Benzinga | Oct 5, 2020 07:04AM EDT

NeoPhotonics Announces Initiatives To Align Cost Structure

Future Growth to be Driven by Next Generation Technologies Including 64/96 Gbaud and 400ZR Products & Solutions

Company to Host Q3'20 Earnings Call on November 2, 2020; Details to Follow

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 preliminary results for the third quarter 2020. These preliminary results incorporate changes made by NeoPhotonics to better align its infrastructure and more efficiently manage its cost structure. As previously announced, the Company has adopted a conservative approach to exclude future contributions from Huawei in its Outlook, following the August 17th tightening of Department of Commerce BIS restrictions.

"Our actions better align our capacity and production infrastructure with expected demand levels, and accelerate our goal of returning to profitability," said Tim Jenks, Chairman and CEO of NeoPhotonics. "We are maintaining our focus on developing products for next generation coherent systems and modules, wherein our silicon photonics, lasers and advanced hybrid photonic integration technologies provide the highest value, fully supporting our expansion into the data center market with coherent products. We are increasingly optimistic about our ability to drive growth both in the near-term with our 64 Gbaud solutions and in the mid-term with 96 Gbaud solutions and as our 400ZR products ramp in mid-2021. With these changes, we continue to pursue growth opportunities and deploy our best-in-class products and solutions for the highest speed over distance applications, and with a more diverse customer set," concluded Mr. Jenks.

The Company has taken steps to tighten production operations, account for Huawei-specific assets and inventory, consolidate Indium Phosphide production and implement an approximately 4% reduction in force. The costs to implement these changes are expected to be approximately $12.1 million, with $1.1 million in severance costs and $11.0 million in inventory and idle asset charges. The Company expects to incur approximately $10.7 million of these costs in the third quarter, $0.7 million in the fourth quarter and the remainder as accelerated depreciation charges through 2021.

The actions taken are expected to reduce expenses with immediate impact and achieve an approximately $2 million in quarterly operating expense reductions when fully implemented by the second quarter of 2021, in addition to reductions in Cost of Goods Sold. As a result, the Company expects to lower its revenue breakeven level and expects to return to Non-GAAP profitability in Q3'21 and GAAP profitability in Q4'21.

Given these changes, the Company also provided preliminary estimated financial results for the third quarter of 2020. The preliminary Non-GAAP results are in the upper end of the previous ranges, with severance and asset charges included in the preliminary GAAP results.