Acquisitions

6 Months Ended

Mar. 31, 2023

Business Combination and Asset Acquisition [Abstract]

On April 29, 2022, we completed the acquisition of the L3H S&N business for a total purchase price of approximately $5.0 million in cash, exclusive of transaction costs and expenses and subject to certain post-closing working capital adjustments, resulting in a final adjusted purchase consideration transferred of $4.9 million. Following the closing, S&N results are included in our Aerospace and Defense (“A&D”) reportable segment and in our consolidated financial statements beginning on the acquisition date. Revenue and net income of S&N of $6.7 million and $0.4 million, respectively, is included in our condensed consolidated statements of operations and comprehensive (loss) income for the three months ended March 31, 2023. Revenue and net income of S&N of $12.3 million and $1.4 million, respectively, is included in our condensed consolidated statements of operations and comprehensive (loss) income for the six months ended March 31, 2023.

On August 9, 2022, we completed the acquisition of EMCORE Chicago pursuant to which we acquired substantially all of KVH's assets and liabilities primarily related to its FOG and Inertial Navigation Systems business, including property interests in the Tinley Park Facility, for aggregate consideration of approximately $55.0 million, exclusive of transaction costs and expenses and subject to certain post-closing working capital adjustments. Following the closing, EMCORE Chicago results are included in our A&D reportable segment and in our consolidated financial statements beginning on the acquisition date. Revenue and net income of EMCORE Chicago of $8.8 million and $0.4 million, respectively, is included in our condensed consolidated statements of operations and comprehensive (loss) income for the three months ended March 31, 2023. Revenue and net income of EMCORE Chicago of $16.6 million and $1.7 million, respectively, is included in our condensed consolidated statements of operations and comprehensive (loss) income for the six months ended March 31, 2023.

Final Purchase Price Allocation

The total purchase price for the S&N acquisition was allocated to the assets acquired and liabilities assumed based on the estimated fair values as of the acquisition date. Since the acquisition, the purchase price allocation for S&N changed by a $2.3 million reduction to contract assets and a $0.6 million reduction to asset retirement obligation, resulting in a corresponding increase to intangible assets and goodwill acquired. Goodwill is measured as the excess of the fair value of the purchase consideration transferred over the fair value of the identifiable net assets.

The table below represents the final purchase price allocation to the assets acquired and liabilities assumed of S&N based on their estimated fair values as of the acquisition date based on management’s best estimates and assumptions:


(in thousands)	Amount
Tangible assets acquired:
Accounts receivable	$	803
Inventory	370
Contract assets	3,920
Operating lease right-of-use assets	1,529
Property, plant, and equipment	1,996
Net pension benefit assets	1,727
Intangible assets acquired	2,740
Goodwill	3,108
Liabilities assumed:
Accounts payable	(1,226)
Accrued expenses	(622)
Contract liabilities	(6,024)
Operating lease liabilities	(1,565)
Asset retirement obligation	(1,895)
Total purchase consideration	$	4,861

Preliminary Purchase Price Allocation

The total purchase price for the EMCORE Chicago acquisition was allocated to the assets acquired and liabilities assumed based on the estimated fair values as of the acquisition date. Due to the fact that such acquisition occurred in the most recent 12-month period, the Company's fair value estimates for the purchase price allocations are preliminary. The final determination of fair value for the assets acquired and liabilities assumed is subject to further change and will be completed as soon as possible, but no later than one year from the applicable acquisition date. Any changes in the fair values of the assets acquired and liabilities assumed during the measurement period may result in a material adjustment to goodwill.

The table below represents the preliminary purchase price allocation to the assets acquired and liabilities assumed of EMCORE Chicago based on their estimated fair values as of the acquisition date based on management’s best estimates and assumptions:


(in thousands)	Amount
Tangible assets acquired:
Accounts receivable	$	4,977
Inventory	10,800
Prepaid expenses and other current assets	1,483
Property, plant, and equipment	14,442
Intangible assets acquired	12,770
Goodwill	13,246
Liabilities assumed:
Accounts payable	(1,699)
Accrued expenses	(485)
Contract liabilities	(637)
Other long-term liabilities	(8)
Total purchase consideration	$	54,889

Included in intangible assets acquired are customer relationships of $4.0 million, technology of $2.6 million, in-process research and development of $6.7 million, and trademarks of $2.2 million.

For the three and six months ended March 31, 2023, the Company incurred transitional and transaction costs of approximately $1.3 million and $3.3 million, respectively, in connection with the acquisitions, which were expensed as incurred and included in selling, general, and administrative (“SG&A”) expenses within the accompanying condensed consolidated statements of operations and comprehensive (loss) income. Goodwill from these acquisitions totaled $16.4 million, of which 80.7% was the

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

Unaudited Pro Forma Financial Information

The following unaudited pro forma financial information presented for the three and six months ended March 31, 2022 does not purport to be indicative of the results of operations that would have been achieved had the EMCORE Chicago acquisition been consummated on October 1, 2021, nor of the results which may occur in the future. The pro forma amounts are based upon available information and certain assumptions that the Company believes are reasonable.


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


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

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

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

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

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