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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