Press release·03/03/2025 01:22:45

Financial Restructuring and Divestments Reshape EMCORE’s Future

EMCORE, a leading provider of advanced optoelectronic products, has undergone a significant transformation over the past year as it works to streamline its operations and focus on its core Inertial Navigation business. The company’s recent financial results reflect the impact of these strategic changes.

Restructuring and Cost Savings

In May 2024, EMCORE initiated a major restructuring effort, which resulted in the elimination of approximately 200 positions, representing around 50% of its total workforce prior to the reductions. The company also consolidated its facility space, shutting down operations at its Alhambra location and transferring its manufacturing support and engineering center in China. These actions are expected to generate annualized cost savings of $17 million, excluding severance costs.

The restructuring process was not without its challenges, however. EMCORE incurred one-time employee severance and termination costs of $2.9 million during the fiscal year ended September 30, 2024. Additionally, the company recorded $2.2 million in restructuring expenses, including $0.9 million for a Chief Restructuring Officer, $0.8 million in inventory impairment at the Alhambra Facility, and $0.3 million in impairment of the manufacturing execution system at the same location. In the three months ended December 31, 2024, EMCORE incurred a further $0.9 million in restructuring expenses, primarily for the Chief Restructuring Officer and the discontinuance of in-house component manufacturing.

Despite the short-term costs associated with the restructuring, the company believes these actions will position it for long-term success by reducing its overall cost structure and allowing it to focus on its core Inertial Navigation business.

Divestitures and Asset Sales

As part of its strategic shift, EMCORE has divested several non-core business lines over the past year. In April 2024, the company sold its discontinued chips business to HieFo Corporation for $2.9 million in cash and the assumption of certain liabilities. This transaction included a sublease agreement for EMCORE to rent space at the Alhambra Facility to HieFo.

Earlier, in October 2023, EMCORE sold its TV, wireless, sensing, and defense optoelectronics business lines to Photonics Foundries, Inc. (PF) for an undisclosed amount. This transaction also included a sublease agreement for EMCORE to rent space at the Alhambra Facility to PF.

These divestitures allowed EMCORE to streamline its operations and focus on its core Inertial Navigation business, which the company believes has the greatest potential for growth and profitability.

Financial Performance

EMCORE’s financial results for the three months ended December 31, 2024 reflect the impact of these strategic changes. Revenue decreased by 20.0% to $19.3 million, primarily due to decreased sales of Fiber Optic Gyroscopes (FOGs), lower revenue recognition for contract support, and the termination of a customer program. However, gross profit increased by 3.0% to $6.3 million, and gross margin improved from 25% to 36%, driven by the cost savings from the restructuring efforts.

Selling, general, and administrative (SG&A) expenses increased by 8.5% to $7.2 million, primarily due to higher professional service costs associated with the proposed merger agreement. Research and development (R&D) expenses, on the other hand, decreased by 54.8% to $1.6 million, reflecting the cost reduction initiatives.

The company also recorded a $1.9 million expense related to the change in fair value of a warrant liability issued in connection with the Hale Credit Agreement and Forbearance Agreement. This non-cash charge is a result of the company’s obligation to remeasure the fair value of the warrant each reporting period.

Liquidity and Capital Resources

EMCORE has faced significant liquidity challenges in recent years, leading the company to take various actions to manage its cash flow and financial position. As of December 31, 2024, the company had $9.0 million in cash and cash equivalents and $34.9 million in net working capital (current assets minus current liabilities).

To address its liquidity needs, EMCORE has pursued several strategies, including:

1. The April 2023 and May 2024 restructurings, which resulted in significant cost savings.
2. The divestitures of non-core business lines, such as the chips business and the TV, wireless, sensing, and defense optoelectronics business.
3. Equity offerings, including a $15.6 million raise in August 2023 and a $15.4 million raise in February 2023.
4. Entering into a credit agreement with Hale Capital Management in April 2024, which provided the company with additional financing and a forbearance period.

Despite these efforts, EMCORE continues to face uncertainty about its ability to continue as a going concern. The company’s management has stated that its existing cash, cash flows from operations, and potential additional financing or asset sales may not be sufficient to meet its cash requirements for the next 12 months. As a result, the company is exploring a range of options to further address its capitalization and liquidity, including the proposed merger agreement announced in November 2024.

Outlook and Proposed Merger

EMCORE’s future outlook remains uncertain, as the company continues to navigate the challenges of its restructuring and strategic shift. The proposed merger agreement with Aerosphere Power, announced in November 2024, represents a potential path forward for the company. Under the terms of the agreement, Aerosphere Power would acquire EMCORE in a transaction valued at approximately $100 million.

The merger, if completed, would provide EMCORE with the financial resources and strategic direction needed to capitalize on the growth opportunities in its Inertial Navigation business. However, the transaction is subject to shareholder approval and other customary closing conditions, and there is no guarantee that it will be successfully completed.

Additionally, EMCORE faces ongoing risks related to the broader economic environment, including increased instability, inflationary pressures, and the potential for new trade restrictions. These factors could further impact the company’s operations and financial performance.

Conclusion

EMCORE’s recent financial results reflect the significant changes the company has undergone as it works to streamline its operations and focus on its core Inertial Navigation business. The restructuring and divestitures have resulted in short-term costs but are expected to generate long-term savings and allow the company to better capitalize on its strengths.

However, EMCORE continues to face liquidity challenges and uncertainty about its ability to continue as a going concern. The proposed merger with Aerosphere Power represents a potential solution, but its successful completion is not guaranteed. As EMCORE navigates these complex issues, the company’s ability to execute its strategic plan and manage the broader economic environment will be crucial to its future success.