May 10, 2023 - 10-Q: Quarterly report pursuant to Section 13 or 15(d)

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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 March 31, 2023
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 May 8, 2023, the number of shares outstanding of no par value common stock totaled 53,933,687.

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EMCORE CORPORATION

FORM 10-Q QUARTERLY REPORT

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		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 March 31, 2023 and September 30, 2022	6
	Condensed Consolidated Statements of Operations and Comprehensive (Loss) Income for the Three and Six Months Ended March 31, 2023 and 2022	7
	Condensed Consolidated Statements of Shareholders’ Equity For the Three and Six Months Ended March 31, 2023 and 2022	8
	Condensed Consolidated Statements of Cash Flows For the Three and Six Months Ended March 31, 2023 and 2022	9
	Notes to Condensed Consolidated Financial Statements	10
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	25
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	32
Item 4.	Controls and Procedures	33
PART II.	OTHER INFORMATION	33
Item 1.	Legal Proceedings	33
Item 1A.	Risk Factors	33
Item 6.	Exhibits	34
	Signatures	36

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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 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:

•any disruptions to our operations as a result of our restructuring activities;

•costs and expenses incurred in connection with restructuring activities and anticipated operational costs savings arising from the restructuring actions;

•the effects of personnel losses;

•risks and uncertainties related to customer and vendor relationships and contractual obligations with respect to the shutdown of the Broadband business segment and the discontinuance of its defense optoelectronics product line;

•risks and uncertainties related to the closing of the manufacturing support and engineering center in China;

•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;

•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

•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

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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, 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.

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PART I. FINANCIAL INFORMATION

ITEM 1. Financial Statements (Unaudited)

EMCORE CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)


(in thousands)	March 31, 2023		September 30, 2022
ASSETS
Current assets:
Cash and cash equivalents	$	24,348	$	25,625
Restricted cash	495		520
Accounts receivable, net of credit loss of $396 and $337, respectively	22,579		18,073
Contract assets	7,414		4,560
Inventory	40,086		37,035
Prepaid expenses	3,734		4,061
Other current assets	2,074		3,063
Total current assets	100,730		92,937
Property, plant, and equipment, net	26,325		37,867
Goodwill	16,422		17,894
Operating lease right-of-use assets	27,239		23,243
Other intangible assets, net	14,947		14,790
Other non-current assets	2,408		2,351
Total assets	$	188,071	$	189,082
LIABILITIES and SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	14,141	$	12,729
Accrued expenses and other current liabilities	11,877		8,124
Contract liabilities	4,247		5,300
Loan payable - current	852		852
Operating lease liabilities - current	2,647		2,213
Total current liabilities	33,764		29,218
Line of credit	6,553		9,599
Loan payable - non-current	4,616		5,042
Operating lease liabilities - non-current	25,434		21,625
Asset retirement obligations	4,091		4,664
Other long-term liabilities	8		106
Total liabilities	74,466		70,254
Commitments and contingencies (Note 13)
Shareholders’ equity:
Common stock, no par value, 100,000 shares authorized; 60,790 shares issued and 53,884 shares outstanding as of March 31, 2023; 44,497 shares issued and 37,591 shares outstanding as of September 30, 2022	806,100		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	1,246		1,301
Accumulated deficit	(646,020)		(622,099)
Total shareholders’ equity	113,605		118,828
Total liabilities and shareholders’ equity	$	188,071	$	189,082

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

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EMCORE CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE (LOSS) INCOME

(Unaudited)


	Three Months Ended March 31,				Six Months Ended March 31,
(in thousands, except per share data)	2023		2022		2023		2022
Revenue	$	26,820	$	32,650	$	51,773	$	74,886
Cost of revenue	23,109		23,633		45,003		50,072
Gross profit	3,711		9,017		6,770		24,814
Operating expense:
Selling, general, and administrative	9,951		7,563		19,895		14,750
Research and development	5,797		4,535		11,148		9,162
Severance	(17)		20		458		1,318
Loss (gain) on sale of assets	24		(788)		(1,147)		(601)
Total operating expense	15,755		11,330		30,354		24,629
Operating (loss) income	(12,044)		(2,313)		(23,584)		185
Other (expense) income:
Interest expense, net	(222)		(12)		(463)		(23)
Foreign exchange gain (loss)	46		(17)		121		25
Other income	46		—		153		—
Total other (expense) income	(130)		(29)		(189)		2
(Loss) income before income tax (expense) benefit	(12,174)		(2,342)		(23,773)		187
Income tax (expense) benefit	(54)		117		(148)		2
Net (loss) income	$	(12,228)	$	(2,225)	$	(23,921)	$	189
Foreign exchange translation adjustment	8		2		55		22
Comprehensive (loss) income	$	(12,220)	$	(2,223)	$	(23,866)	$	211
Per share data:
Net (loss) income per basic share	$	(0.27)	$	(0.06)	$	(0.58)	$	0.01
Weighted-average number of basic shares outstanding	45,240		37,217		41,356		37,082
Net (loss) income per diluted share	$	(0.27)	$	(0.06)	$	(0.58)	$	0.01
Weighted-average number of diluted shares outstanding	45,240		37,217		41,356		38,384

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

(Unaudited)


	Three Months Ended March 31,				Six Months Ended March 31,
(in thousands)	2023		2022		2023		2022
Shares of common stock
Balance, beginning of period	37,868		37,275		37,591		36,984
Stock-based compensation	561		120		838		405
Stock option exercises	—		—		—		6
Sale of common stock	15,455		—		15,455		—
Balance, end of period	53,884		37,395		53,884		37,395
Value of common stock
Balance, beginning of period	$	789,080	$	783,329	$	787,347	$	782,266
Stock-based compensation	1,535		1,144		3,269		2,232
Stock option exercises	—		—		—		29
Tax withholding paid on behalf of employees for stock-based awards	(143)		(102)		(144)		(156)
Sale of common stock	15,628		—		15,628		—
Balance, end of period	806,100		784,371		806,100		784,371
Treasury stock, beginning and end of period	(47,721)		(47,721)		(47,721)		(47,721)
Accumulated other comprehensive income
Balance, beginning of period	1,254		707		1,301		687
Translation adjustment	(8)		2		(55)		22
Balance, end of period	1,246		709		1,246		709
Accumulated deficit
Balance, beginning of period	(633,792)		(595,352)		(622,099)		(597,766)
Net (loss) income	(12,228)		(2,225)		(23,921)		189
Balance, end of period	(646,020)		(597,577)		(646,020)		(597,577)
Total shareholders’ equity	$	113,605	$	139,782	$	113,605	$	139,782

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

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EMCORE CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)


	Six Months Ended March 31,
(in thousands)	2023		2022
Cash flows from operating activities:
Net (loss) income	$	(23,921)	$	189
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
Depreciation and amortization expense	3,661		2,037
Stock-based compensation expense	3,269		2,232
Provision adjustments related to credit loss	59		165
Provision adjustments related to product warranty	9		139
(Gain) on disposal of property, plant, and equipment	(1,147)		(601)
Other	(158)		464
Total non-cash adjustments	5,693		4,436
Changes in operating assets and liabilities:
Accounts receivable and contract assets	(7,419)		4,351
Inventory	(2,980)		6,663
Other assets	(2,770)		(4,857)
Accounts payable	1,782		(4,893)
Contract liabilities	(1,052)		888
Operating lease liabilities - current	434		(260)
Accrued expenses and other liabilities	7,423		5,018
Total change in operating assets and liabilities	(4,582)		6,910
Net cash provided by operating activities	(22,810)		11,535
Cash flows from investing activities:
Purchase of equipment	(1,531)		(3,297)
Proceeds from disposal of property, plant, and equipment	10,915		1,128
Acquisition of business, net of cash acquired	96		—
Net cash used in investing activities	9,480		(2,169)
Cash flows from financing activities:
Proceeds from borrowings of credit facilities	392		—
Payments towards credit facilities	(3,865)		—
Proceeds from sale of common stock	15,628		—
Proceeds from employee stock purchase plans and exercise of equity awards	—		29
Taxes paid related to net share settlement of equity awards	(143)		(156)
Net cash (used in) provided by financing activities	12,012		(127)
Effect of exchange rate changes provided by foreign currency	16		28
Net (decrease) increase in cash, cash equivalents, and restricted cash	(1,302)		9,267
Cash, cash equivalents, and restricted cash at beginning of period	26,145		71,682
Cash, cash equivalents, and restricted cash at end of period	$	24,843	$	80,949
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the period for interest	$	639	$	30
Cash paid during the period for income taxes	$	64	$	361
NON-CASH INVESTING AND FINANCING ACTIVITIES
Changes in accounts payable related to purchases of equipment	$	(373)	$	(11)

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

(Unaudited)

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 inertial navigation products for the aerospace and defense markets. We leverage industry-leading Photonic Integrated Chip (PIC), Quartz MEMS, and Lithium Niobate chip-level technology to deliver state-of-the-art component and system-level products across our end-market applications. 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 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”). Our manufacturing facilities maintain ISO 9001 quality management certification, and we are AS9100 aerospace quality certified at our facilities in Budd Lake and Concord. These facilities support our vertically-integrated manufacturing strategy for quartz, FOG, and Ring Laser Gyro products for navigation systems.

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.

We follow the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 350, Intangibles-Goodwill and Other (“ASC 350”). ASC 350 requires the completion of a goodwill impairment test at least annually based on either an optional qualitative assessment or a quantitative analysis comparing the estimated fair value of a reporting unit to its carrying value as of the test date. In the current interim period ending March 31, 2023, we have elected to change our annual test date from December 31st of each year to July 1st of each year, unless there are indications requiring a more frequent impairment test. Any impairment charges would be based on the quantitative analysis. We performed our last test at December 31, 2022 and will perform our next test on July 1, 2023.

Going Concern

These consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles assuming we will continue as a going concern. The going concern assumption contemplates the realization of assets and satisfaction of liabilities in the normal course of business. However, substantial doubt about our ability to continue as a going concern exists.

We have recently experienced significant losses from our operations and used a significant amount of cash, amounting to a net loss of $23.9 million and net cash outflows from operations of $22.8 million for the six months ended March 31, 2023, and we expect to continue to incur losses and use cash in our operations as we continue to restructure our business. As a result of our recent cash outflows, we have taken actions to manage our liquidity and will need to continue to manage our liquidity as we continue to restructure our operations to focus on our Aerospace & Defense business. As of March 31, 2023, our cash and cash equivalents totaled $24.8 million and we had $13.6 million available under our Credit Agreement (as defined in Note 11 - Credit Agreement in the Notes to Condensed Consolidated Financial Statements).

We are evaluating the sufficiency of our existing balances of cash and cash equivalents, cash flows from operations, and amounts expected to be available under our Credit Agreement, together with additional actions we could take (including those made in connection with our restructuring program announced in April 2023) to further reduce our expenses and/or potentially

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raising capital through additional debt or equity issuances, or from the potential monetization of certain assets. However, we may not be successful in executing on our plans to manage our liquidity, including recognizing the expected benefits from our previously announced restructuring program, or raising additional funds if we elect to do so, and as a result substantial doubt about our ability to continue as a going concern exists.

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 on the acquisition date. Revenue and net income of S&N of $6.7 million and $0.4 million, respectively, is included in our condensed consolidated statements of operations and comprehensive (loss) income for the three months ended March 31, 2023. Revenue and net income of S&N of $12.3 million and $1.4 million, respectively, is included in our condensed consolidated statements of operations and comprehensive (loss) income for the six months ended March 31, 2023.

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 $8.8 million and $0.4 million, respectively, is included in our condensed consolidated statements of operations and comprehensive (loss) income for the three months ended March 31, 2023. Revenue and net income of EMCORE Chicago of $16.6 million and $1.7 million, respectively, is included in our condensed consolidated statements of operations and comprehensive (loss) income for the six months ended March 31, 2023.

Final Purchase Price Allocation

The total purchase price for the S&N acquisition was allocated to the assets acquired and liabilities assumed based on the estimated fair values as of the acquisition date. Since the acquisition, the purchase price allocation for S&N 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.

The table below represents the final 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:

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(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

Preliminary Purchase Price Allocation

The total purchase price for the EMCORE Chicago acquisition was allocated to the assets acquired and liabilities assumed based on the estimated fair values as of the acquisition date. Due to the fact that 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. 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.

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:


(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	13,246
Liabilities assumed:
Accounts payable	(1,699)
Accrued expenses	(485)
Contract liabilities	(637)
Other long-term liabilities	(8)
Total purchase consideration	$	54,889

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 and six months ended March 31, 2023, the Company incurred transitional and transaction costs of approximately $1.3 million and $3.3 million, respectively, 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. Goodwill from these acquisitions totaled $16.4 million, of which 80.7% was the

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result of the EMCORE Chicago acquisition, which expanded EMCORE's competitive position in the Inertial Navigation market.

Unaudited Pro Forma Financial Information

The following unaudited pro forma financial information presented for the three and six months ended March 31, 2022 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, 2021, 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.


	Three Months Ended March 31, 2022
	Historical
(in thousands, except per share data)	EMCORE Corporation (excluding EMCORE Chicago)		EMCORE Chicago		Pro Forma Adjustments			Pro Forma Combined
Revenue	$	32,650	$	7,698	$	—		$	40,348
Cost of revenue	23,633		5,827		171		(a)	29,631
Gross profit	9,017		1,871		(171)			10,717
Operating expense:
Selling, general, and administrative	7,563		2,905		(1,026)		(a)(b)	9,442
Research and development	4,535		1,443		(264)		(a)(b)	5,714
Severance	20		—		—			20
(Gain) loss on sale of assets	(788)		—		—			(788)
Total operating expense	11,330		4,348		(1,290)			14,388
Operating (loss) income	(2,313)		(2,477)		1,119			(3,671)
Other (expense) income:
Interest expense, net	(12)		—		318		(c)	306
Foreign exchange gain	(17)		—		—			(17)
Other income	—		34		—			34
Total other (expense) income	(29)		34		318			323
(Loss) income before income tax expense	(2,342)		(2,443)		1,437			(3,348)
Income tax expense	117		(13)		(6)		(d)(e)	98
Net (loss) income	(2,225)		(2,456)		1,431			(3,250)
Foreign exchange translation adjustment	2		—		—			2
Comprehensive (loss) income	$	(2,223)	$	(2,456)	1,431			$	(3,248)
Per share data:
Net (loss) income per basic share	$	0.06			$	—		$	(0.09)
Weighted-average number of basic shares outstanding	37,217				—			37,217
Net (loss) income per diluted share	$	0.06			$	—		$	(0.09)
Weighted-average number of diluted shares outstanding	37,217				—			37,217

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	Six Months Ended March 31, 2022
	Historical
(in thousands, except per share data)	EMCORE Corporation (excluding EMCORE Chicago)		EMCORE Chicago		Pro Forma Adjustments			Pro Forma Combined
Revenue	$	74,886	$	15,396	$	—		$	90,282
Cost of revenue	50,072		11,655		342		(a)	62,069
Gross profit	24,814		3,741		(342)			28,213
Operating expense:
Selling, general, and administrative	14,750		5,589		(2,051)		(a)(b)	18,288
Research and development	9,162		2,887		(529)		(a)(b)	11,520
Severance	1,318		—		—			1,318
(Gain) loss on sale of assets	(601)		—		—			(601)
Total operating expense	24,629		8,476		(2,580)			30,525
Operating (loss) income	185		(4,735)		2,238			(2,312)
Other (expense) income:								0
Interest expense, net	(23)		—		636		(c)	613
Foreign exchange gain	25		—		—			25
Other income	—		68		—			68
Total other (expense) income	2		68		636			706
(Loss) income before income tax expense	187		(4,667)		2,874			(1,606)
Income tax expense	2		(25)		(11)		(d)(e)	(34)
Net (loss) income	189		(4,692)		2,863			(1,640)
Foreign exchange translation adjustment	22		—		—			22
Comprehensive (loss) income	$	211	$	(4,692)	2,863			$	(1,618)
Per share data:
Net (loss) income per basic share	$	0.01			$	—		$	(0.04)
Weighted-average number of basic shares outstanding	37,082				—			37,082
Net (loss) income per diluted share	$	0.01			$	—		$	(0.04)
Weighted-average number of diluted shares outstanding	38,384				—			38,384

(a) Reflects the impact to depreciation expense and amortization expense as a result of the change in fair value of property, plant, and equipment and intangible assets acquired. Adjustment was made to the unaudited pro forma condensed combined statements of operations for the three and six months ended March 31, 2022.

(b) Reflects the deduction of various sales, general, and administrative and research and development expenses allocated from corporate overhead to EMCORE Chicago during the periods presented that will not be incurred on an ongoing basis as a result of existing EMCORE management structures in place, which will provide the same support to EMCORE Chicago upon completion of a transition services agreement entered into between EMCORE and KVH in connection with the EMCORE Chicago acquisition. Amounts were estimated based on historical allocation included in the stand-alone financial statements of EMCORE Chicago. However, actual costs to be incurred associated with corporate support may vary under the EMCORE structure.

(d) Reflects the current tax expense due to additional income and deferred income tax expense related to deferred tax liability generated from annual tax amortization of indefinite-lived assets that were acquired for the periods presented. Such amounts were determined based on the effective tax rate of EMCORE rather than statutory tax rates as a result of a tax valuation allowance covering substantially all deferred tax assets and the existence of tax loss carryforwards present at both entities.

(e) Reflects the deduction of the income tax expense related to the FIN 48 liability of EMCORE Chicago that is not assumed by EMCORE.

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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:


(in thousands)	March 31, 2023		September 30, 2022
Cash	$	18,635	$	20,011
Cash equivalents	5,713		5,614
Restricted cash	495		520
Total cash, cash equivalents, and restricted cash	$	24,843	$	26,145

NOTE 5. Accounts Receivable, net

The components of accounts receivable, net consisted of the following:


(in thousands)	March 31, 2023		September 30, 2022
Accounts receivable, gross	$	22,975	$	18,410
Allowance for credit loss	(396)		(337)
Accounts receivable, net	$	22,579	$	18,073

NOTE 6. Inventory

The components of inventory consisted of the following:


(in thousands)	March 31, 2023		September 30, 2022
Raw materials	$	26,187	$	22,927
Work in-process	9,590		9,587
Finished goods	4,309		4,521
Inventory	$	40,086	$	37,035

NOTE 7. Property, Plant, and Equipment, net

The components of property, plant, and equipment, net consisted of the following:


(in thousands)	March 31, 2023		September 30, 2022
Land	$	—	$	995
Building	—		8,805
Equipment	47,284		42,330
Furniture and fixtures	1,571		1,394
Computer hardware and software	3,379		3,378
Leasehold improvements	7,772		7,180
Construction in progress	5,264		9,886
Property, plant, and equipment, gross	$	65,270	$	73,968
Accumulated depreciation	(38,945)		(36,101)
Property, plant, and equipment, net	$	26,325	$	37,867

Depreciation expense totaled $1.6 million and $3.0 million during the three and six months ended March 31, 2023, respectively and $1.0 million and $2.0 million during the three and six months ended March 31, 2022, respectively. During the six months ended March 31, 2023, the Company consummated the sale of the real property interests in the Tinley Park Facility to 8400 W 185TH STREET INVESTORS, LLC, resulting in net proceeds of approximately $10.3 million and a gain on sale of assets of

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$1.2 million. During the three and six months ended March 31, 2022, we sold certain equipment and incurred a gain on sale of assets of $0.8 million and $0.6 million, respectively.

During the quarter ended September 30, 2022, there was a triggering event of negative cash flows and operating losses at the FOG asset group level within the Inertial Navigation product line of the A&D segment that indicated the carrying amounts of our long-lived assets may not be recoverable. In accordance with ASC 360, with regard to our long-lived assets, we performed an undiscounted cash flow analysis and concluded that the carrying value of the asset group was not recoverable. Accordingly, we then performed an analysis to estimate the fair value of the other long-lived assets and recognized an impairment charge within operating expenses of $3.0 million against the FOG property, plant, and equipment by the amount by which the carrying value of the asset group's other long-lived assets exceeded their estimated fair value for the fiscal year ended September 30, 2022. Key assumptions utilized in the determination of fair value include expected future cash flows and working capital requirements. While we believe the expectations and assumptions about the future are reasonable, they are inherently uncertain.

Geographical Concentrations

Long-lived assets consist of land, building, property, plant, and equipment. As of March 31, 2023 and September 30, 2022, 94.7% and 95.4%, respectively, of our long-lived assets were located in the United States.

NOTE 8. Intangible Assets and Goodwill

Intangible assets arose from the acquisition of SDI in fiscal year 2019 and the acquisitions of S&N and EMCORE Chicago in fiscal year 2022 and are reported within the A&D segment. Definite-lived intangible assets are amortized on a straight-line basis over the estimated useful life of: (a) 7.0 years for patents, (b) 8.0 years for customer relationships, and (c) 2.0-8.0 years for technology. In-process research and development (“IPR&D”) is indefinite-lived until completion of the related development project, at which point amortization of the carrying value of the technology will commence. Trademarks are indefinite-lived.

The following table summarizes changes in intangible assets, net:


(in thousands)	March 31, 2023		September 30, 2022
Balance at beginning of period	$	14,790	$	167
Changes from acquisition	770		14,740
Amortization	(613)		(117)
Balance at end of period	$	14,947	$	14,790

The weighted average remaining useful lives by definite-lived intangible asset category are as follows:


	March 31, 2023
(in thousands, except weighted average remaining life)	Weighted Average Remaining Life (in years)	Gross Carrying Amount		Accumulated Amortization		Net Book Value
Technology	3.6	$	11,001	$	(8,587)	$	2,414
Customer relationships	3.1	3,990		(337)		3,653
Definite-lived intangible assets total		$	14,991	$	(8,924)	$	6,067

As of March 31, 2023, IPR&D and trademarks was approximately $6.7 million and $2.2 million, respectively.


	September 30, 2022
(in thousands, except weighted average remaining life)	Weighted Average Remaining Life (in years)	Gross Carrying Amount		Accumulated Amortization		Net Book Value
Technology	5.4	$	10,991	$	(8,261)	$	2,730
Customer relationships	4.6	3,260		(50)		3,210
Definite-lived intangible assets total		$	14,251	$	(8,311)	$	5,940

As of September 30, 2022, IPR&D and trademarks was approximately $6.7 million and $2.2 million, respectively.

Estimated future amortization expense for intangible assets recorded by the Company as of March 31, 2023 is as follows:

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(in thousands)	Amount
2023	$	575
2024	1,131
2025	1,104
2026	702
2027	679
Thereafter	1,876
Total amortization expense	$	6,067

Goodwill is recorded when the consideration for an acquisition exceeds the fair value of net tangible and identifiable intangible assets acquired. None of the Company's goodwill is deductible for tax purposes. The following table summarizes changes in goodwill:


(in thousands)	March 31, 2023		September 30, 2022
Balance at beginning of period	$	17,894	$	69
Adjustments to preliminary purchase price allocation	(1,472)		17,825
Balance at end of period	$	16,422	$	17,894

NOTE 9. 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. On July 1, 2022, the Pension Plan was amended to freeze benefit plan accruals for participants. As a result of the freeze, a curtailment was triggered and a restatement of the benefit obligation and plan assets occurred, although no gain or loss resulted. The annual measurement date for the Pension Plan is September 30. 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 maintain 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 three and six months ended March 31, 2023 and do not anticipate making any contributions for the remainder of the fiscal year ending September 30, 2023.

The components of net periodic pension cost are as follows:


(in thousands)	Three Months Ended March 31, 2023		Six Months Ended March 31, 2023
Service cost	$	26	$	52
Interest cost	93		186
Expected return on plan assets	(84)		(168)
Net periodic pension cost	$	35	$	70

The service cost component of total pension expense is included as a component of SG&A expense on the condensed consolidated statements of operations and comprehensive (loss) income for the three and six months ended March 31, 2023. The interest cost and expected return on plan assets components of total pension expense are included as components of other (expense) income on the condensed consolidated statements of operations and comprehensive (loss) income for the three and six months ended March 31, 2023.

Net pension asset is included as a component of other non-current assets on the condensed consolidated balance sheets as of March 31, 2023. As of March 31, 2023, the Pension Plan assets consist of cash and cash equivalents, and we manage a liability driven investment strategy intended to maintain fully-funded status.

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. Our matching contribution in cash for the three and six months ended March 31, 2023, was $0.4 million and $0.6 million, respectively. Our matching contribution in cash for the three and six months ended March 31, 2022, was $0.3 million and $0.6 million, respectively.

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NOTE 10. Accrued Expenses and Other Current Liabilities

The components of accrued expenses and other current liabilities consisted of the following:


(in thousands)	March 31, 2023		September 30, 2022
Compensation	$	6,296	$	4,213
Warranty	1,544		1,504
Commissions	407		228
Consulting	315		241
Legal expenses and other professional fees	618		275
Auditor fees	416		186
Income and other taxes	84		—
Severance and restructuring accruals	572		423
Litigation settlement	658		341
Other	967		713
Accrued expenses and other current liabilities	$	11,877	$	8,124

In an effort to better align business operations related to CATV product lines, we reduced our workforce and recorded $1.4 million in severance expense in the six months ended March 31, 2023. Severance and restructuring-related accruals specifically relate to the reductions in force. Expense related to severance and restructuring accruals is included in SG&A expense on the condensed consolidated statements of operations and comprehensive (loss) income. We expect all severance related to these workforce reductions that occurred in the six months ended March 31, 2023 to be fully paid by the quarter ending December 31, 2023.

NOTE 11. Credit Agreement

Wingspire Credit Agreement

On August 9, 2022, EMCORE and EMCORE Space & Navigation Corporation, our wholly-owned subsidiary, entered into that certain Credit Agreement with the lenders party thereto and Wingspire Capital LLC (“Wingspire”), as administrative agent for the lenders, as amended pursuant to that First Amendment to Credit Agreement, dated as of October 25, 2022, among EMCORE and EMCORE Space & Navigation Corporation, EMCORE Chicago Inertial Corporation, our wholly-owned subsidiary (together with the Company and S&N, the “Borrowers”), the lenders party thereto and Wingspire, to add EMCORE Chicago as a Borrower and include certain of its assets in the borrowing base (as amended, the “Credit Agreement”). The Credit Agreement provides for two credit facilities: (a) an asset-based revolving credit facility in an aggregate principal amount of up to $40.0 million, subject to a borrowing base consisting of eligible accounts receivable and eligible inventory (subject to certain reserves), and (b) a term loan facility in an aggregate principal amount of approximately $6.0 million.

The proceeds of the loans made under the Credit Agreement may be used for general corporate purposes. Borrowings under the Credit Agreement will mature on August 8, 2025, and bear interest at a rate per annum equal to term SOFR plus a margin of (i) 3.75% or 5.50% in the case of revolving loans, depending on the applicable assets corresponding to the borrowing base pursuant to which the applicable loans are made and (ii) 5.50% in the case of the term loan. In addition, the Borrowers are responsible for Wingspire’s annual collateral monitoring fees as well as the lenders’ fees and expenses, including a closing fee of 1.0% of the aggregate principal amount of the commitments as of the closing with respect to revolving loans and 1.50% of the aggregate principal amount of the term loan. The Borrowers may also be required to pay an unused line fee of 0.50% in respect of the undrawn portion of the revolving commitments, which is generally based on average daily usage of the revolving facility during the immediately preceding month.

The Credit Agreement contains representations and warranties, affirmative and negative covenants that are generally customary for credit facilities of this type. Among others, the Credit Agreement contains various covenants that, subject to agreed upon exceptions, limit the Borrowers’ and their respective subsidiaries’ ability to incur indebtedness, grant liens, enter into sale and leaseback transactions, enter into swap agreements, make loans, acquisitions and investments, change the nature of their business, acquire or sell assets or consolidate or merge with or into other persons or entities, declare or pay dividends or make other restricted payments, enter into transactions with affiliates, enter into burdensome agreements, change fiscal year, amend organizational documents, and use proceeds to fund any activities of or business with any person that is the subject of governmental sanctions. In addition, the Credit Agreement requires that, for any period commencing upon the occurrence of an event of default or excess availability under the Credit Agreement being less than the greater of $5.0 million and 15% of the

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revolving commitments until such time as no event of default shall be continuing and excess availability under the Credit Agreement shall be at least the greater of $

Form: 10-Q

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