NeoPhotonics Reports Third Quarter 2019 Financial Results

NeoPhotonics Reports Third Quarter 2019 Financial Results

Revenue of $92.4 million for the quarter, up 13% sequentially and year-over-year

Operating Profit of $1.3 million, non-GAAP Operating Profit of $4.4 million

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 data center applications, today announced financial results for its third quarter ended September 30, 2019.

“Solid execution, strong customer demand, and cost reduction combined for a profitable quarter for NeoPhotonics,” said Tim Jenks, Chairman and CEO of NeoPhotonics. “Despite the trade tensions, we believe the macro trends of the industry favor our core capabilities of delivering the highest performance products for the most demanding applications,” concluded Mr. Jenks.

Third Quarter Summary

Revenue was $92.4 million, up 13% quarter-over-quarter and up 13% year-over-year

Gross margin was 28.4%, up from 19.2% in the prior quarter

Non-GAAP Gross margin was 29.0%, up from 25.6% in the prior quarter

Diluted net earnings per share was $0.05, up from a net loss of $0.16 per share in the prior quarter

Non-GAAP diluted net earnings per share was $0.11, up from net loss of $0.03 per share in the prior quarter

Cash generated from operations was $9 million, up from $0.7 million in the prior quarter

Adjusted EBITDA was $14.2 million, up from $6.8 million in the prior quarter

Non-GAAP results in the third quarter of 2019 exclude $3.0 million of stock-based compensation expense and $0.2 million of amortization of acquisition-related intangibles. 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, 2019, cash and cash equivalents, short-term investments and restricted cash, together totaled $80 million, up $6 million compared to June 30, 2019.

Outlook for the Quarter Ending December 31, 2019

 

 
 

GAAP

 
 

Non-GAAP

Revenue

 
 

$94 to $100 million

Gross Margin

 
 

27% to 31%

 
 

28% to 32%

Operating Expenses

 
 

$26 +/- $0.5 million

 
 

$23 +/- $0.5 million

Earnings per share

 
 

($0.02) to $0.08

 
 

$0.04 to $0.14

The non-GAAP outlook for the fourth quarter of 2019 excludes the expected impact of stock-based compensation expense of approximately $3.5 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, October 31, 2019 at 4:30 P.M. Eastern Time (1:30 P.M. Pacific Time). The call will be available, live, to interested parties by dialing +1-800-367-2403. For international callers, please dial +1-334-777-6978. The Conference ID number is 6277959. 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; potential governmental trade actions; possible disruptions in demand for the Company’s products due to industry developments; changes in demand for the Company’s products; the impact of competitive products and pricing and alternative technological advances; the timely and successful development and market acceptance of new products and upgrades to existing products; changes in economic and industry projections; and a decline in general conditions in the telecommunications equipment industry or the world economy generally. 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.

NeoPhotonics Corporation

Condensed Consolidated Balance Sheets (Unaudited)

(In thousands)

 

 

As of

 

 

Sep. 30, 2019

 

Dec. 31, 2018

 

 

 

 

 

ASSETS

 

 

 

 

Current assets:

 

 

 

 

Cash and cash equivalents

 

$

61,396

 

 

$

58,185

 

Short-term investments

 

7,607

 

 

7,481

 

Restricted cash

 

10,827

 

 

11,053

 

Accounts receivable, net

 

65,245

 

 

74,751

 

Inventories

 

48,668

 

 

52,159

 

Assets held for sale

 

 

 

2,971

 

Prepaid expenses and other current assets

 

23,921

 

 

26,605

 

Total current assets

 

217,664

 

 

233,205

 

Property, plant and equipment, net

 

85,125

 

 

100,090

 

Operating lease right-of-use assets

 

16,037

 

 

 

Purchased intangible assets, net

 

2,315

 

 

3,018

 

Goodwill

 

1,115

 

 

1,115

 

Other long-term assets

 

3,088

 

 

3,148

 

Total assets

 

$

325,344

 

 

$

340,576

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

Current liabilities:

 

 

 

 

Accounts payable

 

$

58,306

 

 

$

58,403

 

Notes payable and short-term borrowing

 

 

 

4,795

 

Current portion of long-term debt

 

3,054

 

 

2,897

 

Accrued and other current liabilities

 

42,414

 

 

50,288

 

Total current liabilities

 

103,774

 

 

116,383

 

Long-term debt, net of current portion

 

44,771

 

 

50,454

 

Operating lease liabilities, noncurrent

 

17,054

 

 

 

Other noncurrent liabilities

 

9,748

 

 

13,499

 

Total liabilities

 

175,347

 

 

180,336

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

Common stock

 

120

 

 

116

 

Additional paid-in capital

 

577,088

 

 

564,722

 

Accumulated other comprehensive loss

 

(10,594

)

 

(7,126

)

Accumulated deficit

 

(416,617

)

 

(397,472

)

Total stockholders’ equity

 

149,997

 

 

160,240

 

Total liabilities and stockholders’ equity

 

$

325,344

 

 

$

340,576

 

NeoPhotonics Corporation

Condensed Consolidated Statements of Operations (Unaudited)

(In thousands, except percentages and per share data)

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

Sep. 30, 2019

 

Jun. 30, 2019

 

Sep. 30, 2018

 

Sep. 30, 2019

 

Sep. 30, 2018

Revenue

 

$

92,392

 

 

$

81,690

 

 

$

81,748

 

 

$

253,448

 

 

$

231,436

 

Cost of goods sold (1)

 

66,193

 

 

66,015

 

 

62,815

 

 

195,837

 

 

187,849

 

Gross profit

 

26,199

 

 

15,675

 

 

18,933

 

 

57,611

 

 

43,587

 

Gross margin

 

28.4

%

 

19.2

%

 

23.2

%

 

22.7

%

 

18.8

%

Operating expenses:

 

 

 

 

 

 

 

 

 

 

Research and development (1)

 

13,688

 

 

13,793

 

 

13,177

 

 

42,164

 

 

40,308

 

Sales and marketing (1)

 

3,832

 

 

3,623

 

 

4,351

 

 

12,058

 

 

12,366

 

General and administrative (1)

 

7,403

 

 

7,174

 

 

8,592

 

 

22,330

 

 

23,509

 

Amortization of purchased intangible assets

 

 

 

 

 

118

 

 

119

 

 

357

 

Asset sale related costs

 

12

 

 

47

 

 

251

 

 

388

 

 

344

 

Restructuring charges

 

3

 

 

79

 

 

1,133

 

 

261

 

 

1,786

 

Gain on asset sale

 

 

 

(817

)

 

 

 

(817

)

 

 

Total operating expenses

 

24,938

 

 

23,899

 

 

27,622

 

 

76,503

 

 

78,670

 

Income (loss) from operations

 

1,261

 

 

(8,224

)

 

(8,689

)

 

(18,892

)

 

(35,083

)

Interest income

 

95

 

 

99

 

 

85

 

 

293

 

 

300

 

Interest expense

 

(483

)

 

(496

)

 

(540

)

 

(1,472

)

 

(2,007

)

Other income (expense), net

 

2,960

 

 

1,090

 

 

1,310

 

 

2,452

 

 

1,891

 

Total interest and other income (expense), net

 

2,572

 

 

693

 

 

855

 

 

1,273

 

 

184

 

Income (loss) before income taxes

 

3,833

 

 

(7,531

)

 

(7,834

)

 

(17,619

)

 

(34,899

)

Income tax benefit (provision)

 

(1,561

)

 

205

 

 

(291

)

 

(1,526

)

 

(2,009

)

Net income (loss)

 

$

2,272

 

 

$

(7,326

)

 

$

(8,125

)

 

$

(19,145

)

 

$

(36,908

)

Basic net income (loss) per share

 

$

0.05

 

 

$

(0.16

)

 

$

(0.18

)

 

$

(0.41

)

 

$

(0.82

)

Diluted net income (loss) per share

 

$

0.05

 

 

$

(0.16

)

 

$

(0.18

)

 

$

(0.41

)

 

$

(0.82

)

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

 

47,666

 

 

46,754

 

 

45,476

 

 

46,949

 

 

44,804

 

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

 

48,615

 

 

46,754

 

 

45,476

 

 

46,949

 

 

44,804

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

 

 

 

Cost of goods sold

 

$

441

 

 

$

609

 

 

$

553

 

 

$

1,651

 

 

$

1,832

 

Research and development

 

715

 

 

787

 

 

1,016

 

 

2,383

 

 

2,618

 

Sales and marketing

 

575

 

 

599

 

 

931

 

 

1,852

 

 

2,511

 

General and administrative

 

1,220

 

 

1,010

 

 

1,541

 

 

3,408

 

 

3,566

 

Total stock-based compensation expense

 

$

2,951

 

 

$

3,005

 

 

$

4,041

 

 

$

9,294

 

 

$

10,527

 

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

 

 

Sep. 30, 2019

 

Jun. 30, 2019

 

Sep. 30, 2018

 

Sep. 30, 2019

 

Sep. 30, 2018

NON-GAAP GROSS PROFIT:

 

 

 

 

 

 

 

 

 

 

GAAP gross profit

 

$

26,199

 

 

$

15,675

 

 

$

18,933

 

 

$

57,611

 

 

$

43,587

 

Stock-based compensation expense

 

441

 

 

609

 

 

553

 

 

1,651

 

 

1,832

 

Amortization of purchased intangible assets

 

185

 

 

184

 

 

185

 

 

553

 

 

572

 

Depreciation of acquisition-related fixed asset step-up

 

(66

)

 

(66

)

 

(71

)

 

(198

)

 

(213

)

End-of-life related inventory write-down

 

 

 

3,553

 

 

 

 

3,553

 

 

 

Accelerated depreciation

 

 

 

950

 

 

 

 

2,265

 

 

 

Restructuring charges

 

 

 

 

 

22

 

 

 

 

168

 

Non-GAAP gross profit

 

$

26,759

 

 

$

20,905

 

 

$

19,622

 

 

$

65,435

 

 

$

45,946

 

Non-GAAP gross margin as a % of revenue

 

29.0

%

 

25.6

%

 

24.0

%

 

25.8

%

 

19.9

%

 

 

 

 

 

 

 

 

 

 

 

NON-GAAP TOTAL OPERATING EXPENSES:

 

 

 

 

 

 

 

 

 

 

GAAP total operating expenses

 

$

24,938

 

 

$

23,899

 

 

$

27,622

 

 

$

76,503

 

 

$

78,670

 

Stock-based compensation expense

 

(2,510

)

 

(2,396

)

 

(3,488

)

 

(7,643

)

 

(8,695

)

Amortization of purchased intangible assets

 

 

 

 

 

(118

)

 

(119

)

 

(357

)

Depreciation of acquisition-related fixed asset step-up

 

(66

)

 

(67

)

 

(65

)

 

(199

)

 

(200

)

Asset sale related costs

 

(12

)

 

(47

)

 

(252

)

 

(388

)

 

(345

)

Restructuring charges

 

(3

)

 

(79

)

 

(1,133

)

 

(261

)

 

(1,786

)

Litigation settlement

 

 

 

 

 

(450

)

 

 

 

(450

)

Gain on asset sale

 

 

 

817

 

 

 

 

817

 

 

 

Non-GAAP total operating expenses

 

$

22,347

 

 

$

22,127

 

 

$

22,116

 

 

$

68,710

 

 

$

66,837

 

Non-GAAP total operating expenses as a % of revenue

 

24.2

%

 

27.1

%

 

27.1

%

 

27.1

%

 

28.9

%

 

 

 

 

 

 

 

 

 

 

 

NON-GAAP OPERATING INCOME (LOSS):

 

 

 

 

 

 

 

 

 

 

GAAP income (loss) from operations

 

$

1,261

 

 

$

(8,224

)

 

$

(8,689

)

 

$

(18,892

)

 

$

(35,083

)

Stock-based compensation expense

 

2,951

 

 

3,005

 

 

4,041

 

 

9,294

 

 

10,527

 

Amortization of purchased intangible assets

 

185

 

 

184

 

 

303

 

 

672

 

 

929

 

Depreciation of acquisition-related fixed asset step-up

 

 

 

1

 

 

(6

)

 

1

 

 

(13

)

Asset sale related costs

 

12

 

 

47

 

 

252

 

 

388

 

 

345

 

End-of-life related inventory write-down

 

 

 

3,553

 

 

 

 

3,553

 

 

 

Accelerated depreciation

 

 

 

950

 

 

 

 

2,265

 

 

 

Restructuring charges

 

3

 

 

79

 

 

1,155

 

 

261

 

 

1,954

 

Litigation settlement

 

 

 

 

 

450

 

 

 

 

450

 

Gain on asset sale

 

 

 

(817

)

 

 

 

(817

)

 

 

Non-GAAP income (loss) from operations

 

$

4,412

 

 

$

(1,222

)

 

$

(2,494

)

 

$

(3,275

)

 

$

(20,891

)

Non-GAAP operating margin as a % of revenue

 

4.8

%

 

(1.5

)%

 

(3.1

)%

 

(1.3

)%

 

(9.0

)%

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

 

 

Sep. 30, 2019

 

Jun. 30, 2019

 

Sep. 30, 2018

 

Sep. 30, 2019

 

Sep. 30, 2018

NON-GAAP NET INCOME (LOSS):

 

 

 

 

 

 

 

 

 

 

GAAP net income (loss)

 

$

2,272

 

 

$

(7,326

)

 

$

(8,125

)

 

$

(19,145

)

 

$

(36,908

)

Stock-based compensation expense

 

2,951

 

 

3,005

 

 

4,041

 

 

9,294

 

 

10,527

 

Amortization of purchased intangible assets

 

185

 

 

184

 

 

303

 

 

672

 

 

929

 

Depreciation of acquisition-related fixed asset step-up

 

 

 

1

 

 

(6

)

 

1

 

 

(13

)

Asset sale related costs

 

12

 

 

47

 

 

252

 

 

388

 

 

345

 

End-of-life related inventory write-down

 

 

 

3,553

 

 

 

 

3,553

 

 

 

Accelerated depreciation

 

 

 

950

 

 

 

 

2,265

 

 

 

Restructuring charges

 

3

 

 

79

 

 

1,155

 

 

261

 

 

1,954

 

Litigation settlement

 

 

 

 

 

450

 

 

 

 

450

 

Gain on asset sale

 

 

 

(817

)

 

 

 

(817

)

 

 

Income tax effect of Non-GAAP adjustments

 

(14

)

 

(895

)

 

(138

)

 

(1,286

)

 

(222

)

Non-GAAP net income (loss)

 

$

5,409

 

 

$

(1,219

)

 

$

(2,068

)

 

$

(4,814

)

 

$

(22,938

)

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

 

5.9

%

 

(1.5

)%

 

(2.5

)%

 

(1.9

)%

 

(9.9

)%

 

 

 

 

 

 

 

 

 

 

 

ADJUSTED EBITDA:

 

 

 

 

 

 

 

 

 

 

GAAP net income (loss)

 

$

2,272

 

 

$

(7,326

)

 

$

(8,125

)

 

$

(19,145

)

 

$

(36,908

)

Stock-based compensation expense

 

2,951

 

 

3,005

 

 

4,041

 

 

9,294

 

 

10,527

 

Amortization of purchased intangible assets

 

185

 

 

184

 

 

303

 

 

672

 

 

929

 

Depreciation of acquisition-related fixed asset step-up

 

 

 

1

 

 

(6

)

 

1

 

 

(13

)

Asset sale related costs

 

12

 

 

47

 

 

252

 

 

388

 

 

345

 

End-of-life related inventory write-down

 

 

 

3,553

 

 

 

 

3,553

 

 

 

Accelerated depreciation

 

 

 

950

 

 

 

 

2,265

 

 

 

Restructuring charges

 

3

 

 

79

 

 

1,155

 

 

261

 

 

1,954

 

Litigation settlement

 

 

 

 

 

450

 

 

 

 

450

 

Gain on asset sale

 

 

 

(817

)

 

 

 

(817

)

 

 

Interest expense, net

 

388

 

 

397

 

 

455

 

 

1,179

 

 

1,707

 

Income tax benefit (provision)

 

1,561

 

 

(205

)

 

291

 

 

1,526

 

 

2,009

 

Depreciation expense

 

6,829

 

 

6,956

 

 

7,343

 

 

21,018

 

 

22,636

 

Adjusted EBITDA

 

$

14,201

 

 

$

6,824

 

 

$

6,159

 

 

$

20,195

 

 

$

3,636

 

Adjusted EBITDA as a % of revenue

 

15.4

%

 

8.4

%

 

7.5

%

 

8.0

%

 

1.6

%

 

 

 

 

 

 

 

 

 

 

 

BASIC AND DILUTED NET INCOME (LOSS) PER SHARE:

 

 

 

 

 

 

 

 

 

 

GAAP basic net income (loss) per share

 

$

0.05

 

 

$

(0.16

)

 

$

(0.18

)

 

$

(0.41

)

 

$

(0.82

)

GAAP diluted net income (loss) per share

 

$

0.05

 

 

$

(0.16

)

 

$

(0.18

)

 

$

(0.41

)

 

$

(0.82

)

Non-GAAP basic net income (loss) per share

 

$

0.11

 

 

$

(0.03

)

 

$

(0.05

)

 

$

(0.10

)

 

$

(0.51

)

Non-GAAP diluted net income (loss) per share

 

$

0.11

 

 

$

(0.03

)

 

$

(0.05

)

 

$

(0.10

)

 

$

(0.51

)

 

 

 

 

 

 

 

 

 

 

 

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

 

47,666

 

 

46,754

 

 

45,476

 

 

46,949

 

 

44,804

 

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

 

48,615

 

 

46,754

 

 

45,476

 

 

46,949

 

 

44,804

 

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

 

50,051

 

 

46,754

 

 

45,476

 

 

46,949

 

 

44,804

 

 

©2019 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.
Contacts
NeoPhotonics Corporation
Beth Eby, Chief Financial Officer
+1-408-895-6086
[email protected]

Sapphire Investor Relations, LLC
Erica Mannion, Investor Relations
+1-617-542-6180
[email protected]

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