EMCORE Corp (EMKR) 2020 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by, and welcome to the EMCORE Corporation Fiscal First Quarter 2020 Earnings Conference Call. (Operator Instructions) As a reminder, today's call is being recorded.

At this time, I would like to turn the conference over to Erica Mannion of Sapphire Investor Relations. Ma'am, please go ahead.

Thank you and good morning, everyone. 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 our business. Such forward-looking statements include, in particular, projections about future results, statements about plans, strategies, business prospects, 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 our 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 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 in the business that are included in the company's filings with the U.S. Exchange Commission that are available at the SEC's website located at www.sec.gov, including 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 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 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 at the end of our earnings press release included as Exhibit 99.1 to the Form 8-K we furnished to the SEC yesterday. These materials can also be found in the Investors section of our website at www.emcore.com.

With me today from EMCORE are: Jeff Rittichier, President and Chief Executive Officer; and Tom Minichiello, Chief Financial Officer. Jeff will begin with a review of the first quarter and business highlights, and Tom will review the financial results before opening the call up for questions.

I'll now turn the call over to Jeff.

Thank you, Erica, and good morning, everyone.

EMCORE delivered solid results for the quarter with revenue of $25.5 million split between Aerospace and Defense at 54% of revenue and Broadband at 46%. Cable television was 37% of revenue. More importantly, non-GAAP gross margin rose to 30% in the first quarter, an increase of 11 points over the prior quarter, driven primarily by the impact of cost improvements in our Quartz MEMS and Defense Optoelectronic product lines and the impact of restructuring activities that we announced last quarter related to the Alhambra wafer fab as well as a favorable product mix. When combined with the operating expense reductions realized in the fourth quarter, we achieved breakeven on an adjusted EBITDA basis 2 quarters ahead of plan. While we're happy with the progress we've made thus far, we're taking additional steps to lower our costs, improve operations and grow our top line.

Within the Aerospace and Defense business, customer demand and new program wins remained strong. The QMEMS navigation products from our Concord facility continue to see strong demand in the U.S. The upcoming release of non-ITAR versions of the SDI500 inertial measurement unit for sale outside the U.S. market remains on track, and we look forward to sampling it to both European and Asian customers as soon as we get the paperwork completed likely in fiscal Q2.

With the first Boeing 777X flight now completed and the GE engine problems apparently resolved, we also expect that production will commence in the coming quarters for that new aircraft.

We're continuing our design efforts on new higher performance QMEMS products and are excited to see that these products have a larger market opportunity than we expected. Specifically, we're working on next-generation designs that extend our reach across a larger portion of the $820 million tactical-grade market and into the edges of the $410 million commercial-grade market. These products are designed for harsher vibration and temperature environments than FOG-based IMUs, addressing additional applications rather than competing with FOGs directly.

Investments in our FOG products continue with 5 major product development programs expected to launch into production this year. These products span applications ranging from tactical-grade munitions guidance to components used in spacecraft. While the timing of production launches is driven by completion of customer qualification processes and flight tests, we're currently engaged in programs that should triple our FOG business over the next few years. Beyond that, we're tracking additional business that will ensure that our navigation products grow substantially beyond that.

Our Defense Optoelectronic business also continues to perform well. We continue to see strong orders for our shipboard high-frequency products and expect to announce new advanced Q&V band satellite data links for low-earth orbit satellites at an upcoming show.

As we discussed previously, we have good visibility within our Aerospace and Defense business, with Defense Optoelectronic products booked out several quarters and QMEMS products booked in multi-quarter or yearly purchase orders. Our FOG production programs booked in quarterly and yearly chunks as well, while nonrecurring engineering contracts for new programs can at times be lumpy based on milestones and prototype delivery schedules.

Since the QMEMS and Defense Optoelectronic products are the most mature and have the greatest percentage of production programs, these product lines have the best visibility. However, as the FOG programs transition from development to production, we expect that the entire business will reach multi-quarter visibility as well.

Within the Broadband business, demand for cable television products improved sequentially during the quarter, however, remained at lower levels given the continuing softness in MSO spending. Compared to the prior quarter, the mix of products within cable TV shipments was margin rich. This helped to improve margins in the quarter. As we remind investors every year, the March quarter outlook for cable television is always the lowest of the year, anywhere between 15% to 20% down from Q4 due to weather-related issues and MSO CapEx release schedules. Thus far, we have not seen indications of a notable change for this historical trend.

Demand for our other Broadband products, notably chips and wireless, grew quarter-over-quarter, albeit off of low volumes. We continue to see growth opportunities in the quarters ahead for these product lines. However, given their respective scale, we do not expect them to be material growth drivers of the business over the next few quarters.

Moving on to our cash and profitability improvement initiatives. First, with respect to the cable TV restructuring activities, we announced last quarter, namely the reduction of fab operations to one shift in R&D expense reductions, we realized the full impact of these improvements in the first quarter, which helped contribute to both our gross margin and operating margin improvements. Tom will expand on this in a few minutes.

Second, with respect to our transition to EMS manufacturing with Hytera, this initiative remains on schedule to finish at approximately the end of the March quarter. A complete set of transmitter qualification samples were built and submitted to customers during the December quarter. All of the transmitter manufacturing equipment has been shipped to Thailand on schedule. Going forward, but subject to final product change notice approvals by customers, we are no longer planning to produce transmitters in China. The first of 2 laser module manufacturing lines was shipped and installed last quarter, and the module build and qualification process is underway.

As I pointed out last quarter, the gating activity on this action is largely driven by the number of hours that qualification samples must operate before passing qualification criteria. Once more, I wanted to remind investors that we must keep the Beijing facility operating in parallel to ensure that we can shift products without negatively impacting revenue. We expect this to have a negative impact on margin in the second quarter as we will, in essence, be running 2 facilities while the transition is completed.

We're also mindful of the recent coronavirus outbreak and its impact on travel as we work to fully transition operations to Thailand. I'll discuss this in more detail as I cover guidance.

Barring any delays outside of our control, we expect to see the benefits of the transition in the third fiscal quarter.

Lastly, regarding my earlier comment about cost cutting efforts, we've taken additional steps to further improve profitability. Last week, we executed additional restructuring efforts that included 3 actions: redesign of some of the wafer fab workflow and scheduling to allow for further headcount reduction; two, we took advantage of additional synergies with the SDI integration; and three, shed some additional personnel and R&D. Tom will provide you the details on the cost savings and timings in his remarks.

Taken together, and as evidenced by the progress we've made in the first fiscal quarter, we believe we're on a clear path to deliver sustained positive EBITDA starting in the third fiscal quarter, followed by profitable top line growth as our new programs in Aerospace and Defense begin production.

Moving on to guidance for the second fiscal quarter. I'd like to expand on my concern about the coronavirus outbreak in China and possible impacts to the business. We're at a critical juncture in our transition, and schedules depend on the availability of our personnel and their ability to travel freely within the boundaries of our supply chain. To that end, we were happy to learn that all of our Chinese personnel are healthy and unaffected by the coronavirus thus far. One person that may have been exposed is taking measures to ensure he's not affected before returning to work.

Because of travel difficulties, we are scheduling a 1-week delay in the reopening date for our Beijing facility, now February 10, and suspect that we'll experience modest delays due to travel restrictions both inside and outside of China. Many of the major airlines have announced overall service reductions as well as stringent restrictions on travel from China. This may have an impact on the timing of the EA shutdown if line audits and PCNs need additional work to complete. Furthermore, if our raw material supply chain is affected or we have to respond to late orders in the quarter, which is common in Q2, it could negatively impact revenue.

In summary, we're cautiously optimistic about the state of production in Asia but recognize that the Chinese situation is fluid and unpredictable. Consequently, we're taking a more conservative view and expect revenues to be in the range of $23 million to $25 million, down slightly from Q1.

With that, I will turn the call over to Tom.

Thanks, Jeff, and good morning, everyone. Before getting into the results, last quarter, I noted that EMCORE has been working to diversify its end market exposure. Starting in fiscal 2020, we have aligned our reporting into 2 segments to reflect the strategic focus and the manner in which we are now managing the company.

As a reminder, the product lines that comprise each of the 2 segments are as follows: first, Aerospace and Defense, which consists of the Quartz MEMS navigation products acquired with last year's SDI acquisition; our internally developed FOG navigation products; and Defense Optoelectronics. Second is our Broadband segment comprising cable TV, chips and wireless.

So let's delve a little bit over the 2020 fiscal first quarter results. Revenue was $25.5 million, an increase of $1.2 million or 5% when compared to the $24.3 million in the 2019 fiscal fourth quarter. The revenue growth was driven by a $1.5 million increase in our Broadband segment, offset slightly by a $300,000 decrease for Aerospace and Defense. Within A&D, Defense Opto revenue was up double digits, and Quartz MEMS revenue also grew sequentially. Offsetting these increases in A&D was lower cloud revenue. Within Broadband, the revenue increase was driven by higher sales across all product lines, cable TV, chips and wireless.

Non-GAAP gross margin was 30% in the first quarter, up significantly from 19% the quarter before. The primary drivers that netted the 11-point improvement included prior quarter physical inventory adjustments and navigation production yield issues that did not repeat this quarter, borrowing costs and mix improvements that boosted margins within A&D's, Defense Opto and QMEMS product lines, wafer fab cost reductions within Broadband that helps lower overhead costs under absorption, and also within Broadband, a more margin-favorable cable TV product revenue mix.

As a result, at the segment level, the non-GAAP gross margin for A&D improved to 33% this quarter from 21% in 4Q, and Broadband's gross margin also expanded to 26% this quarter from 17% the quarter before.

Moving on to operating expenses. Non-GAAP OpEx improved to $9.4 million from $12.4 million in the prior quarter. While there were numerous factors impacting expenses that resulted in the $3 million net improvement, the primary drivers included a significant decrease in R&D material expenses for projects related to the development of our new FOG products. The remaining full quarter impact of the previously announced reductions in Alhambra associated with our cable TV business and nonrecurring professional service fees incurred in the quarter before. As a result of these factors as well as tightened expense management company-wide, we reduced sequential quarter R&D expenses by $1.8 million or 29% and SG&A expenses by $1.2 million or 20%.

At the segment level of our total 1Q non-GAAP R&D expense of $4.5 million, Aerospace and Defense and Broadband were 87% and 13%, respectively. Increased revenue, gross margin expansion and better OpEx all combined to drive a substantial sequential quarter improvement in our operating results. For 1Q, our non-GAAP operating loss was $1.8 million compared to $7.7 million in 4Q. Adjusted EBITDA, which is our non-GAAP operating loss with depreciation added back, was positive $200,000 compared to negative $5.7 million in the quarter before.

As Jeff noted, we have taken additional actions to further improve our operating performance. Last week, we finalized a new restructuring plan designed to save $4 million annually, including additional OpEx synergies in R&D and SG&A across the Alhambra and Concord locations, as well as further wafer fab efficiencies in Alhambra. These reductions are scheduled to be implemented in phases over the next several months, and we anticipate all actions to be fully completed by June 30. This restructuring plan is expected to result in a fiscal 2Q charge of approximately $450,000 to cover severance costs.

Turning to the balance sheet. Cash totaled $15.4 million at December 31, 2019, compared to $22 million at September 30, 2019. Net of short-term borrowings of $4.5 million at December 31 and $5.5 million at September 30, our cash used during 1Q was $5.6 million, broken down as follows: $4.5 million was paid in conjunction with the Phoenix litigation matter; $3.4 million was used to fund business operations; and $2.3 million was received from the sale of cable TV production assets.

To update you on the marketing of our Concord facility that we acquired with the Quartz MEMS business last year. As announced in early January, we entered into a purchase agreement for a sale-leaseback transaction that is now expected to close on February 10 and to net as cash proceeds of approximately $12.8 million.

With that, we'd like to now open up the call for your questions.

In closing, I'd like to thank all of you for your time this morning and your interest in -- actually, I'm sorry, I jumped the gun. It's time for questions.

(Operator Instructions) Our first question will come from Jaeson Schmidt with Lake Street Capital Markets.

Jeff, I just want to start with a clarification on one of your earlier comments. Did I hear correctly, you expect the cable business to be down 15% to 20% here in March?

Historically, that's been the trend. Every year, Q1 is down from Q4 -- calendar Q4. So it drops down, and then it climbs throughout the year, sort of looks like it's sought to. And that seasonality goes back 20 years. So historically, that's where the trend has been. Whether it's 10%, 15%, 20%, it's just a little too hard to say at this point. But cable is always down in calendar Q1.

Okay. Understood. And then I know the situation is fluid, but can you help us try quantifying the potential impact here in March from the coronavirus and some of the travel restrictions that you're seeing?

Yes. So what's happening in Thailand right now is there are restrictions on personnel traveling directly from China, okay? And if you've been in China within a 2-week period, I believe, the travel restrictions are pretty significant. So we have scheduled line audits and -- with a couple of our major customers in cable television, and we're going to have to support those efforts with personnel from the U.S. And we don't have a perfect match with the headcount reductions between the manufacturing engineers that still are here inside the business and the need of -- for the line audit. So it's a tougher situation than we'd like. And it's the sort of thing, well, where if a customer comes back and asks for additional samples to be made or there's a discrepancy in the audit that gets revealed, we need to address that, and it can -- more than anything, what's likely to happen is it would affect the actual shutdown date of EA. But depending on the small amount of residual capacity that we have here in Alhambra to produce certain things like laser modules, we could get caught not being able to produce everything that would be ordered for the quarter. And so that's why we're striking a note of concern. So it's -- if anything happens, it's temporary. It could move things around maybe a month or 2 in terms of actual dates and time for everything to be completed. We've got a plan to support these efforts from the U.S., but we just don't have a whole lot of folks here to do it. So we're being cautious about it. I mean we've seen a pretty significant set of restrictions emerge from China -- or emerge from companies -- countries surrounding China, and we need to be mindful of that.

Okay. That makes sense. And then the last one, and then I'll pass it. It seems like operating expenses in December came in better than what you guys had expected. With the previously announced restructuring and then this new round of restructuring, how should we think about sort of the pro forma OpEx level here in March?

So Jaeson, Tom here. I think in March -- let me put it this way. I think going forward, we're going to hold the line at the current level. We're at $9.4 million this quarter. And in fact, over time, let's say, another couple of quarters out, back half of the fiscal year, we'd like to drive that down further in part due to the new reduction that we just spoke about.

Getting to your specific question about the March quarter, we may not see that much of a change between quarters because the restructuring is going to happen in phases, and much of it gets completed at the end of June. And we also had some kind of onetime credits this quarter that won't repeat, but that could wash out with reductions we're taking company-wide just in the normal course of managing expenses. So look for us to hold the line in the short term next quarter or 2, but I expect it to go down back half of the fiscal year.

Yes. So Jaeson, everybody's been notified, but not everybody rolls off because there are certain things that have to be completed before the full impact of the changes fell.

(Operator Instructions) Our next question comes from Tim Savageaux with Northland Capital.

Congrats on the results for the quarter, at least in terms of the margins and the EBITDA breakeven. And maybe I'll start there. Obviously, you're cutting down a bit and be big kind of back in the loss position here. And maybe you mentioned this in the commentary, but I guess any revised thinking on -- especially given the OpEx decline sort of timing to reattain EBITDA breakeven or profitability, however, you want to go about it, on the one hand. And then I just want to sort of focus back on the drivers of the top line guide, cable TV seasonality. Understood, it looks like, by itself, that's the delta in terms of sequential declines, but are we seeing a situation where maybe growth on the Defense side of the business is blunted by the China issues? Or is that only impacting cable? And then I'll follow up.

Yes. So a couple of things. The -- all of the Defense products are made in the U.S. So there's nothing going on in China that has any impact on the Defense business, either Quartz MEMS, FOG or the Optoelectronics piece. Yes, we're essentially looking at cable as the cause or principal culprit, if you will, for softness in the quarter. The challenge is just predicting the net impact of a whole bunch of really big changes. And if -- for example, I mean, we've already lost a week with the reopening of Beijing just due to travel difficulties, and I don't think that's going to go away. So we're going to be cautious with the cable TV piece.

As far as overall profitability goes, certainly, Q3 is -- we're expecting to have adjusted EBITDA positive quarter. Could we get there in Q2, a whole bunch of things would have to line up in a positive direction that we just can't count on given some of the uncertainties. It's just small changes in timing could push us a couple of hundred thousand bucks in one direction or another easily in 2 or 3 [that you can] file up, well, it isn't as favorable as we would like it.

But by the same token, with the expense controls and now [eliminating] a lot of the under absorption problems that we see because -- in China, for example, we have been taking down headcount as equipment gets shipped. So it's not as though the shutdown of EA is a binary event. It's not. The largest chunk of expense in EA that remains is the manufacturing, engineering and supply chain team that really run that business. And so until the transition is complete, you can't take any actions on the professional headcount side of things because you've got to make sure you can ship. Otherwise, you have a very, very big problem.

Did that answer your question, Tim? Did I miss anything?

No, that's good. And I would follow up on kind of top line trends on the Defense side of the business and the new segment reporting, much appreciated, by the way, and very helpful. And that is, you saw sequential revenue declines in the December quarter, a little bit of a surprise. You mentioned the FOG decline, but was that anticipated, I guess? Or just any color there would be helpful.

And as we head forward, it doesn't seem to be any offset from growth in Defense modeled into the March quarter, or is it the case that any of that growth is kind of offset by the greater-than-seasonal cautionary aspect of the cable TV guide from the China issues?

Sure. So if you sort of go back to my prepared comments, and I'll give you a little color on the FOG piece, in particular. Prepared comments are that we talked about good multi-quarter visibility in Defense, Opto and QMEMs. And the reason for that is you've got production programs where orders are released in very large chunks. And on the FOG side, there's only a handful of production programs at this point. Now we had done a whole bunch of sponsored R&D programs last year. These are the 5 projects that are in the process of making their way through qualification, flight testing, whatever you want to call it, in the case of the airborne platforms, at least. And the thing about these qualification tests, the Defense -- they're very expensive to do. And so Defense primes do them in blocks. So for example, the test program that we're on in one particular case includes a whole bunch of upgrades in the software. Actually, there's a mechanical upgrade for parts of the turret. And so the testing doesn't take place until all of those things are ready. And if the ground tests are delayed, then we get pushed out. We had no control over that. So what's happening in the FOG world is that as the nonrecurring engineering programs that we took 2 years ago, 1 year ago, in some cases, become prototypes, you have a choppy period where you're not going to be smoothly transitioning into larger volume production where it gets very, very predictable. And that's just the period we're in with FOGs right now. It's a little unusual that there's so many of them, but it sort of reflects the way that those programs came in because they tend to be -- they came in together in a group of 3 within a few months of each other. And so what we're going to expect to see as the various projects get through flight tests and qualification that the whole thing smooths out, you see a more predictable trajectory on the FOG side of the world. So it's really nothing that we didn't expect. We're not able to control the schedules for these blocks of changes that get qualified together. So that's the source of it all.

Did that answer your question, Tim?

Okay. Sure. For next quarter, in particular, so it's fair to say you expect kind of, I guess, a flattish outlook for the Defense business?

It's just a little bit too early to say. There's a couple of programs where we may start to get to some production orders, and we're prepared to deal with that. But we're going to be conservative this time because -- partially because cable TV has a few more issues that slow us down. We don't want to drop below the midpoint of the range if we can avoid it at all. So it's an overall hedge. Tim?

Did we lose Tim?

I think we may have lost Tim.

Let's move on to our next question. Our next question comes from Dave Kang with B. Riley FBR.

First, I may have missed this, but then -- so gross margin of 30%, that's about 2 quarters ahead of the plan. Can you just talk about maybe your end of the year fiscal fourth quarter, what that gross margin might look like, what your target is?

Yes. Dave, it's Tom here. So I think back half of the fiscal year, we're expecting and forecasting in our plans that that margin and maybe even a little higher than that. If you look now at the segment reporting, you'll see that the quarter we just reported on, A&D was 33%, Broadband was 26%. So if you take the revenue weight, we ended up at 30% for consolidated. Back half of the year in A&D, we can hold that margin, in fact, with higher volume and can improve upon that. And then certainly in Broadband, once we get through all the EMS outsourcing in Asia, and we talked about that on the last call, that the Broadband margins can also begin to approach that 30%. And all of this is dependent on mix in both segments and in total. So that's what we're planning our business around and expecting to see in the back half.

Now in the next quarter, we may see something different because we're transitioning out in Asia. We did have a very rich favorable margin -- a mix in the margin this quarter, and that can change in any given quarter. But the trend line is 30% or better and improvement on both segments.

Dave, let me give you one other little piece of color on Tom's comments about margins because one of them is sort of under the waterline in terms of its visibility. One of the important things that happened last quarter is that the product sales matched up very well with the costs and where they're incurred, okay? So for example, if we would have an uptick over in an area where we have EMS as the manufacturing arm, then the results wouldn't have been as good because the underabsorption, if you will, in our own assembly facilities wouldn't have been dealt with so efficiently. So think of it this way, that as the costs come down as we get to EMS, we fully decoupled the P&L from this effect. But in the current quarter, a slightly more cable TV rich mix, if we were to get lucky, would have an outsized impact on the amount of absorption, right? So you got to dismantle the costs to get rid of the absorption issues. And in Q4 -- in Q1, I'm sorry, it was a favorable condition, okay? Does that make sense?

Yes. And then my second question is on OpEx. Tom, once again, you said you guys are planning to drive down further. I was wondering if you can just quantify that.

Sure. So I think it's a $9.4 million this quarter. We had some onetime credits in there that without that, it would have been a little higher, but still a dramatic improvement with all the reductions we're doing in the restructuring plan and just in general. And so call it a little higher than that on the current run rate. But within the new rep and continued focus on expenses over time, we should be back to this $9.4 million number, if not lower. There's another variable here that could swing it one way or another, and that's the project cost material for R&D. That was a big reason why it came down dramatically quarter-over-quarter, but we still have some of that in the numbers. So to the extent we can further reduce that, we can get down to like a $9 million number quarterly for non-GAAP OpEx.

Yes. David, it sounds like you may have gotten on the call just a little bit late. I think the key point here is there's about $1 million a quarter in expense reduction that's going to roll off over the next 2 quarters. So that's the sum total of the new changes.

Got it.

I don't know if you actually referred to that.

Got it. And my last question is you talked about Broadband or more specifically cable TV seasonality. Can you just talk about A&D seasonality?

Yes. It tends to be -- okay. So I'm going to have to break it up into a little bit of -- give you a little granularity. So this is the first year that SDI had become part of EMCORE, and they had finished up their fiscal year in -- traditionally in the calendar Q4. And because of that, they tended to have, let's call it, the push in the last minute to try to bring in all the revenue in Q4. We've essentially discouraged, call it, the pull-ins. And so the Q4 number to Q1 number has a bit of, let's call it, a seasonal component, but it's not real. It's just because of the historical calendar Q4 position with respect to fiscal. So there really, in truth, is not a lot of seasonality in QMEMS, if any. And in Defense Opto, there's really none. FOG, there's also really none, right? Occasionally, on the government fiscal year, you could have a customer that is looking to push out a few orders because they don't want to be stuck with inventory or pull in a few things if there's -- if the acquisition is being done with their capital dollars for test set. And sometimes that happens. But by and large, the A&D business is decoupled from seasonal fluctuations. There's a teeny bit of it this quarter just because we got to sort of wash it out of the system. But again, it's not a real seasonal component. The only place where we have that is cable television.

Got it. So to summarize, I mean, without this corona impact or uncertainty, typically in the current March quarter, Broadband will be down, but then A&D will be up typically or flat?

Again, there's no seasonality between them. So there's -- it's just little tiny -- relatively small movements in -- when customers want things. The only guy that's pushing the seasonality is cable. And the coronavirus right now, I mean, it hasn't affected our people. Where it's likely to hit us is our ability to travel to finish up the transition. What's the cost? I don't know, maybe a month or 2 and possibly limits our ability to respond to last-minute orders. But we're not seeing this as, let's call it, a disaster unless something changes that we're completely unaware of. And I will tell you, we're talking to our people every night. So it's just a bit of caution in the current quarter, but we should see a smaller effective seasonality going forward just because cable is becoming a smaller part of the company.

Thank you. At this time, I will turn the call back over to Jeff Rittichier for closing remarks.

Yes. So now I get to make my closing comments. I want to thank everyone for waking up early this morning and their interest in EMCORE. And I'd also like to acknowledge our employees and thank the team for their hard work and commitment. I think they did a very good job in Q1, and it's reflected in the results. Thank you, everyone.

Thank you. Ladies and gentlemen, this concludes today's teleconference. You may now disconnect.