NeoPhotonics Reports Second Quarter 2019 Financial Results

  • Revenue of $81.7 million for the quarter, up 1% year-over-year
  • High Speed Products represented 89% of total revenue for the quarter

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 second quarter ended June 30, 2019.

“Q2 was a volatile quarter for NeoPhotonics and I am proud of our team and their continued focus and execution to extend our leadership position in high-speed digital optoelectronics while making changes needed to adjust for the Huawei ban,” said Tim Jenks, NeoPhotonics Chairman and CEO. “Market drivers are well aligned with our advanced technologies and high-speed capabilities. These trends transcend the current Huawei ban and, coupled with the continued demand with hyperscale data centers, we are optimistic about NeoPhotonics’ new product prospects,” concluded Mr. Jenks.

Second Quarter Summary

  • Revenue was $81.7 million, up 3% quarter-over-quarter and up 1% year-over-year
  • Gross margin was 19.2%, down from 19.8 % in the prior quarter
  • Non-GAAP Gross margin was 25.6%, up from 22.4% in the prior quarter
  • Diluted net loss per share was $0.16, up from a net loss of $0.30 per share in the prior quarter
  • Non-GAAP diluted net loss per share was $0.03, up from net loss per share of $0.19 in the prior quarter
  • Cash generated from operations was $0.7 million, down from $8.7 million in the prior quarter
  • Adjusted EBITDA was $6.8 million, up from a loss of $0.8 million in the prior quarter

Non-GAAP results in the second quarter of 2019 exclude $3.0 million of stock-based compensation expense, $3.6 million of inventory write down, $0.9 million of accelerated depreciation, $0.8 million of gain on sale of Russia assets, $0.3 million of 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 June 30, 2019, cash and cash equivalents, short-term investments and restricted cash, together totaled $74 million, down $5 million compared to March 31, 2019.

Outlook for the Quarter Ending September 30, 2019

 

GAAP

Non-GAAP

Revenue

$87 to $93 million

Gross Margin

24% to 28%

25% to 29%

Operating Expenses

$25 to $26 million

$22 to $23 million

Earnings per share

$(0.09) net loss to $0.01 net profit

$(0.03) net loss to $0.07 net profit

The non-GAAP outlook for the third 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 $0.3 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, August 05, 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 +1-800-263-0877. For international callers, please dial +1-323-794-2094. The Conference ID number is 6807671. 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
Jun. 30,
2019
Dec. 31,
2018
ASSETS
Current assets:
Cash and cash equivalents

$

55,107

 

$

58,185

 

Short-term investments

 

7,567

 

 

7,481

 

Restricted cash

 

11,533

 

 

11,053

 

Accounts receivable, net

 

59,623

 

 

74,751

 

Inventories

 

48,795

 

 

52,159

 

Assets held for sale

 

 

 

2,971

 

Prepaid expenses and other current assets

 

23,397

 

 

26,605

 

Total current assets

 

206,022

 

 

233,205

 

Property, plant and equipment, net

 

89,283

 

 

100,090

 

Operating lease right-of-use assets

 

16,520

 

 

 

Purchased intangible assets, net

 

2,532

 

 

3,018

 

Goodwill

 

1,115

 

 

1,115

 

Other long-term assets

 

3,144

 

 

3,148

 

Total assets

$

318,616

 

$

340,576

 

 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable

$

51,857

 

$

58,403

 

Notes payable and short-term borrowing

 

 

 

4,795

 

Current portion of long-term debt

 

3,048

 

 

2,897

 

Accrued and other current liabilities

 

43,020

 

 

50,288

 

Total current liabilities

 

97,925

 

 

116,383

 

Long-term debt, net of current portion

 

45,181

 

 

50,454

 

Operating lease liabilities, non-current

 

17,577

 

 

 

Other noncurrent liabilities

 

9,949

 

 

13,499

 

Total liabilities

 

170,632

 

 

180,336

 

 
Stockholders’ equity:
Common stock

 

118

 

 

116

 

Additional paid-in capital

 

572,734

 

 

564,722

 

Accumulated other comprehensive loss

 

(5,979

)

 

(7,126

)

Accumulated deficit

 

(418,889

)

 

(397,472

)

Total stockholders’ equity

 

147,984

 

 

160,240

 

Total liabilities and stockholders’ equity

$

318,616

 

$

340,576

 

NeoPhotonics Corporation
Condensed Consolidated Statements of Operations (Unaudited)
(In thousands, except percentages and per share data)
 
Three Months Ended Six Months Ended
Jun. 30,
2019
Mar. 31,
2019
Jun. 30,
2018
Jun. 30,
2019
Jun. 30,
2018
 
Revenue

$

81,690

 

$

79,366

 

$

81,102

 

$

161,056

 

$

149,688

 

Cost of goods sold (1)

 

66,015

 

 

63,629

 

 

65,630

 

 

129,644

 

 

125,034

 

Gross profit

 

15,675

 

 

15,737

 

 

15,472

 

 

31,412

 

 

24,654

 

Gross margin

 

19.2

%

 

19.8

%

 

19.1

%

 

19.5

%

 

16.5

%

Operating expenses:
Research and development (1)

 

13,793

 

 

14,683

 

 

13,243

 

 

28,476

 

 

27,131

 

Sales and marketing (1)

 

3,623

 

 

4,603

 

 

3,891

 

 

8,226

 

 

8,015

 

General and administrative (1)

 

7,174

 

 

7,753

 

 

7,267

 

 

14,927

 

 

14,917

 

Amortization of purchased intangible assets

 

 

 

119

 

 

120

 

 

119

 

 

239

 

Asset sale related costs

 

47

 

 

329

 

 

79

 

 

376

 

 

93

 

Restructuring charges

 

79

 

 

179

 

 

622

 

 

258

 

 

653

 

Gain on asset sale

 

(817

)

 

 

 

 

 

(817

)

 

 

Total operating expenses

 

23,899

 

 

27,666

 

 

25,222

 

 

51,565

 

 

51,048

 

Loss from operations

 

(8,224

)

 

(11,929

)

 

(9,750

)

 

(20,153

)

 

(26,394

)

Interest income

 

99

 

 

99

 

 

122

 

 

198

 

 

215

 

Interest expense

 

(496

)

 

(493

)

 

(759

)

 

(989

)

 

(1,467

)

Other income (expense), net

 

1,090

 

 

(1,598

)

 

930

 

 

(508

)

 

581

 

Total interest and other income (expense), net

 

693

 

 

(1,992

)

 

293

 

 

(1,299

)

 

(671

)

Loss before income taxes

 

(7,531

)

 

(13,921

)

 

(9,457

)

 

(21,452

)

 

(27,065

)

Income tax benefit (provision)

 

205

 

 

(170

)

 

(1,080

)

 

35

 

 

(1,718

)

Net loss

$

(7,326

)

$

(14,091

)

$

(10,537

)

$

(21,417

)

$

(28,783

)

Basic net loss per share

$

(0.16

)

$

(0.30

)

$

(0.24

)

$

(0.46

)

$

(0.65

)

Diluted net loss per share

$

(0.16

)

$

(0.30

)

$

(0.24

)

$

(0.46

)

$

(0.65

)

Weighted average shares used to compute basic net loss per share

 

46,754

 

 

46,414

 

 

44,665

 

 

46,585

 

 

44,463

 

Weighted average shares used to compute diluted net loss per share

 

46,754

 

 

46,414

 

 

44,665

 

 

46,585

 

 

44,463

 

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

$

609

 

$

601

 

$

629

 

$

1,210

 

$

1,279

 

Research and development

 

787

 

 

881

 

 

829

 

 

1,668

 

 

1,602

 

Sales and marketing

 

599

 

 

678

 

 

642

 

 

1,277

 

 

1,580

 

General and administrative

 

1,010

 

 

1,178

 

 

1,039

 

 

2,188

 

 

2,025

 

Total stock-based compensation expense

$

3,005

 

$

3,338

 

$

3,139

 

$

6,343

 

$

6,486

 

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 Six Months Ended
Jun. 30,
2019
Mar. 31,
2019
Jun. 30,
2018
Jun. 30,
2019
Jun. 30,
2018
NON-GAAP GROSS PROFIT:
GAAP gross profit

$

15,675

 

$

15,737

 

$

15,472

 

$

31,412

 

$

24,654

 

Stock-based compensation expense

 

609

 

 

601

 

 

629

 

 

1,210

 

 

1,279

 

Amortization of purchased intangible assets

 

184

 

 

184

 

 

184

 

 

368

 

 

387

 

Depreciation of acquisition-related fixed asset step-up

 

(66

)

 

(66

)

 

(73

)

 

(132

)

 

(142

)

End-of-life related inventory write-down

 

3,553

 

 

 

 

 

 

3,553

 

 

 

Accelerated Depreciation

 

950

 

 

1,315

 

 

 

 

2,265

 

 

 

Restructuring charges

 

 

 

 

 

54

 

 

 

 

146

 

Non-GAAP gross profit

$

20,905

 

$

17,771

 

$

16,266

 

$

38,676

 

$

26,324

 

Non-GAAP gross margin as a % of revenue

 

25.6

%

 

22.4

%

 

20.1

%

 

24.0

%

 

17.6

%

 
NON-GAAP TOTAL OPERATING EXPENSES:
GAAP total operating expenses

$

23,899

 

$

27,666

 

$

25,222

 

$

51,565

 

$

51,048

 

Stock-based compensation expense

 

(2,396

)

 

(2,737

)

 

(2,510

)

 

(5,133

)

 

(5,207

)

Amortization of purchased intangible assets

 

 

 

(119

)

 

(120

)

 

(119

)

 

(239

)

Depreciation of acquisition-related fixed asset step-up

 

(67

)

 

(66

)

 

(68

)

 

(133

)

 

(135

)

Asset sale related costs

 

(47

)

 

(329

)

 

(79

)

 

(376

)

 

(93

)

Restructuring charges

 

(79

)

 

(179

)

 

(622

)

 

(258

)

 

(653

)

Gain on asset sale

 

817

 

 

 

 

 

 

817

 

 

 

Non-GAAP total operating expenses

$

22,127

 

$

24,236

 

$

21,823

 

$

46,363

 

$

44,721

 

Non-GAAP total operating expenses as a % of revenue

 

27.1

%

 

30.5

%

 

26.9

%

 

28.8

%

 

29.9

%

 
NON-GAAP OPERATING LOSS:
GAAP loss from operations

$

(8,224

)

$

(11,929

)

$

(9,750

)

$

(20,153

)

$

(26,394

)

Stock-based compensation expense

 

3,005

 

 

3,338

 

 

3,139

 

 

6,343

 

 

6,486

 

Amortization of purchased intangible assets

 

184

 

 

303

 

 

304

 

 

487

 

 

626

 

Depreciation of acquisition-related fixed asset step-up

 

1

 

 

 

 

(5

)

 

1

 

 

(7

)

Asset sale related costs

 

47

 

 

329

 

 

79

 

 

376

 

 

93

 

End-of-life related inventory write-down

 

3,553

 

 

 

 

 

 

3,553

 

 

 

Accelerated Depreciation

 

950

 

 

1,315

 

 

 

 

2,265

 

 

 

Restructuring charges

 

79

 

 

179

 

 

676

 

 

258

 

 

799

 

Gain on asset sale

 

(817

)

 

 

 

 

 

(817

)

 

 

Non-GAAP loss from operations

$

(1,222

)

$

(6,465

)

$

(5,557

)

$

(7,687

)

$

(18,397

)

Non-GAAP operating margin as a % of revenue

 

(1.5

)%

 

(8.1

)%

 

(6.9

)%

 

(4.8

)%

 

(12.3

)%

 
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 Six Months Ended
Jun. 30,
2019
Mar. 31,
2019
Jun. 30,
2018
Jun. 30,
2019
Jun. 30,
2018
NON-GAAP NET LOSS:
GAAP net loss

$

(7,326

)

$

(14,091

)

$

(10,537

)

$

(21,417

)

$

(28,783

)

Stock-based compensation expense

 

3,005

 

 

3,338

 

 

3,139

 

 

6,343

 

 

6,486

 

Amortization of purchased intangible assets

 

184

 

 

303

 

 

304

 

 

487

 

 

626

 

Depreciation of acquisition-related fixed asset step-up

 

1

 

 

 

 

(5

)

 

1

 

 

(7

)

Asset sale related costs

 

47

 

 

329

 

 

79

 

 

376

 

 

93

 

End-of-life related inventory write-down

 

3,553

 

 

 

 

 

 

3,553

 

 

 

Accelerated Depreciation

 

950

 

 

1,315

 

 

 

 

2,265

 

 

 

Restructuring charges

 

79

 

 

179

 

 

676

 

 

258

 

 

799

 

Gain on asset sale

 

(817

)

 

 

 

 

 

(817

)

 

 

Income tax effect of Non-GAAP adjustments

 

(895

)

 

(377

)

 

42

 

 

(1,272

)

 

(84

)

Non-GAAP net loss

$

(1,219

)

$

(9,004

)

$

(6,302

)

$

(10,223

)

$

(20,870

)

Non-GAAP net loss as a % of revenue

 

(1.5

)%

 

(11.3

)%

 

(7.8

)%

 

(6.3

)%

 

(13.9

)%

 
ADJUSTED EBITDA:
GAAP net loss

$

(7,326

)

$

(14,091

)

$

(10,537

)

$

(21,417

)

$

(28,783

)

Stock-based compensation expense

 

3,005

 

 

3,338

 

 

3,139

 

 

6,343

 

 

6,486

 

Amortization of purchased intangible assets

 

184

 

 

303

 

 

304

 

 

487

 

 

626

 

Depreciation of acquisition-related fixed asset step-up

 

1

 

 

 

 

(5

)

 

1

 

 

(7

)

Asset sale related costs

 

47

 

 

329

 

 

79

 

 

376

 

 

93

 

End-of-life related inventory write-down

 

3,553

 

 

 

 

 

 

3,553

 

 

 

Accelerated Depreciation

 

950

 

 

1,315

 

 

 

 

2,265

 

 

 

Restructuring charges

 

79

 

 

179

 

 

676

 

 

258

 

 

799

 

Gain on asset sale

 

(817

)

 

 

 

 

 

(817

)

 

 

Interest expense, net

 

397

 

 

394

 

 

637

 

 

791

 

 

1,252

 

Income tax benefit (provision)

 

(205

)

 

170

 

 

1,080

 

 

(35

)

 

1,718

 

Depreciation expense

 

6,956

 

 

7,233

 

 

7,607

 

 

14,189

 

 

15,293

 

Adjusted EBITDA

$

6,824

 

$

(830

)

$

2,980

 

$

5,994

 

$

(2,523

)

Adjusted EBITDA as a % of revenue

 

8.4

%

 

(1.0

)%

 

3.7

%

 

3.7

%

 

(1.7

)%

 
BASIC AND DILUTED NET INCOME (LOSS) PER SHARE:
GAAP basic net loss per share

$

(0.16

)

$

(0.30

)

$

(0.24

)

$

(0.46

)

$

(0.65

)

GAAP diluted net loss per share

$

(0.16

)

$

(0.30

)

$

(0.24

)

$

(0.46

)

$

(0.65

)

Non-GAAP basic net loss per share

$

(0.03

)

$

(0.19

)

$

(0.14

)

$

(0.22

)

$

(0.47

)

Non-GAAP diluted net loss per share

$

(0.03

)

$

(0.19

)

$

(0.14

)

$

(0.22

)

$

(0.47

)

 

 

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

 

46,754

 

 

46,414

 

 

44,665

 

 

46,585

 

 

44,463

 

SHARES USED TO COMPUTE GAAP DILUTED NET LOSS PER SHARE

 

46,754

 

 

46,414

 

 

44,665

 

 

46,585

 

 

44,463

 

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

 

46,754

 

 

46,414

 

 

44,665

 

 

46,585

 

 

44,463

 

 

Contacts

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

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