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NeoPhotonics Reports Fourth Quarter and Fiscal Year 2019 Financial Results
  • Revenue of $103.4 million for the quarter, up 12% sequentially; up 13% year-over-year
  • Gross margins expanded 2 points over the prior quarter to 30% on a GAAP basis and 31% non-GAAP

SAN JOSE, Calif.--(BUSINESS WIRE)-- NeoPhotonics Corporation (NYSE: NPTN), a leading designer and manufacturer of optoelectronic solutions for the highest speed communications networks in telecom and datacenter applications, today announced financial results for its fourth quarter and fiscal year ended December 31, 2019.

“Our strong revenue and gross margin expansion throughout the year was a result of our leadership in high speed products, serving the largest players in the industry in DCI and the transition of Cloud and hyper-scale data center networks to coherent technologies,” said Tim Jenks, Chairman and CEO of NeoPhotonics.

Fourth Quarter Summary

  • Revenue was $103.4 million, up 12% quarter-over-quarter and 13% year-over-year
  • Gross margin was 30.2%, up from 28.4% in the prior quarter
  • Non-GAAP Gross margin was 30.9%, up from 29.0% in the prior quarter
  • Diluted net income per share was $0.04, compared to $0.05 per share in the prior quarter
  • Non-GAAP diluted net income per share was $0.10, compared to $0.11 in the prior quarter
  • Cash generated from operations was $16 million, up from $9 million in the prior quarter
  • Adjusted EBITDA was $12.5 million, down from $14.2 million in the prior quarter

Non-GAAP results in the fourth quarter of 2019 exclude $3.2 million of stock-based compensation expense, $0.2 million of amortization of acquisition-related intangibles and $0.1 million of gain on sale of assets. 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.

Annual Summary

  • Revenue in 2019 was $356.8 million, compared to $322.5 million in 2018
  • Gross margin was 24.9%, compared to 20.5% in 2018
  • Non-GAAP Gross margin was 27.3%, compared to 22.3% in 2018
  • Diluted net loss per share was $0.36, compared to $0.97 in 2018
  • Non-GAAP diluted net income per share was $0.01, compared to a net loss of $0.45 in 2018
  • Cash generated from operations was $34.7 million, compared to $19.6 million in 2018
  • Adjusted EBITDA was $32.7 million, compared to $14.2 million in 2018

Non-GAAP results in 2019 exclude $12.5 million of stock-based compensation expense, $5.8 million for inventory write-downs and accelerated depreciation, $1.5 million of divestiture costs, amortization of acquisition-related intangibles and restructuring charges, and $0.9 million of gain on sale of Russia assets. 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 December 31, 2019, cash and cash equivalents, short-term investments and restricted cash, together totaled $89.1 million, up $9.2 million compared to September 30, 2019 and up $12.4 million year-over-year. Restricted cash as of December 31, 2019 was $11.0 million, approximately flat compared to September 30, 2019.

Outlook for the Quarter Ending March 31, 2020

GAAP

Non-GAAP

Revenue

$83 to $90 million

Gross Margin

27% to 31%

28% to 32%

Operating Expenses

$25 to $26 million

$22 to $23 million

Earnings per share

$(0.05) to $0.05

$0.00 to $0.10

This outlook includes approximately $10 million of estimated coronavirus-related impacts to Q1 revenue reflecting reduced production in the quarter and added supply chain risks.

The non-GAAP outlook for the first quarter of 2020 excludes the expected impact of stock-based compensation expense of approximately $3.3 million, of which $0.6 million is estimated for cost of goods sold, and the impact of expected amortization of intangibles of approximately $0.2 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, Thursday, February 27, 2020 at 4:30 P.M. Eastern Time (1:30 P.M. Pacific Time). The call will be available, live, to interested parties by dialing +800-367-2403. For international callers, please dial +1-334-777-6978. The Conference ID number is 1233987. 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 website 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 9001:2015 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; 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; 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; changes in economic and industry projections; a decline in general conditions in the telecommunications equipment industry or the world economy generally; potential impacts of the coronavirus outbreak; 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, 2018. All forward-looking statements are made as of the date of this press release, and the Company disclaims any duty to update such statements.

©2020 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

Dec. 31, 2019

Dec. 31, 2018

ASSETS

Current assets:

Cash and cash equivalents

$

70,467

$

58,185

Short-term investments

7,638

7,481

Restricted cash

10,972

11,053

Accounts receivable, net

68,890

74,751

Inventories

46,930

52,159

Assets held for sale

2,971

Prepaid expenses and other current assets

25,851

26,605

Total current assets

230,748

233,205

Property, plant and equipment, net

81,133

100,090

Operating lease right-of-use assets

15,603

Purchased intangible assets, net

2,151

3,018

Goodwill

1,115

1,115

Other long-term assets

3,929

3,148

Total assets

$

334,679

$

340,576

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities:

Accounts payable

$

58,554

$

58,403

Notes payable and short-term borrowing

4,795

Current portion of long-term debt

3,044

2,897

Accrued and other current liabilities

47,481

50,288

Total current liabilities

109,079

116,383

Long-term debt, net of current portion

39,237

50,454

Operating lease liabilities, noncurrent

16,543

Other noncurrent liabilities

9,614

13,499

Total liabilities

174,473

180,336

Stockholders’ equity:

Common stock

121

116

Additional paid-in capital

582,504

564,722

Accumulated other comprehensive loss

(7,871

)

(7,126

)

Accumulated deficit

(414,548

)

(397,472

)

Total stockholders’ equity

160,206

160,240

Total liabilities and stockholders’ equity

$

334,679

$

340,576

NeoPhotonics Corporation

Condensed Consolidated Statements of Operations (Unaudited)

(In thousands, except percentages and per share data)

Three Months Ended

Twelve Months Ended

Dec. 31, 2019

Sep. 30, 2019

Dec. 31, 2018

Dec. 31, 2019

Dec. 31, 2018

Revenue

$

103,356

$

92,392

$

91,104

$

356,804

$

322,540

Cost of goods sold (1)

72,154

66,193

68,518

267,991

256,367

Gross profit

31,202

26,199

22,586

88,813

66,173

Gross margin

30.2

%

28.4

%

24.8

%

24.9

%

20.5

%

Operating expenses:

Research and development (1)

15,470

13,688

13,510

57,634

53,818

Sales and marketing (1)

4,030

3,832

4,362

16,088

16,728

General and administrative (1)

7,429

7,403

7,344

29,759

30,403

Amortization of purchased intangible assets

118

119

475

Asset sale related costs

9

12

83

397

427

Restructuring charges

3

1,349

261

3,135

Litigation settlement

2,195

2,645

Loss (gain) on asset sale

(86

)

200

(903

)

200

Total operating expenses

26,852

24,938

29,161

103,355

107,831

Income (loss) from operations

4,350

1,261

(6,575

)

(14,542

)

(41,658

)

Interest income

83

95

97

376

397

Interest expense

(447

)

(483

)

(486

)

(1,919

)

(2,493

)

Other income (expense), net

(1,810

)

2,960

(445

)

642

1,446

Total interest and other income (expense), net

(2,174

)

2,572

(834

)

(901

)

(650

)

Income (loss) before income taxes

2,176

3,833

(7,409

)

(15,443

)

(42,308

)

Income tax benefit (provision)

(107

)

(1,561

)

680

(1,633

)

(1,329

)

Net income (loss)

$

2,069

$

2,272

$

(6,729

)

$

(17,076

)

$

(43,637

)

Basic net income (loss) per share

$

0.04

$

0.05

$

(0.15

)

$

(0.36

)

$

(0.97

)

Diluted net income (loss) per share

$

0.04

$

0.05

$

(0.15

)

$

(0.36

)

$

(0.97

)

Weighted average shares used to compute basic net income (loss) per share

48,358

47,666

46,150

47,304

45,144

Weighted average shares used to compute diluted net income (loss) per share

50,238

48,615

46,150

47,304

45,144

(1) Includes stock-based compensation expense as follows for the periods presented:

Cost of goods sold

$

593

$

441

$

764

$

2,244

$

2,596

Research and development

755

715

952

3,138

3,570

Sales and marketing

559

575

737

2,411

3,248

General and administrative

1,255

1,220

1,162

4,663

4,728

Total stock-based compensation expense

$

3,162

$

2,951

$

3,615

$

12,456

$

14,142

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

Twelve Months Ended

Dec. 31, 2019

Sep. 30, 2019

Dec. 31, 2018

Dec. 31, 2019

Dec. 31, 2018

NON-GAAP GROSS PROFIT:

GAAP gross profit

$

31,202

$

26,199

$

22,586

$

88,813

$

66,173

Stock-based compensation expense

593

441

764

2,244

2,596

Amortization of purchased intangible assets

184

185

184

737

756

Depreciation of acquisition-related fixed asset step-up

(66

)

(66

)

(75

)

(264

)

(288

)

End-of-life related inventory write-down

2,565

3,553

2,565

Accelerated depreciation

2,265

Restructuring charges

168

Non-GAAP gross profit

$

31,913

$

26,759

$

26,024

$

97,348

$

71,970

Non-GAAP gross margin as a % of revenue

30.9

%

29.0

%

28.6

%

27.3

%

22.3

%

NON-GAAP TOTAL OPERATING EXPENSES:

GAAP total operating expenses

$

26,852

$

24,938

$

29,161

$

103,355

$

107,831

Stock-based compensation expense

(2,569

)

(2,510

)

(2,851

)

(10,212

)

(11,546

)

Amortization of purchased intangible assets

(118

)

(119

)

(475

)

Depreciation of acquisition-related fixed asset step-up

(67

)

(66

)

(66

)

(266

)

(266

)

Asset sale related costs

(9

)

(12

)

(83

)

(397

)

(427

)

Restructuring charges

(3

)

(1,349

)

(261

)

(3,135

)

Litigation settlement

(2,195

)

(2,645

)

Loss (gain) on asset sale

86

(200

)

903

(200

)

Non-GAAP total operating expenses

$

24,293

$

22,347

$

22,299

$

93,003

$

89,137

Non-GAAP total operating expenses as a % of revenue

23.5

%

24.2

%

24.5

%

26.1

%

27.6

%

NON-GAAP OPERATING INCOME (LOSS):

GAAP income (loss) from operations

$

4,350

$

1,261

$

(6,575

)

$

(14,542

)

$

(41,658

)

Stock-based compensation expense

3,162

2,951

3,615

12,456

14,142

Amortization of purchased intangible assets

184

185

302

856

1,231

Depreciation of acquisition-related fixed asset step-up

1

(9

)

2

(22

)

Asset sale related costs

9

12

83

397

427

End-of-life related inventory write-down

2,565

3,553

2,565

Accelerated depreciation

2,265

Restructuring charges

3

1,349

261

3,303

Litigation settlement

2,195

2,645

Loss (gain) on asset sale

(86

)

200

(903

)

200

Non-GAAP income (loss) from operations

$

7,620

$

4,412

$

3,725

$

4,345

$

(17,167

)

Non-GAAP operating margin as a % of revenue

7.4

%

4.8

%

4.1

%

1.2

%

(5.3

)%

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

Twelve Months Ended

Dec. 31, 2019

Sep. 30, 2019

Dec. 31, 2018

Dec. 31, 2019

Dec. 31, 2018

NON-GAAP NET INCOME (LOSS):

GAAP net income (loss)

$

2,069

$

2,272

$

(6,729

)

$

(17,076

)

$

(43,637

)

Stock-based compensation expense

3,162

2,951

3,615

12,456

14,142

Amortization of purchased intangible assets

184

185

302

856

1,231

Depreciation of acquisition-related fixed asset step-up

1

(9

)

2

(22

)

Asset sale related costs

9

12

83

397

427

End-of-life related inventory write-down

2,565

3,553

2,565

Accelerated depreciation

2,265

Restructuring charges

3

1,349

261

3,303

Litigation settlement

2,195

2,645

Loss (gain) on asset sale

(86

)

200

(903

)

200

Income tax effect of Non-GAAP adjustments

(82

)

(14

)

(1,153

)

(1,368

)

(1,375

)

Non-GAAP net income (loss)

$

5,257

$

5,409

$

2,418

$

443

$

(20,521

)

Non-GAAP net income (loss) as a % of revenue

5.1

%

5.9

%

2.7

%

0.1

%

(6.4

)%

ADJUSTED EBITDA:

GAAP net income (loss)

$

2,069

$

2,272

$

(6,729

)

$

(17,076

)

$

(43,637

)

Stock-based compensation expense

3,162

2,951

3,615

12,456

14,142

Amortization of purchased intangible assets

184

185

302

856

1,231

Depreciation of acquisition-related fixed asset step-up

1

(9

)

2

(22

)

Asset sale related costs

9

12

83

397

427

End-of-life related inventory write-down

2,565

3,553

2,565

Accelerated depreciation

2,265

Restructuring charges

3

1,349

261

3,303

Litigation settlement

2,195

2,645

Loss (gain) on asset sale

(86

)

200

(903

)

200

Interest expense, net

364

388

389

1,543

2,096

Income tax benefit (provision)

107

1,561

(680

)

1,633

1,329

Depreciation expense

6,647

6,829

7,260

27,665

29,896

Adjusted EBITDA

$

12,457

$

14,201

$

10,540

$

32,652

$

14,175

Adjusted EBITDA as a % of revenue

12.1

%

15.4

%

11.6

%

9.2

%

4.4

%

BASIC AND DILUTED NET INCOME (LOSS) PER SHARE:

GAAP basic net income (loss) per share

$

0.04

$

0.05

$

(0.15

)

$

(0.36

)

$

(0.97

)

GAAP diluted net income (loss) per share

$

0.04

$

0.05

$

(0.15

)

$

(0.36

)

$

(0.97

)

Non-GAAP basic net income (loss) per share

$

0.11

$

0.11

$

0.05

$

0.01

$

(0.45

)

Non-GAAP diluted net income (loss) per share

$

0.10

$

0.11

$

0.05

$

0.01

$

(0.45

)

SHARES USED TO COMPUTE GAAP AND NON-GAAP BASIC NET INCOME (LOSS) PER SHARE

48,358

47,666

46,150

47,304

45,144

SHARES USED TO COMPUTE GAAP DILUTED NET INCOME (LOSS) PER SHARE

50,238

48,615

46,150

47,304

45,144

SHARES USED TO COMPUTE NON-GAAP DILUTED NET INCOME (LOSS) PER SHARE

52,277

50,051

49,334

50,631

45,144

NeoPhotonics Corporation
Beth Eby, Chief Financial Officer
+1-408-895-6086
ir@neophotonics.com

Sapphire Investor Relations, LLC
Erica Mannion, Investor Relations
+1-617-542-6180
ir@neophotonics.com

Source: NeoPhotonics Corporation