News Column

NeoPhotonics Reports Second Quarter Financial Results and Outlook for Third Quarter 2014

August 7, 2014

  • Record Quarterly Revenue of $77.5 million
  • Sequential Revenue Growth of 13.6%
  • Sequential 40/100G Revenue Growth of 6.7%

    SAN JOSE, Calif.--(BUSINESS WIRE)-- NeoPhotonics Corporation (NYSE: NPTN), a leading designer and manufacturer of photonic integrated circuits, or PIC, based optoelectronic modules and subsystems for bandwidth-intensive, high speed communications networks, today announced financial results for its second quarter ended June 30, 2014.

    “We are pleased to announce the highest quarterly revenue in the history of NeoPhotonics, driven principally by our 100G products, and we believe our new products are well positioned to continue to benefit from the rapid growth in worldwide 100G deployments,” said Tim Jenks, NeoPhotonics Chairman and CEO. “At the same time, we are taking significant actions to address operational and profitability challenges while continuing our focus on key growth markets such as 100G,” continued Mr. Jenks.

    Second Quarter Summary

    Following is a summary of certain key financial measures for the second quarter of 2014.

  • Revenue was $77.5 million, an increase of $9.3 million, or 13.6%, from the first quarter of 2014 and up $2.5 million, or 3.3%, from the second quarter of 2013.
  • Gross margin on a GAAP basis was 18.8%, down from 20.2% in the first quarter of 2014, and down from 20.8% in the second quarter of 2013.
  • Non-GAAP gross margin was 20.8%, down from 22.0% in the first quarter of 2014 and down from 25.1% in the second quarter of 2013.
  • Net loss was $6.8 million, a decrease from a net loss of $12.6 million in the first quarter of 2014 and a decrease from a net loss of $8.3 million in the second quarter of 2013. Net loss in the second quarter of 2014 included an escrow settlement gain of $3.9 million related to the Santur acquisition.
  • Non-GAAP net loss was $7.5 million, a decrease from a net loss of $9.5 million in the first quarter of 2014 and an increase from a net loss of $3.8 million in the second quarter of 2013.
  • Diluted net loss per share was $0.21, a decrease from a diluted net loss per share of $0.40 in the first quarter of 2014 and a decrease from a diluted net loss per share of $0.27 in the second quarter of 2013. Diluted net loss per share in the second quarter of 2014 included a $0.12 benefit from an escrow settlement gain related to the Santur acquisition.
  • Non-GAAP diluted net loss per share was $0.24, a decrease from a diluted net loss per share of $0.30 in the first quarter of 2014 and up from a diluted net loss per share of $0.12 in the second quarter of 2013.
  • Adjusted EBITDA was a loss of $2.6 million, an improvement from a loss of $4.2 million in the first quarter of 2014 and a decrease from $1.4 million positive EBITDA in the second quarter of 2013.

    During the second quarter of 2014, the Company executed an amendment to its term loan agreement with its principal lender in the U.S. that waived the testing of certain financial covenants for compliance, provided the Company maintains restricted cash and investments equal to outstanding amounts under the agreement. At June 30, 2014, the Company reported restricted cash and investments totaling $26.4 million as required under its term loan in the U.S. and under its line of credit facilities in China. On a comparable basis, combined cash, cash equivalents and restricted cash and investments was $54.4 million, down from $64.3 million of cash, cash equivalents, short-term investments and restricted cash at March 31, 2014. Combined notes payable and debt was $48.0 million at June 30, 2014, which is up from $40.8 million at March 31, 2014.

    Non-GAAP and Adjusted EBITDA Measures vs. GAAP Financial Measures

    The Company’s Non-GAAP and Adjusted EBITDA measures exclude certain GAAP financial measures, and 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.

    Outlook for the Third Quarter of 2014 Ending September 30, 2014

    The Company’s outlook for the third quarter of 2014 is:

  • Revenue in the range of $78 million to $82 million;
  • Non-GAAP gross margin in the range of 22% to 26%; and
  • Diluted net loss per share in the range of $0.14 to $0.24, and on a Non-GAAP basis in the range of a net loss of $0.04 to $0.14 per diluted share.

    The Non-GAAP outlook for the third quarter of 2014 excludes approximately $3.3 million of estimated combined expenses related to the expected amortization of intangibles and anticipated impact of stock-based compensation. Of these expenses, $1.2 million is estimated to relate to cost of goods sold.

    Conference Call

    The Company will host a conference call today, August 7, 2014, at 4:30 p.m. Eastern Time (1:30 p.m. Pacific Time). President and Chief Executive Officer, Tim Jenks, and Chief Financial Officer, Ray Wallin, will present an overview of the second quarter 2014 financial results, discuss current business conditions, and respond to questions. The call will be available, live, to interested parties by dialing +1 (888) 438-5535. For international callers, please dial +1 (719) 325-2393. The Conference ID number is 1170196. A live webcast will also be available in the Investors Relations section of NeoPhotonics website at: www.neophotonics.com.

    A replay of the webcast will be available in the Investor Relations section of the Company’s web site 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 photonic integrated circuits, or PIC, based optoelectronic modules and subsystems for bandwidth-intensive, high-speed communications networks. 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 9001:2008 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, and the nature and extent of macro-economic and industry trends. 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: possible reduction in or volatility of customer orders or delays in shipments of products to customers; timing of customer drawdowns of vendor-managed inventory; 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; economic conditions or natural disasters; volatility in utilization of manufacturing operations and other 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; the Company’s reliance on a small number of customers for a substantial portion of its revenues; potential pricing pressure that may arise from changing supply or demand conditions in the industry; the impact of any previous or future acquisitions; challenges involving integration of acquired businesses and utilization of acquired technology, 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, 2013 and the Company’s Quarterly Report on Form 10-Q for the three months ended March 31, 2014. All forward-looking statements are made as of the date of this press release, and the Company disclaims any duty to update such statements.

    © 2014 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,

    2014

      Dec. 31,

    2013

    ASSETS
    Current assets:
    Cash and cash equivalents $ 28,043 $ 57,101
    Short-term investments - 17,916
    Restricted cash and investments 12,386 2,138
    Accounts receivable, net 79,248 64,533
    Inventories 63,992 64,908
    Prepaid expenses and other current assets   13,815     9,977  
    Total current assets 197,484 216,573
    Property, plant and equipment, net 66,038 68,851
    Restricted cash and investments, non-current 14,000 -
    Purchased intangible assets, net 12,956 15,005
    Other long-term assets   1,913     1,798  
    Total assets $ 292,391   $ 302,227  
     
    LIABILITIES AND STOCKHOLDERS' EQUITY
    Current liabilities:
    Accounts payable $ 54,347 $ 48,569
    Notes payable and short-term borrowing 20,086 9,738
    Current portion of long-term debt 10,465 10,325
    Accrued and other current liabilities   18,336     23,643  
    Total current liabilities 103,234 92,275
    Long-term debt, net of current portion 17,465 24,150
    Deferred income tax liabilities 1,221 1,004
    Other noncurrent liabilities   8,121     7,987  
    Total liabilities   130,041     125,416  
     
    Stockholders' equity:
    Common stock 81 79
    Additional paid-in capital 453,087 447,467
    Accumulated other comprehensive income 10,971 11,687
    Accumulated deficit   (301,789 )   (282,422 )
    Total stockholders' equity   162,350     176,811  
    Total liabilities and stockholders' equity $ 292,391   $ 302,227  
    NeoPhotonics Corporation
    Condensed Consolidated Statements of Operations (Unaudited)
    (In thousands, except percentages and per share data)
             
     
    Three Months Ended
    Jun. 30,

    2014

    Mar. 31,

    2014

    Jun. 30,

    2013

     
    Revenue $ 77,451 $ 68,168 $ 74,990
    Cost of goods sold (1)   62,883     54,368     59,389  
    Gross profit 14,568 13,800 15,601
    18.8%20.2%20.8%
    Operating expenses:
    Research and development (1) 12,085 12,056 11,087
    Sales and marketing (1) 3,571 3,411 3,349
    General and administrative (1) 8,193 8,987 7,889
    Amortization of purchased intangible assets 379 379 426
    Escrow settlement gain (3,886 ) - -
    Acquisition-related transaction costs   -     -     681  
    Total operating expenses   20,342     24,833     23,432  
    Loss from operations   (5,774 )   (11,033 )   (7,831 )
     
    Interest income 38 65 72
    Interest expense (311 ) (251 ) (342 )
    Other expense, net   (635 )   (607 )   (273 )
     
    Total interest and other expense, net   (908 )   (793 )   (543 )
     
    Loss before income taxes (6,682 ) (11,826 ) (8,374 )
    (Provision for) benefit from income taxes   (97 )   (762 )   90  
    Net loss $ (6,779 ) $ (12,588 ) $ (8,284 )
    Basic and diluted net loss per share $ (0.21 ) $ (0.40 ) $ (0.27 )
     
    Weighted averages shares used to compute basic and diluted net loss per share   31,790     31,610     30,780  
     
    (1) Includes stock-based compensation expense as follows for the periods presented:
     
    Cost of goods sold $ 455 $ 330 $ 131
    Research and development 408 707 600
    Sales and marketing 587 373 344
    General and administrative   273     491     398  
    Total stock-based compensation expense $ 1,723   $ 1,901   $ 1,473  
    NeoPhotonics Corporation
    Reconciliation of Consolidated GAAP Financial Measures to Non-GAAP Financial Measures (Unaudited)
    (In thousands, except percentages and per share data)
               
    Three Months Ended

    Jun. 30,

    2014

     

    Mar. 31,

    2014

     

    Jun. 30,

    2013

     
     
    NON-GAAP GROSS PROFIT:
    GAAP gross profit $ 14,568 $ 13,800 $ 15,601
    Stock-based compensation expense 455 330 131
    Amortization of purchased intangible assets 714 714 772
    Depreciation of acquisition-related fixed asset step-up 337 122 198
    Amortization of acquisition-related inventory step-up   -     -     2,145  
    Non-GAAP gross profit $ 16,074   $ 14,966   $ 18,847  
    Non-GAAP gross margin (% of revenue)20.8%22.0%25.1%
     

    NON-GAAP NET LOSS:

    GAAP net loss $ (6,779 ) $ (12,588 ) $ (8,284 )
    Stock-based compensation expense 1,723 1,901 1,473
    Amortization of purchased intangible assets 1,093 1,093 1,198
    Depreciation of acquisition-related fixed asset step-up 658 219 318
    Amortization of acquisition-related inventory step-up - - 2,145
    Acquisition-related transaction costs - (7 ) 681
    Escrow settlement gain (3,886 ) - -
    Income tax effect of Non-GAAP adjustments   (298 )   (124 )   (1,377 )
    Non-GAAP net loss $ (7,489 ) $ (9,506 ) $ (3,846 )
     
    ADJUSTED EBITDA:
    GAAP net loss $ (6,779 ) $ (12,588 ) $ (8,284 )
    Stock-based compensation expense 1,723 1,901 1,473
    Amortization of purchased intangible assets 1,093 1,093 1,198
    Depreciation of acquisition-related fixed asset step-up 658 219 318
    Amortization of acquisition-related inventory step-up - - 2,145
    Acquisition-related transaction costs - (7 ) 681
    Escrow settlement gain (3,886 ) - -
    Interest expense, net 273 186 270
    Provision for (benefit from) income taxes 97 762 (90 )
    Depreciation expense   4,187     4,216     3,652  
    Adjusted EBITDA $ (2,634 ) $ (4,218 ) $ 1,363  
     
    BASIC AND DILUTED NET LOSS PER SHARE:
    GAAP basic and diluted net loss per share $ (0.21 ) $ (0.40 ) $ (0.27 )
    Non-GAAP basic and diluted net loss per share $ (0.24 ) $ (0.30 ) $ (0.12 )
     
    SHARES USED TO COMPUTE GAAP and NON-GAAP BASIC AND DILUTED NET LOSS PER SHARE:   31,790     31,610     30,780  





    NeoPhotonics Corporation

    Clyde R. Wallin, Chief Financial Officer

    +1-408-895-6020

    ray.wallin@neophotonics.com

    or

    Sapphire Investor Relations, LLC

    Erica Mannion, Investor Relations

    +1-415-471-2700

    ir@neophotonics.com


    Source: NeoPhotonics Corporation


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