emkr-20221231

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
			For the quarterly period ended December 31, 2022
or
☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
			For the transition period from ___ to ___

Commission File Number: 001-36632

EMCORE Corporation

(Exact name of registrant as specified in its charter)


New Jersey						22-2746503
(State or other jurisdiction of incorporation or organization)						(I.R.S. Employer Identification No.)

2015 W. Chestnut Street, Alhambra, California, 91803

(Address of principal executive offices) (Zip Code)

Registrant’s telephone number, including area code: (626) 293-3400

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol	Name of each exchange on which registered
Common stock, no par value	EMKR	The Nasdaq Stock Market LLC	(Nasdaq Global Market)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☑ Yes ☐ No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☑ Yes ☐ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. ☐ Large accelerated filer ☑ Accelerated filer ☐ Non-accelerated filer ☑ Smaller reporting company ☐ Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes ☑ No

As of February 6, 2023, the number of shares outstanding of no par value common stock totaled 38,069,548.

Table of Contents

EMCORE CORPORATION

FORM 10-Q QUARTERLY REPORT

TABLE OF CONTENTS


		Page
	Cautionary Note Regarding Forward-Looking Statements	4
PART I.	FINANCIAL INFORMATION	6
Item 1.	Financial Statements (Unaudited)	6
	Condensed Consolidated Balance Sheets as of December 31, 2022 and September 30, 2022	6
	Condensed Consolidated Statements of Operations and Comprehensive (Loss) Income for the Three Months Ended December 31, 2022 and 2021	7
	Condensed Consolidated Statements of Shareholders’ Equity For the Three Months Ended December 31, 2022 and 2021	8
	Condensed Consolidated Statements of Cash Flows For the Three Months Ended December 31, 2022 and 2021	9
	Notes to Condensed Consolidated Financial Statements	10
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	23
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	29
Item 4.	Controls and Procedures	30
PART II.	OTHER INFORMATION	30
Item 1.	Legal Proceedings	30
Item 1A.	Risk Factors	30
Item 6.	Exhibits	30
	Signatures	32

Table of Contents

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These forward-looking statements are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on current expectations and projections about future events and financial trends affecting the financial condition of our business. Such forward-looking statements include, in particular, projections about future results included in our Exchange Act reports and statements about plans, strategies, business prospects, changes and trends in our business and the markets in which we operate. These forward-looking statements may be identified by the use of terms and phrases such as “anticipates,” “believes,” “can,” “could,” “estimates,” “expects,” “forecasts,” “intends,” “may,” “plans,” “projects,” “should,” “targets,” “will,” “would,” and similar expressions or variations of these terms and similar phrases. Additionally, statements concerning future matters such as our expected liquidity, development of new products, enhancements, or technologies, sales levels, expense levels, expectations regarding the outcome of legal proceedings, and other statements regarding matters that are not historical are forward-looking statements. 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 our business or the industries in which we operate to be materially different from those expressed or implied by any forward-looking statements. Factors that could cause or contribute to such differences in results and outcomes include without limitation the following:

•uncertainties regarding the effects of the COVID-19 pandemic and the impact of measures intended to reduce its spread on our business and operations, which is evolving and beyond our control;

•the effect of component shortages and any alternatives thereto;

•the rapidly evolving markets for our products and uncertainty regarding the development of these markets;

•our historical dependence on sales to a limited number of customers and fluctuations in the mix of products and customers in any period;

•delays and other difficulties in commercializing new products;

•the failure of new products: (a) to perform as expected without material defects, (b) to be manufactured at acceptable volumes, yields, and cost, (c) to be qualified and accepted by our customers, and (d) to successfully compete with products offered by our competitors;

•uncertainties concerning the availability and cost of commodity materials and specialized product components that we do not make internally;

•actions by competitors;

•risks and uncertainties related to applicable laws and regulations, including the impact of changes to applicable tax laws and tariff regulations;

•acquisition-related risks, including that (a) revenue and net operating results obtained from the Systron Donner Inertial, Inc. (“SDI”) business, the L3Harris Space and Navigation (“S&N”) business, or the Inertial Navigation Systems business (“EMCORE Chicago”) of KVH Industries, Inc. (“KVH”) may not meet our expectations, (b) the costs and cash expenditures for integration of the S&N business operations or EMCORE Chicago may be higher than expected, (c) there could be losses and liabilities arising from the acquisition of SDI, S&N, or EMCORE Chicago that we will not be able to recover from any source, (d) we may not recognize the anticipated synergies from the acquisition of SDI, S&N, or EMCORE Chicago, and (e) we may not realize sufficient scale in our Navigation and Inertial Sensing product line from the SDI acquisition, the S&N acquisition, and the EMCORE Chicago acquisition and will need to take additional steps, including making additional acquisitions, to achieve our growth objectives for this product line;

•risks related to our ability to obtain capital;

•risks and uncertainties related to manufacturing and production capacity and expansion plans related thereto; and

•other risks and uncertainties discussed in Part I, Item 1A. “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended September 30, 2022, as such risk factors may be amended, supplemented, or superseded from time to time by our subsequent periodic reports we file with the Securities and Exchange Commission (“SEC”).

These cautionary statements apply to all forward-looking statements wherever they appear in this Quarterly Report. Forward-looking statements are based on certain assumptions and analysis made in light of experience and perception of historical trends, current conditions, and expected future developments as well as other factors that we believe are appropriate under the circumstances. While these statements represent judgment on what the future may hold, and we believe these judgments are reasonable, these statements are not guarantees of any events or financial results. All forward-looking statements in this Quarterly Report are made as of the date hereof, based on information available to us as of the date hereof, and subsequent facts or circumstances may contradict, obviate, undermine, or otherwise fail to support or substantiate such statements. We caution you not to rely on these statements without also considering the risks and uncertainties associated with these statements and our business that are addressed in this Quarterly Report on Form 10-Q and our Annual Report on Form 10-K for the fiscal year

Table of Contents

ended September 30, 2022. Certain information included in this Quarterly Report may supersede or supplement forward-looking statements in our other reports filed with the SEC. We do not intend to update any forward-looking statement to conform such statements to actual results or to changes in our expectations, except as required by applicable law or regulation.

Table of Contents

PART I. FINANCIAL INFORMATION

ITEM 1. Financial Statements (Unaudited)

EMCORE CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS


(in thousands)	December 31, 2022		September 30, 2022
ASSETS
Current assets:
Cash and cash equivalents	$	23,692	$	25,625
Restricted cash	495		520
Accounts receivable, net of credit loss of $361 and $337, respectively	17,116		18,073
Contract assets	5,570		4,560
Inventory	39,598		37,035
Prepaid expenses	3,374		4,061
Other current assets	2,148		3,063
Total current assets	91,993		92,937
Property, plant, and equipment, net	27,660		37,867
Goodwill	16,519		17,894
Operating lease right-of-use assets	27,937		23,243
Other intangible assets, net	15,234		14,790
Other non-current assets	2,425		2,351
Total assets	$	181,768	$	189,082
LIABILITIES and SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	12,545	$	12,729
Accrued expenses and other current liabilities	11,197		8,124
Contract liabilities	4,125		5,300
Loan payable - current	852		852
Operating lease liabilities - current	2,530		2,213
Total current liabilities	31,249		29,218
Line of credit	6,638		9,599
Loan payable - non-current	4,829		5,042
Operating lease liabilities - non-current	26,121		21,625
Asset retirement obligations	4,110		4,664
Other long-term liabilities	—		106
Total liabilities	72,947		70,254
Commitments and contingencies (Note 13)
Shareholders’ equity:
Common stock, no par value, 100,000 shares authorized; 44,774 shares issued and 37,868 shares outstanding as of December 31, 2022; 44,497 shares issued and 37,591 shares outstanding as of September 30, 2022	789,080		787,347
Treasury stock at cost; 6,906 shares as of December 31, 2022 and September 30, 2022	(47,721)		(47,721)
Accumulated other comprehensive income	1,254		1,301
Accumulated deficit	(633,792)		(622,099)
Total shareholders’ equity	108,821		118,828
Total liabilities and shareholders’ equity	$	181,768	$	189,082

The accompanying notes are an integral part of these condensed consolidated financial statements.

Table of Contents

EMCORE CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE (LOSS) INCOME


	Three Months Ended December 31,
(in thousands, except per share data)	2022		2021
Revenue	$	24,953	$	42,236
Cost of revenue	21,894		26,439
Gross profit	3,059		15,797
Operating expense:
Selling, general, and administrative	9,944		7,187
Research and development	5,351		4,627
Severance	475		1,298
(Gain) loss on sale of assets	(1,171)		187
Total operating expense	14,599		13,299
Operating (loss) income	(11,540)		2,498
Other (expense) income:
Interest expense, net	(241)		(11)
Foreign exchange gain	75		42
Other income	107		—
Total other (expense) income	(59)		31
(Loss) income before income tax expense	(11,599)		2,529
Income tax expense	(94)		(115)
Net (loss) income	$	(11,693)	$	2,414
Foreign exchange translation adjustment	47		20
Comprehensive (loss) income	$	(11,646)	$	2,434
Per share data:
Net (loss) income per basic share	$	(0.31)	$	0.07
Weighted-average number of basic shares outstanding	37,557		36,950
Net (loss) income per diluted share	$	(0.31)	$	0.06
Weighted-average number of diluted shares outstanding	37,557		39,031

The accompanying notes are an integral part of these condensed consolidated financial statements.

Table of Contents

EMCORE CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY


	Three Months Ended December 31,
(in thousands)	2022		2021
Shares of common stock
Balance, beginning of period	37,591		36,984
Stock-based compensation	277		285
Stock option exercises	—		6
Balance, end of period	37,868		37,275
Value of common stock
Balance, beginning of period	$	787,347	$	782,266
Stock-based compensation	1,734		1,088
Stock option exercises	—		29
Tax withholding paid on behalf of employees for stock-based awards	(1)		(54)
Balance, end of period	789,080		783,329
Treasury stock, beginning and end of period	(47,721)		(47,721)
Accumulated other comprehensive income
Balance, beginning of period	1,301		687
Translation adjustment	(47)		20
Pension income
Balance, end of period	1,254		707
Accumulated deficit
Balance, beginning of period	(622,099)		(597,766)
Net (loss) income	(11,693)		2,414
Balance, end of period	(633,792)		(595,352)
Total shareholders’ equity	$	108,821	$	140,963

The accompanying notes are an integral part of these condensed consolidated financial statements.

Table of Contents

EMCORE CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS


	Three Months Ended December 31,
(in thousands)	2022		2021
Cash flows from operating activities:
Net (loss) income	$	(11,693)	$	2,414
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
Depreciation and amortization expense	2,034		1,010
Stock-based compensation expense	1,734		1,088
Provision adjustments related to credit loss	24		165
Provision adjustments related to product warranty	(11)		77
(Gain) loss on disposal of property, plant, and equipment	(1,171)		187
Other	(133)		(60)
Total non-cash adjustments	2,477		2,467
Changes in operating assets and liabilities:
Accounts receivable and contract assets	(77)		(575)
Inventory	(2,504)		1,126
Other assets	(3,361)		(6,773)
Accounts payable	(308)		546
Contract liabilities	(1,175)		505
Operating lease liabilities - current	318		(258)
Accrued expenses and other current liabilities	7,447		6,761
Total change in operating assets and liabilities	340		1,332
Net cash provided by operating activities	(8,876)		6,213
Cash flows from investing activities:
Purchase of equipment	(818)		(1,946)
Proceeds from disposal of property, plant, and equipment	10,900		10
Net cash used in investing activities	10,082		(1,936)
Cash flows from financing activities:
Proceeds from borrowings of credit facilities	393		—
Payments towards credit facilities	(3,567)		—
Proceeds from employee stock purchase plans and exercise of equity awards	—		29
Taxes paid related to net share settlement of equity awards	(1)		(54)
Net cash (used in) provided by financing activities	(3,175)		(25)
Effect of exchange rate changes provided by foreign currency	11		24
Net (decrease) increase in cash, cash equivalents, and restricted cash	(1,958)		4,276
Cash, cash equivalents, and restricted cash at beginning of period	26,145		71,682
Cash, cash equivalents, and restricted cash at end of period	$	24,187	$	75,958
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the period for interest	$	359	$	15
NON-CASH INVESTING AND FINANCING ACTIVITIES
Changes in accounts payable related to purchases of equipment	$	122	$	(285)

The accompanying notes are an integral part of these condensed consolidated financial statements.

Table of Contents

EMCORE CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1. Description of Business

EMCORE Corporation (referred to herein, together with its subsidiaries, as the “Company,” “we,” “our,” or “EMCORE”) is a leading provider of sensors for navigation in the aerospace and defense market as well as a manufacturer of chips, laser components, and optical subsystems for use in the Broadband and Cable TV (“CATV”) industries. We pioneered the linear fiber optic transmission technology that enabled the world’s first delivery of CATV directly on fiber, and today are a leading provider of advanced mixed-signal products serving the aerospace and defense and broadband communications markets. The mixed-signal technology, at the heart of our broadband communications products, is shared with our fiber optic gyros (“FOGs”) and other inertial sensors to provide the aerospace and defense markets with state-of-the-art navigation systems technology. Over the last three years, we have expanded our scale and portfolio of inertial sensor products through the acquisitions of Systron Donner Inertial, Inc. (“SDI”) in June 2019, the Space and Navigation (“S&N”) business of L3Harris Technologies, Inc. (“L3H”) in April 2022, and the FOG and Inertial Navigation Systems business (“EMCORE Chicago”) of KVH Industries, Inc. (“KVH”) in August 2022. We have fully vertically-integrated manufacturing capability at our headquarters in Alhambra, CA, and at our facilities in Budd Lake, NJ, Concord, CA, and Tinley Park, IL (the “Tinley Park Facility”). These facilities support our vertically-integrated manufacturing strategy for quartz, FOG, and Ring Laser Gyro products for navigation systems, and for our chip, laser, transmitter, and receiver products for broadband applications. We design and manufacture industry-leading Quartz Mems (“QMEMS”), lithium niobate, and indium phosphide (InP) chip-level technology to deliver state-of-the-art component and system-level products across our end-market applications. Our best-in-class components and systems support a broad array of applications including navigation and inertial sensing, defense optoelectronics, broadband communications, optical sensing, and specialty chips for telecom and data center applications.

NOTE 2. Summary of Significant Accounting Policies

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim information, and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X promulgated by the Securities and Exchange Commission (“SEC”). Accordingly, they do not include all information and notes required by U.S. GAAP for annual financial statements. In our opinion, the interim financial statements reflect all adjustments, which are all normal recurring adjustments, that are necessary to provide a fair presentation of the financial results for the interim periods presented. Operating results for interim periods are not necessarily indicative of results that may be expected for an entire fiscal year. The condensed consolidated balance sheet as of September 30, 2022 has been derived from the audited consolidated financial statements as of such date. For a more complete understanding of our business, financial position, operating results, cash flows, risk factors, and other matters, please refer to our Annual Report on Form 10-K for the fiscal year ended September 30, 2022.

Use of Estimates

The preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities, as of the date of the financial statements, and the reported amounts of revenue and expenses during the reported period. Such estimates include accounts receivable, inventories, goodwill, long-lived assets, product warranty liabilities, legal contingencies, income taxes, asset retirement obligations, and pension obligation, as well as the evaluation associated with the Company's assessment of its ability to continue as a going concern.

We develop estimates based on historical experience and on various assumptions about the future that are believed to be reasonable based on the best information available to us. Our reported financial position or results of operations may be materially different under changed conditions or when using different estimates and assumptions, particularly with respect to significant accounting policies. In the event that estimates or assumptions prove to differ from actual results, adjustments are made in subsequent periods to reflect more current information.

NOTE 3. Acquisitions

On April 29, 2022, we completed the acquisition of the L3H S&N business for a total purchase price of approximately $5.0 million in cash, exclusive of transaction costs and expenses and subject to certain post-closing working capital adjustments, resulting in a final adjusted purchase consideration transferred of $4.9 million. Following the closing, S&N results are included in our Aerospace and Defense (“A&D”) reportable segment and in our consolidated financial statements beginning

Table of Contents

on the acquisition date. Revenue and net income of S&N of $5.5 million and $1.1 million, respectively, is included in our condensed consolidated statements of operations and comprehensive (loss) income for the three months ended December 31, 2022.

On August 9, 2022, we completed the acquisition of EMCORE Chicago pursuant to which we acquired substantially all of KVH's assets and liabilities primarily related to its FOG and Inertial Navigation Systems business, including property interests in the Tinley Park Facility, for aggregate consideration of approximately $55.0 million, exclusive of transaction costs and expenses and subject to certain post-closing working capital adjustments. Following the closing, EMCORE Chicago results are included in our A&D reportable segment and in our consolidated financial statements beginning on the acquisition date. Revenue and net income of EMCORE Chicago of $7.8 million and $1.4 million, respectively, is included in our condensed consolidated statements of operations and comprehensive (loss) income for the three months ended December 31, 2022.

Preliminary Purchase Price Allocation

The total purchase price for each of the S&N acquisition and the EMCORE Chicago acquisition was allocated to the assets acquired and liabilities assumed based on their estimated fair values as of the acquisition date. Due to the fact that each such acquisition occurred in the most recent 12-month period, the Company's fair value estimates for the purchase price allocations are preliminary. The final determination of fair value for the assets acquired and liabilities assumed is subject to further change and will be completed as soon as possible, but no later than one year from the applicable acquisition date. Since the acquisition, the preliminary purchase price allocation for S&N has changed by a $2.3 million reduction to contract assets and a $0.6 million reduction to asset retirement obligation, resulting in a corresponding increase to intangible assets and goodwill acquired. Goodwill is measured as the excess of the fair value of the purchase consideration transferred over the fair value of the identifiable net assets. Any changes in the fair values of the assets acquired and liabilities assumed during the measurement period may result in a material adjustment to goodwill. Goodwill from these acquisitions totaled $16.4 million, of which 81.1% was the result of the EMCORE Chicago acquisition, which expanded EMCORE's competitive position in the Inertial Navigation market.

The table below represents the preliminary purchase price allocation to the assets acquired and liabilities assumed of S&N based on their estimated fair values as of the acquisition date based on management’s best estimates and assumptions:


(in thousands)	Amount
Tangible assets acquired:
Accounts receivable	$	803
Inventory	370
Contract assets	3,920
Operating lease right-of-use assets	1,529
Property, plant, and equipment	1,996
Net pension benefit assets	1,727
Intangible assets acquired	2,740
Goodwill	3,108
Liabilities assumed:
Accounts payable	(1,226)
Accrued expenses	(622)
Contract liabilities	(6,024)
Operating lease liabilities	(1,565)
Asset retirement obligation	(1,895)
Total purchase consideration	$	4,861

The table below represents the preliminary purchase price allocation to the assets acquired and liabilities assumed of EMCORE Chicago based on their estimated fair values as of the acquisition date based on management’s best estimates and assumptions:

Table of Contents


(in thousands)	Amount
Tangible assets acquired:
Accounts receivable	$	4,977
Inventory	10,800
Prepaid expenses and other current assets	1,483
Property, plant, and equipment	14,442
Intangible assets acquired	12,770
Goodwill	13,342
Liabilities assumed:
Accounts payable	(1,699)
Accrued expenses	(485)
Contract liabilities	(637)
Other long-term liabilities	(8)
Total purchase consideration	$	54,985

Included in intangible assets acquired are customer relationships of $4.0 million, technology of $2.6 million, in-process research and development of $6.7 million, and trademarks of $2.2 million.

For the three months ended December 31, 2022, the Company incurred transaction costs of approximately $2.1 million, in connection with the acquisitions, which were expensed as incurred and included in selling, general, and administrative (“SG&A”) expenses within the accompanying condensed consolidated statements of operations and comprehensive (loss) income.

Unaudited Pro Forma Financial Information

The following unaudited pro forma financial information presented for the three months ended December 31, 2021 does not purport to be indicative of the results of operations that would have been achieved had the EMCORE Chicago acquisition been consummated on October 1, 2020, nor of the results which may occur in the future. The pro forma amounts are based upon available information and certain assumptions that the Company believes are reasonable.

Table of Contents

SEC Form 10-Q filed by EMCORE Corporation