative to others. And also, as you look at those, do you have any thought like fab assets, what sort of other applications or verticals do you see the potential to be relevant to -- again there's -- I think three there, I think we discussed now, right Defense, comms and then sensing. And I think you've got new things going on, on a couple of those fronts, maybe touch on those a little bit. Jeff Rittichier: Yes. So obviously, the first movers in the sensing space, and I'll just focus on LiDAR because, excuse me, because where we get the most questions. We're all using pulsed lasers with very high power. And the classic velodyne products where they're just taking the world by storm, and have really done a nice job with it. The challenge for them, and it wouldn't surprise me at all, if they're developing an FMCW system is that the pulse, high-power pulse lasers base LiDARs can interfere with each other. And the FMCW, so you could have two or three cars pulling up to an intersection, if they're all receiving the same reflection from the wrong vehicle, it's pretty much impossible to tell which sense -- which signal you're reading on the FMCW side, because they are coherent systems by design, you don't have that problem. And so one of the reasons, one of the chief reasons why we believe in FMCW over a long-term is because of this ability to discriminate between what's called collisions of sensing systems. The other thing that we like about it is, at least at a theoretical level, because it is a coherent system, you could have single photon detection, that's going to depend on a lot of things. But it will enable, I think the -- an FMCW system to see better through range nodes, fleet than something that's just going to rely a leg is going to rely on peak optical power. The other thing is that the FMCWs can be built in a smaller package, smaller size, and in our view is that it won't be a one size fits all, you're going to have LiDARs with different characteristics, looking forward with size and possibly even behind you. And so we like the fact that the FMCW approach allows that sort of design flexibility. And so we're the only place that we're really driving our technology is on the FMCW front. Now you've hit on this point about our laser technology in commonality. We originally started all of this work on the LiDAR lasers from our very narrow line with Cable TVs first lasers and we've been able to improve it a couple of orders of magnitude, without increasing the cost to the sides. And now we're driving down costs with different packages -- package size. So, it's surprising, I think to some that aren't well versed in the technology of just how versatile this set of tools that we have really is as far as different applications. When you go into the China rail application, what these devices are doing to the best of our understanding is they're sensing vibrations, presence of train, even the ability to create a signature of a train track where any bearing issues in the train. And so it enables predictive maintenance as opposed to preventative maintenance, which is a really big deal. Oddly enough, when you get into QMEMs, there is a sensing application for it. The QMEMs products go down hole in a drill bit that enables directional drilling for tracking applications in a company called Gyrodata is our big OEM partner there. So we keep building out a wider range of sensing products that started out, out of a common toolkit. So on the merchant chip side, which you also asked about, we really gotten away from trying to sell commodity chips in China, we supply game chips to leading tunable laser manufacturers, we can build semiconductor optical amplifiers, we can build other products that have highly differentiated features. And so what we see, as far as the trajectory for a merchant chip business, Tim, is more along the lines what's called medium volume, highly differentiated devices with good margins. And this, actually, is consistent with what we're doing with lithium niobate, and we're producing components, which are similar to modulators for certain defense partners that make fiber optic gyroscopes. We're good at this; we're getting better at it. And we see no reason not to profit from the IP that we have there. The other point to finally close on, you mentioned in defense, if you took a look at one of our fiber optic gyroscopes, you find the light source is similar to our beam chips, you find all of our detectors we make ourselves, you find the IOC, which is a sort of a lithium niobate modulator that that we make. And we're now making the Q and D band flow starting with K. But we'll be moving Q and D band detectors for that software business and going into some interesting applications over in 5G both on the commercial and military side. So and it's very hard, EMCORE is a chipmaker. And we do best in terms of the economics in our business, when it has -- our products have a high amount of chip content. And so that's if you call our strategic direction, that's where we're headed. Tim Savageaux: Got it. Thanks very much, and congrats on the result. Jeff Rittichier: Thank you, Tim. Operator: . As there are no further questions in the queue, I'd like to hand the call back over to your host for any additional or closing remarks. Jeff Rittichier: Thank you, Marion. I'd like to thank all of you for your interest in EMCORE and especially those of you on the West Coast who woke up real early for the call. In particular, I also want to recognize the team at EMCORE for their commitment and very hard work, this past quarter in particular, the EA team in Beijing overcame shutdowns and supply chain roadblocks which delayed their commute to work and yet still delivered as they committed. And really the strong commitment from the team is showing up in the result. And we're thrilled with that. So please stay safe everyone and have a good week. Operator: Thank you. That will conclude today's conference call. Thank you for your participation. Ladies and gentlemen, you may now disconnect.EMKR Ratings Summary
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Emcore (NASDAQ:EMKR) Downgraded by Craig-Hallum
On May 9, 2024, Craig-Hallum downgraded its rating on EMKR (Emcore) to "Hold" from the previous "Buy" grade, reflecting a shift in their perspective towards the stock. This decision came at a time when EMKR was trading at $1.41, with Craig-Hallum also revising their price target to $2. This cautious stance seems to be a reaction to the company's recent performance and market conditions. The downgrade and the new price target were reported by TheFly, shedding light on the financial analysis that led to this change in outlook.
The downgrade by Craig-Hallum appears to be closely tied to Emcore's fiscal Q2 2024 earnings report, which revealed a significant 41% drop in the stock price. This decline was a direct response to the company's reported revenue of $19.6 million for the quarter, which not only missed the Wall Street expectations of $23.86 million but also represented a decrease from the $24.25 million reported in the same period the previous year. Such a shortfall in revenue highlights the challenges Emcore is facing, possibly contributing to Craig-Hallum's revised view on the stock.
Despite the disappointing revenue figures, Emcore did report an improvement in its adjusted earnings per share, with a loss of 8 cents. This was better than the anticipated loss of 30 cents per share by analysts and showed significant progress from the $1.30 loss per share in the same quarter last year. This improvement in earnings per share might offer a silver lining, indicating some level of operational efficiency or cost management that could be beneficial in the long term.
Looking ahead, Emcore's Chief Financial Officer, Tom Minichiello, set the revenue expectations for the fiscal third quarter of 2024 to be in the range of $19 million to $21 million. This forecast falls notably below the Wall Street revenue estimate of $26.21 million for the upcoming quarter, potentially signaling continued challenges for the company. Such a conservative forecast could further justify Craig-Hallum's decision to downgrade EMKR to a "Hold" rating, as it reflects uncertainties in Emcore's ability to meet market expectations in the near future.
Currently, EMKR is trading at $1.13, marking a significant decrease of -60.82%. The stock has seen fluctuations between a low of $1.07 and a high of $1.44 during the day. Over the past year, EMKR's price has ranged from $1.07 to $10, with the company's market capitalization standing at approximately $22.93 million. This trading volume and market cap, along with the recent performance metrics, paint a picture of a company facing considerable headwinds, which likely influenced Craig-Hallum's decision to adjust their rating and price target for Emcore.
