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EC

EMCORE CORP (EMKR)·Q1 2024 Earnings Summary

Executive Summary

  • Q1 2024 revenue was $24.1M with GAAP gross margin 25% and non-GAAP gross margin 29%; Adjusted EBITDA was $(1.7)M, and non-GAAP continuing EPS was $(0.03) .
  • Sequentially, revenue fell from $26.8M in Q4 2023 primarily due to export license delays and a defective PCB lot; management maintained margins and reduced internally funded R&D (IRAD) .
  • Guidance: Q2 2024 revenue expected at $23–$25M, and management “expects a return to quarterly top-line growth in the June quarter” (Q3) with new programs and integration progress .
  • Street consensus (S&P Global) was unavailable for EMKR this quarter; note comparisons to estimates cannot be made—portfolio managers should focus on company guidance and execution drivers (export licensing, program timing, backlog/bookings) [SpgiEstimatesError].
  • Stock narrative catalysts: revenue miss vs prior Q4 guidance ($26–$28M), stable margins, wafer fab sale timing, backlog expected to strengthen and book-to-bill >1 in Q2, but extended delivery schedules push near-term shipments .

What Went Well and What Went Wrong

What Went Well

  • Non-GAAP gross margin held at 29% despite lower revenue, supported by favorable mix and improved overhead absorption at Tinley Park and Concord .
  • IRAD down by ~$0.6M sequentially; management expects continued reductions via customer-funded NRE (target ≥ $7M in calendar 2024) .
  • Backlog remained sizable (~$51M at quarter-end) with expected recovery in Q2; book-to-bill anticipated significantly >1.0 in the March quarter .

What Went Wrong

  • Revenue declined to $24.1M from $26.8M due to delayed export licenses ($0.75M pushouts) and defective PCB lot during holiday supplier shutdown; some engineering work ($0.8M NRE) did not count as revenue in the quarter .
  • Book-to-bill <1.0 in Q1 given shortened holiday season and order timing; customer-requested ship dates extend out, dampening near-term shipments .
  • Cash decreased to $21.2M (from $26.7M in Q4) driven by negative EBITDA, discontinued ops, legal settlement, debt reduction, severance, and working capital; management’s “comfort level” is ~$20M cash but operating below it is manageable .

Financial Results

Quarterly Trend (oldest → newest)

MetricQ3 2023Q4 2023Q1 2024
Revenue ($USD Millions)$26.7 $26.8 $24.1
Gross Margin (GAAP, %)13% 26% 25%
Gross Margin (Non-GAAP, %)16% 31% 29%
Non-GAAP Operating Expenses ($USD Millions)$11.109 $10.121 $9.543
Adjusted EBITDA ($USD Millions)$(4.338) $(0.907) $(1.668)
Ending Cash & Equivalents ($USD Millions)$20.2 $26.7 $21.2
Line of Credit and Loan Payable ($USD Millions)$11.7 $10.6 $8.6

Q1 2024 vs Prior Year (YoY)

MetricQ1 2023Q1 2024
Revenue ($USD Millions)$20.0 $24.1
Gross Profit ($USD Millions)$4.379 $6.088
Net Loss from Continuing Ops ($USD Millions)$(8.172) $(4.363)
EPS from Continuing Ops (GAAP, $)$(0.22) $(0.05)
Non-GAAP Net Loss from Continuing Ops ($USD Millions)—$(2.580)
Non-GAAP EPS from Continuing Ops ($)—$(0.03)

Notes: Q1 2023 is pre-restructuring; discontinued ops were included in consolidated results. EMCORE began reporting legacy businesses as discontinued ops in Q4 2023 .

KPIs and Operational Metrics

KPIQ3 2023Q4 2023Q1 2024
Backlog ($USD Millions)$68 ~$67 ~$51 (adjusted)
Book-to-Bill1.0 <1.0; expected recovery in Q1/Q2 <1.0; expected significantly >1.0 in Q2
NRE Funding Outlook—≥$7M in calendar ’24, ~70% booked by Q4 call ≥$7M calendar ’24 expected
Non-GAAP Gross Margin (%)16% consolidated; 30% inertial nav 31% 29%

Site-Level Commentary (qualitative)

  • Tinley Park: continuous steady growth, improved absorption .
  • Concord: improved absorption; ERP/MES integration planned; footprint reduction underway .
  • Budd Lake: near-term revenue headwind from TI-MU (TAIMU) program changes; MMS anticipated to replace revenue as production starts in early 2024 .
  • Alhambra: consolidating to a single building post wafer fab sale; optical component assembly consolidation .

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Revenue ($USD Millions)Q1 2024$26–$28 Actual: $24.1 Lower vs guide
Revenue ($USD Millions)Q2 2024—$23–$25 New guide
MarginsQ2 2024—“Similar margins” expected vs Q1 (non-GAAP ~29%) Maintained
Backlog/BookingsQ2 2024—Book-to-bill significantly >1.0; extended delivery schedules Positive bookings; slower near-term shipments
Full-Year Revenue ($USD Millions)FY 2024$115–$125 (given in Dec call) —Reaffirmed directionally

Earnings Call Themes & Trends

TopicQ3 2023 (Aug 2023)Q4 2023 (Dec 2023)Q1 2024 (Feb 2024)Trend
Supply chain constraintsMilitary-grade FPGAs/SOCs still tight; occasional last-minute pushouts PCB/circuit boards late by ~1 month affecting advanced targeting system Export license delays (~$0.75M) and PCB defects across holidays delayed shipments Improving operationally but timing constraints persist
Wafer fab & legacy divestituresLOI to sell linear broadband to Photonics Foundries; wafer fab plan under review Wafer fab shutdown; LOI with deposit to sell fab & assume leases; sale targeted by end of Dec quarter Sale negotiations taking longer; multiple interested buyers; aiming to close ASAP Progressing to exit; timing sliding
TAIMU programBacklog and program milestones highlighted; ramp expectations L3H termination for convenience; management targeting offsets (~$10M of ~$14M expected FY24) Budd Lake backfill via MMS; expect production replacing lost revenue in early ’24 Rebalancing portfolio; replacement programs
Book-to-bill/backlogB2B ~1.0, backlog $68M B2B <1.0 due to shutdown fears; backlog ~$67M; expect recovery B2B <1.0 in Q1; expect significantly >1.0 in Q2; backlog ~ $51M adj. Recovery expected Q2; longer delivery timing
IRAD vs NREIRAD to approach 10% of revenue via NRE over time ≥$7M customer-funded NRE planned, ~70% booked IRAD reduced ~$0.6M; continued NRE-funded engineering to lower OpEx Positive mix shift to customer-funded
Integration/ERP/MESChicago to SyteLine 10; broader upgrades planned ERP migrations and MES rollout planned; footprint reduction ERP unification and product data migration completion targeted; MES rollouts Execution ongoing; efficiency tailwinds

Management Commentary

  • “Chicago, Concord, and Alhambra showed increased revenue over the September quarter, but not enough to offset the lower shipments out of Budd Lake… we continued to achieve a solid gross margin and substantially reduced internally-funded R&D.” — Jeff Rittichier, CEO .
  • “Gross margin held up at 29% in 1Q despite the lower revenue, contributing to the favorable margin was improved fixed overhead absorption in Tinley Park and Concord and an overall favorable mix.” — Tom Minichiello, CFO .
  • “At quarter's end, backlog… approximately $51 million… we expect to fully resolve [the reduction] in the March quarter.” — Jeff Rittichier, CEO .
  • “The March quarter is expected to be flat compared to December with a range of $23 million to $25 million.” — Jeff Rittichier, CEO .
  • “We like $20 million as a good comfort level [for cash], but we are operating below that, which is doable.” — Tom Minichiello, CFO .

Q&A Highlights

  • Budd Lake revenue replacement: TAIMU near-term gap to be backfilled by MMS as production starts early ’24; expect resumption of growth by June quarter (Q3) .
  • Wafer fab sale: Confidence reiterated; exclusivity lost due to delays; multiple bidders; aiming to close as soon as possible .
  • Cash burn: Q2 (March) cash use likely within a $3–$5M range, upper end more likely, with efforts to improve working capital (esp. Concord inventory) .
  • Cash comfort: ~$20M preferred; operating below is manageable if business goals met .
  • Bookings cadence: Book-to-bill expected >1.0 in Q2; backlog could surprise positively, but delivery timing extends out, limiting near-term shipments .

Estimates Context

  • S&P Global consensus estimates for EMKR were unavailable due to missing CIQ mapping; therefore, comparisons vs Street EPS and revenue estimates cannot be made this quarter [SpgiEstimatesError].
  • Use company guidance ($23–$25M for Q2) and margin commentary (“similar margins”) as the anchor for near-term expectations .

Key Takeaways for Investors

  • Margin durability amid revenue pressure: Non-GAAP gross margin held at 29%, supported by mix and absorption; expect similar margin in Q2 even as shipments are pushed out .
  • Near-term growth pause, bookings strength: Extended delivery schedules will dampen Q2 shipments; book-to-bill expected significantly >1.0 suggests backlog recovery into Q3 .
  • Program rebalancing post-TAIMU: Management cites high-confidence offsets and MMS ramp to replace Budd Lake revenue; monitor execution and timing .
  • Cash discipline and OpEx control: Cash decreased to $21.2M; management reducing IRAD and leveraging NRE to lower OpEx; watch working capital actions and litigation/severance tail-offs .
  • Strategic simplification: Wafer fab divestiture progressing; ERP/MES and footprint consolidation are medium-term margin and efficiency levers .
  • Trading implications: Near-term prints may reflect shipment timing rather than demand; reaction likely tied to wafer fab sale closure, bookings momentum, and confirmation of Q3 top-line growth path .
  • Medium-term thesis: A pure-play inertial navigation platform with improving operating leverage, customer-funded R&D, and backlog growth should expand margins as volume ramps, contingent on supply chain/export licensing timing and program milestones .