Good day, thank you for standing by. Welcome to the EMCORE Corporation Fiscal 2023 Second Quarter Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press star one one on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star one one again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Tom Minichiello, Chief Financial Officer. Please go ahead. Thank you. Good afternoon, everyone, welcome to our conference call to discuss EMCORE's fiscal 2023 second quarter results. The news release we issued this 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. 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. Such forward-looking statements include projections about future results, statements about plans, strategies, business prospects, and changes in trends in the business and the markets in which we operate. Management cautions that these forward-looking statements relate 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. The 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. With that, I'll now turn the call over to Jeff. Thank you, Tom. Good afternoon, everyone. In Q2, EMCORE made significant progress in its transformation into an aerospace and defense business. Inertial navigation grew 21% over the previous quarter to $24.3 million, driven by strong performances from our Tinley Park, Budd Lake, and Alhambra FOG operations. Consolidated revenue totaled $26.8 million, which was up 7% from Q1 2023. Aerospace and defense generated 94% of revenue. Inertial navigation was 90%. Broadband overall was 6%. Defense Opto was 4%. CATV represented less than 1.5% of our top line. There were encouraging improvements in the business as it continued to work through the operating challenges of a significant transformation, generating a GAAP operating loss of $12.2 million. Our non-GAAP operating loss and Adjusted EBITDA both remained roughly flat at -$8 million and -$6.5 billion, respectively. Essentially, the improvements in gross margin and revenue in aerospace and defense were erased by the continued erosion of broadband. The restructuring that we announced two weeks ago represents the logical conclusion to the end of the broadband era at EMCORE. As we pointed out in our announcement, we made a determined effort to sell the broadband and Defense Opto businesses, which started last September. We had significant interest, which manifested itself in a signed letter of intent and term sheet, we could not reach a definitive agreement or close the transaction. Historically, EMCORE's board had made numerous attempts to sell the broadband business beginning all the way in 2014, employing different banks at multiple points in time over the past nine years. The inertial navigation business continued to grow both organically and through M&A during the period, finally reaching the point where EMCORE became two distinctly different companies. In this tale of two companies, the inertial navigation and broadband businesses developed with independent personnel and assets. The lone intersection of these two businesses was the indium phosphide wafer fab, which is being shut down as part of the actions we announced. We prepared for this decision by building a significant stockpile of indium phosphide chips for our FOG products. Consolidating our chip making operations for Quartz MEMS and lithium niobate in Concord. In summary, the actions we've taken effectively carve out the assets and other costs in the broadband business from EMCORE without affecting inertial navigation. EMCORE is now a pure play in inertial navigation. This transformation is really just the beginning of the next set of changes in our manufacturing operations. Many of the improvements that we made in automated assembly for cable television that resulted in a reduction in fixed assets, improved productivity, and profitability will now be applied to inertial navigation. Over the next few years, you should expect to see a reduction in the manufacturing floor space we require, a reduction in inventory, and improvements in profitability. Our final objective for broadband is to serve our customers' last-time buy requirements and ensure an orderly exit from the business for customers and employees alike. We are still processing last-time buy orders, believe that the total amount should be approximately $10 million, which will ship over the next quarters or so. Turning now to aerospace and defense. I'll begin my comments by stating that we had strong performance in our Space & Navigation, Tinley Park, and Alhambra operations. Q2's Book-to-Bill was a little low at 0.85. Several significant orders were pushed out due to contracting priorities inside of the DoD. We expect that Book-to-Bill will be approximately 1.2 for the June quarter. Demand was solid across the board, with civil aviation seeing a surprising upswing. We also received orders for new UAV platforms, which are expected to total $5.6 million over the next few months as full funding is released in parts. We also booked significant follow-on business for the Fiber Optic Gyros that control targeting turrets from two important customers. BAE's Armored Multi-Purpose Vehicle program is continuing to pick up momentum as it heads into full rate production. International bookings were strong for turret-based platforms stemming from our strong position in AMPV, CROWS, and Escribano's Guardian 2.0 programs. On the naval side of our business, we received new orders for the next generation Mark 54 lightweight torpedo IMUs, and continue to ship against our strong Mark 48 torpedo backlog. New torpedo programs are emerging, and we are being called in to leverage our expertise in the demanding vibration environments of undersea weapons. On the precision-guided munition side of things, we were slowed down a little bit getting export licenses but are working with our customers to qualify products with less restrictive licensing requirements. Beyond program capture, we are seeing important signs of acceleration in key programs into the low rate of additional production phase, which is a key indicator of long-term growth. In particular, infrared search and track has become a key area of focus, and our multiple design wins in this application stand to benefit. Our IRST product has now achieved an important production readiness milestone with Boeing, Lockheed, and NAVAIR, and we are ramping up production for these important deployments on the F/A-18 Hornet. The Space & Navigation team has built multiple TAIMU inertial measurement units in support of the design, integration, and qualification as it continues to meet shipment targets for board. These two systems are critical to the launch schedule for United Launch Alliance. Our expectation is to complete qualification late in the calendar year to enable significant volume builds and launches going forward. When these products hit full production, they are expected to produce $20 million-$25 million of revenue per year and help significantly improve gross margins. QMEMS had a nice uptick in shipments this quarter. Margin didn't scale quite as well as we expected, largely because of the timing of certain charges, which can be lumpy. As the entire company moves to its new ERP system in the coming months, we expect that these fluctuations will be less pronounced. Before I move on to guidance, I'd like to provide some comments on the recent acquisitions and our integration programs, which are a key area of focus this year. Both the L3Harris Space & Navigation business, as well as the former KVH inertial businesses, are performing well and are clearly accreted. On the integration side of these acquisitions, Space & Navigation is running a common ERP system with the rest of EMCORE and has made the cutover from L3Harris IT systems with resulting reduction in TSA costs. We are expecting the transition for Chicago to complete in the June quarter, but we've already moved the Rhode Island engineering team out of KVH's building and have now switched both the Chicago and Middletown offices over to the EMCORE IT domain. We expect to integrate Kamstar into Concord and Chicago after we complete the ERP upgrades and exit transition services. Ultimately, this will make EMCORE more efficient and will help us improve our processes, cost, and inventory. Turning now to guidance in the current quarter. We expect that semiconductor shortages will slow down production for some products, tamping down growth a bit for inertial nav in the June quarter. Additionally, we are moving forward on our last time builds from a standing start and have not yet scheduled production dates. Excluding these last time buy builds, we expect revenue in the $25 million-$27 million range for the June quarter, of which $24 million-$26 million is the inertial navigation business. With that, I will turn the call back over to Tom. Thank you, Jeff. Consolidated revenue for fiscal 2Q grew 7% on a sequential quarter basis to $26.8 million, despite the soon to be shut down broadband segment contributing only $1.6 million or about half of the already low level for this business the quarter before. A&D segment revenue grew 16% sequentially to $25.2 million. More importantly, inertial navigation, which is the A&D segment without the defense optoelectronic products, grew by $4.3 million or 21% to $24.3 million and was 90% of total EMCORE revenue. All product lines within inertial navigation were up in the March quarter when compared to the December quarter. QMEMS and the Alhambra-based FOG business performed well, and the two most recent acquisitions in Tinley Park and Budd Lake both turned in excellent results. Combined, Tinley Park and Budd Lake accounted for 64% of inertial navigation revenue. Both acquisitions continue to be nicely accretive to the bottom line. Let me now turn to the rest of the operating results, the focus of which will be on a non-GAAP basis. A&D gross margin improved in the March quarter to 24%, up from 22% in the December quarter, driven primarily by the increased revenue. The extremely low level of broadband revenue dragged down the overall consolidated margin to 16%. Operating expenses were $12.4 million in fiscal 2Q, compared to $11.8 million in the prior quarter. The $600,000 increase was largely due to material expenses for development work on FOG programs. On a consolidated basis, the operating loss in the March quarter was $8.1 million compared to $8 million the quarter before. Adjusted EBITDA was flat at negative $6.5 million. Net loss was $8.3 million or $0.18 per share compared to $8.2 million or $0.22 per share in fiscal 1Q. Shifting to the GAAP results for a moment. Fiscal 2Q net loss was $12.2 million or $0.27 per share. This included $1.3 million of transitional expenses stemming from last year's acquisitions and $900,000 in litigation expenses that included a $500,000 payable as part of a settlement agreement. Turning to the balance sheet. We had cash of $24.8 million at March 31st, compared to $24.2 million at December 31st. The $600,000 net increase included $15.4 million in net cash proceeds received from the financing completed in February, offset by the following uses of cash during the quarter. $6.5 million Adjusted EBITDA, $4.8 million for working capital related to normal business operations, $1.4 million for acquisition transaction costs, $400,000 for litigation related expenses, $1 million used for financing activities, and $700,000 for CapEx. Before we get to your questions, I'd like to review several items related to our recently announced restructuring program. This plan includes, one, the shutdown of all of EMCORE's linear optics operations, which consists of cable TV, chips, wireless and sensing, and defense optoelectronic product lines, as well as the closure of the indium phosphide wafer fab. Second, a related reduction in force of approximately 22% of our total workforce or about 100 employees, primarily in Alhambra and China. This action has already begun with expected completion by around the end of July. Third, reducing our facility footprint by approximately 25% by vacating a portion of the space currently in use in Alhambra and Concord, as well as exiting our remaining small facility in China. These actions are anticipated to be completed by the end of September. For severance costs, which we anticipate will be a combination of accelerated stock vesting and cash over time, we expect to record a GAAP charge in the June quarter of around $2.1 million. We also anticipate yet to be finalized GAAP charges for facility consolidation, timing of which will coincide with the dates we actually vacate the various spaces, the bulk of which is likely to happen during the September quarter. From a P&L perspective, once the program is fully completed, the restructuring should reduce costs and expenses by a total of at least $12 million annually and is predominantly attributable to the elimination of broadband. It's expected that the activities related to the shutdown of the broadband segment and the defense optoelectronics product line will eventually be reported as discontinued operations. Timing of this will depend largely on the extent to which we have completed production for customer last time buys. Our results of operations going forward from that point will consist solely of our inertial navigation business, including lithium niobate and quartz chips used in our FOG and Quartz MEMS products. With that, we are now opening up the call for your questions. Thank you. At this time, we will conduct a question-and-answer session. As a reminder, to ask a question, you will need to press star one one on your telephone and wait for your name to be announced. To withdraw your question, please press star one one again, please stand by while we compile the Q&A roster. Our first question comes from Richard Shannon, from Craig-Hallum. Your line is now open. Hi, guys. Thanks for taking my questions. I'm not sure if I have a good sequence of these. Maybe I'll just kinda go rush out over these. Jeff, first question for you is, did I catch correctly that you have not baked any last time buys into the revenue guidance for this quarter? That is correct. Okay. We're essentially at a standing start here. Some of this is gonna require, semiconductors where we don't have the lead times completely squared away. you know, we are looking at a substantial number of chips that are gonna go through the fab, and you've got time for wafer qual and other, you know, things that you just can't speed up. that's why we haven't really baked it in. Okay. Fair enough then. I think you referred to some shortages of components coming in that hurt your QMEMS products. Was it QMEMS? Is that the right one, Jeff? No, actually it isn't. Oh. It's gonna hit us a bit in Budd Lake this quarter. Okay. It's, you know, the sort of thing where you've got circuit boards that were supposed to arrive, end of April, beginning of May, now we're getting June, July dates, for the finished assemblies. If that happens, and we expect it will, it's gonna push some revenue out into the September quarter. Okay. I suspect for most of your products, we probably wouldn't consider these boards to be commodities. Are these specialized in some way? Can you describe the constraints, and there's just something that's kind of a one-time thing, or do you have continued risk from this? You know, there's certainly nothing you can read into it. If, if I had to guess, it would be FPGAs because they've been exceedingly difficult, and there's probably some Hi-Rel components in there. That's just, you know, call it an educated guess. Okay. All right. Fair enough then. Maybe kind of a two-part question. I know you said this on the last earnings call, you just repeated here today about expecting a Book-to-Bill of about 1.2, I can't remember if this was referring to A&D in total or just in the INS business. Can you kinda give us a sense of where these bookings are coming from and what kinda lead times do those come before they hit the revenue line? When you say lead times. Oh, I follow you. Okay, time to build. Some of it you'll actually see virtually immediately as soon as the orders are less because they're for products that are normally rolling through the assembly lines. You know, it's a wide variety of things. I'll give you an example. One of the drones that we got a big win on, and there are a couple, we got only about a third of the order that we were expecting. You know, as we talked to supply chain in our customer, they said, "Hey, you know, we just haven't had all the funding released from the particular branch of the service that buys these things." That's just sort of common. What you're seeing to a degree is just jockeying around of dollars, partially because of, you know, the way that expenditures are set up for the Ukraine, right? It has caused a bit more reshuffling of dollars than normal, but we're not expecting this to be a long-term thing. Okay. That's fair enough. maybe a couple more questions from me, I'll jump out of line here for a bit. Yeah. You talked, you know, a fair amount about the TAIMU program and I re-read your comments from last quarter about hopefully qualifying by the end of this year and getting to a nice run rate, hopefully, at some point, after that for at a very healthy level. Maybe in the interim here, how do we think about kinda the progress here over the next few quarters? I think you've mentioned in the past, hoping to get to a break-even point, which I believe you're looking at somewhere in the $30 million range or a little bit more. How do we think about the kinda linearity and, and the kind of the source of drivers here from your guidance to getting to that break-even point? Do you think it can be by the December quarter, or if not, when do you kind of foresee that happening? Yeah. Well, We'll answer this in parts. I'll give the second part about break even to Tom. Essentially, you're already starting to see it. The TAIMU program is currently being run on time and materials. Then on top of that, there is additional, an additional contract for us to buy long lead materials for, you know, call it roughly the first year's worth of production. That's pretty significant amount of money. It's, I don't know, $8 million-$9 million, something like that. What you're seeing is some of that material coming in, it will become units next year, even though we don't have the purchase orders for the assemblies now because the final price won't be set until we're done with qualification. You'll see it return to a normal sort of, hey, we're gonna order X number of these, and there's a fixed price associated with them. What you're gonna see over the next couple quarters, and I had mentioned this before, but I didn't provide a lot of explanation, is a nice gradual ramp. That ramp is going to come from first, you know, let's call it, material purchases, increased amounts of activity, time and materials engineering and manufacturing engineering, ultimately the assembler and technicians over the next two quarters. You're not gonna see a step function in this. Those are the things that you're looking for. Again, when you think about it, though, and you say, "Okay, well, EMCORE's already out buying," and this is, under contract with Space & Navigation and ultimately the ULA, is already out buying long lead materials that go all the way through 2024, I think that's a pretty strong indicator of where the program is. Fair enough. That's, that's good explanation there. A couple of quick questions for Tom, and I'll jump out of line here. First of all, what kind of shares outstanding are you expecting for this June quarter? As you get increased sales within either the A&D or INS business, whichever you wanna refer to, what kind of margin fall through should we see there? Oh, Richard, was the first one shares outstanding by June? Yes. That, this quarter, you could see it's an average because of the shares that we issued in February. When it's all done, you should be around 53.5 million shares. Okay, great. Okay. on the incremental- Uh, because- margin fall through? Yeah. Yeah. You know, we moved from 2022 to 2024, on, you know, over $4 million in increase in revenue at A&D. And that jump in margin probably would have been a little bit better than that had it not been for some other items that Jeff alluded to in his prepared script. You know, with growth in this quarter, not as much as last quarter, but, still growing, you're looking at, you know, high 20%, you know, 27%, 28%, in that range, all other things being equal. The key. By the way, that's for inertial nav/A&D. That's not for the consolidated company. Yeah. The other piece, then, Richard, I think you were asking about was the break-even point change relating to the restructuring and how that all plays out. I get that right, Richard? That certainly was a question of interest for me, yes. It's, you know, lower. After all the restructuring program is completed and we are a strictly an inertial navigation business, the, you know, the OpEx profile changes. You know, what used to be, call it, roughly about $11 million in gross profit needed to overcome OpEx, net of depreciation, that's now lower to, call it, nine and a half, somewhere in that range. I think if you did, you know, just over $30 million, call it $31 million in revenue and just over 30% in gross margin, that math would get you to a break-even point for Adjusted EBITDA. Okay, perfect. Thanks, guys. I will jump out of the line. Thank you very much. We're going to give it a few more seconds. If you have any questions, that's star one one on your telephone. One moment, please. Our next question comes to us from Brian Kinstlinger of AGP. Your line is now open. Hey, thanks for taking my questions. On the semiconductor shortage at Budd Lake, what is your confidence level that this won't impact the September or December quarters in a negative way? First of all, it's not the same thing. You know, this is. Well, same thing. We think it's an isolated incident. It's not like the manufacturers come back and said, "Well, you know, what we told you was, you know, 40 weeks is now 80 weeks." It's not that at all. It's two cards with a couple of common parts that have been pushed by two months. This is, you know, when I say it's an issue, now we're talking about, you know, something in the order of half a million to $1 million worth of revenue. If that would have occurred in the June quarter, you know, you'd be looking at roughly 10% quarter-over-quarter growth or something like that. It's just not gonna be quite that much because, you know, you got visibility to knowing exactly what needs to ship, exactly when it needs to ship. We're looking at, you know, the material that's in circuit boards, and it just is what it is, right? I mean, I'm not the only guy talking about this. Sure. Moving on to precision-guided munition, you touched on that on the international piece. Yeah. I know you had a large order that you shipped in December, and you had talked about. Mm-hmm ... at that point, opening doors to larger orders, both internationally and domestically there. That you were qualifying your SDI170 with other defense contractors. Maybe if you can provide some progress you're making there would be great? Progress is fine. Again, what we said, and we talked about domestic, was domestic in terms of Turkey, where Aselsan, Roketsan and TÜBİTAK, they have a different set of requirements for their internal programs, i.e., feeding the Turkish military and what they are allowed to sell in the outside world. We're qualified for export right now, and there's actually been some large opportunities for us. Even though we do not carry the most restricted form of license, which is ITAR, the Commerce Department has gotten some pushback from State. Some of the EAR licenses that we were expecting to get, the business is ours. They just haven't come through. We don't have a hard no on a couple of them, but, you know, we keep pushing out the dates and, you know, working the problem. The potential solution is to go to a product that does not require a license. We have one that is right underneath the spec at which licensing is not required. That's the one that we're working on to replace the units that we've been working with. I, you know, it's just a licensing thing. It happens in certain parts of the world. Countries that were our friends before, you know, administrations change, and their idea of who friends are changes. We just have to live with it. Great. Thanks. one follow-up, and last one for me on TAIMU. You gave us some great details, and it's great to see that you are ordering for product through 2024. You talked about milestones that you were gonna expect to achieve in March. Can you share an update on those milestones that were hit and any details on them? Or are you able to? The only thing that I would say is that we're expecting to reach or hit our Critical Design Review, roughly in August. We're expecting to have integration complete by then. That's the next one to look for. Great. Thanks very much. Welcome. Thank you. Please stand by for our next caller. Our next question comes from the line of Richard Shannon with Craig-Hallum. Well, hi, guys. A couple big picture questions for you, Jeff. Yeah. First one, I'd love to get your sense of kind of the evolving, you know, geopolitical situation, especially as it impacts the U.S., DoD budget and also, internationally, if you think that's relevant, and kind of the impacts, positive or negative, that you see with your portfolio today. Wow, great question. You know, the way that I see the current budgeting situation inside of the DoD is there's just a lot of scrambling to reorient plans because, you know, when you talk about, you know, support given to foreign countries, usually tends to come right out of the stockpiles of the U.S. military. Later on, they have to figure out how they're going to replenish it. It's not like a case where, let's say, the U.S. government offers $10 million in aid to Ukraine and somebody's out there writing a checkbook. No, they're counting the value of things that are essentially sent to Ukraine, and then later on figuring out how to pay for replacements. It's, you know, there's a lot of noise, there's a lot of shuffling around, I'm not sure that I would read anything more into it than that. It just creates some short-term problems that push orders from one quarter into the next. It, you know, it just is what it is. Beyond that is, you take a look at the heightened sense of preparedness that I see when I go out and talk to international customers. When I look at, you know, who is interested in what, I think that overall the spending, let's call it backdrop, is going to be more aggressive. The sorts of things that our, not just NATO countries, but major non-NATO allies like, you know, for example, Taiwan, the things that they're interested in, the number of them are only going up. The challenge is that, you know, for several of us that are sitting in the critical path of some of these things, is to find a way to get the supply chain, the whole supply chain, because we are part of larger weapons systems organized to be able to supply that. I think that the budget environment in general is very strong for products like ours. It's interesting when you take a look at. I'll give you one example. You take a look at the amount of GPS jamming that is going on in the Ukraine. You know, the smart guys over in the Pentagon have taken a hard look at this and have extrapolated that to, well, what might happen if China decides to be more aggressive toward Taiwan. I think that's resulted in a lot more emphasis on finding solutions in the inertial navigation space where GPS denial is not a problem. Overall, you know, there's the rising tide that lifts all boats in this area is certainly at play, but in inertial nav, I think even more so. Okay. great thoughts there, Jeff. As we see this political football happening with our budget deficit, do you have any experience and what are your thoughts here on whether we get some if we get some sort of shutdown or even get close to it? Are there impacts to funding? Like I think you mentioned in some other programming, all the funding wasn't released. Do you see any potential issues from that happening here in the near term? Well, you know, the game of chicken that constantly goes on with budgeting between, you know, three branches of government and well, usually two of them, is certainly of concern. I doubt that either side of the aisle wants to see something like that happen. It would certainly be concerning if it did. I can't imagine it would go on for very long. A solution would be reached, especially in light of what's going on in the banking world right now. You know, putting U.S. credit worthiness on the line at a time like this, I can't imagine someone with a rational mind wanting to do that. You know, this is politics. I don't have any well-formed thoughts, Richard, about how it would affect us. I think the overall concern about certain countries becoming more belligerent is going to outweigh most other factors in that analysis though. Okay. All right. As always, I appreciate those thoughts, Jeff. I think that's all for me. I'll jump on along again. Thanks a lot. Mm-hmm. Thank you. With that, I would like to now turn it back to Jeff Rittichier, Chief Executive Officer, for closing remarks. Thank you. I'd like to thank all of you for your interest in EMCORE. I do wanna close my comments with a little bit longer set of points than I normally would. That relates to our broadband team. You know, the broadband team really led the way in Hybrid Fiber-Coaxial technologies that allowed the world's cable networks to grow from simple, you know, radio-based systems into the backbone of internet services around the world. EMCORE's Linear EML became the de facto standard for advanced CATV networks. When COVID started to shut down everybody, network providers turned to EMCORE to upgrade the transmission networks that really made work from home a reality during the pandemic. Linear EML technology allowed the company to capture business from our competitors, generate significant profits and cash flow that allowed the company to make this transition to aerospace and defense, giving EMCORE a bright future. To our broadband team, I would simply say thank you all for your hard work and creativity through the years. Tom and I wanna wish you all the best of luck in your future endeavors. That's all. Thank you for your participation in today's conference. This does conclude the program. You may now disconnect. Thank you. Thank you.