Investor News Release

<< Back

NeoPhotonics Reports Third Quarter 2020 Financial Results

  • Revenue of $102.4 million for the quarter, up 11% year-over-year
  • Three customers greater than 10% of revenue
  • Generated $15.0 million of cash from operations

SAN JOSE, Calif.--(BUSINESS WIRE)--Nov. 2, 2020-- NeoPhotonics Corporation (NYSE: NPTN), a leading developer of silicon photonics and advanced hybrid photonic integrated circuit-based lasers, modules and subsystems for bandwidth-intensive, high speed communications networks, today announced financial results for its third quarter ended September 30, 2020.

“We are pleased to report another strong, non-GAAP profitable quarter, driven by our highest speed products. We took decisive actions to better align our capacity and production infrastructure with expected demand levels without relying on future revenue contributions from Huawei, resulting in a restructuring charge of approximately $9.4 million in this quarter. Excluding Huawei, our products for 400G and above applications grew 91% year to date, and were 44% of Q3 revenue,” said Tim Jenks, NeoPhotonics CEO. “Going forward we believe we will rapidly grow the business excluding Huawei by supporting the highest speed over distance solutions at 400G and above for telecom equipment providers, and expand our business by ramping our 400ZR and 400ZR+ coherent modules to Cloud and hyper-scale customers starting in 2021,” concluded Mr. Jenks.

Third Quarter Summary

  • Revenue was $102.4 million, down 1% sequentially and up 11% year-over-year
  • Gross margin was 23.8%, down from 32.5% in the prior quarter and from 28.4% in the prior year, including actions to align the Company’s cost structure
  • Non-GAAP gross margin was 33.6%, up from 33.2% in the prior quarter and up from 29.0% in the prior year 
  • Diluted net loss per share was $0.10, in comparison to net income per share of $0.11 in the prior quarter and to $0.05 in the same period last year
  • Non-GAAP diluted net income per share was $0.11, in comparison to $0.16 in the prior quarter and to $0.11 in the same period last year
  • Cash generated from operations was $15.0 million, up from $9.6 million in the prior quarter and up from $9.0 million in the same period last year
  • Adjusted EBITDA was $13.1 million, in comparison to $16.9 million in the prior quarter and to $14.2 million in the same period last year.

Non-GAAP results in the third quarter of 2020 exclude $2.8 million of stock-based compensation expense, $9.4 million of restructuring and other related charges and $0.3 million of amortization of acquisition-related intangibles and other costs. 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, 2020, cash and cash equivalents, short-term investments and restricted cash, together totaled $123 million, up $10 million compared to June 30, 2020.

Outlook for the Quarter Ending December 31, 2020

 

GAAP

Non-GAAP

Revenue

$64 to $70 million

Gross Margin

20% to 24%

22% to 26%

Operating Expenses

$24.5 to $25.5 million

$24 to $25 million

Earnings per share

$0.26 loss to $0.16 loss

$0.23 loss to $0.13 loss

The fourth quarter EPS outlook includes revenue without contribution from Huawei and therefore expectation of higher underutilization charges and lower gross margin. Operating expenses increase on investment in 400ZR development to drive business growth.

The non-GAAP outlook for the fourth quarter of 2020 excludes the expected impact of stock-based compensation expense of approximately $3.4 million, of which $0.7 million is estimated for cost of goods sold, $2.9 million of gain on legal settlement, $0.7 million of restructuring and other related charges and the impact of expected amortization of acquisition-related intangibles and other costs of approximately $0.3 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, Monday, November 2, 2020 at 4:30 PM Eastern Time (1:30 PM Pacific Time). The call will be available, live, to interested parties by dialing 866-248-8441. For international callers, please dial +1-929-477-0577. The Conference ID number is 2900063. 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 developer and manufacturer of lasers and optoelectronic solutions that transmit, receive and switch high-speed digital optical signals for Cloud and hyper-scale data center internet content provider and telecom networks. The Company’s products enable cost-effective, high-speed over distance data transmission and efficient allocation of bandwidth in optical 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.

Legal Notice Regarding Forward-Looking Statements

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, growth in the Company’s data center business, 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;; the Company’s need to qualify its products and achieve market acceptance in the cloud and data center markets; potential impacts of the Covid-19 pandemic; 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 qualifications, and/or the rate at which design wins and qualifications 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; 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/A for the year ended December 31, 2019. 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, 2020

 

Dec. 31, 2019

 

 

 

 

 

ASSETS

 

 

 

 

Current assets:

 

 

 

 

Cash and cash equivalents

 

$

83,619

 

 

$

70,467

 

Short-term investments

 

27,667

 

 

7,638

 

Restricted cash

 

11,655

 

 

10,972

 

Accounts receivable, net

 

60,148

 

 

68,890

 

Inventories

 

46,989

 

 

46,930

 

Prepaid expenses and other current assets

 

27,507

 

 

25,851

 

Total current assets

 

257,585

 

 

230,748

 

Property, plant and equipment, net

 

67,729

 

 

81,133

 

Operating lease right-of-use assets

 

14,297

 

 

15,603

 

Purchased intangible assets, net

 

1,618

 

 

2,151

 

Goodwill

 

1,115

 

 

1,115

 

Other long-term assets

 

3,904

 

 

3,929

 

Total assets

 

$

346,248

 

 

$

334,679

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

Current liabilities:

 

 

 

 

Accounts payable

 

$

54,822

 

 

$

58,554

 

Current portion of long-term debt

 

3,153

 

 

3,044

 

Accrued and other current liabilities

 

51,049

 

 

47,481

 

Total current liabilities

 

109,024

 

 

109,079

 

Long-term debt, net of current portion

 

31,799

 

 

39,237

 

Operating lease liabilities, noncurrent

 

15,039

 

 

16,543

 

Other noncurrent liabilities

 

8,868

 

 

9,614

 

Total liabilities

 

164,730

 

 

174,473

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

Common stock

 

125

 

 

121

 

Additional paid-in capital

 

592,875

 

 

582,504

 

Accumulated other comprehensive loss

 

(4,063

)

 

(7,871

)

Accumulated deficit

 

(407,419

)

 

(414,548

)

Total stockholders’ equity

 

181,518

 

 

160,206

 

Total liabilities and stockholders’ equity

 

$

346,248

 

 

$

334,679

 

NeoPhotonics Corporation

Condensed Consolidated Statements of Operations (Unaudited)

(In thousands, except percentages and per share data)

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

Sep. 30, 2020

 

Jun. 30, 2020

 

Sep. 30, 2019

 

Sep. 30, 2020

 

Sep. 30, 2019

Revenue

 

$

102,398

 

 

$

103,171

 

 

$

92,392

 

 

$

302,970

 

 

$

253,448

 

Cost of goods sold (1)

 

77,994

 

 

69,669

 

 

66,193

 

 

215,338

 

 

195,837

 

Gross profit

 

24,404

 

 

33,502

 

 

26,199

 

 

87,632

 

 

57,611

 

Gross margin

 

23.8

%

 

32.5

%

 

28.4

%

 

28.9

%

 

22.7

%

Operating expenses:

 

 

 

 

 

 

 

 

 

 

Research and development (1)

 

15,276

 

 

13,689

 

 

13,688

 

 

40,849

 

 

42,164

 

Sales and marketing (1)

 

3,692

 

 

4,279

 

 

3,832

 

 

11,630

 

 

12,058

 

General and administrative (1)

 

7,758

 

 

8,803

 

 

7,403

 

 

23,350

 

 

22,330

 

Amortization of purchased intangible assets

 

 

 

 

 

 

 

 

 

119

 

Asset sale related costs

 

87

 

 

120

 

 

12

 

 

219

 

 

388

 

Restructuring charges

 

141

 

 

 

 

3

 

 

141

 

 

261

 

Gain on asset sale

 

 

 

 

 

 

 

 

 

(817

)

Total operating expenses

 

26,954

 

 

26,891

 

 

24,938

 

 

76,189

 

 

76,503

 

Income (loss) from operations

 

(2,550

)

 

6,611

 

 

1,261

 

 

11,443

 

 

(18,892

)

Interest income

 

21

 

 

22

 

 

95

 

 

141

 

 

293

 

Interest expense

 

(263

)

 

(301

)

 

(483

)

 

(942

)

 

(1,472

)

Other income (expense), net

 

(3,317

)

 

(195

)

 

2,960

 

 

(2,314

)

 

2,452

 

Total interest and other income (expense), net

 

(3,559

)

 

(474

)

 

2,572

 

 

(3,115

)

 

1,273

 

Income (loss) before income taxes

 

(6,109

)

 

6,137

 

 

3,833

 

 

8,328

 

 

(17,619

)

Income tax (provision) benefit

 

1,206

 

 

(412

)

 

(1,561

)

 

(1,199

)

 

(1,526

)

Net income (loss)

 

$

(4,903

)

 

$

5,725

 

 

$

2,272

 

 

$

7,129

 

 

$

(19,145

)

Basic net income (loss) per share

 

$

(0.10

)

 

$

0.12

 

 

$

0.05

 

 

$

0.14

 

 

$

(0.41

)

Diluted net income (loss) per share

 

$

(0.10

)

 

$

0.11

 

 

$

0.05

 

 

$

0.14

 

 

$

(0.41

)

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

 

49,936

 

 

49,077

 

 

47,666

 

 

49,212

 

 

46,949

 

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

 

49,936

 

 

51,661

 

 

48,615

 

 

51,411

 

 

46,949

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

 

 

 

Cost of goods sold

 

$

607

 

 

$

621

 

 

$

441

 

 

$

1,765

 

 

$

1,651

 

Research and development

 

748

 

 

999

 

 

715

 

 

2,505

 

 

2,383

 

Sales and marketing

 

565

 

 

738

 

 

575

 

 

1,833

 

 

1,852

 

General and administrative

 

853

 

 

1,429

 

 

1,220

 

 

2,975

 

 

3,408

 

Total stock-based compensation expense

 

$

2,773

 

 

$

3,787

 

 

$

2,951

 

 

$

9,078

 

 

$

9,294

 

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, 2020

 

Jun. 30, 2020

 

Sep. 30, 2019

 

Sep. 30, 2020

 

Sep. 30, 2019

NON-GAAP GROSS PROFIT:

 

 

 

 

 

 

 

 

 

 

GAAP gross profit

 

$

24,404

 

 

$

33,502

 

 

$

26,199

 

 

$

87,632

 

 

$

57,611

 

Stock-based compensation expense

 

607

 

 

621

 

 

441

 

 

1,765

 

 

1,651

 

Amortization of purchased intangible assets

 

184

 

 

184

 

 

185

 

 

552

 

 

553

 

Depreciation of acquisition-related fixed asset step-up

 

(8

)

 

(8

)

 

(66

)

 

(28

)

 

(198

)

End-of-life related inventory write-down

 

4,435

 

 

 

 

 

 

4,435

 

 

3,553

 

Accelerated depreciation

 

4,120

 

 

 

 

 

 

4,120

 

 

2,265

 

Restructuring charges

 

706

 

 

 

 

 

 

706

 

 

 

Non-GAAP gross profit

 

$

34,448

 

 

$

34,299

 

 

$

26,759

 

 

$

99,182

 

 

$

65,435

 

Non-GAAP gross margin as a % of revenue

 

33.6

%

 

33.2

%

 

29.0

%

 

32.7

%

 

25.8

%

 

 

 

 

 

 

 

 

 

 

 

NON-GAAP TOTAL OPERATING EXPENSES:

 

 

 

 

 

 

 

 

 

 

GAAP total operating expenses

 

$

26,954

 

 

$

26,891

 

 

$

24,938

 

 

$

76,189

 

 

$

76,503

 

Stock-based compensation expense

 

(2,166

)

 

(3,166

)

 

(2,510

)

 

(7,313

)

 

(7,643

)

Amortization of purchased intangible assets

 

 

 

 

 

 

 

 

 

(119

)

Depreciation of acquisition-related fixed asset step-up

 

(28

)

 

(28

)

 

(66

)

 

(85

)

 

(199

)

Asset sale related costs

 

(87

)

 

(120

)

 

(12

)

 

(219

)

 

(388

)

Restructuring charges

 

(141

)

 

 

 

(3

)

 

(141

)

 

(261

)

Gain on asset sale

 

 

 

 

 

 

 

 

 

817

 

Non-GAAP total operating expenses

 

$

24,532

 

 

$

23,577

 

 

$

22,347

 

 

$

68,431

 

 

$

68,710

 

Non-GAAP total operating expenses as a % of revenue

 

24.0

%

 

22.9

%

 

24.2

%

 

22.6

%

 

27.1

%

 

 

 

 

 

 

 

 

 

 

 

NON-GAAP OPERATING INCOME (LOSS):

 

 

 

 

 

 

 

 

 

 

GAAP income (loss) from operations

 

$

(2,550

)

 

$

6,611

 

 

$

1,261

 

 

$

11,443

 

 

$

(18,892

)

Stock-based compensation expense

 

2,773

 

 

3,787

 

 

2,951

 

 

9,078

 

 

9,294

 

Amortization of purchased intangible assets

 

184

 

 

184

 

 

185

 

 

552

 

 

672

 

Depreciation of acquisition-related fixed asset step-up

 

20

 

 

20

 

 

 

 

57

 

 

1

 

Asset sale related costs

 

87

 

 

120

 

 

12

 

 

219

 

 

388

 

End-of-life related inventory write-down

 

4,435

 

 

 

 

 

 

4,435

 

 

3,553

 

Accelerated depreciation

 

4,120

 

 

 

 

 

 

4,120

 

 

2,265

 

Restructuring charges

 

847

 

 

 

 

3

 

 

847

 

 

261

 

Gain on asset sale

 

 

 

 

 

 

 

 

 

(817

)

Non-GAAP income (loss) from operations

 

$

9,916

 

 

$

10,722

 

 

$

4,412

 

 

$

30,751

 

 

$

(3,275

)

Non-GAAP operating margin as a % of revenue

 

9.7

%

 

10.4

%

 

4.8

%

 

10.1

%

 

(1.3

)%

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

 

Nine Months Ended

 

 

Sep. 30, 2020

 

Jun. 30, 2020

 

Sep. 30, 2019

 

Sep. 30, 2020

 

Sep. 30, 2019

NON-GAAP NET INCOME (LOSS):

 

 

 

 

 

 

 

 

 

 

GAAP net income (loss)

 

$

(4,903

)

 

$

5,725

 

 

$

2,272

 

 

$

7,129

 

 

$

(19,145

)

Stock-based compensation expense

 

2,773

 

 

3,787

 

 

2,951

 

 

9,078

 

 

9,294

 

Amortization of purchased intangible assets

 

184

 

 

184

 

 

185

 

 

552

 

 

672

 

Depreciation of acquisition-related fixed asset step-up

 

20

 

 

20

 

 

 

 

57

 

 

1

 

Asset sale related costs

 

87

 

 

120

 

 

12

 

 

219

 

 

388

 

End-of-life related inventory write-down

 

4,435

 

 

 

 

 

 

4,435

 

 

3,553

 

Accelerated depreciation

 

4,120

 

 

 

 

 

 

4,120

 

 

2,265

 

Restructuring charges

 

847

 

 

 

 

3

 

 

847

 

 

261

 

Gain on asset sale

 

 

 

 

 

 

 

 

 

(817

)

Income tax effect of Non-GAAP adjustments

 

(1,327

)

 

(1,160

)

 

(14

)

 

(2,461

)

 

(1,286

)

Non-GAAP net income (loss)

 

$

6,236

 

 

$

8,676

 

 

$

5,409

 

 

$

23,976

 

 

$

(4,814

)

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

 

6.1

%

 

8.4

%

 

5.9

%

 

7.9

%

 

(1.9

)%

 

 

 

 

 

 

 

 

 

 

 

ADJUSTED EBITDA:

 

 

 

 

 

 

 

 

 

 

GAAP net income (loss)

 

$

(4,903

)

 

$

5,725

 

 

$

2,272

 

 

$

7,129

 

 

$

(19,145

)

Stock-based compensation expense

 

2,773

 

 

3,787

 

 

2,951

 

 

9,078

 

 

9,294

 

Amortization of purchased intangible assets

 

184

 

 

184

 

 

185

 

 

552

 

 

672

 

Depreciation of acquisition-related fixed asset step-up

 

20

 

 

20

 

 

 

 

57

 

 

1

 

Asset sale related costs

 

87

 

 

120

 

 

12

 

 

219

 

 

388

 

End-of-life related inventory write-down

 

4,435

 

 

 

 

 

 

4,435

 

 

3,553

 

Accelerated depreciation

 

4,120

 

 

 

 

 

 

4,120

 

 

2,265

 

Restructuring charges

 

847

 

 

 

 

3

 

 

847

 

 

261

 

Gain on asset sale

 

 

 

 

 

 

 

 

 

(817

)

Interest expense, net

 

242

 

 

279

 

 

388

 

 

801

 

 

1,179

 

Income tax provision (benefit)

 

(1,206

)

 

412

 

 

1,561

 

 

1,199

 

 

1,526

 

Depreciation expense

 

6,479

 

 

6,414

 

 

6,829

 

 

19,366

 

 

21,018

 

Adjusted EBITDA

 

$

13,078

 

 

$

16,941

 

 

$

14,201

 

 

$

47,803

 

 

$

20,195

 

Adjusted EBITDA as a % of revenue

 

12.8

%

 

16.4

%

 

15.4

%

 

15.8

%

 

8.0

%

 

 

 

 

 

 

 

 

 

 

 

BASIC AND DILUTED NET INCOME (LOSS) PER SHARE:

 

 

 

 

 

 

 

 

 

 

GAAP basic net income (loss) per share

 

$

(0.10

)

 

$

0.12

 

 

$

0.05

 

 

$

0.14

 

 

$

(0.41

)

GAAP diluted net income (loss) per share

 

$

(0.10

)

 

$

0.11

 

 

$

0.05

 

 

$

0.14

 

 

$

(0.41

)

Non-GAAP basic net income (loss) per share

 

$

0.12

 

 

$

0.18

 

 

$

0.11

 

 

$

0.49

 

 

$

(0.10

)

Non-GAAP diluted net income (loss) per share

 

$

0.11

 

 

$

0.16

 

 

$

0.11

 

 

$

0.45

 

 

$

(0.10

)

 

 

 

 

 

 

 

 

 

 

 

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

 

49,936

 

 

49,077

 

 

47,666

 

 

49,212

 

 

46,949

 

SHARES USED TO COMPUTE GAAP DILUTED NET INCOME

(LOSS) PER SHARE

 

49,936

 

 

51,661

 

 

48,615

 

 

51,411

 

 

46,949

 

SHARES USED TO COMPUTE NON-GAAP DILUTED NET INCOME

(LOSS) PER SHARE

 

54,385

 

 

54,303

 

 

50,051

 

 

53,730

 

 

46,949

 

 

©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
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