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NeoPhotonics Reports Fourth Quarter and Fiscal Year 2019 Financial Results

  • Revenue of $103.4 million for the quarter, up 12% sequentially; up 13% year-over-year
  • Gross margins expanded 2 points over the prior quarter to 30% on a GAAP basis and 31% non-GAAP

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 datacenter applications, today announced financial results for its fourth quarter and fiscal year ended December 31, 2019.

“Our strong revenue and gross margin expansion throughout the year was a result of our leadership in high speed products, serving the largest players in the industry in DCI and the transition of Cloud and hyper-scale data center networks to coherent technologies,” said Tim Jenks, Chairman and CEO of NeoPhotonics.

Fourth Quarter Summary

  • Revenue was $103.4 million, up 12% quarter-over-quarter and 13% year-over-year
  • Gross margin was 30.2%, up from 28.4% in the prior quarter
  • Non-GAAP Gross margin was 30.9%, up from 29.0% in the prior quarter
  • Diluted net income per share was $0.04, compared to $0.05 per share in the prior quarter
  • Non-GAAP diluted net income per share was $0.10, compared to $0.11 in the prior quarter
  • Cash generated from operations was $16 million, up from $9 million in the prior quarter
  • Adjusted EBITDA was $12.5 million, down from $14.2 million in the prior quarter

Non-GAAP results in the fourth quarter of 2019 exclude $3.2 million of stock-based compensation expense, $0.2 million of amortization of acquisition-related intangibles and $0.1 million of gain on sale of assets. 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 2019 was $356.8 million, compared to $322.5 million in 2018
  • Gross margin was 24.9%, compared to 20.5% in 2018
  • Non-GAAP Gross margin was 27.3%, compared to 22.3% in 2018
  • Diluted net loss per share was $0.36, compared to $0.97 in 2018
  • Non-GAAP diluted net income per share was $0.01, compared to a net loss of $0.45 in 2018
  • Cash generated from operations was $34.7 million, compared to $19.6 million in 2018
  • Adjusted EBITDA was $32.7 million, compared to $14.2 million in 2018

Non-GAAP results in 2019 exclude $12.5 million of stock-based compensation expense, $5.8 million for inventory write-downs and accelerated depreciation, $1.5 million of divestiture costs, amortization of acquisition-related intangibles and restructuring charges, and $0.9 million of gain on sale of Russia assets. 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, 2019, cash and cash equivalents, short-term investments and restricted cash, together totaled $89.1 million, up $9.2 million compared to September 30, 2019 and up $12.4 million year-over-year. Restricted cash as of December 31, 2019 was $11.0 million, approximately flat compared to September 30, 2019.

Outlook for the Quarter Ending March 31, 2020

 

GAAP

Non-GAAP

Revenue

$83 to $90 million

Gross Margin

27% to 31%

28% to 32%

Operating Expenses

$25 to $26 million

$22 to $23 million

Earnings per share

$(0.05) to $0.05

$0.00 to $0.10

This outlook includes approximately $10 million of estimated coronavirus-related impacts to Q1 revenue reflecting reduced production in the quarter and added supply chain risks.

The non-GAAP outlook for the first quarter of 2020 excludes the expected impact of stock-based compensation expense of approximately $3.3 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, February 27, 2020 at 4:30 P.M. Eastern Time (1:30 P.M. Pacific Time). The call will be available, live, to interested parties by dialing +800-367-2403. For international callers, please dial +1-334-777-6978. The Conference ID number is 1233987. 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; possible reduction in or volatility of customer orders or delays in shipments of products to customers; potential governmental trade actions; 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; volatility in utilization of manufacturing operations and 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; 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; changes in economic and industry projections; a decline in general conditions in the telecommunications equipment industry or the world economy generally; potential impacts of the coronavirus outbreak; 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, 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.

©2020 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, 2019

 

Dec. 31, 2018

 

 

 

 

 

ASSETS

 

 

 

 

Current assets:

 

 

 

 

Cash and cash equivalents

 

$

70,467

 

 

$

58,185

 

Short-term investments

 

7,638

 

 

7,481

 

Restricted cash

 

10,972

 

 

11,053

 

Accounts receivable, net

 

68,890

 

 

74,751

 

Inventories

 

46,930

 

 

52,159

 

Assets held for sale

 

 

 

2,971

 

Prepaid expenses and other current assets

 

25,851

 

 

26,605

 

Total current assets

 

230,748

 

 

233,205

 

Property, plant and equipment, net

 

81,133

 

 

100,090

 

Operating lease right-of-use assets

 

15,603

 

 

 

Purchased intangible assets, net

 

2,151

 

 

3,018

 

Goodwill

 

1,115

 

 

1,115

 

Other long-term assets

 

3,929

 

 

3,148

 

Total assets

 

$

334,679

 

 

$

340,576

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

Current liabilities:

 

 

 

 

Accounts payable

 

$

58,554

 

 

$

58,403

 

Notes payable and short-term borrowing

 

 

 

4,795

 

Current portion of long-term debt

 

3,044

 

 

2,897

 

Accrued and other current liabilities

 

47,481

 

 

50,288

 

Total current liabilities

 

109,079

 

 

116,383

 

Long-term debt, net of current portion

 

39,237

 

 

50,454

 

Operating lease liabilities, noncurrent

 

16,543

 

 

 

Other noncurrent liabilities

 

9,614

 

 

13,499

 

Total liabilities

 

174,473

 

 

180,336

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

Common stock

 

121

 

 

116

 

Additional paid-in capital

 

582,504

 

 

564,722

 

Accumulated other comprehensive loss

 

(7,871

)

 

(7,126

)

Accumulated deficit

 

(414,548

)

 

(397,472

)

Total stockholders’ equity

 

160,206

 

 

160,240

 

Total liabilities and stockholders’ equity

 

$

334,679

 

 

$

340,576

 

NeoPhotonics Corporation

Condensed Consolidated Statements of Operations (Unaudited)

(In thousands, except percentages and per share data)

 

 

 

Three Months Ended

 

Twelve Months Ended

 

 

Dec. 31, 2019

 

Sep. 30, 2019

 

Dec. 31, 2018

 

Dec. 31, 2019

 

Dec. 31, 2018

Revenue

 

$

103,356

 

 

$

92,392

 

 

$

91,104

 

 

$

356,804

 

 

$

322,540

 

Cost of goods sold (1)

 

72,154

 

 

66,193

 

 

68,518

 

 

267,991

 

 

256,367

 

Gross profit

 

31,202

 

 

26,199

 

 

22,586

 

 

88,813

 

 

66,173

 

Gross margin

 

30.2

%

 

28.4

%

 

24.8

%

 

24.9

%

 

20.5

%

Operating expenses:

 

 

 

 

 

 

 

 

 

 

Research and development (1)

 

15,470

 

 

13,688

 

 

13,510

 

 

57,634

 

 

53,818

 

Sales and marketing (1)

 

4,030

 

 

3,832

 

 

4,362

 

 

16,088

 

 

16,728

 

General and administrative (1)

 

7,429

 

 

7,403

 

 

7,344

 

 

29,759

 

 

30,403

 

Amortization of purchased intangible assets

 

 

 

 

 

118

 

 

119

 

 

475

 

Asset sale related costs

 

9

 

 

12

 

 

83

 

 

397

 

 

427

 

Restructuring charges

 

 

 

3

 

 

1,349

 

 

261

 

 

3,135

 

Litigation settlement

 

 

 

 

 

2,195

 

 

 

 

2,645

 

Loss (gain) on asset sale

 

(86

)

 

 

 

200

 

 

(903

)

 

200

 

Total operating expenses

 

26,852

 

 

24,938

 

 

29,161

 

 

103,355

 

 

107,831

 

Income (loss) from operations

 

4,350

 

 

1,261

 

 

(6,575

)

 

(14,542

)

 

(41,658

)

Interest income

 

83

 

 

95

 

 

97

 

 

376

 

 

397

 

Interest expense

 

(447

)

 

(483

)

 

(486

)

 

(1,919

)

 

(2,493

)

Other income (expense), net

 

(1,810

)

 

2,960

 

 

(445

)

 

642

 

 

1,446

 

Total interest and other income (expense), net

 

(2,174

)

 

2,572

 

 

(834

)

 

(901

)

 

(650

)

Income (loss) before income taxes

 

2,176

 

 

3,833

 

 

(7,409

)

 

(15,443

)

 

(42,308

)

Income tax benefit (provision)

 

(107

)

 

(1,561

)

 

680

 

 

(1,633

)

 

(1,329

)

Net income (loss)

 

$

2,069

 

 

$

2,272

 

 

$

(6,729

)

 

$

(17,076

)

 

$

(43,637

)

Basic net income (loss) per share

 

$

0.04

 

 

$

0.05

 

 

$

(0.15

)

 

$

(0.36

)

 

$

(0.97

)

Diluted net income (loss) per share

 

$

0.04

 

 

$

0.05

 

 

$

(0.15

)

 

$

(0.36

)

 

$

(0.97

)

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

 

48,358

 

 

47,666

 

 

46,150

 

 

47,304

 

 

45,144

 

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

 

50,238

 

 

48,615

 

 

46,150

 

 

47,304

 

 

45,144

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

 

 

 

Cost of goods sold

 

$

593

 

 

$

441

 

 

$

764

 

 

$

2,244

 

 

$

2,596

 

Research and development

 

755

 

 

715

 

 

952

 

 

3,138

 

 

3,570

 

Sales and marketing

 

559

 

 

575

 

 

737

 

 

2,411

 

 

3,248

 

General and administrative

 

1,255

 

 

1,220

 

 

1,162

 

 

4,663

 

 

4,728

 

Total stock-based compensation expense

 

$

3,162

 

 

$

2,951

 

 

$

3,615

 

 

$

12,456

 

 

$

14,142

 

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, 2019

 

Sep. 30, 2019

 

Dec. 31, 2018

 

Dec. 31, 2019

 

Dec. 31, 2018

NON-GAAP GROSS PROFIT:

 

 

 

 

 

 

 

 

 

 

GAAP gross profit

 

$

31,202

 

 

$

26,199

 

 

$

22,586

 

 

$

88,813

 

 

$

66,173

 

Stock-based compensation expense

 

593

 

 

441

 

 

764

 

 

2,244

 

 

2,596

 

Amortization of purchased intangible assets

 

184

 

 

185

 

 

184

 

 

737

 

 

756

 

Depreciation of acquisition-related fixed asset step-up

 

(66

)

 

(66

)

 

(75

)

 

(264

)

 

(288

)

End-of-life related inventory write-down

 

 

 

 

 

2,565

 

 

3,553

 

 

2,565

 

Accelerated depreciation

 

 

 

 

 

 

 

2,265

 

 

 

Restructuring charges

 

 

 

 

 

 

 

 

 

168

 

Non-GAAP gross profit

 

$

31,913

 

 

$

26,759

 

 

$

26,024

 

 

$

97,348

 

 

$

71,970

 

Non-GAAP gross margin as a % of revenue

 

30.9

%

 

29.0

%

 

28.6

%

 

27.3

%

 

22.3

%

 

 

 

 

 

 

 

 

 

 

 

NON-GAAP TOTAL OPERATING EXPENSES:

 

 

 

 

 

 

 

 

 

 

GAAP total operating expenses

 

$

26,852

 

 

$

24,938

 

 

$

29,161

 

 

$

103,355

 

 

$

107,831

 

Stock-based compensation expense

 

(2,569

)

 

(2,510

)

 

(2,851

)

 

(10,212

)

 

(11,546

)

Amortization of purchased intangible assets

 

 

 

 

 

(118

)

 

(119

)

 

(475

)

Depreciation of acquisition-related fixed asset step-up

 

(67

)

 

(66

)

 

(66

)

 

(266

)

 

(266

)

Asset sale related costs

 

(9

)

 

(12

)

 

(83

)

 

(397

)

 

(427

)

Restructuring charges

 

 

 

(3

)

 

(1,349

)

 

(261

)

 

(3,135

)

Litigation settlement

 

 

 

 

 

(2,195

)

 

 

 

(2,645

)

Loss (gain) on asset sale

 

86

 

 

 

 

(200

)

 

903

 

 

(200

)

Non-GAAP total operating expenses

 

$

24,293

 

 

$

22,347

 

 

$

22,299

 

 

$

93,003

 

 

$

89,137

 

Non-GAAP total operating expenses as a % of revenue

 

23.5

%

 

24.2

%

 

24.5

%

 

26.1

%

 

27.6

%

 

 

 

 

 

 

 

 

 

 

 

NON-GAAP OPERATING INCOME (LOSS):

 

 

 

 

 

 

 

 

 

 

GAAP income (loss) from operations

 

$

4,350

 

 

$

1,261

 

 

$

(6,575

)

 

$

(14,542

)

 

$

(41,658

)

Stock-based compensation expense

 

3,162

 

 

2,951

 

 

3,615

 

 

12,456

 

 

14,142

 

Amortization of purchased intangible assets

 

184

 

 

185

 

 

302

 

 

856

 

 

1,231

 

Depreciation of acquisition-related fixed asset step-up

 

1

 

 

 

 

(9

)

 

2

 

 

(22

)

Asset sale related costs

 

9

 

 

12

 

 

83

 

 

397

 

 

427

 

End-of-life related inventory write-down

 

 

 

 

 

2,565

 

 

3,553

 

 

2,565

 

Accelerated depreciation

 

 

 

 

 

 

 

2,265

 

 

 

Restructuring charges

 

 

 

3

 

 

1,349

 

 

261

 

 

3,303

 

Litigation settlement

 

 

 

 

 

2,195

 

 

 

 

2,645

 

Loss (gain) on asset sale

 

(86

)

 

 

 

200

 

 

(903

)

 

200

 

Non-GAAP income (loss) from operations

 

$

7,620

 

 

$

4,412

 

 

$

3,725

 

 

$

4,345

 

 

$

(17,167

)

Non-GAAP operating margin as a % of revenue

 

7.4

%

 

4.8

%

 

4.1

%

 

1.2

%

 

(5.3

)%

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, 2019

 

Sep. 30, 2019

 

Dec. 31, 2018

 

Dec. 31, 2019

 

Dec. 31, 2018

NON-GAAP NET INCOME (LOSS):

 

 

 

 

 

 

 

 

 

 

GAAP net income (loss)

 

$

2,069

 

 

$

2,272

 

 

$

(6,729

)

 

$

(17,076

)

 

$

(43,637

)

Stock-based compensation expense

 

3,162

 

 

2,951

 

 

3,615

 

 

12,456

 

 

14,142

 

Amortization of purchased intangible assets

 

184

 

 

185

 

 

302

 

 

856

 

 

1,231

 

Depreciation of acquisition-related fixed asset step-up

 

1

 

 

 

 

(9

)

 

2

 

 

(22

)

Asset sale related costs

 

9

 

 

12

 

 

83

 

 

397

 

 

427

 

End-of-life related inventory write-down

 

 

 

 

 

2,565

 

 

3,553

 

 

2,565

 

Accelerated depreciation

 

 

 

 

 

 

 

2,265

 

 

 

Restructuring charges

 

 

 

3

 

 

1,349

 

 

261

 

 

3,303

 

Litigation settlement

 

 

 

 

 

2,195

 

 

 

 

2,645

 

Loss (gain) on asset sale

 

(86

)

 

 

 

200

 

 

(903

)

 

200

 

Income tax effect of Non-GAAP adjustments

 

(82

)

 

(14

)

 

(1,153

)

 

(1,368

)

 

(1,375

)

Non-GAAP net income (loss)

 

$

5,257

 

 

$

5,409

 

 

$

2,418

 

 

$

443

 

 

$

(20,521

)

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

 

5.1

%

 

5.9

%

 

2.7

%

 

0.1

%

 

(6.4

)%

 

 

 

 

 

 

 

 

 

 

 

ADJUSTED EBITDA:

 

 

 

 

 

 

 

 

 

 

GAAP net income (loss)

 

$

2,069

 

 

$

2,272

 

 

$

(6,729

)

 

$

(17,076

)

 

$

(43,637

)

Stock-based compensation expense

 

3,162

 

 

2,951

 

 

3,615

 

 

12,456

 

 

14,142

 

Amortization of purchased intangible assets

 

184

 

 

185

 

 

302

 

 

856

 

 

1,231

 

Depreciation of acquisition-related fixed asset step-up

 

1

 

 

 

 

(9

)

 

2

 

 

(22

)

Asset sale related costs

 

9

 

 

12

 

 

83

 

 

397

 

 

427

 

End-of-life related inventory write-down

 

 

 

 

 

2,565

 

 

3,553

 

 

2,565

 

Accelerated depreciation

 

 

 

 

 

 

 

2,265

 

 

 

Restructuring charges

 

 

 

3

 

 

1,349

 

 

261

 

 

3,303

 

Litigation settlement

 

 

 

 

 

2,195

 

 

 

 

2,645

 

Loss (gain) on asset sale

 

(86

)

 

 

 

200

 

 

(903

)

 

200

 

Interest expense, net

 

364

 

 

388

 

 

389

 

 

1,543

 

 

2,096

 

Income tax benefit (provision)

 

107

 

 

1,561

 

 

(680

)

 

1,633

 

 

1,329

 

Depreciation expense

 

6,647

 

 

6,829

 

 

7,260

 

 

27,665

 

 

29,896

 

Adjusted EBITDA

 

$

12,457

 

 

$

14,201

 

 

$

10,540

 

 

$

32,652

 

 

$

14,175

 

Adjusted EBITDA as a % of revenue

 

12.1

%

 

15.4

%

 

11.6

%

 

9.2

%

 

4.4

%

 

 

 

 

 

 

 

 

 

 

 

BASIC AND DILUTED NET INCOME (LOSS) PER SHARE:

 

 

 

 

 

 

 

 

 

 

GAAP basic net income (loss) per share

 

$

0.04

 

 

$

0.05

 

 

$

(0.15

)

 

$

(0.36

)

 

$

(0.97

)

GAAP diluted net income (loss) per share

 

$

0.04

 

 

$

0.05

 

 

$

(0.15

)

 

$

(0.36

)

 

$

(0.97

)

Non-GAAP basic net income (loss) per share

 

$

0.11

 

 

$

0.11

 

 

$

0.05

 

 

$

0.01

 

 

$

(0.45

)

Non-GAAP diluted net income (loss) per share

 

$

0.10

 

 

$

0.11

 

 

$

0.05

 

 

$

0.01

 

 

$

(0.45

)

 

 

 

 

 

 

 

 

 

 

 

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

 

48,358

 

 

47,666

 

 

46,150

 

 

47,304

 

 

45,144

 

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

 

50,238

 

 

48,615

 

 

46,150

 

 

47,304

 

 

45,144

 

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

 

52,277

 

 

50,051

 

 

49,334

 

 

50,631

 

 

45,144

 

 

NeoPhotonics Corporation
Beth Eby, Chief Financial Officer
+1-408-895-6086
ir@neophotonics.com

Sapphire Investor Relations, LLC
Erica Mannion, Investor Relations
+1-617-542-6180
ir@neophotonics.com

Source: NeoPhotonics Corporation