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Table of Contents

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, 2022
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___ to ___

Commission File Number 001-36632
https://cdn.kscope.io/79deb689747609bb9f31f9a4ae788b07-emkr-20220331_g1.jpg
EMCORE Corporation
(Exact name of registrant as specified in its charter)
New Jersey22-2746503
(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 ClassTrading SymbolName of Each Exchange on Which Registered
Common stock, no par valueEMKRThe 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 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 May 2, 2022, the number of shares outstanding of our no par value common stock totaled 37,521,023.



Table of Contents

EMCORE Corporation
FORM 10-Q
For the Quarterly Period Ended March 31, 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 or the L3Harris Space and Navigation ("S&N") business may not meet our expectations, (b) the costs and cash expenditures for integration of the S&N business operations may be higher than expected, (c) there could be losses and liabilities arising from the acquisition of SDI or S&N that we will not be able to recover from any source and (d) we may not realize sufficient scale in our Navigation and Inertial Sensing product line from the SDI acquisition and the S&N 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 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, 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 Six Months Ended March 31, 2022 and 2021
(in thousands, except per share data)
(unaudited)

For the Three Months Ended March 31,For the Six Months Ended March 31,
2022202120222021
Revenue$32,650 $38,406 $74,886 $71,832 
Cost of revenue23,633 23,772 50,072 44,626 
Gross profit9,017 14,634 24,814 27,206 
Operating expense:
Selling, general, and administrative7,563 6,062 14,750 11,860 
Research and development4,535 3,771 9,162 8,067 
Severance20  1,318  
(Gain) loss on sale of assets(788)218 (601)189 
Total operating expense11,330 10,051 24,629 20,116 
Operating (loss) income(2,313)4,583 185 7,090 
Other (expense) income:
Interest expense, net(12)(49)(23)(98)
Foreign exchange (loss) gain(17)(68)25 169 
Total other (expense) income(29)(117)2 71 
(Loss) income before income tax benefit (expense)(2,342)4,466 187 7,161 
Income tax benefit (expense)117 (82)2 (208)
Net (loss) income$(2,225)$4,384 $189 $6,953 
Foreign exchange translation adjustment2 (11)22 (21)
Comprehensive (loss) income$(2,223)$4,373 $211 $6,932 
Per share data
Net (loss) income per basic share$(0.06)$0.13 $0.01 $0.22 
Weighted-average number of basic shares outstanding37,217 32,968 37,082 31,219 
Net (loss) income per diluted share$(0.06)$0.13 $0.01 $0.21 
Weighted-average number of diluted shares outstanding37,217 34,451 38,384 32,492 

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 March 31, 2022 and September 30, 2021
(in thousands)
(unaudited)

As of
March 31, 2022September 30, 2021
ASSETS
Current assets:
Cash and cash equivalents$80,928 $71,621 
Restricted cash21 61 
Accounts receivable, net of credit loss of $225 and $260, respectively
27,203 31,849 
Contract assets491 361 
Inventory28,049 32,309 
Prepaid expenses and other current assets6,543 6,877 
Assets held for sale735 1,241 
Total current assets143,970 144,319 
Property, plant, and equipment, net23,837 22,544 
Goodwill69 69 
Operating lease right-of-use assets19,930 13,489 
Other intangible assets, net149 167 
Other non-current assets213 225 
Total assets$188,168 $180,813 
LIABILITIES and SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable$15,317 $16,686 
Accrued expenses and other current liabilities10,470 9,936 
Operating lease liabilities - current938 1,198 
Total current liabilities26,725 27,820 
Operating lease liabilities - non-current19,479 12,684 
Asset retirement obligations2,067 2,049 
Other long-term liabilities115 794 
Total liabilities48,386 43,347 
Commitments and contingencies (Note 10)
Shareholders’ equity:
Common stock, no par value, 50,000 shares authorized; 44,301 shares issued and 37,395 shares outstanding as of March 31, 2022; 43,890 shares issued and 36,984 shares outstanding as of September 30, 2021
784,371 782,266 
Treasury stock at cost; 6,906 shares as of March 31, 2022 and September 30, 2021
(47,721)(47,721)
Accumulated other comprehensive income709 687 
Accumulated deficit(597,577)(597,766)
Total shareholders’ equity139,782 137,466 
Total liabilities and shareholders’ equity$188,168 $180,813 

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 Six Months Ended March 31, 2022 and 2021
(in thousands)
(unaudited)

For the Three Months Ended March 31,For the Six Months Ended March 31,
2022202120222021
Shares of common stock
Balance, beginning of period37,275 29,783 36,984 29,551 
Stock-based compensation120 203 405 433 
Stock option exercises 8 6 10 
Issuance of common stock - ESPP 126  126 
Sale of common stock 6,655  6,655 
Balance, end of period37,395 36,775 37,395 36,775 
Value of common stock
Balance, beginning of period$783,329 $745,188 $782,266 $744,361 
Stock-based compensation1,144 931 2,232 1,834 
Stock option exercises 39 29 46 
Tax withholding paid on behalf of employees for stock-based awards(102) (156)(83)
Issuance of common stock - ESPP 382  382 
Sale of common stock, net of offering costs 33,141  33,141 
Balance, end of period784,371 779,681 784,371 779,681 
Treasury stock, beginning and ending of period(47,721)(47,721)(47,721)(47,721)
Accumulated other comprehensive income
Balance, beginning of period707 908 687 918 
Translation adjustment2 (11)22 (21)
Balance, end of period709 897 709 897 
Accumulated deficit
Balance, beginning of period(595,352)(620,840)(597,766)(623,409)
Net (loss) income(2,225)4,384 189 6,953 
Balance, end of period(597,577)(616,456)(597,577)(616,456)
Total shareholders’ equity$139,782 $116,401 $139,782 $116,401 

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
For the Six Months Ended March 31, and 2021
(in thousands)
(unaudited)

For the Six Months Ended March 31,
20222021
Cash flows from operating activities:
Net income$189 $6,953 
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization expense2,037 1,989 
Stock-based compensation expense2,232 1,825 
Provision adjustments related to credit loss165 (52)
Provision adjustments related to product warranty139 222 
(Gain) loss on disposal of property, plant, and equipment(601)189 
Other464 (292)
Total non-cash adjustments4,436 3,881 
Changes in operating assets and liabilities:
Accounts receivable and contract assets4,351 (3,574)
Inventory6,663 (3,909)
Other assets(4,857)1,121 
Accounts payable(4,893)(660)
Accrued expenses and other current liabilities5,646 (2,040)
Total change in operating assets and liabilities6,910 (9,062)
Net cash provided by operating activities11,535 1,772 
Cash flows from investing activities:
Purchase of equipment(3,297)(1,142)
Proceeds from disposal of property, plant, and equipment1,128 583 
Net cash used in investing activities(2,169)(559)
Cash flows from financing activities:
Proceeds from employee stock purchase plan and equity awards29 428 
Proceeds from sale of common stock 35,937 
Issuance cost associated with sale of common stock (2,796)
Taxes paid related to net share settlement of equity awards(156)(83)
Net cash (used in) provided by financing activities(127)33,486 
Effect of exchange rate changes provided by foreign currency28 44 
Net increase in cash, cash equivalents, and restricted cash9,267 34,743 
Cash, cash equivalents, and restricted cash at beginning of period71,682 30,538 
Cash, cash equivalents, and restricted cash at end of period$80,949 $65,281 
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the period for interest$30 $31 
Cash paid during the period for income taxes$361 $295 
NON-CASH INVESTING AND FINANCING ACTIVITIES
Changes in accounts payable related to purchases of equipment$(11)$(256)

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

EMCORE Corporation (referred to herein, together with its subsidiaries, as the “Company,” “we,” “our,” or “EMCORE”) is a leading provider of sensors for navigation in the aerospace and defense market as well as a manufacturer of lasers and optical subsystems for use in the Cable TV ("CATV") industry. We pioneered the linear fiber optic transmission technology that enabled the world’s first delivery of CATV directly on fiber, and today are a leading provider of advanced products that enable communications systems and service providers to meet growing demand for increased bandwidth and connectivity. The technology at the heart of our broadband communications products is shared with our fiber optic gyroscope (“FOG”) and inertial sensors to provide the aerospace and defense markets with state-of-the-art navigation systems technology. With the acquisition of Systron Donner Inertial, Inc. ("SDI"), a navigation systems provider with a scalable, chip-based platform for higher volume gyro applications utilizing quartz micro-electromechanical system ("QMEMS") technology, in June 2019, we further expanded our portfolio of gyros and inertial sensors with SDI’s QMEMS gyro and accelerometer technology. We have fully vertically-integrated manufacturing capability through our indium phosphide ("InP") compound semiconductor wafer fabrication facility at our headquarters in Alhambra, CA, and through our quartz processing and sensor manufacturing facility in Concord, CA. These facilities support our vertically-integrated manufacturing strategy for quartz and FOG products, for navigation systems, and for our chip, laser, transmitter, and receiver products for broadband applications. With both analog and digital circuits on multiple chips, or even a single chip, the value of Mixed-Signal device solutions is often substantially greater than traditional digital applications and requires a specialized expertise held by us which is unique in the optics industry.

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, 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

There have been no material changes in our significant accounting policies and estimates from those disclosed in our Annual Report on Form 10-K for the fiscal year ended September 30, 2021.

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. If these estimates differ significantly from actual results, the impact to the condensed consolidated financial statements may be material.

Recent Accounting Pronouncements

We recently adopted the following accounting standards, which had the following impacts on our 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
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October 1, 2021. The 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. 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)March 31, 2022September 30, 2021
Cash$25,847 $16,547 
Cash equivalents55,081 55,074 
Restricted cash21 61 
Total cash, cash equivalents, and restricted cash$80,949 $71,682 

NOTE 4. Accounts Receivable, net

The components of accounts receivable consisted of the following:
As of
(in thousands)March 31, 2022September 30, 2021
Accounts receivable, gross$27,428 $32,109 
Allowance for credit loss(225)(260)
Accounts receivable, net$27,203 $31,849 

NOTE 5. Inventory

The components of inventory consisted of the following:
As of
(in thousands)March 31, 2022September 30, 2021
Raw materials$14,861 $16,146 
Work in-process9,864 11,410 
Finished goods3,324 4,753 
Inventory$28,049 $32,309 

NOTE 6. Property, Plant, and Equipment, net

The components of property, plant, and equipment, net consisted of the following:
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As of
(in thousands)March 31, 2022September 30, 2021
Equipment$38,944 $37,985 
Furniture and fixtures1,125 1,125 
Computer hardware and software3,576 3,575 
Leasehold improvements6,701 6,663 
Construction in progress11,377 9,247 
Property, plant, and equipment, gross$61,723 $58,595 
Accumulated depreciation(37,886)(36,051)
Property, plant, and equipment, net$23,837 $22,544 

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 March 31, 2022 and September 30, 2021 was $0.7 million and $1.2 million, respectively. During the three months ended March 31, 2022 and 2021, the Company sold certain equipment and recognized a (gain) loss on sale of assets of $(0.8) million and $0.2 million, respectively. During the six months ended March 31, 2022 and 2021, the Company sold certain equipment and recognized a (gain) loss on sale of assets of $(0.6) million and $0.2 million, respectively.

Geographical Concentrations

Long-lived assets consist of land, building, property, plant, and equipment. As of March 31, 2022 and September 30, 2021, 97% and 96%, respectively, of our long-lived assets were located in the United States. The remaining long-lived assets are primarily located in China.

NOTE 7. Accrued Expenses and Other Current Liabilities

The components of accrued expenses and other current liabilities consisted of the following:
As of
(in thousands)March 31, 2022September 30, 2021
Compensation$5,028 $7,192 
Warranty1,112 1,125 
Legal expenses and other professional fees370 152 
Contract liabilities582 364 
Income and other taxes 104 
Severance and restructuring accruals845  
Deferred revenue674 4 
Litigation settlement575 70 
Other1,284 925 
Accrued expenses and other current liabilities$10,470 $9,936 

NOTE 8. Credit Facility and Debt

Credit Facility

On November 11, 2010, we entered into a Credit and Security Agreement (as amended to date, the “Credit Facility”) with Wells Fargo Bank, N.A. ("Wells Fargo"). The Credit Facility is secured by the Company’s assets and is subject to a borrowing base formula based on the Company’s eligible accounts receivable, inventory, and machinery and equipment accounts. In February 2022, we entered into an extension wherein the Credit Facility is to mature in May 2022. The Credit Facility currently provides us with a revolving credit line of up to $15.0 million at an interest rate equal to LIBOR plus 1.75%, subject to a borrowing base formula, that can be used for working capital requirements, letters of credit, acquisitions, and other general corporate purposes subject to a requirement, for certain specific uses, that the Company has liquidity of at least $25.0 million after such use. The Credit Facility requires us to maintain (a) liquidity of at least $10.0 million and (b) excess availability of at least $1.0 million.

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As of March 31, 2022, there was no amount outstanding under this Credit Facility and the Company was in compliance with all financial covenants. Also, as of March 31, 2022, the Credit Facility had $0.5 million reserved for one outstanding stand-by letter of credit and $6.1 million available for borrowing.

NOTE 9. Income and Other Taxes

During the three months ended March 31, 2022 and 2021, the Company recorded an income tax benefit of $117 thousand and income tax expense of $82 thousand, respectively. Income tax benefit during the three months ended March 31, 2022 is composed primarily of state minimum taxes. Income tax expense during the three months ended March 31, 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 six months ended March 31, 2022 and 2021, the Company recorded an income tax benefit of $2 thousand and income tax expense of $208 thousand. Income tax benefit for the six months ended March 31, 2022 is composed primarily of state minimum taxes. Income tax expense for the six months ended March 31, 2021 is composed primarily of state tax expense which is driven by the State of California's temporary suspension of NOL utilization.

For the three months ended March 31, 2022 and 2021 the effective tax rate on continuing operations was (5.0)% and 1.8%, respectively. For the six months ended March 31, 2022 and 2021 the effective tax rate on continuing operations was 1.1% and 2.9%, respectively. The tax rate for the three and six months ended March 31, 2022 is primarily driven by the state minimum 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 March 31, 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 March 31, 2022. 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 March 31, 2022 and September 30, 2021, we had no uncertain tax benefit reserved and no interest and penalties accrued as tax liabilities on our balance sheet. During the three and six months ended March 31, 2022 and 2021, there were no material increases or decreases in unrecognized tax benefits.

NOTE 10. 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.
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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 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 11. 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”:

the 2010 Equity Incentive Plan,
the 2012 Equity Incentive Plan, and
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:
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For the Three Months Ended March 31,For the Six Months Ended March 31,
(in thousands)2022202120222021
Employee stock options$ $1 $ $2 
RSUs and RSAs549 501 1,103 932 
PSUs and PRSAs487 269 894 586 
ESPP 84  173 
Outside director equity awards and fees in common stock108 76 235 141 
Total stock-based compensation expense$1,144 $931 $2,232 $1,834 

The following table sets forth stock-based compensation expense by expense type:
For the Three Months Ended March 31,For the Six Months Ended March 31,
(in thousands)2022202120222021
Cost of revenue$178 $203 $329 $344 
Selling, general, and administrative781 519 1,536 1,078 
Research and development185 209 367 412 
Total stock-based compensation expense$1,144 $931 $2,232 $1,834 

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. Since June 2015, all employer contributions are made in cash. During each of the three months ended March 31, 2022 and 2021, our matching contribution in cash was $0.3 million. During each of the six months ended March 31, 2022 and 2021, our matching contribution in cash was $0.6 million.

Income Per Share

The following table sets forth the computation of basic and diluted net income per share:
For the Three Months Ended March 31,For the Six Months Ended March 31,
(in thousands, except per share data)2022202120222021
Numerator
Net (loss) income$(2,225)$4,384 $189 $6,953 
Denominator
Weighted average number of shares outstanding - basic37,217 32,968 37,082 31,219 
Effect of dilutive securities
Stock options 6 4 2 
PSUs, RSUs, and restricted stock 1,477 1,298 1,271 
Weighted average number of shares outstanding - diluted37,217 34,451 38,384 32,492 
Earnings per share - basic$(0.06)$0.13 $0.01 $0.22 
Earnings per share - diluted$(0.06)$0.13 $0.01 $0.21 
Weighted average antidilutive options, unvested restricted RSUs and RSAs, unvested PSUs and ESPP shares excluded from the computation75 1,536 72 1,331 

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
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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.

Future Issuances

As of March 31, 2022, we had common stock reserved for the following future issuances:
Number of Common Stock Shares Available for Future Issuances
Exercise of outstanding stock options13,884 
Unvested RSUs and RSAs2,445,307 
Unvested PSUs and PRSAs (at 200% maximum payout)
4,098,106 
Issuance of stock-based awards under the Equity Plans312,137 
Purchases under the officer and director share purchase plan88,741 
Total reserved6,958,175 

NOTE 12. 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.

Information on reportable segments utilized by the chief operating decision maker is as follows:
(in thousands)For the Three Months Ended March 31,For the Six Months Ended March 31,
2022202120222021
Revenue
Aerospace and Defense$9,006 $13,134 $18,906 $26,770 
Broadband23,644 25,272 55,980 45,062 
Total revenue$32,650 $38,406 $74,886 $71,832 
Segment income
Aerospace and Defense gross profit$1,233 $3,775 $2,917 $7,875 
Aerospace and Defense research and development expense4,041 3,157 8,203 6,843 
Aerospace and Defense segment profit$(2,808)$618 $(5,286)$1,032 
Broadband gross profit$7,784 $10,859 $21,897 $19,331 
Broadband research and development expense494 614 959 1,224 
Broadband segment profit$7,290 $10,245 $20,938 $18,107 
Consolidated segment profit$4,482 $10,863 $15,652 $19,139 
Unallocated expense
Selling, general, and administrative$7,563 $6,062 $14,750 $11,860 
Severance20  1,318  
(Gain) loss on sale of assets(788)218 (601)189 
Interest expense, net12 49 23 98 
Foreign exchange loss (gain)17 68 (25)(169)
Total unallocated expense$6,824 $6,397 $15,465 $11,978 
(Loss) income before income tax benefit (expense)$(2,342)$4,466 $187 $7,161 
Product Categories
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Revenue is classified by major product category and is presented below:
For the Three Months Ended March 31,
(in thousands)2022% of
Revenue
2021% of
Revenue
Aerospace and Defense
Navigation and Inertial Sensing$7,615 23 %$8,993 23 %
Defense Optoelectronics1,391 4 4,141 11 
Broadband
CATV Lasers and Transmitters20,984 64 21,120 55 
Chip Devices1,113 3 841 2 
Other Optical Products1,547 5 3,311 9 
Total revenue$32,650 100 %$38,406 100 %

For the Six Months Ended March 31,
(in thousands)2022% of
Revenue
2021% of
Revenue
Aerospace and Defense
Navigation and Inertial Sensing$15,760 21 %$18,195 25 %
Defense Optoelectronics3,146 4 8,575 12 
Broadband
CATV Lasers and Transmitters49,443 66 38,435 54 
Chip Devices2,181 3 1,584 2 
Other Optical Products4,356 6 5,043 7 
Total revenue$74,886 100 %$71,832 100 %
Geographical Concentration

The following table sets forth revenue by geographic area based on our customers’ billing address:
For the Three Months Ended March 31,For the Six Months Ended March 31,
(in thousands)2022202120222021
United States and Canada$29,652 $33,106 $67,708 $62,452 
Asia1,728 4,145 4,814 7,170 
Europe936 558 1,756 1,214 
Other334 597 608 996 
Total revenue$32,650 $38,406 $74,886 $71,832 

Significant Customers

Significant customers are defined as customers representing greater than 10% of consolidated revenue. Significant portions of the Company’s sales are concentrated among a limited number of customers. Revenue from two and three of our significant customers represented an aggregate of 62% and 68% of our consolidated revenue for the three months ended March 31, 2022 and 2021, respectively. Revenue from two and three of our significant customers represented an aggregate of 64% and 69% of our consolidated revenue for the six months ended March 31, 2022 and 2021, respectively. The percentage from significant customers decreased due to lower Aerospace and Defense revenue.

The duration, severity, and future impact of the COVID-19 pandemic is highly uncertain and could result in significant disruptions to the business operations of the Company’s customers. If one or more of these significant customers significantly decreases their orders for the Company’s products, or if we are unable to deliver finished products to the customer in connection with such orders, the Company’s business could be materially and adversely affected.

NOTE 13. Subsequent Event

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On April 29, 2022, we completed the previously announced acquisition of the L3Harris Technologies, Inc. (“L3H”) Space and Navigation business (“S&N”) pursuant to that certain Sale Agreement, dated as of February 14, 2022 (as amended, the “Sale Agreement”), entered into by and among the Company, Ringo Acquisition Sub, Inc. and L3H, pursuant to which we acquired certain intellectual property, assets, and liabilities of S&N for aggregate consideration of approximately $5.0 million, exclusive of transaction costs and expenses and subject to certain post-closing working capital adjustments. In consideration of the recency of the completion of the purchase, we have not completed the initial accounting for the business combination and have not evaluated stand-alone acquiree revenue and earnings in the pre-acquistion period for supplemental pro-forma presentation and, accordingly have not included disclosure related to such items.
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ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

You should read the following discussion of our financial condition and results of operations in conjunction with the financial statements and the notes thereto included in Financial Statements under Item 1 within this Quarterly Report. The following discussion contains forward-looking statements that reflect our plans, estimates, and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements. See Cautionary Statement Regarding Forward-Looking Statements preceding Item 1 of this Quarterly Report.

Business Overview

EMCORE Corporation (referred to herein, together with its subsidiaries, as the “Company,” “we,” “our,” or “EMCORE”) is a leading provider of sensors for navigation in the aerospace and defense market as well as a manufacturer of lasers and optical subsystems for use in the Cable TV ("CATV") industry.

We pioneered the linear fiber optic transmission technology that enabled the world’s first delivery of CATV directly on fiber, and today are a leading provider of advanced mixed-signal products serving the aerospace and defense and broadband communications markets. The mixed-signal technology, at the heart of our broadband communications products, is shared with our fiber optic gyroscopes ("FOG") and inertial sensors to provide the aerospace and defense markets with state-of-the-art navigation systems technology. We have fully vertically-integrated manufacturing capability through our indium phosphide ("InP") compound semiconductor wafer fabrication facility at our headquarters in Alhambra, CA, and through our quartz processing and sensor manufacturing facility in Concord, CA. These facilities support our vertically-integrated manufacturing strategy for quartz and FOG products for navigation systems, and for our chip, laser, transmitter, and receiver products for broadband applications.

We have two reporting segments: (a) Aerospace and Defense and (b) Broadband. Aerospace and Defense is comprised of two product lines: (i) Navigation and Inertial Sensing, and (ii) Defense Optoelectronics. Broadband is comprised of three product lines: (i) CATV Lasers and Transmitters, (ii) Chip Devices, and (iii) Other Optical Products.

Recent Developments

Acquisition of L3Harris Space & Navigation Business

On April 29, 2022, we completed the previously announced acquisition of the L3Harris Technologies, Inc. (“L3H”) Space and Navigation business (“S&N”) pursuant to that certain Sale Agreement, dated as of February 14, 2022 (as amended, the “Sale Agreement”), entered into by and among the Company, Ringo Acquisition Sub, Inc. and L3H, pursuant to which we acquired certain intellectual property, assets, and liabilities of S&N for aggregate consideration of approximately $5.0 million, and exclusive of transaction costs and expenses and subject to certain post-closing working capital adjustments.

COVID-19

We are subject to ongoing risks and uncertainties as a result of the COVID-19 pandemic. The full extent of the COVID-19 impact on operational and financial performance is highly uncertain, out of our control, and cannot be predicted.

Each region we and our supply chain partners operate in has been affected by COVID-19 at varying times and magnitudes, often creating unforeseen challenges associated with logistics, raw material supply, and labor shortages. For example, during the three months ended March 31, 2022, unexpected delays and cancellations of key component deliveries required us to source critical components from alternative sources on short schedules and at increased prices. These and other actions resulting from the effects of COVID-19 may continue in the future and cause additional challenges to and disruptions of our business, inventory levels, operating results, and cash flows.

We continue to analyze on an ongoing basis how COVID-19 related actions could affect our product development efforts, future customer demand, timing of orders, recognized revenue, and cash flows.

Equity Offering

On February 16, 2021, we closed an offering of 6,655,093 shares of our common stock, which included the full exercise of the underwriters’ option to purchase 868,056 additional shares of common stock, at a price to the public of $5.40 per share, resulting in net proceeds to us from the offering, after deducting the underwriting discounts and commissions and other offering
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expenses, of approximately $33.1 million. The shares were sold by us pursuant to an underwriting agreement with Cowen and Company, LLC, dated February 10, 2021.

Hytera and Fastrain Transactions

As part of the effort to streamline operations and move to a variable cost model in our CATV Lasers and Transmitters product line, on October 25, 2019, we entered into an Asset Purchase Agreement (the “Hytera Asset Purchase Agreement”) with Hytera Communications (Hong Kong) Company Limited, a limited liability company incorporated in Hong Kong (“Hytera HK”), and Shenzhen Hytera Communications Co., Ltd., a corporation formed under the laws of the P.R.C. (“Shenzhen Hytera”, and together with Hytera HK, “Hytera”), pursuant to which Hytera agreed to purchase from us certain CATV module and transmitter manufacturing equipment (the “Equipment”) that we owned and that was located at the manufacturing facility of our wholly-owned subsidiary, EMCORE Optoelectronics (Beijing) Co, Ltd., a corporation formed under the laws of the P.R.C..

On August 9, 2021, we entered into an Asset Purchase Agreement (the “Fastrain Asset Purchase Agreement”) with each of Shenzhen Fastrain Technology Co., Ltd., a corporation formed under the laws of the P.R.C. (“Shenzhen Fastrain”), and Hong Kong Fastrain Company Limited, a limited liability company incorporated in Hong Kong (“HK Fastrain”, and together with Shenzhen Fastrain, collectively, “Fastrain”), pursuant to which, among other items, Fastrain agreed to purchase all of the Equipment subject to the Hytera Asset Purchase Agreement, along with certain other equipment owned by us, for an aggregate price of $6.2 million, of which (a) $4.9 million had been paid to us as of March 31, 2022 and (b) $1.1 million remains to be paid to us in connection with the Equipment that is expected to be transferred pursuant to one or more closings occurring in the quarter ending June 30, 2022.

Concurrently with the execution of the Fastrain Asset Purchase Agreement, we and Fastrain entered into a Manufacturing Supply Agreement, dated August 9, 2021 (as amended, the “Fastrain Manufacturing Agreement”), pursuant to which Fastrain agreed to manufacture for us, from a manufacturing facility or facilities located in Thailand or Malaysia and for an initial term ending on December 31, 2025, the CATV Laser and Transmitter products set forth in the Fastrain Manufacturing Agreement. In the Fastrain Manufacturing Agreement, (a) we agreed to pay certain shortfall penalties in the event that orders for manufactured products are below certain thresholds beginning in calendar year 2021 and continuing through calendar year 2025, and (b) Fastrain agreed to pay certain surplus bonuses to us in the event that deliveries for manufactured products in either of the 24 month periods beginning on January 1, 2021 and ending on December 31, 2022 or beginning on January 1, 2023 and ending on December 31, 2024 exceed certain thresholds. No such shortfall penalties had accrued or become payable as of the quarter ended March 31, 2022.

The transfer of the Equipment currently owned by us is expected to occur during the quarter ending June 30, 2022, with corresponding payments totaling $1.3 million expected to be received during the quarter ending June 30, 2022.

Results of Operations

The following table sets forth our results of operations as a percentage of revenue:
For the Three Months Ended March 31,For the Six Months Ended March 31,
2022202120222021
Revenue100.0 %100.0 %100.0 %100.0 %
Cost of revenue72.4 61.9 66.9 62.1 
Gross profit27.6 38.1 33.1 37.9 
Operating expense:
Selling, general, and administrative23.2 15.8 19.7 16.5 
Research and development13.9 9.8 12.2 11.2 
Severance0.1 — 1.8 
(Gain) loss on sale of assets(2.4)0.6 (0.8)0.3 
Total operating expense34.7 26.2 32.9 28.0 
Operating (loss) income(7.1)%11.9 %0.2 %9.9 %

Comparison of Results of Operations
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For the Three Months Ended March 31,
(in thousands, except percentages)20222021Change
Revenue$32,650 $38,406 $(5,756)(15.0)%
Cost of revenue23,633 23,772 (139)(0.6)
Gross profit9,017