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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 June 30, 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
https://cdn.kscope.io/c9a9939858da8fb106d9a1964b0968a0-a1.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 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 August 7, 2023, the number of shares outstanding of no par value common stock totaled 54,160,478.




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EMCORE CORPORATION
FORM 10-Q QUARTERLY REPORT
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 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:

risks related to our ability to obtain capital;
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 our defense optoelectronics product line;
risks and uncertainties related to the closing of the manufacturing support and engineering center in China;
risks related to any potential sale of our wafer fabrication facility and/or our remaining Broadband businesses, including without limitation the failure to achieve any anticipated proceeds from any such sale or to fully realize the anticipated benefits of such a transaction, diversion of management's time and attention from our remaining businesses to the sale of such businesses, third party costs incurred by the Company related to any such transaction, and risks associated with any liabilities related to any such assets or business that are retained by the Company in any sale transaction;
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 the outcome of legal proceedings;
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 and uncertainties related to manufacturing and production capacity; and
4

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Report on Form 10-K for the fiscal year ended September 30, 2022, as such risk factors may be amended, supplemented, or superseded from time to time by our subsequent periodic reports we file with the Securities and Exchange Commission (“SEC”).

These cautionary statements apply to all forward-looking statements wherever they appear in this Quarterly Report. Forward-looking statements are based on certain assumptions and analysis made in light of experience and perception of historical trends, current conditions, and expected future developments as well as other factors that we believe are appropriate under the circumstances. While these statements represent judgment on what the future may hold, and we believe these judgments are reasonable, these statements are not guarantees of any events or financial results. All forward-looking statements in this Quarterly Report are made as of the date hereof, based on information available to us as of the date hereof, and subsequent facts or circumstances may contradict, obviate, undermine, or otherwise fail to support or substantiate such statements. We caution you not to rely on these statements without also considering the risks and uncertainties associated with these statements and our business that are addressed in this Quarterly Report on Form 10-Q and our Annual Report on Form 10-K for the fiscal year 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)June 30, 2023September 30, 2022
ASSETS
Current assets:
Cash and cash equivalents$19,717 $25,625 
Restricted cash495 520 
Accounts receivable, net of credit loss of $363 and $337, respectively
17,451 18,073 
Contract assets5,163 4,560 
Inventory35,833 37,035 
Prepaid expenses3,378 4,061 
Other current assets2,431 3,063 
Total current assets84,468 92,937 
Property, plant, and equipment, net24,388 37,867 
Goodwill19,043 17,894 
Operating lease right-of-use assets26,534 23,243 
Other intangible assets, net15,294 14,790 
Other non-current assets2,326 2,351 
Total assets$172,053 $189,082 
LIABILITIES and SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable$11,164 $12,729 
Accrued expenses and other current liabilities10,775 8,124 
Contract liabilities1,359 5,300 
Loan payable - current852 852 
Operating lease liabilities - current2,740 2,213 
Total current liabilities26,890 29,218 
Line of credit6,485 9,599 
Loan payable - non-current4,403 5,042 
Operating lease liabilities - non-current24,737 21,625 
Asset retirement obligations4,143 4,664 
Other long-term liabilities8 106 
Total liabilities66,666 70,254 
Commitments and contingencies (Note 13)
Shareholders’ equity:
Common stock, no par value, 100,000 shares authorized; 61,059 shares issued and 54,153 shares outstanding as of June 30, 2023; 44,497 shares issued and 37,591 shares outstanding as of September 30, 2022
807,605 787,347 
Treasury stock at cost; 6,906 shares as of June 30, 2023 and September 30, 2022
(47,721)(47,721)
Accumulated other comprehensive income1,380 1,301 
Accumulated deficit(655,877)(622,099)
Total shareholders’ equity105,387 118,828 
Total liabilities and shareholders’ equity$172,053 $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
(Unaudited)

Three Months Ended June 30,Nine Months Ended June 30,
(in thousands, except per share data)
2023202220232022
Revenue$26,698 $23,675 $78,471$98,561
Cost of revenue23,198 19,777 68,20169,849
Gross profit3,500 3,898 10,27028,712
Operating expense:
Selling, general, and administrative6,452 7,800 26,34722,550
Research and development5,171 4,513 16,31913,675
Severance1,838  2,296 1,318 
Gain on sale of assets (1,318)(1,147)(1,919)
Total operating expense13,461 10,995 43,81535,624
Operating loss(9,961)(7,097)(33,545)(6,912)
Other income (expense):
Interest (expense) income, net(219)9 (682)(14)
Foreign exchange gain (loss)321 (185)442 (160)
Other income (expense)31 (349)184(349)
Total other income (expense)133 (525)(56)(523)
Loss before income tax expense(9,828)(7,622)(33,601)(7,435)
Income tax expense(29)(27)(177)(25)
Net loss$(9,857)$(7,649)$(33,778)$(7,460)
Foreign exchange translation adjustment(134)69 (79)91 
Comprehensive loss$(9,991)$(7,580)$(33,857)$(7,369)
Per share data:
Net loss per basic share$(0.18)$(0.20)$(0.74)$(0.20)
Weighted-average number of basic shares outstanding53,926 37,425 45,54637,197
Net loss per diluted share$(0.18)$(0.20)$(0.74)$(0.20)
Weighted-average number of diluted shares outstanding53,926 37,425 45,54637,197

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 June 30,Nine Months Ended June 30,
(in thousands)
2023202220232022
Shares of common stock
Balance, beginning of period53,884 37,395 37,591 36,984 
Stock-based compensation269 148 1,107 553 
Stock option exercises   6 
Sale of common stock  15,455  
Balance, end of period54,153 37,543 54,153 37,543 
Value of common stock
Balance, beginning of period$806,100 $784,371 $787,347 $782,266 
Stock-based compensation1,713 1,523 4,982 3,755 
Stock option exercises   29 
Tax withholding paid on behalf of employees for stock-based awards(17)(151)(161)(307)
Sale of common stock(191) 15,437  
Balance, end of period807,605 785,743 807,605 785,743 
Treasury stock, beginning and end of period(47,721)(47,721)(47,721)(47,721)
Accumulated other comprehensive income
Balance, beginning of period1,246 709 1,301 687 
Translation adjustment134 69 79 91 
Balance, end of period1,380 778 1,380 778 
Accumulated deficit
Balance, beginning of period(646,020)(597,577)(622,099)(597,766)
Net loss(9,857)(7,649)(33,778)(7,460)
Balance, end of period(655,877)(605,226)(655,877)(605,226)
Total shareholders’ equity$105,387 $133,574 $105,387 $133,574 

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)

Nine Months Ended June 30,
(in thousands)
20232022
Cash flows from operating activities:
Net loss$(33,778)$(7,460)
Adjustments to reconcile net loss to net cash (used in) provided by operating activities:
Depreciation and amortization expense6,496 3,292 
Stock-based compensation expense4,982 3,755 
Provision adjustments related to credit loss25 187 
Provision adjustments related to product warranty(57)174 
Gain on disposal of property, plant, and equipment(1,147)(1,919)
Other124 299 
Total non-cash adjustments10,423 5,788 
Changes in operating assets and liabilities:
Accounts receivable and contract assets(7)7,306 
Inventory(2,158)3,380 
Other assets(2,000)(5,263)
Accounts payable(1,230)(4,706)
Contract liabilities(3,941)2,650 
Operating lease liabilities - current527 (487)
Accrued expenses and other liabilities5,729 6,941 
Total change in operating assets and liabilities(3,080)9,821 
Net cash (used in) provided by operating activities(26,435)8,149 
Cash flows from investing activities:
Purchase of equipment(2,026)(4,743)
Proceeds from disposal of property, plant, and equipment10,915 2,820 
Acquisition of business, net of cash acquired96 (2,439)
Net cash provided by (used in) investing activities8,985 (4,362)
Cash flows from financing activities:
Proceeds from borrowings from line of credit393  
Payments towards line of credit(3,507) 
Payments towards note payable(639) 
Proceeds from sale of common stock15,437  
Proceeds from employee stock purchase plans and exercise of equity awards 29 
Taxes paid related to net share settlement of equity awards(161)(307)
Net cash provided by (used in) financing activities11,523 (278)
Effect of exchange rate changes provided by foreign currency(6)(62)
Net (decrease) increase in cash, cash equivalents, and restricted cash(5,933)3,447 
Cash, cash equivalents, and restricted cash at beginning of period26,145 71,682 
Cash, cash equivalents, and restricted cash at end of period$20,212 $75,129 
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the period for interest$932 $40 
Cash paid during the period for income taxes$120 $547 
NON-CASH INVESTING AND FINANCING ACTIVITIES
Changes in accounts payable related to purchases of equipment$(373)$(76)

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 four 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 headquarters in Alhambra, CA and at our facilities in Budd Lake, NJ and Concord, CA. 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 June 30, 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 $33.8 million and net cash outflows from operations of $26.4 million for the nine months ended June 30, 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 June 30, 2023, our cash and cash equivalents totaled $20.2 million and we had $10.6 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
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made in connection with our restructuring program announced in April 2023) to further reduce our expenses and/or potentially 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 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 $9.3 million and $0.4 million, respectively, is included in our condensed consolidated statements of operations and comprehensive loss for the three months ended June 30, 2023. Revenue and net income of EMCORE Chicago of $25.9 million and $2.1 million, respectively, is included in our condensed consolidated statements of operations and comprehensive loss for the nine months ended June 30, 2023.

Final 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. Since the acquisition, the purchase price allocation for EMCORE Chicago changed by a $3.3 million reduction to inventory 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 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 
Inventory7,479 
Prepaid expenses and other current assets1,483 
Property, plant, and equipment14,442 
Intangible assets acquired13,470 
Goodwill15,867 
Liabilities assumed:
Accounts payable(1,699)
Accrued expenses(485)
Contract liabilities(637)
Other long-term liabilities(8)
Total purchase consideration$54,889 
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Included in intangible assets acquired are customer relationships of $3.0 million, technology of $2.4 million, in-process research and development of $5.9 million, and trademarks of $2.2 million.

For the three and nine months ended June 30, 2023, the Company incurred transitional and transaction costs of approximately $0.3 million and $3.6 million, respectively, in connection with the S&N and EMCORE Chicago 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. Goodwill from the acquisition totaled $15.9 million which is 83.3% of total goodwill.

Unaudited Pro Forma Financial Information

The following unaudited pro forma financial information presented for the three and nine months ended June 30, 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 June 30, 2022
Historical
(in thousands, except per share data)
EMCORE Corporation
(excluding EMCORE Chicago)
EMCORE ChicagoPro Forma AdjustmentsPro Forma Combined
Revenue
$23,675 $7,698 $ $31,373 
Cost of revenue
19,777 5,827 171 (a)25,775 
Gross profit
3,898 1,871 (171)5,598 
Operating expense:
Selling, general, and administrative
7,800 2,905 (1,026)(a)(b)9,679 
Research and development
4,513 1,443 (264)(a)(b)5,692 
Severance
    
Gain on sale of assets
(1,318)  (1,318)
Total operating expense
10,995 4,348 (1,290)14,053 
Operating loss
(7,097)(2,477)1,119 (8,455)
Other expense:
Interest income, net
9  318 (c)327 
Foreign exchange loss
(185)  (185)
Other expense(349)34  (315)
Total other expense
(525)34 318 (173)
Loss before income tax expense
(7,622)(2,443)1,437 (8,628)
Income tax expense
(27)(13)(6)(d)(e)(46)
Net loss
(7,649)(2,456)1,431 (8,674)
Foreign exchange translation adjustment
69   69 
Comprehensive loss
$(7,580)$(2,456)1,431 $(8,605)
Per share data:
Net loss per basic share
$(0.20)$ $(0.23)
Weighted-average number of basic shares outstanding
37,425  37,425 
Net loss per diluted share
$(0.20)$ $(0.23)
Weighted-average number of diluted shares outstanding
37,425  37,425 

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Nine Months Ended June 30, 2022
Historical
(in thousands, except per share data)
EMCORE Corporation
(excluding EMCORE Chicago)
EMCORE ChicagoPro Forma AdjustmentsPro Forma Combined
Revenue
$98,561 $23,094 $ $121,655 
Cost of revenue
69,849 17,482 512 (a)87,843 
Gross profit
28,712 5,612 (512)33,812 
Operating expense:
Selling, general, and administrative
22,550 8,329 (3,077)(a)(b)27,802 
Research and development
13,675 4,330 (793)(a)(b)17,212 
Severance
1,318   1,318 
Gain on sale of assets
(1,919)  (1,919)
Total operating expense
35,624 12,659 (3,870)44,413 
Operating loss
(6,912)(7,047)3,358 (10,601)
Other expense:
Interest expense, net
(14) 954 (c)940 
Foreign exchange loss
(160)  (160)
Other expense(349)102  (247)
Total other expense
(523)102 954 533 
Loss before income tax expense
(7,435)(6,945)4,312 (10,068)
Income tax expense
(25)(38)(17)(d)(e)(80)
Net loss
(7,460)(6,983)4,295 (10,148)
Foreign exchange translation adjustment
91   91 
Comprehensive loss
$(7,369)$(6,983)4,295 $(10,057)
Per share data:
Net loss per basic share
$(0.20)$ $(0.27)
Weighted-average number of basic shares outstanding
37,197  37,197 
Net loss per diluted share
$(0.20)$ $(0.27)
Weighted-average number of diluted shares outstanding
37,197  37,197 
(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.

(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.

(c) Reflects the impact of interest expense related to cash from borrowing facility for funding of the transaction.

(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)June 30, 2023September 30, 2022
Cash$13,936 $20,011 
Cash equivalents5,781 5,614 
Restricted cash495 520 
Total cash, cash equivalents, and restricted cash$20,212 $26,145 

NOTE 5.    Accounts Receivable, net

The components of accounts receivable, net consisted of the following:
(in thousands)June 30, 2023September 30, 2022
Accounts receivable, gross$17,814 $18,410 
Allowance for credit loss(363)(337)
Accounts receivable, net$17,451 $18,073 

NOTE 6.    Inventory

The components of inventory consisted of the following:
(in thousands)June 30, 2023September 30, 2022
Raw materials$21,714 $22,927 
Work in-process9,005 9,587
Finished goods5,114 4,521
Inventory$35,833 $37,035 

NOTE 7.    Property, Plant, and Equipment, net

The components of property, plant, and equipment, net consisted of the following:
(in thousands)June 30, 2023September 30, 2022
Land$ $995 
Building 8,805 
Equipment47,711 42,330 
Furniture and fixtures1,571 1,394 
Computer hardware and software3,377 3,378 
Leasehold improvements9,794 7,180 
Construction in progress3,278 9,886 
Property, plant, and equipment, gross$65,731 $73,968 
Accumulated depreciation(41,343)(36,101)
Property, plant, and equipment, net$24,388 $37,867 

Depreciation expense totaled $2.4 million and $5.4 million during the three and nine months ended June 30, 2023, respectively and $1.2 million and $3.2 million during the three and nine months ended June 30, 2022, respectively. During the nine months ended June 30, 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 nine months ended June 30, 2022, we sold certain equipment and incurred a gain on sale of assets of $1.3 million and $1.9 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.

During the quarter ended June 30, 2023, the Company announced a restructuring program which caused the Company to accelerate depreciation on the Broadband segment and defense optoelectronics assets to an end-of-life date of December 2023, resulting in depreciation expense of $0.8 million for each of the three and nine months ended June 30, 2023.

Geographical Concentrations

Long-lived assets consist of land, building, property, plant, and equipment. As of June 30, 2023 and September 30, 2022, 95.4% 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)June 30, 2023September 30, 2022
Balance at beginning of period$14,790 $167 
Changes from acquisition1,47014,740
Amortization(966)(117)
Balance at end of period$15,294 $14,790 

The weighted average remaining useful lives by definite-lived intangible asset category are as follows:
June 30, 2023
(in thousands, except weighted average remaining life)Weighted Average Remaining Life (in years)Gross Carrying AmountAccumulated AmortizationNet Book Value
Technology2.7$11,001 $(8,750)$2,251 
Customer relationships3.84,690 (527)4,163 
Definite-lived intangible assets total$15,691 $(9,277)$6,414 

As of June 30, 2023, IPR&D and trademarks were 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 AmountAccumulated AmortizationNet Book Value
Technology5.4$10,991 $(8,261)$2,730 
Customer relationships4.63,260 (50)3,210 
Definite-lived intangible assets total$14,251 $(8,311)$5,940 

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

Estimated future amortization expense for intangible assets recorded by the Company as of June 30, 2023 is as follows:
(in thousands)Amount
2023$309 
20241,218 
20251,192 
2026790 
2027766 
Thereafter2,139 
Total amortization expense$6,414 

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)June 30, 2023September 30, 2022
Balance at beginning of period$17,894 $69 
Adjustments to preliminary purchase price allocation1,149 17,825
Balance at end of period$19,043 $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 nine months ended June 30, 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 June 30, 2023Nine Months Ended June 30, 2023
Service cost$26 $78 
Interest cost93 279 
Expected return on plan assets(84)(252)
Net periodic pension cost$35 $105 
The service cost component of total pension expense is included as a component of cost of revenue on the condensed consolidated statements of operations and comprehensive loss for the three and nine months ended June 30, 2023. The interest cost and expected return on plan assets components of total pension expense are included as components of other income (expense) on the condensed consolidated statements of operations and comprehensive loss for the three and nine months ended June 30, 2023.

Net pension asset is included as a component of other non-current assets on the condensed consolidated balance sheets as of June 30, 2023. As of June 30, 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 nine months ended June 30, 2023, was
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$0.4 million and $1.0 million, respectively. Our matching contribution in cash for the three and nine months ended June 30, 2022, was $0.2 million and $0.8 million, respectively.

NOTE 10.    Accrued Expenses and Other Current Liabilities

The components of accrued expenses and other current liabilities consisted of the following:
(in thousands)June 30, 2023September 30, 2022
Compensation$5,796 $4,213 
Warranty1,478 1,504
Commissions389 228
Consulting277 241
Legal expenses and other professional fees170 275
Auditor fees183 186 
Income and other taxes56  
Severance and restructuring accruals1,732 423
Litigation settlement72 341
Other622 713
Accrued expenses and other current liabilities$10,775 $8,124 

The components of accrued severance and restructuring accruals consisted of the following:
(in thousands)June 30, 2023September 30, 2022
Balance at beginning of period$423 $ 
Expense2,296 1,353
Payments(987)(930)
Balance at end of period$1,732 $423 

In an effort to better align business operations related to CATV product lines, we reduced our workforce and recorded $1.8 million and $1.3 million in severance expense during the three months ended June 30, 2023 and nine months ended June 30, 2022, respectively. 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. We expect all severance related to these workforce reductions that occurred in the nine months ended June 30, 2023 to be fully paid by the quarter ending September 30, 2024.

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, 2026, 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
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respect to 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 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 $5.0 million and 15% of the revolving commitments for a period of 60 consecutive days, the Borrowers satisfy a consolidated fixed charge coverage ratio of not less than 1.10:1.00.

The Credit Agreement also includes customary events of default, the occurrence of which, following any applicable grace period, would permit the lenders to, among other things, declare the principal, accrued interest and other obligations of the Borrowers under the Credit Agreement to be immediately due and payable, and exercise rights and remedies available to the lenders under the Credit Agreement or applicable law or equity. In connection with the Credit Agreement, the Borrowers entered into a pledge and security agreement pursuant to which the obligations under the Credit Agreement are secured on a senior secured basis (subject to permitted liens) by substantially all assets of the Borrowers and substantially all assets of any future guarantors.

As of June 30, 2023, an aggregate principal amount of $6.5 million was outstanding pursuant to the revolving credit facility and an aggregate principal amount of $5.3 million was outstanding pursuant to the term loan facility. As of September 30, 2022, an aggregate principal amount of $9.6 million was outstanding pursuant to the revolving credit facility and an aggregate principal amount of $5.9 million was outstanding pursuant to the term loan facility. Also, as of June 30, 2023, the revolving credit facility had approximately $10.6 million available for borrowing. Provided that no event of default has occurred, and subject to availability limitations, loans under the revolving credit facility can continue to be drawn/redrawn/outstanding until expiration in 2025.

Our future term loan repayments as of June 30, 2023 is as follows:
(in thousands)Amount
2023$212 
2024852 
2025852 
20263,339 
Total loan payments$5,255 

NOTE 12.    Income and Other Taxes

During the three and nine months ended June 30, 2023, the Company recorded an income tax expense of $29 thousand and $177 thousand, respectively, composed primarily of state tax expense and tax expense generated from the tax amortization on acquired indefinitely lived assets. For the three and nine months ended June 30, 2023 the effective tax rate on continuing operations was 0.3% and 0.5%, respectively.

During the three and nine months ended June 30, 2022, the Company recorded an income tax expense of $27 thousand and $25 thousand, respectively, composed primarily of Texas gross margin taxes. For the three and nine months ended June 30, 2022 the effective tax rate on continuing operations was 0.4% and 0.3%, respectively.

The Company uses estimates to forecast the results from continuing operations for the current fiscal year as well as permanent differences between book and tax accounting.

We have not provided for income taxes on non-U.S. subsidiaries’ undistributed earnings as of June 30, 2023 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.

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All deferred tax assets have a full valuation allowance as of June 30, 2023, except for the tax amortization of indefinitely lived goodwill, which cannot be utilized to reduce deferred tax assets. On a quarterly basis, the Company evaluates the positive and negative evidence to assess whether the more-likely-than-not criteria has been satisfied in determining whether there will be further adjustments to the valuation allowance.

As of June 30, 2023 and September 30, 2022, we did not accrue any significant uncertain tax benefit, interest, or penalties as tax liabilities on our condensed consolidated balance sheets. During the three and nine months ended June 30, 2023, there were no material increases or decreases in unrecognized tax benefits.

NOTE 13.    Commitments and Contingencies

Indemnifications

We have agreed to indemnify certain customers against claims of infringement of intellectual property rights of others in our sales contracts with these customers. Historically, we have not paid any claims under these customer indemnification obligations. We enter into indemnification agreements with each of our directors and executive officers pursuant to which we agree to indemnify them for certain potential expenses and liabilities arising from their status as a director or executive officer of the Company. We maintain directors and officers insurance, which covers certain liabilities relating to our obligation to indemnify our directors and executive officers in certain circumstances. It is not possible to determine the aggregate maximum potential loss under these indemnification agreements due to the limited history of prior indemnification claims and the unique facts and circumstances involved in each particular claim.

Legal Proceedings

We are subject to various legal proceedings, claims, and litigation, either asserted or unasserted, that arise in the ordinary course of business. The outcome of these matters is currently not determinable and we are unable to estimate a range of loss, should a loss occur, from these proceedings. The ultimate outcome of legal proceedings involves judgments, estimates, and inherent uncertainties and the results of these matters cannot be predicted with certainty. Professional legal fees are expensed when incurred. We accrue for contingent losses when such losses are probable and reasonably estimable. In the event that estimates or assumptions prove to differ from actual results, adjustments are made in subsequent periods to reflect more current information. Should we fail to prevail in any legal matter, or should several legal matters be resolved against the Company in the same reporting period, then the financial results of that particular reporting period could be materially affected.

Intellectual Property Lawsuits

We protect our proprietary technology by applying for patents where appropriate and, in other cases, by preserving the technology, related know-how, and information as trade secrets. The success and competitive position of our product lines are impacted by our ability to obtain intellectual property protection for our research and development efforts. We have, from time to time, exchanged correspondence with third parties regarding the assertion of patent or other intellectual property rights in connection with certain of our products and processes.

Resilience Litigation

In February 2021, Resilience Capital (“Resilience”) filed a complaint against us with the Delaware Chancery Court containing claims arising from the February 2020 sale of SDI’s real property (the “Concord Property Sale”) located in Concord, California (the “Concord Real Property”) to Eagle Rock Holdings, LP (“Buyer”) and that certain Single-Tenant Triple Net Lease, dated as of February 10, 2020, entered into by and between SDI and the Buyer, pursuant to which SDI leased from the Buyer the 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.
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On April 24, 2023, the Company and Resilience entered into a Settlement and Release Agreement (the “Resilience Settlement Agreement”). The material financial terms of the Resilience Settlement Agreement required (i) a payment of $500,000 by the Company to Resilience, which payment was made by the Company during the three months ended June 30, 2023, (ii) an appraisal of the Concord Real Property as of January 2, 2020, which could trigger a further future payment by the Company in an amount to be determined by said appraisal, and if triggered, is expected to be made during the three months ending September 30, 2023, and (iii) a mutual release of all claims, including claims arising under the SDI Purchase Agreement, and a dismissal of the litigation by all parties.

On April 24, 2023, the underwriters of the representation and warranty insurance policies the Company acquired in connection with the SDI Purchase Agreement agreed to pay the Company $1.15 million within 15 business days in exchange for a release of any and all claims under the policies. We received payment during the three months ended June 30, 2023.

Contingent Inventory Obligations

Pursuant to that certain Manufacturing Supply Agreement, dated August 9, 2021 (as amended, the “Fastrain Manufacturing Agreement”), by and between the Company and each of Shenzhen Fastrain Technology Co., Ltd., Hong Kong Fastrain Company Limited and Fastrain Technology Malaysia SDN. BHD. (collectively, “Fastrain”), we may be liable to Fastrain for certain unused inventory. As of the quarter ended June 30, 2023, we had accrued $0.4 million pursuant to such inventory obligations in connection with our restructuring announced in April 2023 and estimate a potential range of total future additional liability pursuant to such inventory obligations of a minimum of $0 and a maximum of $3.2 million.

NOTE 14.    Equity

Equity Plans

We provide long-term incentives to eligible officers, directors, and employees in the form of equity-based awards. We maintain four equity incentive compensation plans, collectively described as our “Equity Plans”: (a) the 2010 Equity Incentive Plan (the “2010 Plan”), (b) the 2012 Equity Incentive Plan (the “2012 Plan”), (c) the Amended and Restated 2019 Equity Incentive Plan (the “2019 Plan”), and (d) the 2022 New Employee Inducement Plan.

We issue new shares of common stock to satisfy awards granted under our Equity Plans. In December 2022, our Board of Directors approved an amendment to the 2019 Plan, which, subject to shareholder approval at our 2023 annual meeting of shareholders, would increase the maximum number of shares of the Company’s common stock that may be issued or transferred pursuant to awards under the 2019 Plan by an additional 1.549 million shares.

Stock-Based Compensation

The following table sets forth stock-based compensation expense by award type:
Three Months Ended June 30,Nine Months Ended June 30,
(in thousands)2023202220232022
RSUs and RSAs$1,113 $692 $2,869 $1,795 
PSUs and PRSAs517 708 1,818 1,602 
Outside director equity awards and fees in common stock83 123 295 358 
Total stock-based compensation expense$1,713 $1,523 $4,982 $3,755 

The following table sets forth stock-based compensation expense by expense type:
Three Months Ended June 30,Nine Months Ended June 30,
(in thousands)2023202220232022
Cost of revenue$436 $275 $1,154 $604 
Selling, general, and administrative980 1,001 3,006 2,537 
Research and development297 247 822 614 
Total stock-based compensation expense$1,713 $1,523 $4,982 $3,755 

Loss Per Share
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The following table sets forth the computation of basic and diluted net loss per share:
Three Months Ended June 30,Nine Months Ended June 30,
(in thousands, except per share data)2023202220232022
Numerator
Net loss$(9,857)$(7,649)$(33,778)$(7,460)
Denominator
Weighted average number of shares outstanding - basic53,926 37,425 45,546 37,197 
Effect of dilutive securities
Stock options    
PSUs, RSUs, and restricted stock    
Weighted average number of shares outstanding - diluted53,926 37,425 45,546 37,197 
Earnings per share - basic$(0.18)$(0.20)$(0.74)$(0.20)
Earnings per share - diluted$(0.18)$(0.20)$(0.74)$(0.20)
Weighted average antidilutive options, unvested RSUs and RSAs, and unvested PSUs excluded from the computation3,823 3,163 2,533 1,315 

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”), and stock options as applicable pursuant to the treasury stock method. Certain of the Company's outstanding share-based awards, noted in the table above, were excluded because they were anti-dilutive, but they could become dilutive in the future. The anti-dilutive stock options and shares of outstanding and unvested restricted stock were excluded from the computation of earnings per share for the three and nine months ended June 30, 2023 and 2022 due to the Company incurring a net loss for such period.

Public Offering

On February 17, 2023, we closed our offering of 15,454,546 shares of our common stock at a price of $1.10 per share, resulting in net proceeds to us from the offering, after deducting the placement agent commissions and other offering expenses, of $15.4 million. The shares were sold by us pursuant to a Securities Purchase Agreement, dated as of February 17, 2023, between the Company and each purchaser named in the signature pages thereto and a Placement Agency Agreement, dated as of February 15, 2023, by and between the Company and A.G.P./Alliance Global Partners.

Future Issuances

Common stock reserved for future issuances as of June 30, 2023 was as follows:
Amount
Exercise of outstanding stock options9,981 
Unvested RSUs and RSAs4,491,733 
Unvested PSUs and PRSAs (at 100% maximum payout)
1,750,068 
Issuance of stock-based awards under the Equity Plans599,585 
Purchases under the officer and director share purchase plan88,741 
Total reserved6,940,108 

NOTE 15.    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
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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:
Three Months Ended June 30,Nine Months Ended June 30,
(in thousands)2023202220232022
Revenue
Aerospace and Defense$27,001 $13,416 $73,879 $32,322 
Broadband(303)10,259 4,592 66,239 
Total revenue$26,698 $23,675 $78,471 $98,561 
Segment profit
Aerospace and Defense gross profit$7,163 $1,551 $16,786 $4,468 
Aerospace and Defense research and development expense4,448 3,834 14,050 12,037 
Aerospace and Defense gross profit less research and development expense$2,715 $(2,283)$2,736 $(7,569)
Broadband gross profit$(3,663)$2,347 $(6,516)$24,244 
Broadband research and development expense723 679 2,269 1,638 
Broadband gross profit less research and development expense$(4,386)$1,668 $(8,785)$22,606 
Total gross profit less research and development expense$(1,671)$(615)$(6,049)$15,037 

Product Categories

Revenue is classified by major product category as presented below:
Three Months Ended June 30,Nine Months Ended June 30,
(in thousands)2023202220232022
Aerospace and Defense
Inertial Navigation$26,718 $9,891 $70,947 $25,651 
Defense Optoelectronics283 3,525 2,932 6,671 
Broadband
CATV Optical Transmitters and Components323 7,006 2,270 56,449 
Data Center Chips(312)1,353 885 3,534 
Optical Sensing(314)1,900 1,437 6,256 
Total revenue$26,698 $23,675 $78,471 $98,561 

Timing of Revenue

Revenue is classified by timing of recognition as presented below:
Three Months Ended June 30,Nine Months Ended June 30,
(in thousands)2023202220232022
Trade revenue (recognized at a point in time)$19,667 $18,207 $58,763 $91,056 
Contract revenue (recognized over time)7,031 5,468 19,708 7,505 
Total revenue$26,698 $23,675 $78,471 $98,561 

Geographical Concentration

Revenue is classified by geographic area based on our customers’ billing address as presented below:
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Three Months Ended June 30,Nine Months Ended June 30,
(in thousands)2023202220232022
United States and Canada$21,377 $19,043 $60,600 $86,751 
Asia1,856 1,684 4,235 6,498 
Europe1,657 2,243 8,592 3,999 
Other1,808 705 5,044 1,313 
Total revenue$26,698 $23,675 $78,471 $98,561 

Customer Concentration

Portions of the Company’s sales are concentrated among a limited number of customers. Significant customers are defined as customers representing greater than 10% of consolidated revenue. Revenue from two significant customers represented an aggregate of 41% and 35% of our consolidated revenue for the three and nine months ended June 30, 2023, respectively, and revenue from two significant customers represented an aggregate of 37% and 54% of our consolidated revenue for the three and nine months ended June 30, 2022, respectively.


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ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion of our financial condition and results of operations should be read 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. Actual results could differ materially from those discussed in the forward-looking statements. See Cautionary Note Regarding Forward-Looking Statements preceding Item 1 of this Quarterly Report.

Business Overview

EMCORE Corporation 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 scope 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 headquarters in Alhambra, CA and our facilities in Budd Lake, NJ and Concord, CA. These facilities support our vertically-integrated manufacturing strategy for quartz, FOG, and Ring Laser Gyro products for navigation systems.

Our reporting segments are as follows: (a) Aerospace and Defense and (b) Broadband. Aerospace and Defense is comprised of two product lines: (i) Inertial Navigation and (ii) Defense Optoelectronics. Broadband is comprised of three product lines: (i) CATV Optical Transmitters and Components, (ii) Data Center Chips, and (iii) Optical Sensing.

Recent Developments

Restructuring

In April 2023, we initiated a restructuring program that includes the strategic shutdown of our Broadband business segment (including our cable TV, wireless, sensing and chips product lines) and the discontinuance of our defense optoelectronics product line. Our Board of Directors performed a thorough review of a number of factors including the competitive landscape, declining revenue and gross profit of these discontinued businesses, the current and expected profitability of these discontinued businesses, our cost structure, and our strategic focus on our Aerospace and Defense business segment, and concluded that these discontinued businesses are non-strategic, currently unsustainable, and cannot be restructured in a way that will allow us to achieve profitable growth and cash preservation. We expect to exit the operations of these discontinued businesses by December 31, 2023. As a result of this restructuring, we have eliminated or expect to eliminate approximately 75 positions in the U.S. (primarily in Alhambra, California) and approximately 25 positions in China, collectively representing approximately 22% of our total workforce, and expect to consolidate facility space by reducing the space used at our Alhambra campus from five to two buildings (including closure of our indium phosphide wafer fabrication facility in Alhambra), relocating personnel in Concord, California to the operations area from the adjacent office building, and closing our manufacturing support and engineering center in China, collectively representing an approximately 25% reduction in the aggregate square footage occupied by our facilities. We expect this restructuring effort to result in annualized cost savings of approximately $12 million. As of the time of the filing of this Quarterly Report on Form 10-Q, we are unable in good faith to make a determination of an estimate of the total amount or range of amounts that we expect to incur in connection with this restructuring. However, we anticipate that material cash and non-cash charges will be incurred and recorded in future reporting periods. One-time employee severance and termination costs related to the restructuring of approximately $2.1 million (of which approximately $0.5 million will be in non-cash, stock-based compensation expenditures relating to the acceleration of the vesting of outstanding equity awards) was recognized in the quarter ended June 30, 2023. We expect the restructuring implementation to be substantially complete by the quarter ending December 31, 2023. We may incur additional expenses in connection with this restructuring that are not currently contemplated. The charges that we expect to incur in connection with the restructuring are estimates and subject to a number of assumptions, and actual results may differ materially.

Equity Offering

On February 17, 2023, we closed our offering of 15,454,546 shares of our common stock at a price of $1.10 per share, resulting in net proceeds to us from the offering, after deducting the placement agent commissions and other offering expenses, of $15.4 million. The shares were sold by us pursuant to a Securities Purchase Agreement, dated as of February 17, 2023, between the
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Company and each purchaser named in the signature pages thereto and a Placement Agency Agreement, dated as of February 15, 2023, by and between the Company and A.G.P./Alliance Global Partners.

Acquisition of KVH Industries, Inc. - FOG and Inertial Navigation Systems Business

On August 9, 2022, we completed the acquisition of EMCORE Chicago from KVH pursuant to that certain Asset Purchase Agreement entered into as of August 9, 2022 by and among the Company, Delta Acquisition Sub, Inc., a wholly owned subsidiary of the Company, and KVH, 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.

Tinley Park Sale and Leaseback Transaction

On December 13, 2022, EMCORE Chicago consummated the sale of its real property interest in the Tinley Park Facility to 8400 W 185TH STREET INVESTORS, LLC (the “Tinley Park Buyer”), resulting in net proceeds of approximately $10.3 million. The sale was made pursuant to the terms of that certain Purchase and Sale Agreement (the “Tinley Park Purchase Agreement”) dated as of November 1, 2022, by and between EMCORE Chicago and HSRE Fund VII Holding Company, LLC, an affiliate of the Tinley Park Buyer. In connection with the sale of the real property interests in the Tinley Park Facility, after considering multiple transaction structures, EMCORE Chicago entered into a long-term Single-Tenant Triple Net Lease (the “Lease Agreement”) with Buyer pursuant to which EMCORE Chicago leased back the Tinley Park Facility for a twelve (12) year term commencing on December 13, 2022, unless earlier terminated or extended in accordance with the terms of the Lease Agreement.

Wingspire Credit Agreement

On August 9, 2022, the Company and EMCORE Space & Navigation Corporation, our wholly-owned subsidiary (“S&N”), entered into that certain Credit Agreement, dated as of August 9, 2022, among the Company, S&N, the lenders party thereto and Wingspire Capital LLC, as administrative agent for the lenders (“Wingspire”), as amended pursuant to that First Amendment to Credit Agreement, dated as of October 25, 2022, among the Company, S&N, 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 $5,965,000. 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, 2026, and bears 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. 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 revolving commitments until such time as no event of default is continuing and excess availability under the Credit Agreement is at least the greater of $5.0 million and 15% of the revolving commitments for a period of 60 consecutive days, the Borrowers satisfy a consolidated fixed charge coverage ratio of not less than 1.10:1.00. The Credit Agreement also includes customary events of default, the occurrence of which, following any applicable grace period, would permit the lenders to, among other things, declare the principal, accrued interest and other obligations of the Borrowers under the Credit Agreement to be immediately due and payable, and exercise rights and remedies available to the lenders under the Credit Agreement or applicable law or equity.
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In connection with the Credit Agreement, the Borrowers entered into a pledge and security agreement pursuant to which the obligations under the Credit Agreement are secured on a senior secured basis (subject to permitted liens) by substantially all assets of the Borrowers and substantially all assets of any future guarantors.

As of June 30, 2023, an aggregate principal amount of $6.5 million was outstanding pursuant to the revolving credit facility and an aggregate principal amount of $5.3 million was outstanding pursuant to the term loan facility.

Acquisition of L3Harris Space and Navigation Business

On April 29, 2022, we completed the acquisition of S&N from L3H 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. Following the completion of the working capital adjustments, the final purchase price was approximately $4.9 million.

Economic Conditions

The increased instability of global economic conditions and inflationary risks are adding to the uncertainty of our business. These adverse conditions could result in longer sales cycles, increased costs to manufacture our products, and increased price competition. Given the dynamic nature of these macroeconomic conditions, we cannot reasonably estimate their full impact on our ongoing business, results of operations, and overall financial performance.

Fastrain Transaction

As part of the effort to streamline operations and move to a variable cost model in our CATV Optical Transmitters and Components product line, 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 certain CATV module and transmitter manufacturing equipment (the “Equipment”) that had been 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., for an aggregate price of $6.2 million, all of which has been paid to us as of the fiscal year ended September 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 Optical Transmitters and Components 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 or surplus bonuses had been accrued or earned or become payable or receivable as of the quarter ended June 30, 2023. In addition, pursuant to the Fastrain Manufacturing Agreement, we may be liable to Fastrain for certain unused inventory. As of the quarter ended June 30, 2023, we had accrued $0.4 million pursuant to such inventory obligations in connection with our restructuring announced in April 2023 and estimate a potential range of total future additional liability pursuant to such inventory obligations of a minimum of $0 and a maximum of $3.2 million.

Results of Operations

The following table sets forth our results of operations as a percentage of revenue:

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Three Months Ended June 30,Nine Months Ended June 30,
2023202220232022
Revenue100.0 %100.0 %100.0 %100.0 %
Cost of revenue86.9 83.5 86.9 70.9 
Gross profit13.1 16.5 13.1 29.1 
Operating expense:
Selling, general, and administrative24.2 32.9 33.6 22.8 
Research and development19.4 19.1 20.8 13.9 
Severance6.9 — 2.9 1.3 
Gain on sale of assets— (5.6)(1.5)(1.9)
Total operating expense50.5 46.4 55.8 36.1 
Operating loss(37.3)%(30.0)%(42.7)%(7.0)%

Comparison of Results of Operations

Three Months Ended June 30,
(in thousands, except percentages)20232022Change
Revenue$26,698 $23,675 $3,023 12.8 %
Cost of revenue23,198 19,777 3,421 17.3 
Gross profit3,500 3,898 (398)(10.2)
Operating expense:
Selling, general, and administrative6,452 7,800 (1,348)(17.3)
Research and development5,171 4,513 658 14.6 
Severance1,838 — 1,838 100.0 
Gain on sale of assets (1,318)1,318 100.0 
Total operating expense13,461 10,995 2,466 22.4 
Operating loss$(9,961)$(7,097)$(2,864)(40.4)%

Nine Months Ended June 30,
(in thousands, except percentages)20232022Change
Revenue$78,471 $