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NeoPhotonics Reports Fourth Quarter and Fiscal Year 2017 Financial Results
  • Revenue of $76.9 million for the quarter, up 8% sequentially
  • High Speed Products represented 84% of total revenue for the quarter

SAN JOSE, Calif.--(BUSINESS WIRE)--Mar. 1, 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 fourth quarter and fiscal year ended December 31, 2017.

“In the fourth quarter, NeoPhotonics delivered solid revenue of $76.9 million, representing 8% growth over the prior quarter, while continuing to focus on reducing inventory and operating expenses. Driving this growth was a combination of increasing demand from our Chinese customers, where we believe customer inventory levels have normalized for our products, and stable demand in the other regions we serve,” said Tim Jenks, Chairman and CEO of NeoPhotonics. “We are seeing design win strength in our new 400G and 600G product offerings across all three of our leading components as well as with our CFP-DCO and Multi-Cast Switch modules. While continuing uncertainty around the timing of provincial and 5G trial tenders within China may overshadow growth from our new products in the short term, we believe the mid- and long-term market drivers for our business are compelling,” concluded Mr. Jenks.

Fourth Quarter Summary

  • Revenue was $76.9 million, an 8% increase from the prior quarter
  • Gross margin was 20.4%, compared to 14.8% in the prior quarter
  • Non-GAAP Gross margin was 21.3%, compared to 18.6% in the prior quarter
  • Net loss was $14.3 million, compared to a net loss of $18.2 million in the prior quarter
  • Non-GAAP net loss was $11.7 million, compared to a net loss of $10.9 million in the prior quarter
  • Diluted net loss per share was $0.32, in comparison to a net loss of $0.42 per share in the prior quarter
  • Non-GAAP diluted net loss per share was $0.27, compared to a net loss of $0.25 in the prior quarter
  • Adjusted EBITDA was negative $0.4 million, compared to negative $4.5 million in the prior quarter

Non-GAAP results in the fourth quarter of 2017 exclude $0.2 million of asset sale related costs and amortization of acquisition-related intangibles, $2.5 million of stock-based compensation expense, $0.2 million of gain on asset sales and $0.6 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.

Annual Summary

  • Revenue in 2017 was $292.9 million, compared to $411.4 million in 2016
  • Gross margin was 21.0%, compared to 28.5% in 2016
  • Non-GAAP Gross margin was 22.5%, compared to 29.9% in 2016
  • Net loss for the full year was $53.3 million, compared to a net loss of $0.2 million in 2016
  • Non-GAAP net loss for the full year was $39.9 million, compared to net income of $23.0 million in 2016
  • Diluted net loss per share was $1.23, compared to a breakeven in 2016
  • Non-GAAP diluted net loss per share was $0.92, compared to earnings of $0.50 in 2016
  • Adjusted EBITDA was negative $10.1 million, compared to positive $45.1 million in 2016

Non-GAAP results in fiscal 2017 exclude $1.5 million of asset sale related costs and amortization of acquisition-related intangibles, $8.2 million of stock-based compensation expense, $2.2 million of gain on asset sales and $6.7 million of restructuring and litigation charges and end-of-life inventory write-downs. 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, 2017, cash and cash equivalents, short-term investments and restricted cash, together totaled $93.9 million, compared to $73.7 million at September 30, 2017. Restricted cash as of December 31, 2017 was $2.7 million, down from $2.9 million at September 30, 2017.

Outlook for the Quarter Ending March 31, 2018

        GAAP       Non-GAAP
Revenue       $67 to $73 million
Gross Margin       15% to 19%       16% to 20%
Operating Expenses       $26 to $27 million       $23 to $24 million
Earnings per share       $0.40 to $0.30 net loss       $0.32 to $0.22 net loss
           

The Non-GAAP outlook for the first quarter of 2018 excludes the impact of expected amortization of intangibles of approximately $0.3 million, the anticipated impact of stock-based compensation of approximately $3.1 million, of which $0.6 million is estimated for cost of goods sold and $0.1 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, Thursday, March 1, 2018 at 4:30 P.M. Eastern Time (1:30 P.M. Pacific Time). The call will be available, live, to interested parties by dialing 888-394-8218. For international callers, please dial +1-323-794-2149. The Conference ID number is 2895020. 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 nine months ended September 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.

©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
Dec. 31,

2017

Dec. 31,

2016

ASSETS
Current assets:
Cash and cash equivalents $ 78,906 $ 82,500
Short-term investments 12,311 19,015
Restricted cash 2,658 4,085
Accounts receivable, net 67,229 80,610
Inventories, net 67,301 48,237
Assets held for sale - 13,953
Prepaid expenses and other current assets   36,235     22,396  
Total current assets 264,640 270,796
Property, plant and equipment, net 127,565 106,867
Purchased intangible assets, net 4,294 5,562
Goodwill 1,115 1,115
Other long-term assets   5,339     6,547  
Total assets $ 402,953   $ 390,887  
 
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 69,017 $ 84,766
Notes payable and short-term borrowing 35,607 30,190
Current portion of long-term debt 6,005 747
Accrued and other current liabilities   43,242     30,625  
Total current liabilities 153,871 146,328
Long-term debt, net of current portion 40,556 10,215
Other noncurrent liabilities   14,075     8,939  
Total liabilities 208,502 165,482
 
Stockholders' equity:
Common stock 111 106
Additional paid-in capital 545,953 532,378
Accumulated other comprehensive income (loss) 398 (8,401 )
Accumulated deficit   (352,011 )   (298,678 )
Total stockholders' equity   194,451     225,405  
Total liabilities and stockholders' equity $ 402,953   $ 390,887  
 
 
NeoPhotonics Corporation
Condensed Consolidated Statements of Operations (Unaudited)
(In thousands, except percentages and per share data)
         
 
Three Months Ended Twelve Months Ended
Dec. 31,

2017

 

Sep. 30,

2017

Dec. 31,

2016

Dec. 31,

2017

 

Dec. 31,

2016

 
Revenue $ 76,871 $ 71,121 $ 109,837 $ 292,894 $ 411,423
Cost of goods sold (1)   61,185     60,608     78,804     231,415     294,290  
Gross profit 15,686 10,513 31,033 61,479 117,133
Gross margin 20.4 % 14.8 % 28.3 % 21.0 % 28.5 %
Operating expenses:
Research and development (1) 13,875 14,662 15,170 58,287 57,376
Sales and marketing (1) 4,847 4,071 4,921 17,760 18,595
General and administrative (1) 7,661 7,637 7,662 34,453 34,409
Amortization of purchased intangible assets 117 119 234 472 1,609
Acquisition and asset sale related costs (99 ) 78 1,202 130 2,125
Restructuring charges 384 2,829 - 3,934 -
Gain on asset sale   (193 )   -     -     (2,193 )   -  
Total operating expenses   26,592     29,396     29,189     112,843     114,114  
Income (loss) from operations (10,906 ) (18,883 ) 1,844 (51,364 ) 3,019
Interest income 57 37 76 198 303
Interest expense (619 ) (495 ) (98 ) (1,362 ) (402 )
Other income (expense), net   (93 )   (41 )   1,300     104     472  
Total interest and other income (expense), net   (655 )   (499 )   1,278     (1,060 )   373  
Income (loss) before income taxes (11,561 ) (19,382 ) 3,122 (52,424 ) 3,392
Income tax (provision) benefit   (2,722 )   1,195     (1,126 )   (909 )   (3,597 )
Net income (loss) $ (14,283 ) $ (18,187 ) $ 1,996   $ (53,333 ) $ (205 )
Basic net income (loss) per share $ (0.32 ) $ (0.42 ) $ 0.05   $ (1.23 ) $ (0.00 )
Diluted net income (loss) per share $ (0.32 ) $ (0.42 ) $ 0.04   $ (1.23 ) $ (0.00 )
Weighted average shares used to compute basic net income (loss) per share   44,079     43,790     42,421     43,431     41,798  
Weighted average shares used to compute diluted net income (loss) per share   44,079     43,790     45,767     43,431     41,798  
(1) Includes stock-based compensation expense as follows for the periods presented:
Cost of goods sold $ 287 $ 340 $ 1,525 $ 1,098 $ 3,130
Research and development 712 606 252 2,491 4,760
Sales and marketing 527 393 501 1,697 4,105
General and administrative   988     595     353     2,920     5,081  
Total stock-based compensation expense $ 2,514   $ 1,934   $ 2,631   $ 8,206   $ 17,076  
 
 
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,

2017

Sep. 30,

2017

Dec. 31,

2016

Dec. 31,

2017

Dec. 31,

2016

 
NON-GAAP GROSS PROFIT:
GAAP gross profit $ 15,686 $ 10,513 $ 31,033 $ 61,479 $ 117,133
Stock-based compensation expense 287 340 1,525 1,098 3,130
Amortization of purchased intangible assets 203 202 329 870 2,871
Depreciation of acquisition-related fixed asset step-up (68 ) (68 ) (67 ) (270 ) (261 )
End-of-life related inventory write-down - 1,975 - 1,975 -
Restructuring charges   248     285     -     812     -  
Non-GAAP gross profit $ 16,356   $ 13,247   $ 32,820   $ 65,964   $ 122,873  
Non-GAAP gross margin as a % of revenue 21.3 % 18.6 % 29.9 % 22.5 % 29.9 %
 
NON-GAAP TOTAL OPERATING EXPENSES:
GAAP total operating expenses $ 26,592 $ 29,396 $ 29,189 $ 112,843 $ 114,114
Stock-based compensation expense (2,227 ) (1,594 ) (1,106 ) (7,108 ) (13,946 )
Amortization of purchased intangible assets (117 ) (119 ) (234 ) (472 ) (1,609 )
Depreciation of acquisition-related fixed asset step-up (69 ) (71 ) (79 ) (285 ) (334 )
Acquisition and asset sale related costs 99 (78 ) (1,202 ) (130 ) (2,125 )
Restructuring charges (384 ) (2,829 ) - (3,934 ) -
Litigation - - - 64 -
Gain on asset sale   193     -     -     2,193     -  
Non-GAAP total operating expenses $ 24,087   $ 24,705   $ 26,568   $ 103,171   $ 96,100  
Non-GAAP total operating expenses as a % of revenue 31.3 % 34.7 % 24.2 % 35.2 % 23.4 %
 
NON-GAAP OPERATING INCOME (LOSS):
GAAP income (loss) from operations $ (10,906 ) $ (18,883 ) $ 1,844 $ (51,364 ) $ 3,019
Stock-based compensation expense 2,514 1,934 2,631 8,206 17,076
Amortization of purchased intangible assets 320 321 563 1,342 4,480
Depreciation of acquisition-related fixed asset step-up 1 3 12 15 73
Acquisition and asset sale related costs (99 ) 78 1,202 130 2,125
End-of-life related inventory write-down - 1,975 - 1,975 -
Restructuring charges 632 3,114 - 4,746 -
Litigation - - - (64 ) -
Gain on asset sale   (193 )   -     -     (2,193 )   -  
Non-GAAP income (loss) from operations $ (7,731 ) $ (11,458 ) $ 6,252   $ (37,207 ) $ 26,773  
Non-GAAP operating margin as a % of revenue (10.1 )% (16.1 )% 5.7 % (12.7 )% 6.5 %
 
 
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,

2017

Sep. 30,

2017

Dec. 31,

2016

Dec. 31,

2017

Dec. 31,

2016

NON-GAAP NET INCOME (LOSS):
GAAP net income (loss) $ (14,283 ) $ (18,187 ) $ 1,996 $ (53,333 ) $ (205 )
Stock-based compensation expense 2,514 1,934 2,631 8,206 17,076
Amortization of purchased intangible assets 320 321 563 1,342 4,480
Depreciation of acquisition-related fixed asset step-up 1 3 12 15 73
Acquisition and asset sale related costs (99 ) 78 1,202 130 2,125
End-of-life related inventory write-down - 1,975 - 1,975 -
Restructuring charges 632 3,114 - 4,746 -
Litigation - - - (64 ) -
Gain on asset sale (193 ) - - (2,193 ) -
Income tax effect of Non-GAAP adjustments   (637 )   (114 )   (114 )   (754 )   (513 )
Non-GAAP net income (loss) $ (11,745 ) $ (10,876 ) $ 6,290   $ (39,930 ) $ 23,036  
Non-GAAP net income (loss) as a % of revenue (15.3 )% (15.3 )% 5.7 % (13.6 )% 5.6 %
 
ADJUSTED EBITDA:
GAAP net income (loss) $ (14,283 ) $ (18,187 ) $ 1,996 $ (53,333 ) $ (205 )
Stock-based compensation expense 2,514 1,934 2,631 8,206 17,076
Amortization of purchased intangible assets 320 321 563 1,342 4,480
Depreciation of acquisition-related fixed asset step-up 1 3 12 15 73
Acquisition and asset sale related costs (99 ) 78 1,202 130 2,125
End-of-life related inventory write-down - 1,975 - 1,975 -
Restructuring charges 632 3,114 - 4,746 -
Litigation - - - (64 ) -
Gain on asset sale (193 ) - - (2,193 ) -
Interest expense, net 562 458 22 1,164 99
Provision (benefit) for income taxes 2,722 (1,195 ) 1,126 909 3,597
Depreciation expense   7,402     7,016     4,905     27,010     17,847  
Adjusted EBITDA $ (422 ) $ (4,483 ) $ 12,457   $ (10,093 ) $ 45,092  
Adjusted EBITDA as a % of revenue (0.5 )% (6.3 )% 11.3 % (3.4 )% 11.0 %
 
BASIC AND DILUTED NET INCOME (LOSS) PER SHARE:
GAAP basic net income (loss) per share $ (0.32 ) $ (0.42 ) $ 0.05   $ (1.23 ) $ (0.00 )
GAAP diluted net income (loss) per share $ (0.32 ) $ (0.42 ) $ 0.04   $ (1.23 ) $ (0.00 )
Non-GAAP basic net income (loss) per share $ (0.27 ) $ (0.25 ) $ 0.15   $ (0.92 ) $ 0.55  
Non-GAAP diluted net income (loss) per share $ (0.27 ) $ (0.25 ) $ 0.13   $ (0.92 ) $ 0.50  
 
SHARES USED TO COMPUTE GAAP AND NON-GAAP BASIC NET INCOME (LOSS) PER SHARE   44,079     43,790     42,421     43,431     41,798  
SHARES USED TO COMPUTE GAAP DILUTED NET INCOME (LOSS) PER SHARE   44,079     43,790     45,767     43,431     41,798  
SHARES USED TO COMPUTE NON-GAAP DILUTED NET INCOME (LOSS) PER SHARE   44,079     43,790     47,126     43,431     46,133  

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