10-Q: Quarterly report pursuant to Section 13 or 15(d)
Published on August 9, 2022
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 |
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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
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
(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 | |||||||||
(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 E change 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 August 5, 2022, the number of shares outstanding of our no par value common stock totaled 37,549,905 .
EMCORE Corporation
FORM 10-Q
For the Quarterly Period Ended June 30, 2022
TABLE OF CONTENTS
Page | |||||||||||
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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 our 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 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 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 business line acquired from KVH Industries, Inc. (the "KVH IN Business") may not meet our expectations, (b) the costs and cash expenditures for integration of the S&N business operations or the KVH IN Business may be higher than expected, (c) there could be losses and liabilities arising from the acquisition of SDI, S&N, or the KVH IN Business 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 the KVH IN Business, 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 KVH IN Business 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 related to the transition of certain of our manufacturing operations from our Beijing facility to a contract manufacturer’s facility;
•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, 2021, 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
4
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 ended September 30, 2021. 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.
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PART I. Financial Information
ITEM 1. Financial Statements
EMCORE CORPORATION
Condensed Consolidated Statements of Operations and Comprehensive (Loss) Income
For the three and nine months ended June 30, 2022 and 2021
(in thousands, except per share data)
(unaudited)
For the Three Months Ended June 30, | For the Nine Months Ended June 30, | ||||||||||||||||||||||
2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
Revenue | $ | $ | $ | $ | |||||||||||||||||||
Cost of revenue | |||||||||||||||||||||||
Gross profit | |||||||||||||||||||||||
Operating expense: | |||||||||||||||||||||||
Selling, general, and administrative | |||||||||||||||||||||||
Research and development | |||||||||||||||||||||||
Severance | |||||||||||||||||||||||
(Gain) loss on sale of assets | ( |
( |
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Total operating expense | |||||||||||||||||||||||
Operating (loss) income | ( |
( |
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Other (expense) income: | |||||||||||||||||||||||
Gain on extinguishment of debt | |||||||||||||||||||||||
Interest income (expense), net | ( |
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Foreign exchange (loss) gain | ( |
( |
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Pension expense | ( |
( |
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Total other (expense) income | ( |
( |
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(Loss) income before income tax expense | ( |
( |
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Income tax expense | ( |
( |
( |
( |
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Net (loss) income | $ | ( |
$ | $ | ( |
$ | |||||||||||||||||
Foreign exchange translation adjustment | ( |
( |
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Comprehensive (loss) income | $ | ( |
$ | $ | ( |
$ | |||||||||||||||||
Per share data | |||||||||||||||||||||||
Net (loss) income per basic share | $ | ( |
$ | $ | ( |
$ | |||||||||||||||||
Weighted-average number of basic shares outstanding | |||||||||||||||||||||||
Net (loss) income per diluted share | $ | ( |
$ | $ | ( |
$ | |||||||||||||||||
Weighted-average number of diluted shares outstanding |
The accompanying notes are an integral part of these condensed consolidated financial statements.
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EMCORE CORPORATION
Condensed Consolidated Balance Sheets
As of June 30, 2022 and September 30, 2021
(in thousands)
(unaudited)
As of | |||||||||||
June 30, 2022 | September 30, 2021 | ||||||||||
ASSETS | |||||||||||
Current assets: | |||||||||||
Cash and cash equivalents | $ | $ | |||||||||
Restricted cash | |||||||||||
Accounts receivable, net of credit loss of $ |
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Contract assets | |||||||||||
Inventory | |||||||||||
Prepaid expenses and other current assets | |||||||||||
Assets held for sale | |||||||||||
Total current assets | |||||||||||
Property, plant, and equipment, net | |||||||||||
Goodwill | |||||||||||
Operating lease right-of-use assets | |||||||||||
Other intangible assets, net | |||||||||||
Other non-current assets | |||||||||||
Total assets | $ | $ | |||||||||
LIABILITIES and SHAREHOLDERS’ EQUITY | |||||||||||
Current liabilities: | |||||||||||
Accounts payable | $ | $ | |||||||||
Accrued expenses and other current liabilities | |||||||||||
Contract liabilities | |||||||||||
Operating lease liabilities - current | |||||||||||
Total current liabilities | |||||||||||
Operating lease liabilities - non-current | |||||||||||
Asset retirement obligations | |||||||||||
Other long-term liabilities | |||||||||||
Total liabilities | |||||||||||
Commitments and contingencies (Note 11) | |||||||||||
Shareholders’ equity: | |||||||||||
Common stock, |
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Treasury stock at cost; |
( |
( |
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Accumulated other comprehensive income | |||||||||||
Accumulated deficit | ( |
( |
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Total shareholders’ equity | |||||||||||
Total liabilities and shareholders’ equity | $ | $ |
The accompanying notes are an integral part of these condensed consolidated financial statements.
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EMCORE CORPORATION
Condensed Consolidated Statements of Shareholders’ Equity
For the three and nine months ended June 30, 2022 and 2021
(in thousands)
(unaudited)
For the Three Months Ended June 30, | For the Nine Months Ended June 30, | ||||||||||||||||||||||
2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
Shares of common stock | |||||||||||||||||||||||
Balance, beginning of period | |||||||||||||||||||||||
Stock-based compensation | |||||||||||||||||||||||
Stock option exercises | |||||||||||||||||||||||
Issuance of common stock - ESPP | |||||||||||||||||||||||
Sale of common stock | |||||||||||||||||||||||
Balance, end of period | |||||||||||||||||||||||
Value of common stock | |||||||||||||||||||||||
Balance, beginning of period | $ | $ | $ | $ | |||||||||||||||||||
Stock-based compensation | |||||||||||||||||||||||
Stock option exercises | |||||||||||||||||||||||
Tax withholding paid on behalf of employees for stock-based awards | ( |
( |
( |
( |
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Issuance of common stock - ESPP | |||||||||||||||||||||||
Sale of common stock, net of offering costs | |||||||||||||||||||||||
Balance, end of period | |||||||||||||||||||||||
Treasury stock, beginning and ending of period | ( |
( |
( |
( |
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Accumulated other comprehensive income | |||||||||||||||||||||||
Balance, beginning of period | |||||||||||||||||||||||
Translation adjustment | ( |
( |
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Balance, end of period | |||||||||||||||||||||||
Accumulated deficit | |||||||||||||||||||||||
Balance, beginning of period | ( |
( |
( |
( |
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Net (loss) income | ( |
( |
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Balance, end of period | ( |
( |
( |
( |
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Total shareholders’ equity | $ | $ | $ | $ |
The accompanying notes are an integral part of these condensed consolidated financial statements.
8
EMCORE CORPORATION
Condensed Consolidated Statements of Cash Flows
For the nine months ended June 30, 2022 and 2021
(in thousands)
(unaudited)
For the Nine Months Ended June 30, | |||||||||||
2022 | 2021 | ||||||||||
Cash flows from operating activities: | |||||||||||
Net (loss) income | $ | ( |
$ | ||||||||
Adjustments to reconcile net income to net cash provided by operating activities: | |||||||||||
Depreciation and amortization expense | |||||||||||
Stock-based compensation expense | |||||||||||
Provision adjustments related to credit loss | ( |
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Provision adjustments related to product warranty | |||||||||||
(Gain) loss on disposal of property, plant, and equipment | ( |
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Other | ( |
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Changes in operating assets and liabilities: | |||||||||||
Accounts receivable and contract assets | ( |
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Inventory | ( |
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Other assets | ( |
( |
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Accounts payable | ( |
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Accrued expenses and other current liabilities | ( |
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Contract liabilities | ( |
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Operating lease liabilities - current | ( |
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Net cash provided by operating activities | |||||||||||
Cash flows from investing activities: | |||||||||||
Purchase of equipment | ( |
( |
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Proceeds from disposal of property, plant, and equipment | |||||||||||
Acquisition of business | ( |
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Net cash used in investing activities | ( |
( |
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Cash flows from financing activities: | |||||||||||
Proceeds from employee stock purchase plan and equity awards | |||||||||||
Proceeds from sale of common stock | |||||||||||
Issuance cost associated with sale of common stock | ( |
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Taxes paid related to net share settlement of equity awards | ( |
( |
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Net cash (used in) provided by financing activities | ( |
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Effect of exchange rate changes provided by foreign currency | ( |
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Net increase in cash, cash equivalents, and restricted cash | |||||||||||
Cash, cash equivalents, and restricted cash at beginning of period | |||||||||||
Cash, cash equivalents, and restricted cash at end of period | $ | $ | |||||||||
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION | |||||||||||
Cash paid during the period for interest | $ | $ | |||||||||
Cash paid during the period for income taxes | $ | $ | |||||||||
NON-CASH INVESTING AND FINANCING ACTIVITIES | |||||||||||
Changes in accounts payable related to purchases of equipment | $ | ( |
$ |
The accompanying notes are an integral part of these condensed consolidated financial statements.
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EMCORE Corporation
Notes to Condensed Consolidated Financial Statements
NOTE 1. Description of Business
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 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, 2021 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, 2021.
Significant Accounting Policies and Estimates
Pension Plan
With the acquisition of S&N, we acquired the assets and assumed the liabilities associated with a pension plan, now named the Emcore Space & Navigation Corporation Pension Plan (the “Pension Plan”), which is a defined benefit pension plan providing postretirement benefits to certain employees. Subsequent to quarter end, as of July 1, 2022, the Pension Plan was amended to freeze benefit plan accruals for participants.
The investments in the Pension Plan are measured at fair value using quoted market prices or the net asset value per share as a practical expedient. The projected benefit obligations associated with the Pension Plan are determined based on actuarial models utilizing mortality tables and discount rates applied to the expected benefit term.
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We recently adopted the following accounting standards, which had the following impacts on our condensed consolidated financial statements:
In December 2019, the FASB issued Accounting Standards Update (“ASU”) 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, which simplifies the accounting for income taxes by removing various exceptions, such as the exception to the incremental approach for intra-period tax allocation when there is a loss from continuing operations and income or a gain from other items. The amendments in this update also simplify the accounting for income taxes related to income-based franchise taxes and require that an entity reflect enacted tax laws or rates in the annual effective tax rate computation in the interim period that includes the enactment date. The new standard was effective for our fiscal year beginning October 1, 2021. The adoption of this new standard did not have a material impact on the condensed consolidated financial statements.
In October 2021, the FASB issued ASU 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers, which provides an exception to fair value measurement for contract assets and contract liabilities related to revenue contracts acquired in a business combination. The ASU required an entity (acquirer) to recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with Topic 606. At the acquisition date, an acquirer should account for the related revenue contracts in accordance with Topic 606 as if it had originated the contract. The ASU is effective for the Company for our annual and interim periods beginning October 1, 2023. We early adopted this standard effective with our fiscal year beginning October 1, 2021. The early adoption of this new standard did not have a material impact on the condensed consolidated financial statements.
Other accounting standards that have been issued or proposed by FASB and do not require adoption until a future date are not expected to have a material impact on the consolidated financial statements upon adoption. The Company does not discuss recent pronouncements that are not anticipated to have an impact on or are unrelated to its financial condition, results of operations, cash flows, or disclosures.
NOTE 3. Acquisition
On April 29, 2022, we completed the acquisition of the L3Harris Technologies, Inc. (“L3H”) Space and Navigation business (“S&N”) 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 cash payment at closing of the acquisition of approximately $2.4 million. Following the closing, we began integrating S&N into our Aerospace and Defense reportable segment and have included the financial results of S&N in our condensed consolidated financial statements beginning on the acquisition date. Revenue and net loss of S&N from the acquisition date of $4.3 million and $0.7 million, respectively, is included in our condensed consolidated statements of operations and comprehensive (loss) income for the three and nine months ended June 30, 2022.
Preliminary Purchase Price Allocation
The total purchase price 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 the acquisition occurred in the current interim period, the Company's fair value estimates for the purchase price allocation 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 acquisition date. The preliminary estimates that are not yet finalized relate to identifiable intangible assets and asset retirement obligations. 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.
11
(in thousands) | Amount | ||||
Tangible assets acquired: | |||||
Accounts receivable | $ | ||||
Inventory | |||||
Contract assets | |||||
Operating lease right-of-use assets | |||||
Property, plant, and equipment | |||||
Net pension benefit assets | |||||
Intangible assets acquired | |||||
Goodwill | |||||
Liabilities assumed: | |||||
Accounts payable and accrued expenses | ( |
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Contract liabilities | ( |
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Operating lease liabilities | ( |
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Asset retirement obligations | ( |
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Total purchase consideration | $ |
NOTE 4. Cash, Cash Equivalents, and Restricted Cash
The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported within the unaudited condensed consolidated balance sheets that sum to the total of the same amounts shown in the unaudited condensed consolidated statements of cash flows:
As of | |||||||||||
(in thousands) | June 30, 2022 | September 30, 2021 | |||||||||
Cash | $ | $ | |||||||||
Cash equivalents | |||||||||||
Restricted cash | |||||||||||
Total cash, cash equivalents, and restricted cash | $ | $ |
NOTE 5. Accounts Receivable, net
The components of accounts receivable consisted of the following:
As of | |||||||||||
(in thousands) | June 30, 2022 | September 30, 2021 | |||||||||
Accounts receivable, gross | $ | $ | |||||||||
Allowance for credit loss | ( |
( |
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Accounts receivable, net | $ | $ |
NOTE 6. Inventory
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The components of inventory consisted of the following:
As of | |||||||||||
(in thousands) | June 30, 2022 | September 30, 2021 | |||||||||
Raw materials | $ | $ | |||||||||
Work in-process | |||||||||||
Finished goods | |||||||||||
Inventory | $ | $ |
NOTE 7. Property, Plant, and Equipment, net
The components of property, plant, and equipment, net consisted of the following:
As of | |||||||||||
(in thousands) | June 30, 2022 | September 30, 2021 | |||||||||
Equipment | $ | $ | |||||||||
Furniture and fixtures | |||||||||||
Computer hardware and software | |||||||||||
Leasehold improvements | |||||||||||
Construction in progress | |||||||||||
Property, plant, and equipment, gross | $ | $ | |||||||||
Accumulated depreciation | ( |
( |
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Property, plant, and equipment, net | $ | $ |
During the fiscal year ended September 30, 2020, the Company entered into agreements to sell equipment and these assets were reclassified to assets held for sale. The balance as of June 30, 2022 and September 30, 2021 was $0.5 million and $1.2 million, respectively. The balance of assets held for sale will be sold in the quarter ending September 30, 2022. During the three months ended June 30, 2022 and 2021, the Company sold certain equipment and recognized a (gain) loss on sale of assets of $(1.3 ) million and $0.3 million, respectively. During the nine months ended June 30, 2022 and 2021, the Company sold certain equipment and recognized a (gain) loss on sale of assets of $(1.9 ) million and $0.4 million, respectively.
Geographical Concentrations
NOTE 8. Benefit Plans
We assumed a defined benefit pension plan (the “Pension Plan”) on April 29, 2022 as a result of the acquisition of S&N. The Pension Plan was frozen to new hires as of March 31, 2007 and employees hired on or after April 1, 2007 are not eligible to participate in the Pension Plan. Subsequent to quarter end, as of July 1, 2022, the Pension Plan was amended to freeze benefit plan accruals for participants. Benefits are based on years of credited service at retirement. Annual contributions to the Pension Plan are not less than the minimum funding standards outlined in the Employee Retirement Income Security Act of 1974, as amended. We make contributions to the Pension Plan with the goal of ensuring that it is adequately funded to meet its future obligations. We did not make any contributions to the Pension Plan during the period from April 29, 2022 to June 30, 2022 and do not anticipate making any contributions for the remainder of 2022.
The weighted average discount rate used to determine the projected benefit obligation of the Pension Plan as of the date of the S&N acquisition on April 29, 2022 was 4.40 %. The weighted average discount rate used to determine interest cost related to the Pension Plan for the period from April 29, 2022 to June 30, 2022 was 4.40 %.
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(in thousands) | For the Three and Nine Months Ended June 30, 2022 | ||||
Interest cost | $ | ||||
Loss on Pension Plan assets | |||||
Total pension expense | $ |
Total pension expense is included as a component of other (expense) income on the condensed consolidated statements of operations and comprehensive (loss) income for the three and nine months ended June 30, 2022.
The net pension asset assumed with the S&N acquisition is as follows:
As of |
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(in thousands) | June 30, 2022 | ||||
Benefit obligation | $ | ||||
Fair value of Pension Plan assets | |||||
Net pension asset | $ |
Net pension asset is included as a component of other non-current assets on the condensed consolidated balance sheets as of June 30, 2022. As of June 30, 2022 the Pension Plan assets consist of cash and cash equivalents.
401(k) Plan
We have a savings plan that qualifies as a deferred salary arrangement under Section 401(k) of the Internal Revenue Code. Under this savings plan, participating employees may defer a portion of their pretax earnings, up to the Internal Revenue Service annual contribution limit. During each of the three months ended June 30, 2022 and 2021, our matching contribution was $0.2 million in cash, respectively. During each of the nine months ended June 30, 2022 and 2021, our matching contribution was $0.8 million in cash, respectively.
NOTE 9. Accrued Expenses and Other Current Liabilities
The components of accrued expenses and other current liabilities consisted of the following:
As of | |||||||||||
(in thousands) | June 30, 2022 | September 30, 2021 | |||||||||
Compensation | $ | $ | |||||||||
Warranty | |||||||||||
Legal expenses and other professional fees | |||||||||||
Income and other taxes | |||||||||||
Severance and restructuring accruals | |||||||||||
Litigation settlement | |||||||||||
Other | |||||||||||
Accrued expenses and other current liabilities | $ | $ |
NOTE 10. Income and Other Taxes
During the three months ended June 30, 2022 and 2021, the Company recorded an income tax expense of $27,000 and $6,000 , respectively. Income tax expense during the three months ended June 30, 2022 is composed primarily of Texas gross margin taxes. Income tax expense during the three months ended June 30, 2021 is composed primarily of state tax expense which is driven by the State of California's temporary suspension of net operating loss ("NOL") utilization.
During the nine months ended June 30, 2022 and 2021, the Company recorded an income tax expense of $25,000 and $214,000 , respectively. Income tax expense for the nine months ended June 30, 2022 is composed primarily of Texas gross margin taxes. Income tax expense for the nine months ended June 30, 2021 is composed primarily of state tax expense which is driven by the State of California's temporary suspension of NOL utilization.
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For the three months ended June 30, 2022 and 2021 the effective tax rate on continuing operations was 0.4 % and 0.0 %, respectively. For the nine months ended June 30, 2022 and 2021 the effective tax rate on continuing operations was 0.3 % and 1.0 %, respectively. The tax rate for the three and nine months ended June 30, 2022 is primarily driven by Texas gross margin taxes.
The Company uses estimates to forecast the results from continuing operations for the current fiscal year as well as permanent differences between book and tax accounting.
We have not provided for income taxes on non-U.S. subsidiaries’ undistributed earnings as of June 30, 2022 because we plan to indefinitely reinvest the unremitted earnings of our non-U.S. subsidiaries and all of our non-U.S. subsidiaries historically have negative earnings and profits.
All deferred tax assets have a full valuation allowance as of June 30, 2022, except for the tax amortization of indefinitely lived goodwill, which cannot be utilized to reduce deferred tax assets. On a quarterly basis, the Company evaluates the positive and negative evidence to assess whether the more likely than not criteria has been satisfied in determining whether there will be further adjustments to the valuation allowance.
As of June 30, 2022 and September 30, 2021, we did not accrue any significant uncertain tax benefit, interest, or penalties as tax liabilities on our condensed consolidated balance sheets. During the three and nine months ended June 30, 2022, there were no material increases or decreases in unrecognized tax benefits.
NOTE 11. Commitments and Contingencies
Indemnifications
We have agreed to indemnify certain customers against claims of infringement of intellectual property rights of others in our sales contracts with these customers. Historically, we have not paid any claims under these customer indemnification obligations. We enter into indemnification agreements with each of our directors and executive officers pursuant to which we agree to indemnify them for certain potential expenses and liabilities arising from their status as a director or executive officer of the Company. We maintain directors and officers insurance, which covers certain liabilities relating to our obligation to indemnify our directors and executive officers in certain circumstances. It is not possible to determine the aggregate maximum potential loss under these indemnification agreements due to the limited history of prior indemnification claims and the unique facts and circumstances involved in each particular claim.
Legal Proceedings
We are subject to various legal proceedings, claims, and litigation, either asserted or unasserted, that arise in the ordinary course of business. The outcome of these matters is currently not determinable and we are unable to estimate a range of loss, should a loss occur, from these proceedings. The ultimate outcome of legal proceedings involves judgments, estimates, and inherent uncertainties and the results of these matters cannot be predicted with certainty. Professional legal fees are expensed when incurred. We accrue for contingent losses when such losses are probable and reasonably estimable. In the event that estimates or assumptions prove to differ from actual results, adjustments are made in subsequent periods to reflect more current information. Should we fail to prevail in any legal matter, or should several legal matters be resolved against the Company in the same reporting period, then the financial results of that particular reporting period could be materially affected.
Intellectual Property Lawsuits
We protect our proprietary technology by applying for patents where appropriate and, in other cases, by preserving the technology, related know-how, and information as trade secrets. The success and competitive position of our product lines are impacted by our ability to obtain intellectual property protection for our research and development efforts. We have, from time to time, exchanged correspondence with third parties regarding the assertion of patent or other intellectual property rights in connection with certain of our products and processes.
Resilience Litigation
In February 2021, Resilience Capital (“Resilience”) filed a complaint against us with the Delaware Chancery Court containing claims arising from the February 2020 sale of SDI’s real property (the “Concord Property Sale”) located in Concord, California (the “Concord Real Property”) to Eagle Rock Holdings, LP (“Buyer”) and that certain Single-Tenant Triple Net Lease, dated as of February 10, 2020, entered into by and between SDI and the Buyer, pursuant to which SDI leased from the Buyer the
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Concord Real Property for a 15 year term. The Resilience complaint seeks, among other items, (a) a declaration that the Concord Property Sale included a non-cash component, (b) a decree requiring us and Resilience to follow the appraisal requirements set forth in that certain Purchase and Sale Agreement (the "SDI Purchase Agreement"), dated as of June 7, 2019, by and among the Company, The Resilience Fund IV, L.P., The Resilience Fund IV-A, L.P., Aerospace Newco Holdings, Inc. and Ember Acquisition Sub, Inc., (c) recovery of Resilience’s costs and expenses, and (d) pre- and post-judgment interest.
In April 2021, we filed with the Delaware Chancery Court our answer to the Resilience complaint and counterclaims against Resilience, in which we are seeking, among other items, (a) dismissal of the Resilience complaint and/or granting of judgment in favor of EMCORE with respect to the Resilience complaint, (b) entering final judgment against Resilience awarding damages to us for Resilience’s fraud and breaches of the SDI Purchase Agreement in an amount to be proven at trial and not less than $1,565,000 , (c) a judicial determination of the respective rights and duties of us and Resilience under the SDI Purchase Agreement, (d) an award to us of costs and expenses, and (e) pre- and post-judgment interest. We believe that the claims made by Resilience in its complaint are without merit and we intend to vigorously defend ourselves against them.
NOTE 12. Equity
Equity Plans
We provide long-term incentives to eligible officers, directors, and employees in the form of equity-based awards. We maintain three equity incentive compensation plans, collectively described as our “Equity Plans”: (a) the 2010 Equity Incentive Plan, (b) the 2012 Equity Incentive Plan, and (c) the 2019 Equity Incentive Plan.
We issue new shares of common stock to satisfy awards granted under our Equity Plans. In March 2022, our shareholders approved the Amended and Restated EMCORE Corporation 2019 Equity Incentive Plan, which was adopted by the Company’s Board of Directors in December 2021, and increased the maximum number of shares of the Company’s common stock that may be issued or transferred pursuant to awards under the 2019 Equity Incentive Plan by an additional 1.9 million shares.
Stock-Based Compensation
The following table sets forth stock-based compensation expense by award type:
For the Three Months Ended June 30, | For the Nine Months Ended June 30, | ||||||||||||||||||||||
(in thousands) | 2022 | 2021 | 2022 | 2021 | |||||||||||||||||||
Employee stock options | $ | $ | $ | $ | |||||||||||||||||||
RSUs and RSAs | |||||||||||||||||||||||
PSUs and PRSAs | |||||||||||||||||||||||
ESPP | |||||||||||||||||||||||
Outside director equity awards and fees in common stock | |||||||||||||||||||||||
Total stock-based compensation expense | $ | $ | $ | $ |
The following table sets forth stock-based compensation expense by expense type:
For the Three Months Ended June 30, | For the Nine Months Ended June 30, | ||||||||||||||||||||||
(in thousands) | 2022 | 2021 | 2022 | 2021 | |||||||||||||||||||
Cost of revenue | $ | $ | $ | $ | |||||||||||||||||||
Selling, general, and administrative | |||||||||||||||||||||||
Research and development | |||||||||||||||||||||||
Total stock-based compensation expense | $ | $ | $ | $ |
(Loss) Income Per Share
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For the Three Months Ended June 30, | For the Nine Months Ended June 30, | ||||||||||||||||||||||
(in thousands, except per share data) | 2022 | 2021 | 2022 | 2021 | |||||||||||||||||||
Numerator | |||||||||||||||||||||||
Net (loss) income | $ | ( |
$ | $ | ( |
$ | |||||||||||||||||
Denominator | |||||||||||||||||||||||
Weighted average number of shares outstanding - basic | |||||||||||||||||||||||
Effect of dilutive securities | |||||||||||||||||||||||
Stock options | |||||||||||||||||||||||
PSUs, RSUs, and restricted stock | |||||||||||||||||||||||
Weighted average number of shares outstanding - diluted | |||||||||||||||||||||||
Earnings per share - basic | $ | ( |
$ | $ | ( |
$ | |||||||||||||||||
Earnings per share - diluted | $ | ( |
$ | $ | ( |
$ | |||||||||||||||||
Weighted average antidilutive options, unvested restricted RSUs and RSAs, unvested PSUs and ESPP shares excluded from the computation |
Basic earnings per share ("EPS") is computed by dividing net (loss) income for the period by the weighted-average number of common stock outstanding during the period. Diluted EPS is computed by dividing net (loss) income for the period by the weighted average number of common stock outstanding during the period, plus the dilutive effect of outstanding restricted stock units ("RSUs") and restricted stock awards ("RSAs"), performance stock units ("PSUs"), stock options, and shares issuable under the employee stock purchase plan ("ESPP") as applicable pursuant to the treasury stock method. Certain of the Company's outstanding share-based awards, noted in the table above, were excluded because they were anti-dilutive, but they could become dilutive in the future. The anti-dilutive stock options and shares of outstanding and unvested restricted stock were excluded from the computation of earnings per share for the three and nine months ended June 30, 2022 due to the Company incurring a net loss for such periods.
Future Issuances
Common stock reserved for future issuances was as follows:
As of | |||||
June 30, 2022 |
|||||
Exercise of outstanding stock options | |||||
Unvested RSUs and RSAs | |||||
Unvested PSUs and PRSAs (at |
|||||
Issuance of stock-based awards under the Equity Plans | |||||
Purchases under the officer and director share purchase plan | |||||
Total reserved |
NOTE 13. Segment and Revenue Information
Reportable Segments
Reported below are the Company’s segments for which separate financial information is available and upon which operating results are evaluated by the chief operating decision maker, the Chief Executive Officer, to assess performance and to allocate resources. We do not allocate sales and marketing, general and administrative expenses, or interest expense and interest income to our segments because management does not include the information in its measurement of the performance of the operating segments. Also, a measure of segment assets and liabilities has not been provided to the Company's chief operating decision maker and therefore is not shown below.
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(in thousands) | For the Three Months Ended June 30, | For the Nine Months Ended June 30, | |||||||||||||||||||||
2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
Revenue | |||||||||||||||||||||||
Aerospace and Defense | $ | $ | $ | $ | |||||||||||||||||||
Broadband | |||||||||||||||||||||||
Total revenue | $ | $ | $ | $ | |||||||||||||||||||
Segment profit | |||||||||||||||||||||||
Aerospace and Defense gross profit | $ | $ | $ | $ | |||||||||||||||||||
Aerospace and Defense research and development expense | |||||||||||||||||||||||
Aerospace and Defense segment profit | $ | ( |
$ | $ | ( |
$ | |||||||||||||||||
Broadband gross profit | $ | $ | $ | $ | |||||||||||||||||||
Broadband research and development expense | |||||||||||||||||||||||
Broadband segment profit | $ | $ | $ | $ | |||||||||||||||||||
Total segment profit | $ | ( |
$ | $ | $ | ||||||||||||||||||
Unallocated expense (income) | |||||||||||||||||||||||
Selling, general, and administrative | $ | $ | $ | $ | |||||||||||||||||||
Severance | |||||||||||||||||||||||
(Gain) loss on sale of assets | ( |
( |
|||||||||||||||||||||
Gain on extinguishment of debt | ( |
( |
|||||||||||||||||||||
Interest (income) expense, net | ( |
( |
( |
||||||||||||||||||||
Foreign exchange loss (gain) | ( |
( |
|||||||||||||||||||||
Pension expense | |||||||||||||||||||||||
Total unallocated expense (income) | $ | $ | ( |
$ | $ | ||||||||||||||||||
(Loss) income before income tax expense | $ | ( |
$ | $ | ( |
$ |
Product Categories
Revenue is classified by major product category as presented below:
For the Three Months Ended June 30, | |||||||||||||||||||||||
(in thousands) | 2022 | % of Revenue |
2021 | % of Revenue |
|||||||||||||||||||
Aerospace and Defense | |||||||||||||||||||||||
Navigation and Inertial Sensing | $ | % | $ | % | |||||||||||||||||||
Defense Optoelectronics | |||||||||||||||||||||||
Broadband | |||||||||||||||||||||||
CATV Lasers and Transmitters | |||||||||||||||||||||||
Chip Devices | |||||||||||||||||||||||
Other Optical Products | |||||||||||||||||||||||
Total revenue | $ | % | $ | % |
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For the Nine Months Ended June 30, | |||||||||||||||||||||||
(in thousands) | 2022 | % of Revenue |
2021 | % of Revenue |
|||||||||||||||||||
Aerospace and Defense | |||||||||||||||||||||||
Navigation and Inertial Sensing | $ | % | $ | % | |||||||||||||||||||
Defense Optoelectronics | |||||||||||||||||||||||
Broadband | |||||||||||||||||||||||
CATV Lasers and Transmitters | |||||||||||||||||||||||
Chip Devices | |||||||||||||||||||||||
Other Optical Products | |||||||||||||||||||||||
Total revenue | $ | % | $ | % |
Geographical Concentration
The following table sets forth revenue by geographic area based on our customers’ billing addresses:
For the Three Months Ended June 30, | For the Nine Months Ended June 30, | ||||||||||||||||||||||
(in thousands) | 2022 | 2021 | 2022 | 2021 | |||||||||||||||||||
United States and Canada | $ | $ | $ | $ | |||||||||||||||||||
Asia | |||||||||||||||||||||||
Europe | |||||||||||||||||||||||
Other |