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NeoPhotonics Reports Third Quarter 2017 Financial Results
  • Quarterly Revenue of $71.1 Million
  • High Speed Products Climb to Highest Mix at 84% of Total Revenue
  • Restructuring Actions Taken to Improve Profitability while Focusing Investment and Developments on Key Growth Opportunities

SAN JOSE, Calif.--(BUSINESS WIRE)--Nov. 6, 2017-- 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 third quarter ended September 30, 2017.

“We are focused on growth initiatives in telecom, data center and cloud markets, as well as operational execution to lower our breakeven level as China continues with steady though muted demand,” said Tim Jenks, Chairman and CEO of NeoPhotonics. “Growth drivers in our markets include Metro deployments across the globe, China high speed build-outs in advance of 5G wireless, and data centers and big data applications that are embracing our higher speed technologies and leverage NeoPhotonics’ core strengths,” concluded Mr. Jenks.

Third Quarter Summary

  • Revenue was $71.1 million, in comparison to $73.2 million in the prior quarter
  • Gross margin was 14.8%, compared to 22.9% in the prior quarter
  • Non-GAAP Gross margin was 18.6%, compared to 23.9% in the prior quarter
  • Net loss was $18.2 million, compared to a net loss of $9.3 million in the prior quarter
  • Non-GAAP net loss was $10.9 million, compared to a net loss of $6.6 million in the prior quarter
  • Diluted net loss per share was $0.42, in comparison to a net loss of $0.22 per share in the prior quarter
  • Non-GAAP diluted net loss per share was $0.25, compared to a net loss of $0.15 in the prior quarter
  • Adjusted EBITDA was negative $4.5 million, compared to positive $48,000 in the prior quarter

Non-GAAP results in the third quarter of 2017 exclude $0.4 million of asset sale related costs and amortization of acquisition-related intangibles, $1.9 million of stock-based compensation expense, $2.0 million of end-of-life related inventory write-downs and $3.1 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, 2017, cash and cash equivalents, short-term investments and restricted cash, together totaled $73.7 million, compared to $79.0 million at June 30, 2017. Restricted cash as of September 30, 2017 was $2.9 million, down from $3.3 million at June 30, 2017.

Outlook for the Quarter Ending December 31, 2017

    GAAP   Non-GAAP
Revenue   $69 to $74 million
Gross Margin   19% to 22%   20% to 23%
Operating Expenses   $25 to $26 million   $23 to $24 million
Earnings per share   $0.29 to $0.19 net loss   $0.23 to $0.13 net loss
   

The Non-GAAP outlook for the fourth quarter of 2017 excludes the impact of expected amortization of intangibles of approximately $0.3 million, the anticipated impact of stock-based compensation of approximately $1.9 million, of which $0.3 million is estimated for cost of goods sold and $0.7 million for the expected impact of restructuring charges.

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, Monday, November 6, 2017, at 4:30 P.M. Eastern Time (1:30 P.M. Pacific Time). The call will be available, live, to interested parties by dialing 800-239-9838. For international callers, please dial +1-323-794-2551. The Conference ID number is 9384833. 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, the Company’s market position, the outlook for the China market, and industry trends. 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; 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; economic conditions or natural disasters; volatility in utilization of manufacturing operations, supporting utility services and other manufacturing costs; the savings anticipated from cost reduction actions and the impact of severance 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; challenges involving integration of acquired businesses and utilization of acquired technology or divestitures of assets and related product lines; the impact of the sale of the low speed transceiver product lines and 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, 2016 and its Form 10-Q for the six months ended June 30, 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.

©2017 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,

2017

Dec. 31,

2016

ASSETS
Current assets:
Cash and cash equivalents $ 58,528 $ 82,500
Short-term investments 12,281 19,015
Restricted cash 2,917 4,085
Accounts receivable, net 67,003 80,610
Inventories, net 82,809 48,237
Assets held for sale - 13,953
Prepaid expenses and other current assets   34,568     22,396  
Total current assets 258,106 270,796
Property, plant and equipment, net 127,316 106,867
Purchased intangible assets, net 4,594 5,562
Goodwill 1,115 1,115
Other long-term assets   6,858     6,547  
Total assets $ 397,989   $ 390,887  
 
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 69,771 $ 84,766
Notes payable and short-term borrowing 19,630 30,190
Current portion of long-term debt 5,740 747
Accrued and other current liabilities   44,743     30,625  
Total current liabilities 139,884 146,328
Long-term debt, net of current portion 41,029 10,215
Other noncurrent liabilities   14,959     8,939  
Total liabilities   195,872     165,482  
 
Stockholders' equity:
Common stock 110 106
Additional paid-in capital 542,029 532,378
Accumulated other comprehensive loss (2,294 ) (8,401 )
Accumulated deficit   (337,728 )   (298,678 )
Total stockholders' equity   202,117     225,405  
Total liabilities and stockholders' equity $ 397,989   $ 390,887  
 
NeoPhotonics Corporation
Condensed Consolidated Statements of Operations (Unaudited)
(In thousands, except percentages and per share data)
         
 
Three Months Ended Nine Months Ended
Sept. 30,

2017

June. 30,

2017

 

Sept. 30,

2016

 

Sept. 30,

2017

Sept. 30,

2016

 
Revenue $ 71,121 $ 73,214 $ 103,312 $ 216,023 $ 301,586
Cost of goods sold (1)   60,608     56,437     75,863     170,230     215,486  
Gross profit 10,513 16,777 27,449 45,793 86,100
Gross margin 14.8 % 22.9 % 26.6 % 21.2 % 28.5 %
Operating expenses:
Research and development (1) 14,662 14,206 17,474 44,412 42,206
Sales and marketing (1) 4,071 3,910 5,936 12,913 13,674
General and administrative (1) 7,637 7,729 9,822 26,792 26,747
Amortization of purchased intangible assets 119 118 462 355 1,375
Acquisition and asset sale related costs 78 21 148 229 923
Restructuring charges 2,829 494 - 3,550 -
Gain on asset sale   -     -     -     (2,000 )   -  
Total operating expenses   29,396     26,478     33,842     86,251     84,925  
Income (loss) from operations   (18,883 )   (9,701 )   (6,393 )   (40,458 )   1,175  
Interest income 37 31 95 141 227
Interest expense (495 ) (111 ) (103 ) (743 ) (304 )
Other income (expense), net   (41 )   (11 )   18     197     (828 )
Total interest and other income (expense), net   (499 )   (91 )   10     (405 )   (905 )
Income (loss) before income taxes (19,382 ) (9,792 ) (6,383 ) (40,863 ) 270
Income tax (provision) benefit   1,195     451     (804 )   1,813     (2,471 )
Net loss $ (18,187 ) $ (9,341 ) $ (7,187 ) $ (39,050 ) $ (2,201 )
Basic net loss per share $ (0.42 ) $ (0.22 ) $ (0.17 ) $ (0.90 ) $ (0.05 )
Diluted net loss per share $ (0.42 ) $ (0.22 ) $ (0.17 ) $ (0.90 ) $ (0.05 )
Weighted average shares used to compute basic net loss per share   43,790     43,219     42,038     43,212     41,589  
Weighted average shares used to compute diluted net loss per share   43,790     43,219     42,038     43,212     41,589  
(1) Includes stock-based compensation expense as follows for the periods presented:
Cost of goods sold $ 340 $ 324 $ 297 $ 811 $ 1,605
Research and development 606 511 2,981 1,779 4,508
Sales and marketing 393 313 2,352 1,170 3,604
General and administrative   595     738     3,146     1,932     4,728  
Total stock-based compensation expense $ 1,934   $ 1,886   $ 8,776   $ 5,692   $ 14,445  
 
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,

2017

June. 30,

2017

Sept. 30,

2016

Sept. 30,

2017

Sept. 30,

2016

 
NON-GAAP GROSS PROFIT:
GAAP gross profit $ 10,513 $ 16,777 $ 27,449 $ 45,793 $ 86,100
Stock-based compensation expense 340 324 297 811 1,605
Amortization of purchased intangible assets 202 203 853 667 2,542
Depreciation of acquisition-related fixed asset step-up (68 ) (68 ) (68 ) (202 ) (194 )
End-of-life related inventory write-down 1,975 - - 1,975 -
Restructuring charges   285     240     -     564     -  
Non-GAAP gross profit $ 13,247   $ 17,476   $ 28,531   $ 49,608   $ 90,053  
Non-GAAP gross margin as a % of revenue 18.6 % 23.9 % 27.6 % 23.0 % 29.9 %
 
NON-GAAP TOTAL OPERATING EXPENSES:
GAAP total operating expenses $ 29,396 $ 26,478 $ 33,842 $ 86,251 $ 84,925
Stock-based compensation expense (1,594 ) (1,562 ) (8,479 ) (4,881 ) (12,840 )
Amortization of purchased intangible assets (119 ) (118 ) (462 ) (355 ) (1,375 )
Depreciation of acquisition-related fixed asset step-up (71 ) (72 ) (79 ) (216 ) (255 )
Acquisition and asset sale related costs (78 ) (21 ) (148 ) (229 ) (923 )
Restructuring charges (2,829 ) (494 ) - (3,550 ) -
Litigation - - - 64 -
Gain on asset sale   -     -     -     2,000     -  
Non-GAAP total operating expenses $ 24,705   $ 24,211   $ 24,674   $ 79,084   $ 69,532  
Non-GAAP total operating expenses as a % of revenue 34.7 % 33.1 % 23.9 % 36.6 % 23.1 %
 
NON-GAAP OPERATING INCOME (LOSS):
GAAP income (loss) from operations $ (18,883 ) $ (9,701 ) $ (6,393 ) $ (40,458 ) $ 1,175
Stock-based compensation expense 1,934 1,886 8,776 5,692 14,445
Amortization of purchased intangible assets 321 321 1,315 1,022 3,917
Depreciation of acquisition-related fixed asset step-up 3 4 11 14 61
Acquisition and asset sale related costs 78 21 148 229 923
End-of-life related inventory write-down 1,975 - - 1,975 -
Restructuring charges 3,114 734 - 4,114 -
Litigation - - - (64 ) -
Gain on asset sale   -     -     -     (2,000 )   -  
Non-GAAP income (loss) from operations $ (11,458 ) $ (6,735 ) $ 3,857   $ (29,476 ) $ 20,521  
Non-GAAP operating margin as a % of revenue (16.1 )% (9.2 )% 3.7 % (13.6 )% 6.8 %
 
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,

2017

June. 30,

2017

Sept. 30,

2016

Sept. 30,

2017

Sept. 30,

2016

NON-GAAP NET INCOME (LOSS):
GAAP net loss $ (18,187 ) $ (9,341 ) $ (7,187 ) $ (39,050 ) $ (2,201 )
Stock-based compensation expense 1,934 1,886 8,776 5,692 14,445
Amortization of purchased intangible assets 321 321 1,315 1,022 3,917
Depreciation of acquisition-related fixed asset step-up 3 4 11 14 61
Acquisition and asset sale related costs 78 21 148 229 923
End-of-life related inventory write-down 1,975 - - 1,975 -
Restructuring charges 3,114 734 - 4,114 -
Litigation - - - (64 ) -
Gain on asset sale - - - (2,000 ) -
Income tax effect of Non-GAAP adjustments   (114 )   (192 )   (140 )   (117 )   (399 )
Non-GAAP net income (loss) $ (10,876 ) $ (6,567 ) $ 2,923   $ (28,185 ) $ 16,746  
Non-GAAP net income (loss) as a % of revenue (15.3 )% (9.0 )% 2.8 % (13.0 )% 5.6 %
 
ADJUSTED EBITDA:
GAAP net loss $ (18,187 ) $ (9,341 ) $ (7,187 ) $ (39,050 ) $ (2,201 )
Stock-based compensation expense 1,934 1,886 8,776 5,692 14,445
Amortization of purchased intangible assets 321 321 1,315 1,022 3,917
Depreciation of acquisition-related fixed asset step-up 3 4 11 14 61
Acquisition and asset sale related costs 78 21 148 229 923
End-of-life related inventory write-down 1,975 - - 1,975 -
Restructuring charges 3,114 734 - 4,114 -
Litigation - - - (64 ) -
Gain on asset sale - - - (2,000 ) -
Interest expense, net 458 80 8 602 77
Provision (benefit) for income taxes (1,195 ) (451 ) 804 (1,813 ) 2,471
Depreciation expense   7,016     6,794     4,457     19,608     12,942  
Adjusted EBITDA $ (4,483 ) $ 48   $ 8,332   $ (9,671 ) $ 32,635  
Adjusted EBITDA as a % of revenue (6.3 )% 0.1 % 8.1 % (4.5 )% 10.8 %
 
BASIC AND DILUTED NET INCOME (LOSS) PER SHARE:
GAAP basic net loss per share $ (0.42 ) $ (0.22 ) $ (0.17 ) $ (0.90 ) $ (0.05 )
GAAP diluted net loss per share $ (0.42 ) $ (0.22 ) $ (0.17 ) $ (0.90 ) $ (0.05 )
Non-GAAP basic net income (loss) per share $ (0.25 ) $ (0.15 ) $ 0.07   $ (0.65 ) $ 0.40  
Non-GAAP diluted net income (loss) per share $ (0.25 ) $ (0.15 ) $ 0.06   $ (0.65 ) $ 0.37  
 
SHARES USED TO COMPUTE GAAP AND NON-GAAP BASIC NET INCOME (LOSS) PER SHARE   43,790     43,219     42,038     43,212     41,589  
SHARES USED TO COMPUTE GAAP DILUTED NET LOSS PER SHARE   43,790     43,219     42,038     43,212     41,589  
SHARES USED TO COMPUTE NON-GAAP DILUTED NET INCOME (LOSS) PER SHARE   43,790     43,219     46,745     43,212     45,612  

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