NPTN - NeoPhotonics Reports Fourth Quarter and Fiscal Year 2018 Financial Results

February, 28 2019 04:05 PM NeoPhotonics Corporation

Revenue of $91.1 million for the quarter, up 11% sequentially; up 19% year-over-year
High Speed Products represented 86% 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 fourth quarter and fiscal year ended December 31, 2018.

“NeoPhotonics delivered its highest revenue quarter in the past two years, with strong orders and shipments, non-GAAP profitable operations and positive cash flow,” said Tim Jenks, NeoPhotonics Chairman and CEO. “With continued strength in demand, combined with increasing volume growth across leading high speed product lines, we again achieved solid gross margin expansion,” concluded Mr. Jenks.

Fourth Quarter Summary

Revenue was $91.1 million, up 11% quarter-over-quarter and 19% year-over-year
Gross margin was 24.8%, up from 23.2% in the prior quarter
Non-GAAP Gross margin was 28.6%, up from 24.0% in the prior quarter
Diluted net loss per share was $0.15, an improvement from a net loss of $0.18 per share in the prior quarter
Non-GAAP diluted net income per share was $0.05, an improvement from a net loss of $0.05 in the prior quarter
Cash generated from operations was $10.6 million, down from $13.5 million in the prior quarter
Adjusted EBITDA was $10.5 million, up from $6.2 million in the prior quarter

Non-GAAP results in the fourth quarter of 2018 exclude $3.6 million of stock-based compensation expense, $0.3 million of amortization of acquisition-related intangibles, $2.6 million for inventory write-downs, $2.2 million for a litigation settlement and $1.3 million of 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.

Annual Summary

Revenue in 2018 was $322.5 million, compared to $292.9 million in 2017
Gross margin was 20.5%, compared to 21.0% in 2017
Non-GAAP Gross margin was 22.3%, compared to 22.5% in 2017
Diluted net loss per share was $0.97, compared to $1.23 in 2017
Non-GAAP diluted net loss per share was $0.45, compared to $0.92 in 2017
Cash generated from operations was $19.6 million, compared to negative $32.8 million in 2017
Adjusted EBITDA was $14.2 million, compared to negative $10.1 million in 2017

Non-GAAP results in 2018 exclude $14.1 million of stock-based compensation expense, $1.2 million of amortization of acquisition-related intangibles, $3.3 million of restructuring charges, $2.6 million for litigation settlement charges and $2.6 million for inventory write-downs. 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, 2018, cash and cash equivalents, short-term investments and restricted cash, together totaled $76.7 million, up $12.0 million compared to September 30, 2018. Restricted cash as of December 31, 2018 was $11.1 million, up $5.9 million compared to September 30, 2018.

Outlook for the Quarter Ending March 31, 2019

GAAP

Non-GAAP

Revenue

$77 to $82 million

Gross Margin

20% to 24%

23% to 27%

Operating Expenses

$27 to $28 million

$24 to $25 million

Earnings per share

$(0.28) to $(0.19) net loss

$(0.17) to $(0.08) net loss

The non-GAAP outlook for the first 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 $1.5 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, February 28, 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 +1-334-323-0522. The Conference ID number is 5578535. 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 9001:2000 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; timing of customer drawdowns of vendor-managed inventory; 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; the impact of any previous or future acquisitions or divestitures of assets and related product lines; challenges involving integration of acquired businesses and utilization of acquired technology; the discontinuance or end of life of certain other products; market adoption, revenue growth and margins of acquired products; 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; the nature of other investment opportunities available to the Company from time to time; the Company’s operating cash flow; changes in economic and industry projections; a decline in general conditions in the telecommunications equipment industry or the world economy generally; 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, 2017. 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


Dec. 31, 2018

Dec. 31, 2017
ASSETS




Current assets:




Cash and cash equivalents

$
58,185


$
78,906

Short-term investments


7,481



12,311

Restricted cash


11,053



2,658

Accounts receivable, net


74,751



67,229

Inventories


52,159



67,301

Assets held for sale


2,971



-

Prepaid expenses and other current assets


26,605



36,235

Total current assets


233,205



264,640

Property, plant and equipment, net


100,090



127,565

Purchased intangible assets, net


3,018



4,294

Goodwill


1,115



1,115

Other long-term assets


3,148



5,339

Total assets

$
340,576


$
402,953






LIABILITIES AND STOCKHOLDERS' EQUITY




Current liabilities:




Accounts payable

$
58,403


$
69,017

Notes payable and short-term borrowing


4,795



35,607

Current portion of long-term debt


2,897



6,005

Accrued and other current liabilities


50,288



43,242

Total current liabilities


116,383



153,871

Long-term debt, net of current portion


50,454



40,556

Other noncurrent liabilities


13,499



14,075

Total liabilities


180,336



208,502






Stockholders' equity:




Common stock


116



111

Additional paid-in capital


564,722



545,953

Accumulated other comprehensive income (loss)


(7,126
)


398

Accumulated deficit


(397,472
)


(352,011
)
Total stockholders' equity


160,240



194,451

Total liabilities and stockholders' equity

$
340,576


$
402,953


NeoPhotonics Corporation
Condensed Consolidated Statements of Operations (Unaudited)
(In thousands, except percentages and per share data)
























Three Months Ended

Twelve Months Ended


Dec. 31, 2018

Sept. 30, 2018

Dec. 31, 2017

Dec. 31, 2018

Dec. 31, 2017











Revenue

$
91,104


$
81,748


$
76,871


$
322,540


$
292,894

Cost of goods sold (1)


68,518



62,815



61,185



256,367



231,415

Gross profit


22,586



18,933



15,686



66,173



61,479

Gross margin


24.8
%


23.2
%


20.4
%


20.5
%


21.0
%
Operating expenses:










Research and development (1)


13,510



13,177



13,875



53,818



58,287

Sales and marketing (1)


4,362



4,351



4,847



16,728



17,760

General and administrative (1)


7,344



8,142



7,661



30,403



34,453

Amortization of purchased intangible assets


118



118



117



475



472

Asset sale related costs


83



251



(99
)


427



130

Restructuring charges


1,349



1,133



384



3,135



3,934

Litigation settlement


2,195



450



-



2,645



-

Loss (gain) on asset sale


200



-



(193
)


200



(2,193
)
Total operating expenses


29,161



27,622



26,592



107,831



112,843

Loss from operations


(6,575
)


(8,689
)


(10,906
)


(41,658
)


(51,364
)
Interest income


97



85



57



397



198

Interest expense


(486
)


(540
)


(619
)


(2,493
)


(1,362
)
Other income (expense), net


(445
)


1,310



(93
)


1,446



104

Total interest and other income (expense), net


(834
)


855



(655
)


(650
)


(1,060
)
Loss before income taxes


(7,409
)


(7,834
)


(11,561
)


(42,308
)


(52,424
)
Income tax (provision) benefit


680



(291
)


(2,722
)


(1,329
)


(909
)
Net loss

$
(6,729
)

$
(8,125
)

$
(14,283
)

$
(43,637
)

$
(53,333
)











Basic net loss per share

$
(0.15
)

$
(0.18
)

$
(0.32
)

$
(0.97
)

$
(1.23
)
Diluted net loss per share

$
(0.15
)

$
(0.18
)

$
(0.32
)

$
(0.97
)

$
(1.23
)
Weighted average shares used to compute basic net loss per share


46,150



45,476



44,079



45,144



43,431

Weighted average shares used to compute diluted net loss per share


46,150



45,476



44,079



45,144



43,431












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








Cost of goods sold

$
764


$
553


$
287


$
2,596


$
1,098

Research and development


952



1,016



712



3,570



2,491

Sales and marketing


737



931



527



3,248



1,697

General and administrative


1,162



1,541



988



4,728



2,920

Total stock-based compensation expense

$
3,615


$
4,041


$
2,514


$
14,142


$
8,206












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, 2018

Sept. 30, 2018

Dec. 31, 2017

Dec. 31, 2018

Dec. 31, 2017











NON-GAAP GROSS PROFIT:










GAAP gross profit

$
22,586


$
18,933


$
15,686


$
66,173


$
61,479

Stock-based compensation expense


764



553



287



2,596



1,098

Amortization of purchased intangible assets


184



185



203



756



870

Depreciation of acquisition-related fixed asset step-up


(75
)


(71
)


(68
)


(288
)


(270
)
End-of-life related inventory write-down


2,565



-



-



2,565



1,975

Restructuring charges


-



22



248



168



812

Non-GAAP gross profit

$
26,024


$
19,622


$
16,356


$
71,970


$
65,964

Non-GAAP gross margin as a % of revenue


28.6
%


24.0
%


21.3
%


22.3
%


22.5
%











NON-GAAP TOTAL OPERATING EXPENSES:










GAAP total operating expenses

$
29,161


$
27,622


$
26,592


$
107,831


$
112,843

Stock-based compensation expense


(2,851
)


(3,488
)


(2,227
)


(11,546
)


(7,108
)
Amortization of purchased intangible assets


(118
)


(118
)


(117
)


(475
)


(472
)
Depreciation of acquisition-related fixed asset step-up


(66
)


(65
)


(69
)


(266
)


(285
)
Asset sale related costs


(83
)


(251
)


99



(427
)


(130
)
Restructuring charges


(1,349
)


(1,133
)


(384
)


(3,135
)


(3,934
)
Litigation settlement


(2,195
)


(450
)


-



(2,645
)


64

Loss (gain) on asset sale


(200
)


-



193



(200
)


2,193

Non-GAAP total operating expenses

$
22,299


$
22,117


$
24,087


$
89,137


$
103,171

Non-GAAP total operating expenses as a % of revenue


24.5
%


27.1
%


31.3
%


27.6
%


35.2
%











NON-GAAP OPERATING INCOME (LOSS):










GAAP loss from operations

$
(6,575
)

$
(8,689
)

$
(10,906
)

$
(41,658
)

$
(51,364
)
Stock-based compensation expense


3,615



4,041



2,514



14,142



8,206

Amortization of purchased intangible assets


302



303



320



1,231



1,342

Depreciation of acquisition-related fixed asset step-up


(9
)


(6
)


1



(22
)


15

Asset sale related costs


83



251



(99
)


427



130

End-of-life related inventory write-down


2,565



-



-



2,565



1,975

Restructuring charges


1,349



1,155



632



3,303



4,746

Litigation settlement


2,195



450



-



2,645



(64
)
Loss (gain) on asset sale


200



-



(193
)


200



(2,193
)
Non-GAAP income (loss) from operations

$
3,725


$
(2,495
)

$
(7,731
)

$
(17,167
)

$
(37,207
)
Non-GAAP operating margin as a % of revenue


4.1
%


(3.1
)%


(10.1
)%


(5.3
)%


(12.7
)%


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

Twelve Months Ended


Dec. 31, 2018

Sept. 30, 2018

Dec. 31, 2017

Dec. 31, 2018

Dec. 31, 2017
NON-GAAP NET INCOME (LOSS):










GAAP net loss

$
(6,729
)

$
(8,125
)

$
(14,283
)

$
(43,637
)

$
(53,333
)
Stock-based compensation expense


3,615



4,041



2,514



14,142



8,206

Amortization of purchased intangible assets


302



303



320



1,231



1,342

Depreciation of acquisition-related fixed asset step-up


(9
)


(6
)


1



(22
)


15

Asset sale related costs


83



251



(99
)


427



130

End-of-life related inventory write-down


2,565



-



-



2,565



1,975

Restructuring charges


1,349



1,155



632



3,303



4,746

Litigation settlement


2,195



450



-



2,645



(64
)
Loss (gain) on asset sale


200



-



(193
)


200



(2,193
)
Income tax effect of Non-GAAP adjustments


(1,153
)


(138
)


(637
)


(1,375
)


(754
)
Non-GAAP net income (loss)

$
2,418


$
(2,069
)

$
(11,745
)

$
(20,521
)

$
(39,930
)
Non-GAAP net income (loss) as a % of revenue


2.7
%


(2.5
)%


(15.3
)%


(6.4
)%


(13.6
)%











ADJUSTED EBITDA:










GAAP net loss

$
(6,729
)

$
(8,125
)

$
(14,283
)

$
(43,637
)

$
(53,333
)
Stock-based compensation expense


3,615



4,041



2,514



14,142



8,206

Amortization of purchased intangible assets


302



303



320



1,231



1,342

Depreciation of acquisition-related fixed asset step-up


(9
)


(6
)


1



(22
)


15

Asset sale related costs


83



251



(99
)


427



130

End-of-life related inventory write-down


2,565



-



-



2,565



1,975

Restructuring charges


1,349



1,155



632



3,303



4,746

Litigation settlement


2,195



450



-



2,645



(64
)
Loss (gain) on asset sale


200



-



(193
)


200



(2,193
)
Interest expense, net


389



455



562



2,096



1,164

Provision (benefit) for income taxes


(680
)


291



2,722



1,329



909

Depreciation expense


7,260



7,343



7,402



29,896



27,010

Adjusted EBITDA

$
10,540


$
6,158


$
(422
)

$
14,175


$
(10,093
)
Adjusted EBITDA as a % of revenue


11.6
%


7.5
%


(0.5
)%


4.4
%


(3.4
)%











BASIC AND DILUTED NET INCOME (LOSS) PER SHARE:









GAAP basic net loss per share

$
(0.15
)

$
(0.18
)

$
(0.32
)

$
(0.97
)

$
(1.23
)
GAAP diluted net loss per share

$
(0.15
)

$
(0.18
)

$
(0.32
)

$
(0.97
)

$
(1.23
)
Non-GAAP basic net income (loss) per share

$
0.05


$
(0.05
)

$
(0.27
)

$
(0.45
)

$
(0.92
)
Non-GAAP diluted net income (loss) per share

$
0.05


$
(0.05
)

$
(0.27
)

$
(0.45
)

$
(0.92
)











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


46,150



45,476



44,079



45,144



43,431

SHARES USED TO COMPUTE GAAP DILUTED NET LOSS PER SHARE


46,150



45,476



44,079



45,144



43,431

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


49,334



45,476



44,079



45,144



43,431

View source version on businesswire.com: https://www.businesswire.com/news/home/20190228005895/en/

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

Company Name:	NeoPhotonics Corporation
Stock Symbol:	NPTN
Market:	NYSE
Website:	neophotonics.com

Twitter