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EC

EMCORE CORP (EMKR)·Q2 2024 Earnings Summary

Executive Summary

  • EMCORE’s Q2 FY2024 revenue fell to $19.6M, down sequentially and year-over-year, with gross margin compressing to 17% on shipment delays (Mark 54/48 torpedo IMUs), late materials on a nav‑grade FOG IMU, and declining Budd Lake revenue post TAIMU cancellation .
  • Non-GAAP metrics deteriorated: non-GAAP gross margin 15% and adjusted EBITDA −$5.8M vs −$1.7M in Q1; GAAP OpEx rose slightly to $10.9M .
  • Guidance: Q3 FY2024 revenue expected at $19–$21M; Board formed a Restructuring Committee targeting adjusted operating cash flow break-even by the September 2024 quarter; company sold the Chips business for $2.92M and restructured debt via Hale Capital forbearance .
  • Leadership changes: CEO Jeff Rittichier stepped down; VP Sales Matt Vargas named interim CEO; Chairman emphasized commitment to pure‑play Aerospace & Defense strategy and cost actions .
  • Potential stock catalysts: shipment normalization in Q3 (Mark 54/48), execution on cost reductions ($2M annualized savings from Q2 severance), liquidity actions under new lending terms, and progress toward cash flow breakeven .

What Went Well and What Went Wrong

What Went Well

  • Completed sale of discontinued Chips business and Alhambra wafer fab for $2.92M, including $1.92M at closing and a sublease, finalizing exit from legacy businesses .
  • Debt restructured: credit facility assigned to Hale Capital with forbearance terms (12% fixed rate, cash dominion restrictions lifted, PIK option), providing near-term flexibility to pursue restructuring .
  • Management action on costs: ~$1.0M restructuring charge in Q2 tied to personnel reductions, with estimated $2M annualized savings, ~80% benefiting gross profit; renewed focus on cost structure and cash flow breakeven by September quarter .
    • Quote: “Annualized savings from these actions are estimated to be approximately $2 million, of which about 80% benefits gross profit.” — CFO Tom Minichiello .
    • Quote: “We…created a restructuring committee…with the objective of becoming adjusted cash flow breakeven…by the end of the quarter ending September 2024.” — Chairman Cletus Glasener .

What Went Wrong

  • Revenue miss and margin compression: Q2 revenue $19.6M vs Q1 $24.1M and Q2 guidance $23–$25M; gross margin fell to 17% on shipment delays, Concord QMEMS yield issues, and Budd Lake revenue decline .
  • Liquidity declined: ending cash $12.0M vs $21.2M in Q1; cash decreased largely due to −$5.8M adjusted EBITDA, discontinued ops, financing and severance costs .
  • Program timing and Budd Lake headwinds: Mark 54 shipment pushed to April; Mark 48 held due to customer testing; Budd Lake revenue declined post TAIMU cancellation, affecting top line and visibility .

Financial Results

Quarterly comparison (oldest → newest)

MetricQ4 2023Q1 2024Q2 2024
Revenue ($USD Millions)$26.769 $24.123 $19.634
Gross Margin % (GAAP)26% 25% 17%
Operating Expenses ($USD Millions, GAAP)$35.718 $10.398 $10.870
Net Loss per Share – Continuing Ops ($USD)$(0.42) $(0.05) $(0.09)
Non-GAAP Gross Margin %31% 29% 15%
Adjusted EBITDA ($USD Millions)$(0.907) $(1.668) $(5.769)

YoY (Q2 FY2024 vs Q2 FY2023)

MetricQ2 2023Q2 2024
Revenue ($USD Millions)$24.250 $19.634
Gross Profit ($USD Millions)$4.861 $3.247
Operating Loss ($USD Millions)$(9.134) $(7.623)
Net Loss per Share – Continuing Ops ($USD)$(0.21) $(0.09)

KPIs

KPIQ4 2023Q1 2024Q2 2024
Ending Cash & Cash Equivalents ($USD Millions)$26.7 $21.2 $12.0
Line of Credit and Loan Payable ($USD Millions)$10.6 $8.6 $8.3

Segment/Program Notes

  • No formal segment revenue breakdown disclosed; key program drivers noted: Mark 54 and Mark 48 torpedo IMUs (Quartz MEMS) shipment timing, nav‑grade FOG IMU materials/transition delays, Budd Lake revenue decline post TAIMU cancellation .

Guidance Changes

MetricPeriodPrevious GuidanceCurrent Guidance / OutcomeChange
RevenueQ2 FY2024$23M–$25M Actual: $19.6M Lower vs guidance (miss)
RevenueQ3 FY2024N/A$19M–$21M New
Adjusted Operating Cash Flow (quarterly)Q4 FY2024 (Sep qtr)N/ATarget ≥ $0 (breakeven), excl. restructuring costs New
Cost Savings (OpEx)OngoingN/A~$2M annualized from Q2 severance; ~80% benefits gross profit New

No formal guidance provided for margins, OI&E, tax rate, or dividends in Q2 materials .

Earnings Call Themes & Trends

TopicPrevious Mentions (Q4 FY2023)Previous Mentions (Q1 FY2024)Current Period (Q2 FY2024)Trend
Transformation to pure-play inertial navigationCompleted restructuring plan for legacy business; sale of non‑strategic lines; LOI to sell wafer fab Integration among sites; full business systems integration within FY; IN revenue +21% YoY Chips business sale closed; focus on Aerospace & Defense strategy Advancing; legacy exit completed
Revenue trajectoryGuide 1Q24: $26–$28M Expect return to top-line growth in June quarter Guide 3Q24: $19–$21M; flat-to-slightly up H2 FY24 to early FY25 Near-term softer, recovery pushed to FY2025 H1
Supply chain/program timingNot highlightedExport license timing; PCB materials issues in Q1 Mark 54 shipment pushed; Mark 48 held; late materials on nav‑grade FOG IMU Persistent timing frictions
Budd Lake/TAIMU impactNoted restructuring plan Lower shipments out of Budd Lake in Q1 Continued decline following TAIMU cancellation Ongoing headwind
Cost actions & savingsNon-GAAP OpEx ~$10.1M Non-GAAP OpEx $9.5M $2M annualized savings; restructuring committee targeting OCF breakeven Intensifying cost focus
Liquidity & lendingEnding cash $26.7M Ending cash $21.2M; lender liquidity threshold $12.5M (old) Cash $12.0M; facility assigned to Hale; forbearance terms improve flexibility Flexibility improved; cash down

Management Commentary

  • “Lower‑than‑expected revenue in the March quarter was primarily due to product shipment delays and declining revenue from our Budd Lake site. The lower top‑line negatively impacted 2Q24 profit margins.” — CFO Tom Minichiello .
  • “We anticipate…revenues…to be flat to slightly up between the back half of fiscal '24 and early fiscal '25. For the June quarter, we expect revenue…$19 million to $21 million.” — CFO Tom Minichiello .
  • “The company…created a restructuring committee…with the objective of becoming adjusted cash flow breakeven…by the end of the quarter ending September 2024.” — Chairman Cletus Glasener .
  • “We believe the recent actions we've taken demonstrate the determination to execute on the company's pure‑play aerospace and defense strategy.” — Chairman Cletus Glasener .

Q&A Highlights

  • Program concentration and timing: Torpedo IMUs (Mark 54/48) are a large tranche; shipment timing materially affects quarterly results; Mark 54 shipped in April; Mark 48 held up by customer testing .
  • Restructuring scope and capital needs: Board intends to downsize cost structure to meet current top line; restructuring is not free and may require raising cash to fund actions .
  • Liquidity and cash burn: Cash at quarter‑start ~$12M plus ~$2M proceeds from wafer fab sale; forbearance with Hale removes prior $12.5M liquidity covenant and allows PIK interest; near‑term actions may initially consume cash before savings accrue .
  • Governance and leadership: Office of the CEO formed across finance, legal, operations, engineering, sales/marketing; Matt Vargas as interim CEO; clarity on reporting into Board/restructuring committee .
  • Clarified objective: Target is adjusted operating cash flow breakeven by September quarter (not GAAP profit) .

Estimates Context

  • Wall Street consensus via S&P Global was unavailable for EMKR due to missing mapping; therefore, comparisons to analyst consensus cannot be provided at this time. The company’s prior Q2 revenue guidance ($23–$25M) contrasts with actual $19.6M, indicating a significant shortfall vs company guidance .

Key Takeaways for Investors

  • Shipment timing and program mix drove a meaningful revenue/margin miss; watch Q3 shipments on Mark 54/48 and nav‑grade FOG IMU for near‑term recovery .
  • Cost actions are accelerating; ~$2M annualized savings already identified with more to come; non‑GAAP OpEx discipline is central to achieving cash flow breakeven by September quarter .
  • Liquidity tightening (cash $12.0M) offset by improved flexibility under Hale forbearance (12% fixed, PIK option, no cash dominion), but a capital raise remains a risk to fund restructuring pace .
  • Leadership transition (interim CEO) and Office of CEO structure should increase focus on execution; monitor tone and cadence of actions from the Restructuring Committee .
  • Near‑term trading: sensitivity to Q3 print vs $19–$21M guide and updates on cost reductions/liquidity could drive volatility; any evidence of shipment normalization or backlog conversion is positive .
  • Medium‑term thesis: if restructuring delivers and backlog supports top‑line growth in H1 FY2025, margin/cash trajectory could improve; execution risk on yields (Concord QMEMS) and Budd Lake revenue remains .
  • Governance and creditor alignment: lender participation rights in financings and restructuring oversight could shape capital structure outcomes; diligence on warrant terms and anti‑dilution mechanics is warranted .