Business Wire | Nov 2, 2020 04:05PM EST

NeoPhotonics Reports Third Quarter 2020 Financial Results

Nov. 02, 2020

SAN JOSE, Calif.--(BUSINESS WIRE)--Nov. 02, 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

Condensed Consolidated Statements of Operations (Unaudited)

(In thousands, except percentages and per share data)

Three Months Ended Nine Months Ended

Sep. 30, Jun. 30, Sep. 30, Sep. 30, Sep. 30, 2020 2020 2019 2020 2019

Revenue $ 102,398 $ 103,171 $ 92,392 $ 302,970 $ 253,448

Cost of goods 77,994 69,669 66,193 215,338 195,837 sold (1)

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 anddevelopment 15,276 13,689 13,688 40,849 42,164 (1)

Sales and 3,692 4,279 3,832 11,630 12,058 marketing (1)

General andadministrative 7,758 8,803 7,403 23,350 22,330 (1)

Amortizationof purchased - - - - 119 intangibleassets

Asset sale 87 120 12 219 388 related costs

Restructuring 141 - 3 141 261 charges

Gain on asset - - - - (817 )sale

Totaloperating 26,954 26,891 24,938 76,189 76,503 expenses

Income (loss)from (2,550 ) 6,611 1,261 11,443 (18,892 )operations

Interest 21 22 95 141 293 income

Interest (263 ) (301 ) (483 ) (942 ) (1,472 )expense

Other income (3,317 ) (195 ) 2,960 (2,314 ) 2,452 (expense), net

Total interestand other (3,559 ) (474 ) 2,572 (3,115 ) 1,273 income(expense), net

Income (loss)before income (6,109 ) 6,137 3,833 8,328 (17,619 )taxes

Income tax(provision) 1,206 (412 ) (1,561 ) (1,199 ) (1,526 )benefit

Net income $ (4,903 ) $ 5,725 $ 2,272 $ 7,129 $ (19,145 )(loss)

Basic netincome (loss) $ (0.10 ) $ 0.12 $ 0.05 $ 0.14 $ (0.41 )per share

Diluted netincome (loss) $ (0.10 ) $ 0.11 $ 0.05 $ 0.14 $ (0.41 )per share

Weightedaverage sharesused tocompute basic 49,936 49,077 47,666 49,212 46,949 net income(loss) pershare

Weightedaverage sharesused tocompute 49,936 51,661 48,615 51,411 46,949 diluted netincome (loss)per share



(1) Includesstock-basedcompensationexpense as follows forthe periodspresented:

Cost of goods $ 607 $ 621 $ 441 $ 1,765 $ 1,651 sold

Research and 748 999 715 2,505 2,383 development

Sales and 565 738 575 1,833 1,852 marketing

General and 853 1,429 1,220 2,975 3,408 administrative

Totalstock-based $ 2,773 $ 3,787 $ 2,951 $ 9,078 $ 9,294 compensationexpense

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-GAAPFinancial Measures (Unaudited)

(In thousands, except percentages and per share data)

Three Months Ended Nine Months Ended

Sep. 30, Jun. 30, Sep. 30, Sep. 30, Sep. 30, 2020 2020 2019 2020 2019

NON-GAAP GROSS PROFIT:

GAAP gross profit $ 24,404 $ 33,502 $ 26,199 $ 87,632 $ 57,611

Stock-basedcompensation 607 621 441 1,765 1,651 expense

Amortization ofpurchased 184 184 185 552 553 intangible assets

Depreciation ofacquisition-related (8 ) (8 ) (66 ) (28 ) (198 )fixed asset step-up

End-of-life relatedinventory 4,435 - - 4,435 3,553 write-down

Accelerated 4,120 - - 4,120 2,265 depreciation

Restructuring 706 - - 706 - charges

Non-GAAP gross $ 34,448 $ 34,299 $ 26,759 $ 99,182 $ 65,435 profit

Non-GAAP grossmargin as a % of 33.6 % 33.2 % 29.0 % 32.7 % 25.8 %revenue



NON-GAAP TOTAL OPERATING EXPENSES:

GAAP total $ 26,954 $ 26,891 $ 24,938 $ 76,189 $ 76,503 operating expenses

Stock-basedcompensation (2,166 ) (3,166 ) (2,510 ) (7,313 ) (7,643 )expense

Amortization ofpurchased - - - - (119 )intangible assets

Depreciation ofacquisition-related (28 ) (28 ) (66 ) (85 ) (199 )fixed asset step-up

Asset sale related (87 ) (120 ) (12 ) (219 ) (388 )costs

Restructuring (141 ) - (3 ) (141 ) (261 )charges

Gain on asset sale - - - - 817

Non-GAAP total $ 24,532 $ 23,577 $ 22,347 $ 68,431 $ 68,710 operating expenses

Non-GAAP totaloperating expenses 24.0 % 22.9 % 24.2 % 22.6 % 27.1 %as a % of revenue



NON-GAAP OPERATING INCOME (LOSS):

GAAP income (loss) $ (2,550 ) $ 6,611 $ 1,261 $ 11,443 $ (18,892 )from operations

Stock-basedcompensation 2,773 3,787 2,951 9,078 9,294 expense

Amortization ofpurchased 184 184 185 552 672 intangible assets

Depreciation ofacquisition-related 20 20 - 57 1 fixed asset step-up

Asset sale related 87 120 12 219 388 costs

End-of-life relatedinventory 4,435 - - 4,435 3,553 write-down

Accelerated 4,120 - - 4,120 2,265 depreciation

Restructuring 847 - 3 847 261 charges

Gain on asset sale - - - - (817 )

Non-GAAP income(loss) from $ 9,916 $ 10,722 $ 4,412 $ 30,751 $ (3,275 )operations

Non-GAAP operating )margin as a % of 9.7 % 10.4 % 4.8 % 10.1 % (1.3 %revenue

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

(c)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.

View source version on businesswire.com: https://www.businesswire.com/news/home/20201102005946/en/

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

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