NeoPhotonics Announces Definitive Agreement to Sell Low Speed Transceiver Business to APAT Optoelectronics
Increases Focus on Photonic Integration Solutions for High Speed
100G and Beyond Networks
Company Updates Business Outlook for Fourth Quarter of 2016
SAN JOSE, Calif.--(BUSINESS WIRE)--Dec. 19, 2016--
NeoPhotonics (NYSE: NPTN) (“NEOPHOTONICS” or the “Company”), a leading
designer and manufacturer of advanced hybrid photonic integrated
optoelectronic modules and subsystems for bandwidth-intensive,
high-speed communications networks, today announced that it executed a
definitive agreement, to sell its Access and Low Speed transceiver
product lines (the “Low Speed Business”) to APAT Optoelectronics
Components Co., Ltd. (“APAT OE”) of Shenzhen, China, a designer and
manufacturer of optical sub-assemblies for telecom and datacom markets.
The assets to be sold include the intellectual property, inventory and
fixed assets for NeoPhotonics’ PON products including GPON and GEPON
transceiver products at up to 10G data rates, plus 10G and below
telecom, bidirectional and specialty transceiver products.
The transaction is valued at approximately $26.4 million, inclusive of
post-closing payments under a Transition Services Agreement. The
transaction value consists of an equivalent of $25.0 million purchase
price plus an additional equivalent of $1.4 million to be paid as
certain transition services are delivered. The consideration consists of
not less than the equivalent of $23.0 million to be paid in cash in
China Renminbi at close and not more than $2.0 million in a US dollar
denominated promissory note. In addition, the purchaser will assume
outstanding supply chain purchase commitments and will be responsible
for payment of value-added tax obligations. The purchase price is
subject to adjustment after closing for inventory adjustments and by up
to $10 million in the event of potential claims under transaction
warranty commitments of NeoPhotonics. The transaction is subject to
customary closing conditions and is expected to close in January 2017.
The purchaser is further subject to a $1.0 million breakup fee to be
held in escrow, which will be applied to the purchase price upon closing
or forfeited if the transaction does not close due to certain reasons
attributable to the purchaser.
The secured promissory note of up to $2.0 million is for an initial term
of six months with an initial interest rate of 6.0% per annum. The note
is renewable at six month intervals with an increase in the interest
rate by an additional 4% per annum. The note will be secured by
inventory and certain fixed assets being purchased in the transaction.
In 2015, and for the first 9 months of 2016, the Low Speed Business
generated $92.8 million and $50.7 million in revenue, respectively, and
gross profit of $16.7 million and $9.7 million, respectively. Net assets
for the business were approximately $18.0 million as of September 30,
2016.
Commenting on the transaction, Tim Jenks, NeoPhotonics Chief Executive
Officer, stated, “After a comprehensive evaluation of the alternatives
available for the Low Speed Business, we believe this transaction will
best benefit our shareholders, customers, and employees. This
transaction underscores our objective to focus our efforts on growing
high speed optical networking products and solutions based on our
advanced hybrid photonic integration technology platform to meet
customer demand.” Jenks continued, “We believe the Low Speed Business
will benefit from APAT OE's expertise in Access and PON products while
continuing to provide quality products, support and services to
customers.”
“We are excited to have the NeoPhotonics low speed product team join
APAT, and look forward to having more products to sell to our largest
customers as well as the opportunity this transaction creates for us to
gain many new customers,” commented Rex Gu, Founder and CEO of APAT OE.
Raymond James & Associates, Inc. served as the exclusive financial
advisor to NeoPhotonics for the transaction. Proskauer, Rose served as
legal counsel to NeoPhotonics.
Updated Outlook for the Fourth Quarter of 2016
NeoPhotonics also announced an updated outlook for the fourth quarter
ending December 31, 2016, given recent developments. Demand in the
fourth quarter continues to exceed the Company’s capacity to supply High
Speed products while production capacities continue to increase. As new
capacity has been brought on line, production yields at one of its fab
facilities have been lower than anticipated, resulting in delayed
shipments and higher manufacturing costs during the quarter versus
previous projections.
Taking this factor into account, the Company now expects its fourth
quarter outlook to be as follows:
GAAP
Non-GAAP
4Q’16 Revenue
$105 million to $109 million
Gross Margin
27% to 30%
28% to 31%
Operating Expenses
$30 to $32 million
$27 to $29 million
Earnings per share
$(0.08) to $0.00
$0.03 to $0.11
The Non-GAAP outlook for the fourth quarter of 2016 excludes the impact
of expected amortization of intangibles of approximately $1.1 million
and the anticipated impact of stock-based compensation of approximately
$4.4 million, of which $1.4 million is estimated for cost of goods sold,
which are unchanged from previous projections.
In the Company’s previously communicated outlook view, the Company
anticipated that the Low Speed Business would produce revenues of
approximately $10 million in the fourth quarter of 2016 and range from
$40 to $45 million in revenue in 2017. The comparable annual revenue for
the Low Speed Business in 2016 is expected to be approximately $61
million. Upon divesting the Low Speed Business, the Company’s revenue
growth rate for the continuing business is expected to be higher as a
result. The Company’s business is seasonal on an annual cycle; the
Company’s normalized first quarter revenue over the last several years
has typically been 20 to 22% of the year in the first quarter, and then
increasing throughout the remainder of the year.
Non-GAAP and Adjusted EBITDA Measures vs. GAAP Financial Measures
The Company’s non-GAAP measures exclude certain GAAP financial measures.
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, December 19, 2016, at
5:00 p.m. Eastern Standard Time (2:00 p.m. Pacific Standard Time).
President and Chief Executive Officer, Tim Jenks, and Chief Financial
Officer, Ray Wallin, will discuss the transaction and respond to
questions. The call will be available, live, to interested parties by
dialing 888-857-6930. For international callers, please dial +1
719-457-2604. The Conference ID number is 9032184. A live webcast will
also be available in the Investors Relations section of NeoPhotonics’
website at: www.neophotonics.com.
About NeoPhotonics Corporation
NeoPhotonics is a designer and manufacturer of advanced hybrid photonic
integrated optoelectronic modules and subsystems for
bandwidth-intensive, high-speed communications networks. 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.
About the Low Speed Business
NeoPhotonics’ Low Speed Businesses design, manufacture and sell a
portfolio of optical communication transceiver products, including PON,
or passive optical network, transceivers as well as optical transceivers
used in telecom client, access and enterprise network applications.
About APAT Optoelectronic Components Company, Ltd.
APAT Optoelectronics Components Company, Ltd is a leading designer,
developer and global supplier of optical devices primarily in the FTTH
market. With a focus on automation and process innovation, APAT OE has
achieved a reputation for high quality and is the supplier of choice for
many large telecom equipment companies. APAT OE is based in Shenzhen,
China, a center for technology innovations and is benefited from the
closeness to its key customers and an abundance of engineering talents.
For more information, visit APAT OE’s website: www.apatoe.com.
APAT, APAT Optoelectronic, and the APAT logo are trademarks of APAT OE.
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: anticipated timing and benefits of the sale transaction, future
financial results, demand for the Company’s high speed products, the
Company’s market position 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 relating to the sale transaction include, but are not
limited to, such factors as: potential purchase price adjustments due to
non-achievement of post-closing transaction warranty commitments;
potential effects of disruption from the transaction; uncertainties as
to the timing and ability of NeoPhotonics or APAT to consummate the
transaction, including the risk that conditions to closing outside the
control of NeoPhotonics are not satisfied; or actual or contingent
liabilities or contractual, intellectual property or employment issues
that arise as a result of the transaction or efforts to consummate the
transaction. Those risks and uncertainties relating to NeoPhotonics’
continuing business 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; ability of the Company to meet customer demand;
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; economic conditions or natural disasters;
volatility in utilization of manufacturing operations, supporting
utility services and other 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; challenges involving integration of acquired
businesses and utilization of acquired technology; the impact of the
anticipated sale of the low speed 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, 2015 and its Form
10-Q for the three and nine months ended September 30, 2016. All
forward-looking statements are made as of the date of this press
release, and the Company disclaims any duty to update such statements.
