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NeoPhotonics Reports First Quarter 2019 Financial Results

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  • Revenue of $79.4 million for the quarter, up 16% year-over-year
  • High Speed Products represented 88% of total revenue for the
    quarter

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 first quarter ended March 31, 2019.

"NeoPhotonics delivered strong year over year growth in our seasonally
low first quarter. We are focused on the highest speed coherent
solutions that are well-aligned with leading industry trends, which has
positioned us to benefit from growing deployments of high baud rate
systems for 200G to 600G globally," said Tim Jenks, NeoPhotonics
Chairman and CEO. "These higher bandwidth systems accentuate the unique
value proposition of our ultra-narrow linewidth lasers and high
performance photonic integrated chips," concluded Mr. Jenks.

First Quarter Summary

  • Revenue was $79.4 million, down 13% quarter-over-quarter and up 16%
    year-over-year
  • Gross margin was 19.8%, down from 24.8% in the prior quarter
  • Non-GAAP Gross margin was 22.4%, down from 28.6% in the prior quarter
  • Diluted net loss per share was $0.30, in comparison to a net loss of
    $0.15 per share in the prior quarter
  • Non-GAAP diluted net loss per share was $0.19, down from net income
    per share of $0.05 in the prior quarter
  • Cash generated from operations was $8.7 million, down from $10.6
    million in the prior quarter
  • Adjusted EBITDA was a loss of $0.8 million, down from income of $10.5
    million in the prior quarter

Non-GAAP results in the first quarter of 2019 exclude $3.3 million of
stock-based compensation expense, $1.3 million of accelerated
depreciation, $0.8 million of divestiture costs, amortization of
acquisition-related intangibles and 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 March 31, 2019, cash and cash equivalents, short-term investments
and restricted cash, together totaled $78.9 million, up $2.2 million
compared to December 31, 2018. Restricted cash as of March 31, 2019 was
$11.6 million, up $0.5 million compared to December 31, 2018.

         

Outlook for the Quarter Ending June 30, 2019

 
    GAAP         Non-GAAP
Revenue   $88 to $93 million
Gross Margin   23% to 27%         25% to 29%
Operating Expenses  

$27.0 +/- $0.5 million

       

$24.0 +/- $0.5 million

Earnings per share   $0.16 to $0.06 net loss         $0.06 net loss to $0.04 net profit
 

The non-GAAP outlook for the second 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,
the impact of expected amortization of intangibles of approximately $0.3
million and restructuring charges of approximately $0.8 million for
accelerated depreciation on an end-of-life production line.

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, May 2, 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 +1-855-719-5012. For
international callers, please dial +1-334-323-0505. The Conference ID
number is 3001544. 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.

©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.

 
NeoPhotonics Corporation
Condensed Consolidated Balance Sheets (Unaudited)
(In thousands)
   
As of
Mar 31, 2019 Dec 31, 2018
 
ASSETS
Current assets:
Cash and cash equivalents $ 59,793 $ 58,185
Short-term investments 7,524 7,481
Restricted cash 11,577 11,053
Accounts receivable, net 65,210 74,751
Inventories 53,618 52,159
Assets held for sale 3,074 2,971
Prepaid expenses and other current assets   23,995     26,605  
Total current assets 224,791 233,205
Property, plant and equipment, net 95,688 100,090
Operating lease right-of-use assets 16,847
Purchased intangible assets, net 2,736 3,018
Goodwill 1,115 1,115
Other long-term assets   3,159     3,148  
Total assets $ 344,336   $ 340,576  
 
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 57,853 $ 58,403
Notes payable and short-term borrowing 2,339 4,795
Current portion of long-term debt 2,963 2,897
Accrued and other current liabilities   50,269     50,288  
Total current liabilities 113,424 116,383
Long-term debt, net of current portion 50,213 50,454
Operating lease liabilities, noncurrent 18,019
Other noncurrent liabilities   10,122     13,499  
Total liabilities   191,778     180,336  
 
Stockholders' equity:
Common stock 116 116
Additional paid-in capital 568,194 564,722
Accumulated other comprehensive loss (4,189 ) (7,126 )
Accumulated deficit   (411,563 )   (397,472 )
Total stockholders' equity   152,558     160,240  
Total liabilities and stockholders' equity $ 344,336   $ 340,576  
 
 
NeoPhotonics Corporation
Condensed Consolidated Statements of Operations (Unaudited)
(In thousands, except percentages and per share data)
     
Three Months Ended
Mar 31, 2019 Dec 31, 2018 Mar 31, 2018
Revenue $ 79,366 $ 91,104 $ 68,586
Cost of goods sold (1)   63,629     68,518     59,404  
Gross profit 15,737 22,586 9,182
Gross margin 19.8 % 24.8 % 13.4 %
Operating expenses:
Research and development (1) 14,683 13,510 13,888
Sales and marketing (1) 4,603 4,362 4,124
General and administrative (1) 7,753 7,344 7,650
Amortization of purchased intangible assets 119 118 119
Asset sale related costs 329 83 14
Restructuring charges 179 1,349 31
Litigation settlement 2,195
Loss on asset sale       200      
Total operating expenses   27,666     29,161     25,826  
Loss from operations   (11,929 )   (6,575 )   (16,644 )
Interest income 99 97 93
Interest expense (493 ) (486 ) (708 )
Other income (expense), net   (1,598 )   (445 )   (349 )
Total interest and other income (expense), net   (1,992 )   (834 )   (964 )
Loss before income taxes (13,921 ) (7,409 ) (17,608 )
Income tax (provision) benefit   (170 )   680     (638 )
Net loss $ (14,091 ) $ (6,729 ) $ (18,246 )
Basic net loss per share $ (0.30 ) $ (0.15 ) $ (0.41 )
Diluted net loss per share $ (0.30 ) $ (0.15 ) $ (0.41 )
Weighted average shares used to compute basic net loss per share   46,414     46,150     44,259  
Weighted average shares used to compute diluted net loss per share   46,414     46,150     44,259  
 
(1) Includes stock-based compensation expense as follows for the
periods presented:
Cost of goods sold $ 601 $ 764 $ 650
Research and development 881 952 773
Sales and marketing 678 737 938
General and administrative   1,178     1,162     986  
Total stock-based compensation expense $ 3,338   $ 3,615   $ 3,347  
 
 
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
Mar 31, 2019 Dec 31, 2018 Mar 31, 2018
NON-GAAP GROSS PROFIT:
GAAP gross profit $ 15,737 $ 22,586 $ 9,182
Stock-based compensation expense 601 764 650
Amortization of purchased intangible assets 184 184 203
Depreciation of acquisition-related fixed asset step-up (66 ) (75 ) (69 )
End-of-life related inventory write-down 2,565
Accelerated depreciation 1,315
Restructuring charges           92  
Non-GAAP gross profit $ 17,771   $ 26,024   $ 10,058  
Non-GAAP gross margin as a % of revenue 22.4 % 28.6 % 14.7 %
 
NON-GAAP TOTAL OPERATING EXPENSES:
GAAP total operating expenses $ 27,666 $ 29,161 $ 25,826
Stock-based compensation expense (2,737 ) (2,851 ) (2,697 )
Amortization of purchased intangible assets (119 ) (118 ) (119 )
Depreciation of acquisition-related fixed asset step-up (66 ) (66 ) (67 )
Asset sale related costs (329 ) (83 ) (14 )
Restructuring charges (179 ) (1,349 ) (31 )
Litigation settlement (2,195 )
Loss on asset sale       (200 )    
Non-GAAP total operating expenses $ 24,236   $ 22,299   $ 22,898  
Non-GAAP total operating expenses as a % of revenue 30.5 % 24.5 % 33.4 %
 
NON-GAAP OPERATING INCOME (LOSS):
GAAP loss from operations $ (11,929 ) $ (6,575 ) $ (16,644 )
Stock-based compensation expense 3,338 3,615 3,347
Amortization of purchased intangible assets 303 302 322
Depreciation of acquisition-related fixed asset step-up (9 ) (2 )
Asset sale related costs 329 83 14
End-of-life related inventory write-down 2,565
Accelerated depreciation 1,315
Restructuring charges 179 1,349 123
Litigation settlement 2,195
Loss on asset sale       200      
Non-GAAP income (loss) from operations $ (6,465 ) $ 3,725   $ (12,840 )
Non-GAAP operating margin as a % of revenue (8.1 )% 4.1 % (18.7 )%
 
 
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
Mar 31, 2019 Dec 31, 2018 Mar 31, 2018
NON-GAAP NET INCOME (LOSS):
GAAP net loss $ (14,091 ) $ (6,729 ) $ (18,246 )
Stock-based compensation expense 3,338 3,615 3,347
Amortization of purchased intangible assets 303 302 322
Depreciation of acquisition-related fixed asset step-up (9 ) (2 )
Asset sale related costs 329 83 14
End-of-life related inventory write-down 2,565
Accelerated depreciation 1,315
Restructuring charges 179 1,349 123
Litigation settlement 2,195
Loss on asset sale 200
Income tax effect of Non-GAAP adjustments   (377 )   (1,153 )   (126 )
Non-GAAP net income (loss) $ (9,004 ) $ 2,418   $ (14,568 )
Non-GAAP net income (loss) as a % of revenue (11.3 )% 2.7 % (21.2 )%
 
ADJUSTED EBITDA:
GAAP net loss $ (14,091 ) $ (6,729 ) $ (18,246 )
Stock-based compensation expense 3,338 3,615 3,347
Amortization of purchased intangible assets 303 302 322
Depreciation of acquisition-related fixed asset step-up (9 ) (2 )
Asset sale related costs 329 83 14
End-of-life related inventory write-down 2,565
Accelerated depreciation 1,315
Restructuring charges 179 1,349 123
Litigation settlement 2,195
Loss on asset sale 200
Interest expense, net 394 389 615
Provision (benefit) for income taxes 170 (680 ) 638
Depreciation expense   7,233     7,260     7,686  
Adjusted EBITDA $ (830 ) $ 10,540   $ (5,503 )
Adjusted EBITDA as a % of revenue (1.0 )% 11.6 % (8.0 )%
 
BASIC AND DILUTED NET INCOME (LOSS) PER SHARE:
GAAP basic net loss per share $ (0.30 ) $ (0.15 ) $ (0.41 )
GAAP diluted net loss per share $ (0.30 ) $ (0.15 ) $ (0.41 )
Non-GAAP basic net income (loss) per share $ (0.19 ) $ 0.05   $ (0.33 )
Non-GAAP diluted net income (loss) per share $ (0.19 ) $ 0.05   $ (0.33 )
 
SHARES USED TO COMPUTE GAAP AND NON-GAAP BASIC NET INCOME (LOSS)
PER SHARE
  46,414     46,150     44,259  
SHARES USED TO COMPUTE GAAP DILUTED NET LOSS PER SHARE   46,414     46,150     44,259  
SHARES USED TO COMPUTE NON-GAAP DILUTED NET INCOME (LOSS) PER
SHARE
  46,414     49,334     44,259  

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