Q2 2024 EMCORE Corp Earnings Call

Participants

Thomas Minichiello; Chief Financial Officer; EMCORE Corp

Cletus Glasener; Independent Chairman of the Board; EMCORE Corp

Matt Vargas; Vice President of Sales, Marketing and Business Development; EMCORE Corp

Richard Shannon; Analyst; Craig-Hallum Capital Group LLC

Brian Kinstlinger; Analyst; Alliance Global Partners

Presentation

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 Amcor 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. If you'd like to ask a question during this time, simply press star one on your telephone keypad. If you'd like to withdraw your question, press star one again. Thank you. I would like to turn the call over to Tom and he CELLO Amcor's Chief Financial Officer. Please go ahead.

Thomas Minichiello

Thank you, Benjamin, and good afternoon, everyone, and welcome to our conference call to discuss Amcor's fiscal 2024 second quarter results. The news release we issued this afternoon is posted on our website, amcor.com. Joining me on the call today is clearest glass and-or 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 a review of the financial results, followed by leaders who will discuss recent developments and will conclude by taking questions.
Before we begin, we would like to remind you that the information provided herein may include forward-looking statements within the meaning of Section 27 A. of the Securities Act of 1933 and Section 21 E. of the Exchange Act of 1934.
These forward-looking statements are largely based on our current expectations and projections about future events and trends affecting the business. Such forward-looking statements include projections about future results, statements about plans, strategies, business prospects and changes and trends in the business and the markets in which we operate.
Management cautions that these forward-looking statements are relate to are related 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 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, 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 for 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 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 30 and included an all-cash sale price of $2.92 million, which consisted of a $1 million deposit receipt back in October and a $1.92 million of 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 Sportsman's inertial measurement units or IMUs in the case of the market before finished goods were ready to ship in March, but the order and delivery was pushed into April.
These IMUs have now been shipped to 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, an early stage transitioning to production that resulted in delays in completing a navigation grade fiber optic gyroscopes or FOG IMU for a different program. And third was the was the continued decline in revenue from our blood Lake site following the cancellation of the team we 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 Q mems operation and Concor 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 higher ed, 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, our cash balance was $12 million at March 31 compared to $20 million net of third party funds at December 31. Total outstanding debt was $8.3 million at March 31 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 of 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 rightsize 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 Claes.

Cletus Glasener

Thank you, Tom. I requested 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's complete, the additional consideration of approximately $2 million has been received.
And this completes all of the actions required to exist, 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 was Winx buyer 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, Jeff richer, has decided to step down after serving the company since 2020 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 adviser to the Board and wish him the very best.
Your Board has already begun to 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 CYO. that will be comprised of senior executives responsible for driving Amcor'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 its communication abilities and the newly created restructured committee looks forward to working with him in the office of CYO. 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 the your interest in the Company. And with that, we'll open up the call for questions. Operator?

Question and Answer Session

Operator

And your first question comes from the line of Richard Shannon with Craig-Hallum Capital Group. Please go ahead.

Richard Shannon

Thanks for taking my questions, guys. Let's hear I guess my first question here is, Tom, to what degree are the issues that we're seeing here, the manifest themselves, not just in the March quarter results, but I think maybe you go back a little bit of time as well as the outlook here.
How much of that is due to do, I guess, onetime? And how are unusual issues versus some sort of decrease in backlog here. I know we've talked about the situation with Bud Light continue, but it seems like there's more issues and more programs either been delayed or lost or something to help us get some sense of the dynamics you're involved with? It's much lower revenue outlook here than we than we thought a few quarter?

Thomas Minichiello

Now I would say that would be a good time to have Matt chime in on the on that question. So Matt, if you're if you're there on the you want to talk to Alan.

Matt Vargas

Then happy to happy to answer.
I think you and Mr. Pito aluminum, our business is a fairly large tranche of our portfolio. We are working diligently and have been working diligently to understand that demand signal better, but it does comprise a large function of our of our total manufacturing footprint.
So and I would not say that it's an endemic of larger issues but that particular subset as it moves directionally affects our business, though, not not really anything else that I can add to that to that effect.
On the tubular businesses, a large tranche of the overall lift quarter-over-quarter.

Richard Shannon

Okay.
Thanks.
Thanks, Matt.
And okay. So I guess if I heard Peter's comments correctly or into your contemplated a number of actions here that includes either a cost restructuring and or capital raises here. I guess I'd love to understand the degree to which you think some of these order outlook, visibility issues are permanent or long lived enough that you need to do something about it that would suggest a fairly a meaningful cost, a cost structure improvements versus something that can just bridge you to time by which things get better or back to maybe what you thought before, how do we balance those two dynamics showed ongoing versus transitional, I guess?

Cletus Glasener

Thanks, Richard. We are we're going to do the restructuring restructuring is not free. There's going to be expenses associated with downsizing the business to meet the current top line. So that's that's going to require cash to do that, and we're looking at various options to to raise that cash.

Richard Shannon

Okay.
That's fair enough. Then maybe one or two questions from Tom here. Maybe just to give your best sense here what we're looking at in terms of cash burn this quarter. I don't know if that would be inclusive or not inclusive of any sort of expenses from center structure, but just give us a sense of where we're sitting there.
And I think last quarter, when asked a question about a comfort level of cash, wanted to stay about $20 million. I think we're already already below that. So I want to get a sense of urgency and and rectifying that.

Thomas Minichiello

Yes, the way I would look at it, Richard, is we finished at $12 million at the end of March, obviously lower than where we thought we'd be when the top line it has a lot to do with that are almost all to do with that.
So here's how I would think about it that we've got $12 million at the beginning of the quarter. We just got another, call it $2 million round up on the sale of the fab. So that's $14 million in cash. But going into the quarter, I don't want to put too much of a specificity around where we're going to end up at the end of the June quarter.
But what's important to know here is that $14 million, we have a new lender and the terms I can't emphasize the enough fee, the help that that's going to provide and having a now and they'll be withheld because the debt is not been restructured essentially and we no longer have a liquidity requirement that was $12.5 million under the previous structure, among other benefits of doing that deal.
So that's going to give us some you note some leeway here in the near term as we as the business marches forward, it is the guidance that we provided, but also we're going to be doing all kinds of activities and other actions here that will obviously ultimately lower the cash use, but may require some initial onetime cash out.
So a lot of moving parts, but we've got some ability here to talk to work what we want to do and make it happen and whether we have to do some additional capital infusions of some form that may or may not be part of it.

Richard Shannon

Okay. Fair enough. Thanks for that, Tom.
Maybe one last question and I'll jump out of line here. So an office of the is the CEO. here and I see not having met Mr. Vargas before as you came from from KVH, your I would assume that this office would include leaders from the other organizations. As I think Jeff was kind of the driver of all these different groups here. So can you kind of help us understand assist office, the CEO who else is going to be involved? I have those leaders been assigned to it?

Cletus Glasener

Some have some haven't those leaders will represent the functions within the Company, including, but maybe not limited to finance legal operations, engineering, sales and marketing and that that office of the CEO. will I report to the Board and I work very closely with the restructuring committee.

Richard Shannon

Okay, fair enough.
I will jump out of line guys. Thank you very much.
Thank you, Richard.

Operator

Your next question comes from the line of Brian Kinstlinger from Alliance Global Partners. Please go ahead.
Questions.

Brian Kinstlinger

Just looking at the first quarter results compared to coming that you expect to achieve profitability by the end of the September quarter. I presume that was this year and maybe I'm mistaken, I want to make sure I understand you said revenue in the second half of '24 will remain at current levels where you returned to growth. So in order to reach a profit, you need to cut more than $5 million of quarterly expenses. Do I have that right? Or did I misunderstand the comments regarding these assumptions?

Cletus Glasener

Yes.
What we said was the objective is to be cash flow breakeven on an adjusted basis by the end of the September quarter, excluding any restructuring expenses. So we didn't we didn't talk profit.
We talk cash flow breakeven guidance.

Brian Kinstlinger

And to be clear, did I understand you correctly in saying the second half of I think what you meant with calendar 2024 will be at similar revenue than we are today, as you all see that weakness kind of churn you're hoping in the first half of 2025. Am I thinking about that right?

Thomas Minichiello

Yes, I think you got it. I got it right. You know what those were fiscal year, those were fiscal years that I was talking about, Brian. So just one quarter difference.

Brian Kinstlinger

Yes, the only thing I had a question I wanted to make sure I understood. It sounded like the challenge of the Mark 54 generic, the Mark 54. You've now shipped those units yet the second quarter isn't much stronger than the first quarter. Is that because Mark 48 is going to have more of an impact on the second quarter. Is that why we're not seeing that recovery.

Matt Vargas

But yes, I think not sure I can.
I can grab it one time. I think it's okay. I don't have massive and it's less of an in-line torpedo nested problem set that I think you were elaborating and the Tom spoke a little bit about the decline in revenues. And but like those things as paired activity and create sort of this onetime that was described.
So it's not necessarily Mark 54 And Mark, 48 are relatively independent demand signals and the internal manufacturing processes is a little bit more agnostic. But those are those are two separate demand signals and purchase separate programs.
But there's individual fiscal year budget implications in Washington. We're tuning our sensitivities to a little bit more, but that takes a little bit of time. So I hope that answers your question, but they're not necessarily always game-related from an outside demand perspective.

Brian Kinstlinger

Great. Thanks so much.
Good luck.

Thomas Minichiello

Thank you, Brian.
Benjamin --

Operator

We don't have any questions at this time.
That concludes our Q&A session. I will now turn the conference back over to Claes Glassell for closing remarks.

Cletus Glasener

Thank you, Andrew. So first, I'd like to convey to our shareholders. Many of you who've held shares for a long time that the Amcor leadership and the Board is working to restore financial health to this business. We do appreciate you sticking with us through this transformative time. And I'd also like to give my sincere thanks to our employees of the company who have and will continue to support us through this transition.
And with that, that's that's all of our remarks. Thank you so much for attending.

Operator

Ladies and gentlemen, that concludes today's call. Thank you all for joining, and you may now disconnect.