Acquisitions recently added a 100,000 sq/ft production facility and the potential to double revenues.
Good Day Everyone,
EMCORE Corporation (NASDAQ: EMKR) builds advanced optical semiconductors and systems that reside at the heart of today’s leading-edge aerospace & defense platforms and highspeed communication networks.
Current price $2.88 (as of market close 8-12-22)
Last week was tumultuous for EMKR and its stakeholders. Last Tuesday the company shares were trading at $3.27. On Wednesday they released Q322 earnings, missing analysts’ expectations and announced the $55M cash acquisition of the Fiber Optic Gyroscope (FOG) and Inertial Navigation Systems business segment of KVH Industries, Inc. (NASDAQ: KVHI).
The market responded to the revenue miss with a knee jerk reaction, driving the price to $2.45/share on Wednesday. After investors had a couple days of absorbing the news, the company’s shares moved to $2.88 by Friday. I wanted to report to you on EMKR because I believe the stock may fill the gap created last week. Take a look at the chart (below) I see a potential gap fill at over $5.00/share.
EMKR missed their Q3 (FYE is September 30) guidance of $25-27M in revenues, reporting $23M. I believe that EMKR, given the high-tech components used in their products, was particularly impacted by supply chain issues. Here is what the company had to say:
“During the three months ended June 30, 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, and a COVID-19 outbreak at the Company’s Concord facility resulted in production delays and since our last call, the Cable TV business has become more turbulent, with a major customer deciding to exit CATV entirely.”
I’m looking at the bigger picture to guide me on EMKR. In FYE 2018 the company had $85M in revenues and built that up to $158M in FYE 2021 and this year the company has made some acquisitions. I believe the market has not given the company the benefit of the value in its accretive acquisitions and has placed too much focus on the narrow Q3 revenue miss.
It’s my belief that two recent accretive acquisitions, one at the end of April and one last week could add $50M to the company’s annual top line.
EMKR just acquired the Fiber Optic Gyroscope (FOG) and Inertial Navigation Systems business segment of KVH Industries, Inc. (NASDAQ: KVHI) for $55M in cash. EMKR reported $74.6M in cash at the end of Q3 on June30th. EMCORE acquired all the intellectual property and outstanding assets and liabilities of KVH’s FOG and Inertial Navigation Systems business segment, including the 100,384-square-foot production facility located in Tinley Park, Illinois. This new business from KVHI is generating over $30.0 million in revenue on an annual basis.
On April 29, 2022, EMKR completed the accretive acquisition of the L3Harris Technologies, Inc. Space and Navigation business for approximately $5.0 million. The acquisition brought Supplier agreement with L3Harris Space & Sensors for the United Launch Alliance (ULA) Atlas and Centaur launch vehicle, and existing products used for guidance on the international space station and classified reconnaissance platforms. In Q3, ended June 30sth EMKR reported $3.5M in partial quarter (2 month) revenues for the L3Harris segment. That could translate into annual revenues of $20M.
EKMR has an extensive product line and serves several industries with a blue-chip list of customers. As a part of your due diligence, I urge you to visit the company website at emcore.com, as well as looking at this video giving an overview of EMKR products and markets. Make no mistake, as you can see in the links, EMKR makes crucial components for the world’s most advanced aerospace, defense and communication systems.
EMKR operates with two segments:
Aerospace and Defense with two product lines: (1) Navigation and Inertial Sensing, and (2) Defense Optoelectronics. The company reports “Demand in our A&D business segment is strong, and we expect our QMEMS operational issues to improve with a rebound in the September quarter.”
Broadband with three product lines: (1) CATV Lasers and Transmitters, (2) Chip Devices, and (3) Other Optical Products. The company reports “We began low volume shipments of data center chips as projected, signaling a new growth phase in Broadband.”
The addition of the new KVHI facility brings the number of production facilities operated by EMKR to four.
EMKR sees their Total Addressable Market at $2.7B and frankly, for much of their business, there isn’t a lot of competition. I believe that is why EMKR has seen consistent growth (FYE 2022 may be an exception) and may see much higher revenues after this year’s accretive acquisitions.
FYE September 30th, MRQ June 30,2022
Outstanding shares 37.5M
Shares in float 30M
Cash (mrq) $74.6M
Book value (mrq) $3.56/share
Institutional ownership 69%
I note that in afterhours trading in last Friday’s session EMKR shares were at $2.95. I expect the short-term gap may fill quickly creating a momentum swing that could surpass the SMA 200 of $4.70/share.
EMCORE Corporation (taken from form 10-Q)
EMKR 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 broadband industry. We pioneered the linear fiber optic transmission technology that enabled the world’s first delivery of Cable TV 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 acquisitions of (a) 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, and (b) the L3Harris Space and Navigation (“S&N”) business in April 2022, we further expanded our portfolio of gyros and inertial sensors with SDI’s QMEMS gyro and accelerometer technology and S&N’s FOG and ring laser gyro (“RLG”) 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 QMEMS processing and sensor manufacturing facility in Concord, CA, and our FOG and RLG manufacturing facility in Budd Lake, NJ. These facilities support our vertically integrated manufacturing strategy for QMEMS, FOG, and RLG products for navigation systems, and, with respect to our Alhambra, CA facility, 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.
More on EMKR coming soon,
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