May 5, 2022 - 10-Q: Quarterly report pursuant to Section 13 or 15(d)

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


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

Commission File Number 001-36632

EMCORE Corporation

(Exact name of registrant as specified in its charter)


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

2015 W. Chestnut Street, Alhambra, California, 91803

(Address of principal executive offices) (Zip Code)

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

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


Title of Each Class	Trading Symbol	Name of Each Exchange on Which Registered
Common stock, no par value	EMKR	The Nasdaq Stock Market LLC	(Nasdaq Global Market)

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

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

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

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

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EMCORE Corporation

FORM 10-Q

For the Quarterly Period Ended March 31, 2022

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			Page
		Cautionary Note Regarding Forward-Looking Statements	4
Part I:	Financial Information		6
	Item 1.	Financial Statements (Unaudited)	6
		Condensed Consolidated Statements of Operations and Comprehensive (Loss) Income For the Three and Six Months Ended March 31, 2022 and 2021	6
		Condensed Consolidated Balance Sheets As of March 31, 2022 and September 30, 2021	7
		Condensed Consolidated Statements of Shareholders’ Equity For the Three and Six Months Ended March 31, 2022 and 2021	8
		Condensed Consolidated Statements of Cash Flows For the Six Months Ended March 31, 2022 and 2021	9
		Notes to Condensed Consolidated Financial Statements	10
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	19
	Item 3.	Quantitative and Qualitative Disclosures about Market Risks	26
	Item 4.	Controls and Procedures	27
Part II:	Other Information		27
	Item 1.	Legal Proceedings	27
	Item 1A.	Risk Factors	27
	Item 6.	Exhibits	27
		Signatures	29

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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,
	2022		2021		2022		2021
Revenue	$	32,650	$	38,406	$	74,886	$	71,832
Cost of revenue	23,633		23,772		50,072		44,626
Gross profit	9,017		14,634		24,814		27,206
Operating expense:
Selling, general, and administrative	7,563		6,062		14,750		11,860
Research and development	4,535		3,771		9,162		8,067
Severance	20		—		1,318		—
(Gain) loss on sale of assets	(788)		218		(601)		189
Total operating expense	11,330		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 adjustment	2		(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 outstanding	37,217		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 outstanding	37,217		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, 2022		September 30, 2021
ASSETS
Current assets:
Cash and cash equivalents	$	80,928	$	71,621
Restricted cash	21		61
Accounts receivable, net of credit loss of $225 and $260, respectively	27,203		31,849
Contract assets	491		361
Inventory	28,049		32,309
Prepaid expenses and other current assets	6,543		6,877
Assets held for sale	735		1,241
Total current assets	143,970		144,319
Property, plant, and equipment, net	23,837		22,544
Goodwill	69		69
Operating lease right-of-use assets	19,930		13,489
Other intangible assets, net	149		167
Other non-current assets	213		225
Total assets	$	188,168	$	180,813
LIABILITIES and SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	15,317	$	16,686
Accrued expenses and other current liabilities	10,470		9,936
Operating lease liabilities - current	938		1,198
Total current liabilities	26,725		27,820
Operating lease liabilities - non-current	19,479		12,684
Asset retirement obligations	2,067		2,049
Other long-term liabilities	115		794
Total liabilities	48,386		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 income	709		687
Accumulated deficit	(597,577)		(597,766)
Total shareholders’ equity	139,782		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,
	2022		2021		2022		2021
Shares of common stock
Balance, beginning of period	37,275		29,783		36,984		29,551
Stock-based compensation	120		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 period	37,395		36,775		37,395		36,775
Value of common stock
Balance, beginning of period	$	783,329	$	745,188	$	782,266	$	744,361
Stock-based compensation	1,144		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 period	784,371		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 period	707		908		687		918
Translation adjustment	2		(11)		22		(21)
Balance, end of period	709		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,
	2022		2021
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 expense	2,037		1,989
Stock-based compensation expense	2,232		1,825
Provision adjustments related to credit loss	165		(52)
Provision adjustments related to product warranty	139		222
(Gain) loss on disposal of property, plant, and equipment	(601)		189
Other	464		(292)
Total non-cash adjustments	4,436		3,881
Changes in operating assets and liabilities:
Accounts receivable and contract assets	4,351		(3,574)
Inventory	6,663		(3,909)
Other assets	(4,857)		1,121
Accounts payable	(4,893)		(660)
Accrued expenses and other current liabilities	5,646		(2,040)
Total change in operating assets and liabilities	6,910		(9,062)
Net cash provided by operating activities	11,535		1,772
Cash flows from investing activities:
Purchase of equipment	(3,297)		(1,142)
Proceeds from disposal of property, plant, and equipment	1,128		583
Net cash used in investing activities	(2,169)		(559)
Cash flows from financing activities:
Proceeds from employee stock purchase plan and equity awards	29		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 currency	28		44
Net increase in cash, cash equivalents, and restricted cash	9,267		34,743
Cash, cash equivalents, and restricted cash at beginning of period	71,682		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.

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, 2022		September 30, 2021
Cash	$	25,847	$	16,547
Cash equivalents	55,081		55,074
Restricted cash	21		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, 2022		September 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, 2022		September 30, 2021
Raw materials	$	14,861	$	16,146
Work in-process	9,864		11,410
Finished goods	3,324		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, 2022		September 30, 2021
Equipment	$	38,944	$	37,985
Furniture and fixtures	1,125		1,125
Computer hardware and software	3,576		3,575
Leasehold improvements	6,701		6,663
Construction in progress	11,377		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, 2022		September 30, 2021
Compensation	$	5,028	$	7,192
Warranty	1,112		1,125
Legal expenses and other professional fees	370		152
Contract liabilities	582		364
Income and other taxes	—		104
Severance and restructuring accruals	845		—
Deferred revenue	674		4
Litigation settlement	575		70
Other	1,284		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)	2022		2021		2022		2021
Employee stock options	$	—	$	1	$	—	$	2
RSUs and RSAs	549		501		1,103		932
PSUs and PRSAs	487		269		894		586
ESPP	—		84		—		173
Outside director equity awards and fees in common stock	108		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)	2022		2021		2022		2021
Cost of revenue	$	178	$	203	$	329	$	344
Selling, general, and administrative	781		519		1,536		1,078
Research and development	185		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)	2022		2021		2022		2021
Numerator
Net (loss) income	$	(2,225)	$	4,384	$	189	$	6,953
Denominator
Weighted average number of shares outstanding - basic	37,217		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 - diluted	37,217		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 computation	75		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 options			13,884
Unvested RSUs and RSAs			2,445,307
Unvested PSUs and PRSAs (at 200% maximum payout)			4,098,106
Issuance of stock-based awards under the Equity Plans			312,137
Purchases under the officer and director share purchase plan			88,741
Total reserved			6,958,175

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,
	2022		2021		2022		2021
Revenue
Aerospace and Defense	$	9,006	$	13,134	$	18,906	$	26,770
Broadband	23,644		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 expense	4,041		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 expense	494		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
Severance	20		—		1,318		—
(Gain) loss on sale of assets	(788)		218		(601)		189
Interest expense, net	12		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 Optoelectronics	1,391		4		4,141		11
Broadband
CATV Lasers and Transmitters	20,984		64		21,120		55
Chip Devices	1,113		3		841		2
Other Optical Products	1,547		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 Optoelectronics	3,146		4		8,575		12
Broadband
CATV Lasers and Transmitters	49,443		66		38,435		54
Chip Devices	2,181		3		1,584		2
Other Optical Products	4,356		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)	2022		2021		2022		2021
United States and Canada	$	29,652	$	33,106	$	67,708	$	62,452
Asia	1,728		4,145		4,814		7,170
Europe	936		558		1,756		1,214
Other	334		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

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

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,
	2022		2021		2022		2021
Revenue	100.0	%	100.0	%	100.0	%	100.0	%
Cost of revenue	72.4		61.9		66.9		62.1
Gross profit	27.6		38.1		33.1		37.9
Operating expense:
Selling, general, and administrative	23.2		15.8		19.7		16.5
Research and development	13.9		9.8		12.2		11.2
Severance	0.1		—		1.8
(Gain) loss on sale of assets	(2.4)		0.6		(0.8)		0.3
Total operating expense	34.7		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)	2022		2021		Change
Revenue	$	32,650	$	38,406	$	(5,756)	(15.0)	%
Cost of revenue	23,633		23,772		(139)		(0.6)
Gross profit	9,017		14,634		(5,617)		(38.4)
Operating expense:
Selling, general, and administrative	7,563		6,062		1,501		24.8
Research and development	4,535		3,771		764		20.3
Severance	20		—		20		100.0
(Gain) loss on sale of assets	(788)		218		(1,006)		(461.5)
Total operating expense	11,330		10,051		1,279		12.7
Operating (loss) income	$	(2,313)	$	4,583	$	(6,896)	(150.5)	%


	For the Six Months Ended March 31,
(in thousands, except percentages)	2022		2021		Change
Revenue	$	74,886	$	71,832	$	3,054	4.3	%
Cost of revenue	50,072		44,626		5,446		12.2
Gross profit	24,814		27,206		(2,392)		(8.8)
Operating expense:
Selling, general, and administrative	14,750		11,860		2,890		24.4
Research and development	9,162		8,067		1,095		13.6
Severance	1,318		—		1,318		100.0
(Gain) loss on sale of assets	(601)		189		(790)		(418.0)
Total operating expense	24,629		20,116		4,513		22.4
Operating income	$	185	$	7,090	$	(6,905)	(97.4)	%

Revenue


	For the Three Months Ended March 31,
(in thousands, except percentages)	2022		2021		Change
Aerospace and Defense	$	9,006	$	13,134	$	(4,128)	(31.4)	%
Broadband	23,644		25,272		(1,628)		(6.4)
Total revenue	$	32,650	$	38,406	$	(5,756)	(15.0)	%


	For the Six Months Ended March 31,
(in thousands, except percentages)	2022		2021		Change
Aerospace and Defense	$	18,906	$	26,770	$	(7,864)	(29.4)	%
Broadband	55,980		45,062		10,918		24.2
Total revenue	$	74,886	$	71,832	$	3,054	4.3	%

Aerospace and Defense

For the three months ended March 31, 2022, our Aerospace and Defense revenue decreased $4.1 million, or 31.4%, compared to the same period in the prior year, primarily due to a $2.8 million decrease in Defense Optoelectronics product line revenue primarily due to program delays and supply chain disruptions.

For the six months ended March 31, 2022, our Aerospace and Defense revenue decreased $7.9 million, or 29.4%, compared to the same period in the prior year, primarily due to a $5.4 million decrease in Defense Optoelectronics product line revenue primarily due to program delays and supply chain disruptions.

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Broadband

For the three months ended March 31, 2022, our Broadband revenue decreased $1.6 million, or 6.4%, compared to the same period in the prior year, primarily due to a $1.8 million decrease in Other Optical Products revenue due to decreased customer demand. We anticipate Broadband revenue to continue to be challenged in the near future due in part to inventory levels in the channel.

For the six months ended March 31, 2022, our Broadband revenue increased $10.9 million, or 24.2%, compared to the same period in the prior year, primarily driven by a $11.0 million increase in CATV Lasers and Transmitters revenue due to increased customer demand.

Gross Profit


	For the Three Months Ended March 31,
(in thousands, except percentages)	2022		2021		Change
Aerospace and Defense	$	1,233	$	3,775	$	(2,542)	(67.3)	%
Broadband	7,784		10,859		(3,075)		(28.3)
Total gross profit	$	9,017	$	14,634	$	(5,617)	(38.4)	%


	For the Six Months Ended March 31,
(in thousands, except percentages)	2022		2021		Change
Aerospace and Defense	$	2,917	$	7,875	$	(4,958)	(63.0)	%
Broadband	21,897		19,331		2,566		13.3
Total gross profit	$	24,814	$	27,206	$	(2,392)	(8.8)	%

Our cost of revenue consists of raw materials, compensation expense including non-cash stock-based compensation expense, depreciation expense and other manufacturing overhead costs, expenses associated with excess and obsolete inventories, and product warranty costs. Historically, our cost of revenue as a percentage of revenue, which we refer to as our gross margin, has fluctuated significantly due to product mix, manufacturing yields, sales volumes, inventory, and specific product warranty charges, as well as the amount of our revenue relative to fixed manufacturing costs.

For the three months ended March 31, 2022 and 2021, consolidated gross margins were 27.6% and 38.1%, respectively. For each of the three months ended March 31, 2022 and 2021, stock-based compensation expense within cost of revenue totaled $0.2 million.

For the six months ended March 31, 2022 and 2021, consolidated gross margins were 33.1% and 37.9%, respectively. For each of the six months ended March 31, 2022 and 2021, stock-based compensation expense within cost of revenue totaled $0.3 million.

Aerospace and Defense

For the three months ended March 31, 2022, Aerospace and Defense gross profit decreased $2.5 million, or 67.3%, compared to the same period in the prior year. For the three months ended March 31, 2022 and 2021, Aerospace and Defense gross margin was 13.7% and 28.7%, respectively. Gross profit and margin decreased in the three months ended March 31, 2022 primarily due to lower FOG and Defense Optoelectronics revenue and higher manufacturing costs. Higher manufacturing costs were a result of our change in contract manufacturer, as well as under-absorption of fixed overhead at our Alhambra manufacturing facility.

For the six months ended March 31, 2022, Aerospace and Defense gross profit decreased $5.0 million, or 63.0%, compared to the same period in the prior year. For the six months ended March 31, 2022 and 2021, Aerospace and Defense gross margin was 15.4% and 29.4%, respectively. Gross profit and margin decreased in the six months ended March 31, 2022 primarily due to lower Quartz MEMS and Defense Optoelectronics revenue, and a change in contract manufacturer and under-absorption of fixed overhead for Defense Optoelectronics.

Broadband

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For the three months ended March 31, 2022, Broadband gross profit decreased $3.1 million, or 28.3%, compared to the same period in the prior year. For the three months ended March 31, 2022 and 2021, Broadband gross margin was 32.9% and 43.0%, respectively. Gross profit and margin decreased in the three months ended March 31, 2022 due to lower revenue of $1.6 million, higher material costs, and under-absorption of fixed overhead at our Chinese manufacturing facility and at our Alhambra wafer fab.

For the six months ended March 31, 2022, Broadband gross profit increased $2.6 million, or 13.3%, compared to the same period in the prior year. For the six months ended March 31, 2022 and 2021, Broadband gross margin was 39.1% and 42.9%, respectively. Gross profit increased while gross margin decreased in the six months ended March 31, 2022 due to higher revenue mixed with higher material costs and under-absorption of fixed overhead costs.

Selling, General and Administrative

Selling, general, and administrative ("SG&A") consists primarily of compensation expense including non-cash stock-based compensation expense related to executive, finance, and human resources personnel, as well as sales and marketing expenses, professional fees, legal and patent-related costs, and other corporate-related expenses.

For the three months ended March 31, 2022, SG&A expense increased by $1.5 million compared to the same period in the prior year, primarily driven by higher compensation, professional fees including acquisition related expenses, and travel expenses. For the three months ended March 31, 2022 and 2021, SG&A expenses were 23.2% and 15.8% as a percentage of revenue, respectively. For the three months ended March 31, 2022 and 2021, stock-based compensation expense within SG&A totaled $0.8 million and $0.5 million, respectively.

For the six months ended March 31, 2022, SG&A expense increased by $2.9 million compared to the same period in the prior year, primarily driven by higher compensation, professional fees including acquisition related expenses, and travel expenses. For the six months ended March 31, 2022 and 2021, SG&A expenses were 19.7% and 16.5% as a percentage of revenue, respectively. For the six months ended March 31, 2022 and 2021, stock-based compensation expense within SG&A totaled $1.5 million and $1.1 million, respectively.

Research and Development

Research and development ("R&D") consists primarily of compensation expense including non-cash stock-based compensation expense, as well as engineering and prototype costs, depreciation expense, and other overhead expenses, as they relate to the design, development, and testing of our products. R&D costs are expensed as incurred. We believe that in order to remain competitive, we must invest significant financial resources in developing new product features and enhancements and in maintaining customer satisfaction worldwide.

For the three months ended March 31, 2022, R&D expense increased by $0.8 million compared to the same period in the prior year, primarily driven by increased compensation and project costs. For the three months ended March 31, 2022 and 2021, R&D expenses were 13.9% and 9.8% as a percentage of revenue, respectively. For each of the three months ended March 31, 2022 and 2021, stock-based compensation expense within R&D totaled $0.2 million.

For the six months ended March 31, 2022, R&D expense increased by $1.1 million compared to the same period in the prior year, primarily driven by increased compensation and allocated facility costs. For the six months ended March 31, 2022 and 2021, R&D expenses were 12.2% and 11.2% as a percentage of revenue, respectively. For each of the six months ended March 31, 2022 and 2021, stock-based compensation expense within R&D totaled $0.4 million.

For the three months ended March 31, 2022 and 2021, Aerospace and Defense R&D expense was $4.0 million and $3.2 million, respectively. For the three months ended March 31, 2022 and 2021, Broadband R&D expense was $0.5 million and $0.6 million, respectively.

For the six months ended March 31, 2022 and 2021, Aerospace and Defense R&D expense was $8.2 million and $6.8 million, respectively. For the six months ended March 31, 2022 and 2021, Broadband R&D expense was $1.0 million and $1.2 million, respectively.

Severance

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For the three and six months ended March 31, 2022, we incurred a severance charge of $20 thousand and $1.3 million, respectively. The majority of the $1.3 million is associated with the planned shutdown of manufacturing operations in Beijing, China.

(Gain) Loss on Sale of Assets

During the three months ended March 31, 2022 and 2021, we sold certain equipment and incurred 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, we sold certain equipment and incurred a (gain) loss on sale of assets of $(0.6) million and $0.2 million, respectively. We have agreements to sell additional equipment and these assets are classified as assets held for sale. The remaining balance as of March 31, 2022 totaled $0.7 million.

Operating (Loss) Income

Operating (loss) income represents revenue less the cost of revenue and direct operating expenses incurred. Operating (loss) income is a measure that executive management uses to assess performance and make decisions. For the three months ended March 31, 2022 and 2021, operating (loss) income was (7.1)% and 11.9% as a percentage of revenue, respectively. For the six months ended March 31, 2022 and 2021, operating income was 0.2% and 9.9% as a percentage of revenue, respectively.

Order Backlog

Our product sales are made pursuant to purchase orders, often with short lead times. These orders are subject to revision or cancellation and often are made without deposits. Historically, for our CATV Lasers and Transmitters product line, products have typically shipped within the same quarter in which a purchase order is received, and therefore order backlog at any particular date is not necessarily indicative of actual revenue or the level of orders for any succeeding period and may not be comparable to prior periods. In addition, demand for our CATV Lasers and Transmitters products has historically been cyclical, and therefore future revenue trends for this product line are difficult to determine. With respect to our Aerospace and Defense product lines, revenue growth is dependent to a significant extent on customer program schedules.

Liquidity and Capital Resources

We continue to experience an accumulated deficit, but have managed our liquidity position through the sale of assets and cost reduction initiatives, as well as borrowings from our Credit Facility and capital markets transactions. As of March 31, 2022, cash and cash equivalents totaled $80.9 million and net working capital totaled $117.2 million. Net working capital, calculated as current assets (including inventory) minus current liabilities, is a financial metric we use which represents available operating liquidity.

We have taken a number of actions to continue to support our operations and meet our obligations, including:

•We maintain a credit facility with Wells Fargo that provides us with a revolving credit line of up to $15.0 million that can be used as required for operations, subject to certain liquidity and availability requirements. The Credit Facility had $6.1 million available for borrowing as of March 31, 2022. See Note 8 - Credit Facility and Debt in the notes to the condensed consolidated financial statements for additional information regarding the Credit Facility.

•On February 16, 2021, we closed our offering of 6,655,093 shares of our common stock at a price of $5.40 per share, resulting in net proceeds to us from the offering of $33.1 million. See Management’s Discussion and Analysis of Financial Condition and Results of Operations Recent Developments under the heading "Equity Offering" for additional information regarding the equity offering.

•In October 2019, we entered into the Hytera Asset Purchase Agreement pursuant to which we agreed to sell certain of our CATV Lasers and Transmitters manufacturing equipment for purposes of outsourcing manufacturing of our CATV Lasers and Transmitters product lines to Hytera. In August 2021, we entered into the Fastrain Asset Purchase Agreement, pursuant to which, among other items, Fastrain agreed to purchase the same equipment subject to the Hytera Asset Purchase Agreement, along with additional equipment, for aggregate consideration of $6.2 million. See Management’s Discussion and Analysis of Financial Condition and Results of Operations - Recent Developments under the heading "Hytera and Fastrain Transactions" for additional information regarding the transactions with Hytera and Fastrain.

We believe that our existing balances of cash and cash equivalents, cash flows from operations and amounts expected to be available under our Credit Facility (or a replacement facility, if any, to the extent the expiration of the Credit Facility occurs in

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May 2022) will provide us with sufficient financial resources to meet our cash requirements for operations, working capital, and capital expenditures for at least the next twelve months from the issuance date of these financial statements.

Should we require more capital than what is generated by our operations, we could engage in additional sales or other monetization of certain fixed assets and real estate, additional cost reductions, or elect to raise capital in the U.S. through debt or additional equity issuances. These alternatives may not be available to us on reasonable terms or at all, and could result in higher effective tax rates, increased interest expense, and/or dilution of earnings.

Cash Flow

Operating Activities


	For the Six Months Ended March 31,
(in thousands, except percentages)	2022		2021		Change
Net cash provided by operating activities	$	11,535	$	1,772	$	9,763	551.0	%

For the six months ended March 31, 2022, our operating activities provided cash of $11.5 million due to our net income of $0.2 million, positive adjustments for non-cash charges of $4.4 million, and improvements in our working capital components of $6.9 million. Non-cash charges primarily consisted of depreciation and amortization expense of $2.0 million and stock based compensation expense of $2.2 million.

For the six months ended March 31, 2021, our operating activities provided cash of $1.8 million, primarily due to our net income of $7.0 million, and positive adjustments for non-cash charges of $3.9 million offset by changes in our working capital components of $9.1 million. Non-cash charges primarily consisted of depreciation and amortization expense of $2.0 million and stock based compensation expense of $1.8 million.

Working Capital Components

Accounts Receivable We generally expect the level of accounts receivable at any given quarter end to reflect the level of sales in that quarter. Accounts receivable balances have fluctuated historically due to the timing of account collections, timing of product shipments, and/or change in customer credit terms.

Inventory We generally expect the level of inventory at any given quarter end to reflect the change in our expectations of forecasted sales during the quarter. Inventory balances have fluctuated historically due to the timing of customer orders and product shipments, changes in internal forecasts related to customer demand, as well as adjustments related to excess and obsolete inventory.

Accounts Payable The fluctuation of our accounts payable balances is primarily driven by changes in inventory purchases as well as changes related to the timing of actual payments to vendors.

Accrued Expenses Our largest accrued expense typically relates to compensation. Historically, fluctuations of accrued expense accounts have primarily related to changes in the timing of actual compensation payments, receipt or application of advanced payments, adjustments to warranty accrual, and accruals related to professional fees.

Investing Activities


	For the Six Months Ended March 31,
(in thousands, except percentages)	2022		2021		Change
Net cash used in investing activities	$	(2,169)	$	(559)	$	(1,610)	(288.0)	%

For the six months ended March 31, 2022, our investing activities used cash of $2.2 million due to capital-related expenditures.

For the six months ended March 31, 2021, our investing activities used cash of $0.6 million due to capital-related expenditures.

Financing Activities

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	For the Six Months Ended March 31,
(in thousands, except percentages)	2022		2021		Change
Net cash (used in) provided by financing activities	$	(127)	$	33,486	$	(33,613)	(100.4)	%

For the six months ended March 31, 2022, our financing activities used cash for tax withholding paid on behalf of employees for stock-based awards offset by proceeds from the exercise of equity awards.

For the six months ended March 31, 2021, our financing activities provided cash of $33.5 million due to proceeds from issuance of common stock, net of issuance costs of $33.1 million and proceeds from employee stock purchase plan and equity awards of $0.4 million.

Contractual Obligations and Commitments

As of the date of this report, there were no material changes to our contractual obligations and commitments outside the ordinary course of business since September 30, 2021 as reported in our Annual Report on Form 10-K for the fiscal year ended September 30, 2021.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future material effect on our condensed consolidated financial condition, results of operations, liquidity, capital expenditures or capital resources.

Critical Accounting Policies and 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. If these estimates differ significantly from actual results, the impact to the condensed consolidated financial statements may be material. There have been no material changes in our critical accounting policies and estimates from those disclosed in our Annual Report on Form 10-K for the fiscal year ended September 30, 2021. Please refer to Part II, Item 7 of our Annual Report on Form 10-K for the fiscal year ended September 30, 2021 for a discussion of our critical accounting policies and estimates.

ITEM 3. Quantitative and Qualitative Disclosures About Market Risks

There were no material changes to our quantitative and qualitative disclosures about market risks during the second quarter of fiscal 2022. Please refer to Part II, Item 7A Quantitative and Qualitative Disclosures About Market Risks included in our Annual Report on the Form 10-K for our fiscal year ended September 30, 2021 for a more complete discussion of the market risks we encounter.

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ITEM 4. Controls and Procedures

a.Evaluation of Disclosure Controls and Procedures

Our management, with the participation of its Chief Executive Officer (Principal Executive Officer) and Chief Financial Officer (Principal Financial Officer and Accounting Officer), evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of March 31, 2022. Based upon this evaluation, our Chief Executive Officer and our Chief Financial Officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by this report.

b.Changes in Internal Control over Financial Reporting

There have been no changes in the Company’s internal control over financial reporting (as defined in Rule 13a-15(f) and 15d-15(f) promulgated under the Exchange Act) during the quarter ended March 31, 2022 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II. Other Information

ITEM 1. Legal Proceedings

See the disclosures under the caption “Legal Proceedings” in Note 10 - Commitments and Contingencies in the notes to condensed consolidated financial statements for disclosures related to our legal proceedings, which disclosures are incorporated herein by reference.

ITEM 1A. Risk Factors

In addition to the other information set forth in this report, you should carefully consider the risk factors discussed in Part I, Item 1A. “Risk Factors” in our Annual Report on Form 10‑K for the fiscal year ended September 30, 2021, which could materially affect our business, financial condition or future results. We do not believe that there have been any material changes to the risk factors disclosed in our Annual Report on Form 10-K for the fiscal year ended September 30, 2021. The risks described in our Annual Report on Form 10‑K are not the only risks facing our Company. Additional risks and uncertainties not currently known to us or that we currently deem immaterial also may materially adversely affect our business, financial condition, operating results and/or cash flows.

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ITEM 6. Exhibits


2.1						Asset Purchase Agreement, dated as of October 25, 2019 by and among EMCORE Corporation, Hytera Communications (Hong Kong) Company Limited and Shenzhen Hytera Communications Co., Ltd. (incorporated by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K filed on October 30, 2019).
2.2						Purchase and Sale Agreement, dated as of June 7, 2019 by and among EMCORE Corporation, The Resilience Fund IV, L.P., The Resilience Fund IV-A, L.P., Aerospace Newco Holdings, Inc. and Ember Acquisition Sub, Inc. (incorporated by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K filed on June 10, 2019).
2.3						Standard Offer, Agreement and Escrow Instructions for Purchase of Real Estate (Non-Residential) dated as of December 31, 2019 by and between Parkview Management Group, Inc. and Systron Donner Inertial, Inc. (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on January 6, 2020).
2.4						First Amendment to Standard Offer, Agreement and Escrow Instructions for Purchase of Real Estate (Non-Residential) dated as of January 13, 2020 by and between Parkview Management Group, Inc. and Systron Donner Inertial, Inc. (incorporated by reference to Exhibit 10.6 to the Company’s Quarterly Report on Form 10-Q filed on February 10, 2020).
2.5						Asset Purchase Agreement, dated as of August 9, 2021 by and among EMCORE Corporation, Shenzhen Fastrain Technology Co., Ltd. and Hong Kong Fastrain Company Limited (incorporated by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K filed on August 11, 2021).
2.6						Sale Agreement, dated as of February 14, 2022 by and among EMCORE Corporation., Ringo Acquisition Sub, Inc., and L3Harris Technologies, Inc. (incorporated by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K filed on February 15, 2022).
2.7						First Amendment to Sale Agreement, dated as of March 1, 2022 by and among EMCORE Corporation., Ringo Acquisition Sub, Inc., and L3Harris Technologies, Inc. (incorporated by reference to Exhibit 2.2 to the Company’s Current Report on Form 8-K filed on May 2, 2022).
2.8						Second Amendment to Sale Agreement, dated as of March 31, 2022 by and among EMCORE Corporation., Ringo Acquisition Sub, Inc., and L3Harris Technologies, Inc. (incorporated by reference to Exhibit 2.3 to the Company’s Current Report on Form 8-K filed on May 2, 2022).
2.9						Third Amendment to Sale Agreement, dated as of April 29, 2022 by and among EMCORE Corporation., Ringo Acquisition Sub, Inc., and L3Harris Technologies, Inc. (incorporated by reference to Exhibit 2.4 to the Company’s Current Report on Form 8-K filed on May 2, 2022).
10.1**						Amendment to Manufacturing Supply Agreement, dated as of February 25, 2022 by and among by and among EMCORE Corporation, Shenzhen Fastrain Technology Co., Ltd. and Hong Kong Fastrain Company Limited .
10.2†						Amended and Restated EMCORE Corporation 2019 Equity Incentive Plan, as amended and restated on November 29, 2021 (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 10-K filed on March 17, 2022).
10.3†**						Form of Performance-Based Restricted Stock Unit Award (for executive officers and non-executive employees) under the Amended and Restated EMCORE Corporation 2019 Equity Incentive Plan.
31.1**						Certificate of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2**						Certificate of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1***						Certificate of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2***						Certificate of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS**						Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
101.SCH**						XBRL Taxonomy Extension Schema Document.
101.CAL**						XBRL Taxonomy Extension Calculation Linkbase Document.
101.LAB**						XBRL Taxonomy Extension Label Linkbase Document.
101.PRE**						XBRL Taxonomy Extension Presentation Linkbase Document.
101.DEF**						XBRL Taxonomy Extension Definition Linkbase Document.
104**						Cover Page Interactive Data File (formatted in Inline XBRL and contained in Exhibit 101).

_______________________________________

† Management contract or compensatory plan

** Filed herewith

*** Furnished herewith

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

EMCORE CORPORATION

Date:

May 5, 2022

By:

/s/ Jeffrey Rittichier

Jeffrey Rittichier

Chief Executive Officer
(Principal Executive Officer)

Date:

May 5, 2022

By:

/s/ Tom Minichiello

Tom Minichiello

Chief Financial Officer
(Principal Financial and Accounting Officer)

Form: 10-Q

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