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NeoPhotonics Reports Third Quarter 2018 Financial Results
  • Revenue of $81.7 million for the quarter
  • Gross margin was up 400 basis points sequentially

SAN JOSE, Calif.--(BUSINESS WIRE)--Nov. 2, 2018-- NeoPhotonics Corporation (NYSE: NPTN), a leading designer and manufacturer of optoelectronic solutions for the highest speed communications networks in telecom and data center applications, today announced financial results for its third quarter ended September 30, 2018.

“With continued strength in demand in the third quarter, combined with increasing volume growth across various product lines, we achieved gross margin expansion of nearly 400bps,” said Tim Jenks, NeoPhotonics Chairman and CEO. “With the returning demand for our core products and our successes thus far with multiple customers for our highest speed products, including 600G, we are enthusiastic about the opportunities we see in 2019 and beyond.”

Third Quarter Summary

  • Revenue was $81.7 million, up 1% quarter-over-quarter and 15% year-over-year
  • Gross margin was 23.2%, up from 19.1% in the prior quarter
  • Non-GAAP Gross margin was 24.0%, up from 20.1% in the prior quarter
  • Diluted net loss per share was $0.18, an improvement from a net loss of $0.24 per share in the prior quarter
  • Non-GAAP diluted net loss per share was $0.05, an improvement from a net loss of $0.14 in the prior quarter
  • Cash generated from operations was $13.5 million, up from negative $1.1 million in the prior quarter
  • Adjusted EBITDA was $6.2 million, up from $3.0 million in the prior quarter

Non-GAAP results in the third quarter of 2018 exclude $4.0 million of stock-based compensation expense, $0.3 million of amortization of acquisition-related intangibles, $0.5 million for a litigation settlement and $1.2 million of restructuring charges. A reconciliation of the Non-GAAP and Adjusted EBITDA financial measures to the most directly comparable GAAP financial measures is provided in the financial schedules portion at the end of this press release.

As of September 30, 2018, cash and cash equivalents, short-term investments and restricted cash, together totaled $64.7 million, down $2.9 million compared to June 30, 2018, after repayment of $18.6 million of debt in the quarter. Restricted cash as of September 30, 2018 was $5.2 million, down $1.6 million compared to June 30, 2018.

 

Outlook for the Quarter Ending December 31, 2018

 

      GAAP     Non-GAAP
Revenue     $87 to $92 million
Gross Margin     22% to 26%     24% to 28%
Operating Expenses     $26 to $27 million     $23 million +/- $0.5 million
Earnings per share     $0.17 to $0.07 net loss     $0.08 net loss to $0.02 net profit
             

The Non-GAAP outlook for the fourth quarter of 2018 excludes the expected impact of stock-based compensation expense of approximately $3.8 million, of which $0.5 million is estimated for cost of goods sold, and the impact of expected amortization of intangibles of approximately $0.3 million.

Non-GAAP and Adjusted EBITDA Measures vs. GAAP Financial Measures

The Company’s non-GAAP and adjusted EBITDA measures exclude certain GAAP financial measures. A reconciliation of the Non-GAAP and Adjusted EBITDA financial measures to the most directly comparable GAAP financial measures is provided in the financial schedules portion at the end of this press release. These non-GAAP financial measures differ from GAAP measures with the same captions and may differ from non-GAAP financial measures with the same or similar captions that are used by other companies. As such, these non-GAAP measures should be considered as a supplement to, and not as a substitute for, or superior to, financial measures calculated in accordance with GAAP.

The Company uses these non-GAAP financial measures to analyze its operating performance and future prospects, develop internal budgets and financial goals, and to facilitate period-to-period comparisons. NeoPhotonics believes that these non-GAAP financial measures reflect an additional way of viewing aspects of its operations that, when viewed with its GAAP results, provide a more complete understanding of factors and trends affecting its business.

Conference Call

The Company will host a conference call today, Friday, November 2, 2018 at 8:00 A.M. Eastern Time (5:00 A.M. Pacific Time). The call will be available, live, to interested parties by dialing 800-949-2175. For international callers, please dial +1 323-994-2131. The Conference ID number is 7938846. Please dial into the conference call 5-10 minutes prior to the scheduled start time.

A live webcast will be available in the Investor Relations section of NeoPhotonics’ website at: http://ir.neophotonics.com/phoenix.zhtml?c=236218&p=irol-calendar.

A replay of the webcast will be available in the Investor Relations section of the Company’s web site approximately two hours after the conclusion of the call and remain available for approximately 30 calendar days.

About NeoPhotonics

NeoPhotonics is a leading designer and manufacturer of optoelectronic solutions for the highest speed communications networks in telecom and datacenter applications. The Company’s products enable cost-effective, high-speed data transmission and efficient allocation of bandwidth over communications networks. NeoPhotonics maintains headquarters in San Jose, California and ISO 9001:2000 certified engineering and manufacturing facilities in Silicon Valley (USA), Japan and China. For additional information visit www.neophotonics.com.

Safe Harbor Statement Under the Private Securities Litigation Reform Act of 1995

This press release includes statements that qualify as forward-looking statements under the Private Securities Litigation Reform Act of 1995. These forward-looking statements include statements about the following topics: future financial results, demand for the Company’s high-speed products, and the Company’s market position. Forward-looking statements are subject to certain risks and uncertainties that could cause the actual results to differ materially. Those risks and uncertainties include, but are not limited to, such factors as: the Company’s reliance on a small number of customers for a substantial portion of its revenues; market growth in China and other key countries; possible reduction in or volatility of customer orders or delays in shipments of products to customers; timing of customer drawdowns of vendor-managed inventory; potential governmental trade actions; possible disruptions in the supply chain or in demand for the Company’s products due to industry developments; the ability of the Company's vendors and subcontractors to supply or manufacture the Company's products in a timely manner; ability of the Company to meet customer demand; volatility in utilization of manufacturing operations and manufacturing costs; reductions in the Company’s rate of new design wins, and/or the rate at which design wins go into production, and the rate of customer acceptance of new product introductions; potential pricing pressure that may arise from changing supply or demand conditions in the industry; the impact of any previous or future acquisitions or divestitures of assets and related product lines; challenges involving integration of acquired businesses and utilization of acquired technology; the discontinuance or end of life of certain other products; market adoption, revenue growth and margins of acquired products; changes in demand for the Company's products; the impact of competitive products and pricing and alternative technological advances; the accuracy of estimates used to prepare the Company's financial statements and forecasts; the timely and successful development and market acceptance of new products and upgrades to existing products; the difficulty of predicting future cash needs; the nature of other investment opportunities available to the Company from time to time; the Company’s operating cash flow; changes in economic and industry projections; a decline in general conditions in the telecommunications equipment industry or the world economy generally; and the effects of seasonality. For further discussion of these risks and uncertainties, please refer to the documents the Company files with the SEC from time to time, including the Company's Annual Report on Form 10-K for the year ended December 31, 2017. All forward-looking statements are made as of the date of this press release, and the Company disclaims any duty to update such statements.

©2018 NeoPhotonics Corporation. All rights reserved. NeoPhotonics and the red dot logo are trademarks of NeoPhotonics Corporation. All other marks are the property of their respective owners.

 
NeoPhotonics Corporation
Condensed Consolidated Balance Sheets (Unaudited)
(In thousands)
             
             
      As of
      Sept. 30,

2018

    Dec. 31,

2017

ASSETS            
Current assets:            
Cash and cash equivalents     $ 52,099       $ 78,906  
Short-term investments       7,441         12,311  
Restricted cash       5,195         2,658  
Accounts receivable, net       66,620         67,229  
Inventories       57,124         67,301  
Assets held for sale       3,192         -  
Prepaid expenses and other current assets       28,659         36,235  

Total current assets

      220,330         264,640  
Property, plant and equipment, net       104,965         127,565  
Purchased intangible assets, net       3,320         4,294  
Goodwill       1,115         1,115  
Other long-term assets       3,080         5,339  
Total assets     $ 332,810       $ 402,953  
             
LIABILITIES AND STOCKHOLDERS' EQUITY            
Current liabilities:            
Accounts payable     $ 54,603       $ 69,017  
Notes payable and short-term borrowing       3,634         35,607  
Current portion of long-term debt       2,798         6,005  
Accrued and other current liabilities       46,857         43,242  
Total current liabilities       107,892         153,871  
Long-term debt, net of current portion       50,356         40,556  
Other noncurrent liabilities       13,388         14,075  
Total liabilities       171,636         208,502  
             
Stockholders' equity:            
Common stock       115         111  
Additional paid-in capital       559,371         545,953  
Accumulated other comprehensive income (loss)       (7,569 )       398  
Accumulated deficit       (390,743 )       (352,011 )
Total stockholders' equity       161,174         194,451  
Total liabilities and stockholders' equity     $ 332,810       $ 402,953  
 
     
NeoPhotonics Corporation
Condensed Consolidated Statements of Operations (Unaudited)
(In thousands, except percentages and per share data)
     
     
      Three Months Ended       Nine Months Ended
      Sept. 30,

2018

    Jun. 30,

2018

    Sept. 30,

2017

    Sept. 30,

2018

    Sept. 30,

2017

                                       
Revenue     $ 81,748         $ 81,102         $ 71,121         $ 231,436         $ 216,023  
Cost of goods sold (1)       62,815           65,630           60,608           187,849           170,230  
Gross profit       18,933           15,472           10,513           43,587           45,793  
Gross margin       23.2 %         19.1 %         14.8 %         18.8 %         21.2 %
Operating expenses:                                      
Research and development (1)       13,177           13,243           14,662           40,308           44,412  
Sales and marketing (1)       4,351           3,891           4,071           12,366           12,913  
General and administrative (1)       8,592           7,267           7,637           23,509           26,792  
Amortization of purchased intangible assets       118           120           119           357           355  
Asset sale related costs       251           79           78           344           229  
Restructuring charges       1,133           622           2,829           1,786           3,550  
Gain on asset sale       -           -           -           -           (2,000 )
Total operating expenses       27,622           25,222           29,396           78,670           86,251  
Loss from operations       (8,689 )         (9,750 )         (18,883 )         (35,083 )         (40,458 )
Interest income       85           122           37           300           141  
Interest expense       (540 )         (759 )         (495 )         (2,007 )         (743 )
Other income (expense), net       1,310           930           (41 )         1,891           197  
Total interest and other income (expense), net       855           293           (499 )         184           (405 )
Loss before income taxes       (7,834 )         (9,457 )         (19,382 )         (34,899 )         (40,863 )
Income tax (provision) benefit       (291 )         (1,080 )         1,195           (2,009 )         1,813  
Net loss     $ (8,125 )       $ (10,537 )       $ (18,187 )       $ (36,908 )       $ (39,050 )
                                       
Basic net loss per share     $ (0.18 )       $ (0.24 )       $ (0.42 )       $ (0.82 )       $ (0.90 )
Diluted net loss per share     $ (0.18 )       $ (0.24 )       $ (0.42 )       $ (0.82 )       $ (0.90 )
                                       
Weighted average shares used to compute basic net loss per share       45,476           44,665           43,790           44,804           43,212  
Weighted average shares used to compute diluted net loss per share       45,476           44,665           43,790           44,804           43,212  
                                       
(1) Includes stock-based compensation expense as follows for the periods presented:                    
Cost of goods sold     $ 553         $ 629         $ 340         $ 1,832         $ 811  
Research and development       1,016           829           606           2,618           1,779  
Sales and marketing       931           642           393           2,511           1,170  
General and administrative       1,541           1,039           595           3,566           1,932  
Total stock-based compensation expense     $ 4,041         $ 3,139         $ 1,934         $ 10,527         $ 5,692  
 

NeoPhotonics Corporation

Reconciliation of Condensed Consolidated GAAP Financial Measures to Non-GAAP Financial Measures (Unaudited)
(In thousands, except percentages and per share data)
                                       
      Three Months Ended       Nine Months Ended
      Sept. 30,

2018

    Jun. 30,

2018

    Sept. 30,

2017

    Sept. 30,

2018

    Sept. 30,

2017

                                       
NON-GAAP GROSS PROFIT:                                      
GAAP gross profit     $ 18,933         $ 15,472         $ 10,513         $ 43,587         $ 45,793  
Stock-based compensation expense       553           629           340           1,832           811  
Amortization of purchased intangible assets       185           184           202           572           667  
Depreciation of acquisition-related fixed asset step-up       (71 )         (73 )         (68 )         (213 )         (202 )
End-of-life related inventory write-down       -           -           1,975           -           1,975  
Restructuring charges       22           54           285           168           564  
Non-GAAP gross profit     $ 19,622         $ 16,266         $ 13,247         $ 45,946         $ 49,608  
Non-GAAP gross margin as a % of revenue       24.0 %         20.1 %         18.6 %         19.9 %         23.0 %
                                       
NON-GAAP TOTAL OPERATING EXPENSES:                                    
GAAP total operating expenses     $ 27,622         $ 25,222         $ 29,396         $ 78,670         $ 86,251  
Stock-based compensation expense       (3,488 )         (2,510 )         (1,594 )         (8,695 )         (4,881 )
Amortization of purchased intangible assets       (118 )         (120 )         (119 )         (357 )         (355 )
Depreciation of acquisition-related fixed asset step-up       (65 )         (68 )         (71 )         (200 )         (216 )
Asset sale related costs       (252 )         (79 )         (78 )         (345 )         (229 )
Restructuring charges       (1,133 )         (622 )         (2,829 )         (1,786 )         (3,550 )
Litigation settlement       (450 )         -           -           (450 )         64  
Gain on asset sale       -           -           -           -           2,000  
Non-GAAP total operating expenses     $ 22,116         $ 21,823         $ 24,705         $ 66,837         $ 79,084  
Non-GAAP total operating expenses as a % of revenue       27.1 %         26.9 %         34.7 %         28.9 %         36.6 %
                                       
NON-GAAP OPERATING LOSS:                                      
GAAP loss from operations     $ (8,689 )       $ (9,750 )       $ (18,883 )       $ (35,083 )       $ (40,458 )
Stock-based compensation expense       4,041           3,139           1,934           10,527           5,692  
Amortization of purchased intangible assets       303           304           321           929           1,022  
Depreciation of acquisition-related fixed asset step-up       (6 )         (5 )         3           (13 )         14  
Asset sale related costs       252           79           78           345           229  
End-of-life related inventory write-down       -           -           1,975           -           1,975  
Restructuring charges       1,155           676           3,114           1,954           4,114  
Litigation settlement       450           -           -           450           (64 )
Gain on asset sale       -           -           -           -           (2,000 )
Non-GAAP loss from operations     $ (2,494 )       $ (5,557 )       $ (11,458 )       $ (20,891 )       $ (29,476 )
Non-GAAP operating margin as a % of revenue       (3.1 )%         (6.9 )%         (16.1 )%         (9.0 )%         (13.6 )%
                                       
 

NeoPhotonics Corporation

Reconciliation of Condensed Consolidated GAAP Financial Measures to Non-GAAP Financial Measures (Unaudited) (Continued)

(In thousands, except percentages and per share data)
                                       
      Three Months Ended     Nine Months Ended
      Sept. 30,

2018

    Jun. 30,

2018

    Sept. 30,

2017

    Sept. 30,

2018

    Sept. 30,

2017

NON-GAAP NET LOSS:                                      
GAAP net loss     $ (8,125 )       $ (10,537 )       $ (18,187 )       $ (36,908 )       $ (39,050 )
Stock-based compensation expense       4,041           3,139           1,934           10,527           5,692  
Amortization of purchased intangible assets       303           304           321           929           1,022  
Depreciation of acquisition-related fixed asset step-up       (6 )         (5 )         3           (13 )         14  
Asset sale related costs       252           79           78           345           229  
End-of-life related inventory write-down       -           -           1,975           -           1,975  
Restructuring charges       1,155           676           3,114           1,954           4,114  
Litigation settlement       450           -           -           450           (64 )
Gain on asset sale       -           -           -           -           (2,000 )
Income tax effect of Non-GAAP adjustments       (138 )         42           (114 )         (222 )         (117 )
Non-GAAP net loss     $ (2,068 )       $ (6,302 )       $ (10,876 )       $ (22,938 )       $ (28,185 )
Non-GAAP net loss as a % of revenue       (2.5 )%         (7.8 )%         (15.3 )%         (9.9 )%         (13.0 )%
                                       
ADJUSTED EBITDA:                                      
GAAP net loss     $ (8,125 )       $ (10,537 )       $ (18,187 )       $ (36,908 )       $ (39,050 )
Stock-based compensation expense       4,041           3,139           1,934           10,527           5,692  
Amortization of purchased intangible assets       303           304           321           929           1,022  
Depreciation of acquisition-related fixed asset step-up       (6 )         (5 )         3           (13 )         14  
Asset sale related costs       252           79           78           345           229  
End-of-life related inventory write-down       -           -           1,975           -           1,975  
Restructuring charges       1,155           676           3,114           1,954           4,114  
Litigation settlement       450           -           -           450           (64 )
Gain on asset sale       -           -           -           -           (2,000 )
Interest (income) expense, net       455           637           458           1,707           602  
Income tax (provision) benefit       291           1,080           (1,195 )         2,009           (1,813 )
Depreciation expense       7,343           7,607           7,016           22,636           19,608  
Adjusted EBITDA     $ 6,159         $ 2,980         $ (4,483 )       $ 3,636         $ (9,671 )
Adjusted EBITDA as a % of revenue       7.5 %         3.7 %         (6.3 )%         1.6 %         (4.5 )%
                                       
BASIC AND DILUTED NET LOSS PER SHARE:                                    
GAAP basic net loss per share     $ (0.18 )       $ (0.24 )       $ (0.42 )       $ (0.82 )       $ (0.90 )
GAAP diluted net loss per share     $ (0.18 )       $ (0.24 )       $ (0.42 )       $ (0.82 )       $ (0.90 )
Non-GAAP basic net loss per share     $ (0.05 )       $ (0.14 )       $ (0.25 )       $ (0.51 )       $ (0.65 )
Non-GAAP diluted net loss per share     $ (0.05 )       $ (0.14 )       $ (0.25 )       $ (0.51 )       $ (0.65 )
                                       
SHARES USED TO COMPUTE GAAP AND NON-GAAP BASIC NET LOSS PER SHARE       45,476           44,665           43,790           44,804           43,212  
SHARES USED TO COMPUTE GAAP DILUTED NET LOSS PER SHARE       45,476           44,665           43,790           44,804           43,212  
SHARES USED TO COMPUTE NON-GAAP DILUTED NET LOSS PER SHARE       45,476           44,665           43,790           44,804           43,212  

 

Source: NeoPhotonics Corporation

NeoPhotonics Corporation
Beth Eby, +1-408-895-6086
Chief Financial Officer
ir@neophotonics.com
or
Sapphire Investor Relations, LLC
Erica Mannion, +1-617-542-6180
Investor Relations
ir@neophotonics.com