EMCORE Corporation (EMKR) on Q2 2021 Results - Earnings Call Transcript

Operator: Good day, and welcome to the EMCORE Second Quarter 2021 Earnings Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Tom Minichiello, Chief Financial Officer. Please go ahead. Tom Minichiello: Thank you, and good morning everyone and welcome to our conference call to discuss EMCORE's fiscal 2021 second 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 will then update you on our financial results for the quarter, and we'll conclude by taking questions. Before we begin, we would like to remind you that the information provided herein, may include forward-looking statements within the meaning of Section 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. Jeff Rittichier: Thank you, Tom, and good morning everyone. EMCORE's second fiscal quarter revenue was up 15% over Q1, coming in at $38.4 million. More importantly, GAAP profitability increased from $0.08 to $0.13 per diluted share, a 63% increase. This combination of topline growth and disciplined expense control, resulted in excellent flow-through in the P&L producing a non-GAAP operating profit of $5.9 million or 15% of revenue. This represents EMCORE's third consecutive quarter of growing profitability and represents the best financial performance that the company has turned in on a non-GAAP basis since at least 1997. Our strong financial performance happened against the backdrop of operational challenges. Of particular note were semiconductor shortages that we overcame in cable television transmitter production. Although, we believe we're in good shape in terms of inventory for the June quarter, we are already working potential flash points for the September and December quarters, since we expect these shortages to last at least six months. Of particular concern or RFICs and passives, which are being used in 5G and Wi-Fi six systems. If supplies get tighter, we have designs that use alternative parts and believe that we can deploy and qualify them on short notice. Tom Minichiello: Thank you, Jeff. Consistent with the preliminary results announced in April, consolidated revenue in the 2021 fiscal second quarter was $38.4 million, an increase of 15% when compared to $33.4 million in the 2021 fiscal first quarter. Aerospace and Defense segment revenue was $13.1 million this quarter, lower by 4% when compared to $13.6 million in the prior quarter. Timing of customer orders for our QMEMS navigation and Defense Optoelectronics product lines was the primary reason for the sequential quarter change, while revenue for our FOG navigation business increased slightly, driven by higher sales of single access gyros for Raytheon's multispectral targeting system and increased non-recurring engineering or NRE contract revenue. Broadband segment revenue was $25.3 million, up 28% when compared to $19.8 million the quarter before, driven by strong demand for our cable TV products as MSOs continued to expand their networks to meet increased bandwidth demands. In addition, revenue for our growing sensing business on a sequential quarter basis almost doubled largely on strong demand for the China Rail project. Through the first two quarters of fiscal 2021, consolidated revenue was $71.8 million, which is already roughly 2/3 of the total for all of the prior fiscal year. Turning to the rest of the fiscal 2Q operating results on a non-GAAP basis. The A&D segment gross margin was 30% compared to 31% the quarter before, due primarily to volume and mix changes. Broadband's gross margin was 43%, consistent with the prior quarter. Gross margins on a trailing 12-month basis for A&D and broadband were 32% and 41% respectively. Given the overall shift this quarter to a higher mix of Broadband revenue, the consolidated gross margin increased to 39% in fiscal 2Q, compared to 38% in the prior quarter. On a year-to-date basis, our gross margin of 38.4% is significantly ahead of the 28.9% during the same period a year ago. Operating expenses came in at $8.9 million in fiscal 2Q, compared to $9.3 million last quarter. The main driver for the decrease was R&D expense within the A&D segment which was $500,000 lower for two primary reasons. One was the transfer to cost of goods sold of a higher amount of engineering labor expenses related to NRE contract revenue. The other was reduced material costs associated with several navigation product development projects. To put our operating expenses in perspective, OpEx during the first two quarters of fiscal 2021 totaled $18.2 million or 25% of revenue, substantially better than the $19.9 million and 40% of revenue during the same period last year. Operator: Thank you. Our first question is coming from Jaeson Schmidt with Lake Street. Please go ahead. Jaeson Schmidt: Hi, guys. Thanks for taking my questions. I just want to follow-up on your comments on the supply chain constraints. Are you seeing any impact on gross margin or expect to see any impact on gross margin just with increased freight cost and things of that nature? Jeff Rittichier: Hi, Jaeson. Not really. There's a number of let's call bottleneck components where we've seen some pretty outrageous price increases since you're going out to brokers and smaller distributors that have figured out that they're the only ones that have supplies. But right now it doesn't look like any of that makes up a substantial fraction of the cost, so I don't think it is really going to hurt us. Jaeson Schmidt: Okay. That's helpful. And obviously, the Broadband segment continues to see some really nice traction with that order book extending even further out. Just given that is it fair to assume that you guys will be able to sort of bought back that traditional seasonality in the December and March quarters? Jeff Rittichier: As it looks right now, especially, because I just reviewed some manufacturing schedules, certainly, we're not expecting to see much in the way of seasonality change in the December quarter. Going into March probably not much, but it's way too early to tell for sure. A lot of things move around and we try to accommodate customer requests. But right now the order book is quite full in March. Jaeson Schmidt: Okay. I’ll jump back in the queue. Thanks a lot guys. Jeff Rittichier: You’re welcome. Operator: Thank you. Our next question is coming from Richard Shannon with Craig-Hallum. Please go ahead. Richard Shannon: Great. Hi, Jeff. And thanks for taking my questions. Congratulations on some nice numbers here. Maybe quick tactical questions for Tom on the guidance here. You've given a very nice revenue number here and you're suggesting that the cable TV is most of the growth here. How should we think about the rest of the P&L here? I would imagine that gross margins could probably move upwards somewhat. And how should we think about the OpEx movement as well here? Tom Minichiello: Sure, Richard. The gross margin and the OpEx has been steady the last few quarters as you can tell from looking at the -- if you look back not just this quarter, but even the two quarters prior. So we'd expect more of the same. We like where the gross margins are for Broadband in this 43% range. It could move a little bit up, a little bit down in any given quarter, but it's likely to get a little bit better with volume increasing in the next quarter. There's always mix and other absorption components that could that could change that, but that's what we expect to see. And then on A&D, as we've discussed in the past, that's a gross margin again that's been steady as has been the revenue in that business segment over what's now probably five or six quarters. And that's all about scale in the gross margin for A&D. So we probably expect it to be pretty consistent in the near term. And then OpEx is -- it came in lower than expected this quarter. But there is a -- as you probably heard in my prepared remarks there's a -- we transfer engineering labor expenses when it's attached to NRE contract revenue and that hit a high point this quarter. And so there was more of that moved on the P&L. So we would expect a little bit less of that next quarter and you're probably looking at operating expenses back in the range where we've been, which is in the mid 9 million. Richard Shannon: Okay, great. That's helpful. Jeff, a question here as it relates to your comments on the supply constraints past this quarter. You noted some issues here and well-known in the industry. How should we think about the impact on potential trends in your broadband or more specifically cable business going beyond the June quarter, obviously, a fantastic number here for June. Are you suggesting to us it's going to flatten out for a few quarters or a couple of quarters while these get burned through, or could we actually see it down sequentially from June after that? Jeff Rittichier: Well, let me fire up my crystal ball here. Right now we think we understand and certainly in the June quarter, we feel pretty comfortable that we've got the supplies sorted through. And the things we're counting on are largely in hand at this point. I wouldn't call it a shocker necessarily, but the behavior we've seen out of some of the semiconductor manufacturers is orders, which had been confirmed three times all of a sudden get pushed with no warning. And so it's -- our supply chain's view of the world is that a bird in the hand is what really matters in terms of getting a hold of the components. There are -- as I pointed out earlier there are a couple of little -- there's literally half a dozen components that are what I'll term the bottleneck components. And we are actively going after those for Q4 September quarter and December quarter. The good news is that we don't need hundreds of thousands or millions of these things. And so we can go into the smaller distributors and be successful. So I don't think it's going to hurt us. And beyond the current quarter in terms of guidance, I see reasons why cable TV could still continue to move up a bit in terms of revenue. But we've got to let our customer's scheduling tell us that. And it's a little hard when we start talking about the September quarter shipments to know exactly where we're going to end up. Does that answer your question Richard? Richard Shannon: Yeah. Yeah, that's very helpful. Thanks for that view. My last question before I jump in the queue here is probably a multipart one here, Jeff. You referenced it in your comments and your -- really we're talking about the press releases we've seen from you in the last month or so on your two new SDI products, which seem very intriguing. Going after some markets that have been -- they have been sole-sourced for a long time here and showing some very strong performance specs here. How do we think about these -- getting design wins going through validation qualification processes and eventually showing benefit to your income statement? What kind of time frame? These obviously are -- could be long lead-time projects. So I want to get a sense of when we start to see some success from those in the income statement. Jeff Rittichier: Yeah. If we were in a normal world, I think it would be very easy to lay this out. The challenge we've got is that in some cases customers are really spending limited amounts of time in the office. And we're certainly starting to see some of that break now in terms of scheduling. But for let's call it, it's well-known that the -- for example the SBI170 is a form fit and function compatible replacement for the Honeywell HG1700. So in semiconductor parlance, we're going to try to engage in some socket stealing. And for applications like that, you can typically get qualified in six to nine months. And then you start into a lower volume production as tens multiples of tens even 100 a quarter and then it can move up from there. So I think there's a chance that some of the stuff we could see right at the end of the calendar year. But certainly into 2022 there should be a pretty significant impact from some of these products. Richard Shannon: Okay, great. That's a great perspective. I think that’s all the question from me. I’ll join back in the queue guys. Thank you. Jeff Rittichier: Richard, let me give you one more thing. Interestingly I mentioned that the SDI170 was tested in a foreign national laboratory. One of the things they did was validate that our communications protocols, the electrical performance of the communications interface was indeed drop-in. And so that while technically not terribly demanding is one of these things that you really want to make sure you get right. And we were glad to see these guys come back and say, yeah, you got it right. Richard Shannon: Great additional perspective, Jeff. Thank you, and that's all for me. Jeff Rittichier: You're welcome. Operator: Thank you. That concludes today's question-and-answer session. Mr. Rittichier at this time I will turn the conference to you for any final remarks. Jeff Rittichier: Thank you. And I'd like to thank all the rest of you for your interest in EMCORE and your time and attention on the call. I also want to recognize our team for such a great quarter and producing outstanding financial results. Please take stay safe everyone and goodbye. Operator: Thank you. This concludes today's call. Thank you for your participation. You may now disconnect.
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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.