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NeoPhotonics Reports Third Quarter 2012 Financial Results Including Record Quarterly Revenue

Use of Non-GAAP Financial Information

The Company provides Non-GAAP gross margin, Non-GAAP net income (loss), Non-GAAP diluted net income (loss) per share and adjusted EBITDA, as supplemental information. In computing certain of these Non-GAAP financial measures, the company excludes certain items included under GAAP, including stock-based compensation expense, amortization of purchased intangible assets, amortization of acquisition-related fixed asset set-up, acquisition-related costs, restructuring charges, fair value adjustment to contingent consideration, and the related tax effects of Non-GAAP adjustments. In computing adjusted EBITDA, the company also excludes interest income and expense, provision for income taxes and depreciation expense.

Management uses these Non-GAAP financial measures to evaluate the operating performance of the business and aid in the period-to-period comparability. Management also uses the Non-GAAP financial measures for planning and forecasting and measuring results against its forecast. Using several measures to evaluate the business allows the company and investors to assess the company’s relative performance and ultimately monitor the company’s capacity to generate returns for its stockholders. The Non-GAAP financial measures provided herein may not provide information that is directly comparable to that provided by other companies in the company’s industry, as other companies may calculate such financial results differently. The company’s Non-GAAP financial measures are not measurements of financial performance under GAAP, and should not be considered as alternatives to the financial measures derived in accordance with GAAP. The company does not consider these Non-GAAP financial measures to be a substitute for, or superior to, the information provided by GAAP financial results. A reconciliation of the Non-GAAP financial measures to the most directly comparable GAAP financial measures is provided in the financial schedules portion of this press release.
 
NeoPhotonics Corporation
Consolidated Statements of Operations (Unaudited)
(In thousands, except percentages, share and per share data)
     
Three Months Ended
Sep. 30, Jun. 30, Sep. 30,
  2012     2012     2011  
 
Revenue $ 66,152 $ 63,025 $ 42,848
Cost of goods sold (1)   45,536     47,420     30,827  
Gross profit 20,616 15,605 12,021
31.2 % 24.8 % 28.1 %
Operating expenses:
Research and development (1) 9,893 9,322 7,059
Sales and marketing (1) 3,354 3,406 3,103
General and administrative (1) 6,770 6,721 5,877
Amortization of purchased intangible assets 321 321 104
Adjustment to fair value of contingent consideration   (850 )   (1,303 )   -  
Total operating expenses   19,488     18,467     16,143  
Income (loss) from operations   1,128     (2,862 )   (4,122 )
 
Interest income 147 145 76
Interest expense (135 ) (145 ) (52 )
Other income (expense), net   154     (417 )   191  
 
Total interest and other income (expense), net   166     (417 )   215  
 
Income (loss) before income taxes 1,294 (3,279 ) (3,907 )
Provision for income taxes   (571 )   (377 )   (258 )
Income (loss) from continuing operations 723 (3,656 ) (4,165 )
Income from discontinued operations, net of tax   -     -     75  
Net income (loss) $ 723   $ (3,656 ) $ (4,090 )
 
Net income (loss) per share—Basic:
Continuing operations $ 0.02   $ (0.13 ) $ (0.17 )
Discontinued operations $ -   $ -   $ 0.00  
Net income (loss) $ 0.02   $ (0.13 ) $ (0.17 )
 
Net income (loss) per share—Diluted:
Continuing operations $ 0.02   $ (0.13 ) $ (0.17 )
Discontinued operations $ -   $ -   $ 0.00  
Net income (loss) $ 0.02   $ (0.13 ) $ (0.17 )
 
Weighted average shares used to compute net income (loss) per share:
Basic   30,215,144     28,402,929     24,744,417  
Diluted   30,611,304     28,402,929     24,744,417  
 
(1) Includes stock-based compensation expense (credit) as follows for the periods presented:
Cost of goods sold $ 228 $ 136 $ (133 )
Research and development 404 395 216
Sales and marketing 242 205 173
General and administrative   408     273     224  
Total stock-based compensation expense $ 1,282   $ 1,009   $ 480  
 
 
NeoPhotonics Corporation
Consolidated Balance Sheets (Unaudited)
(In thousands)
   
As of
Sep. 30, Dec. 31,
2012 2011
ASSETS
Current assets:
Cash, cash equivalents and short-term investments $ 105,875 $ 86,384
Restricted cash 2,739 3,227
Accounts receivable, net 68,816 68,877
Inventories 44,092 35,341
Prepaid expenses and other current assets 7,927 5,882
Current assets held-for-sale   -     1,687  
 
Total current assets 229,449 201,398
 
Long-term investments 162 92
Property, plant and equipment, net 54,016 56,344
Other intangible assets, net 15,148 17,999
Other long-term assets 1,043 1,049
Long-term assets held-for-sale   -     167  
 
Total assets $ 299,818   $ 277,049  
 
LIABILITIES, REDEEMABLE COMMON STOCK AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 37,683 $ 37,599
Notes payable 11,098 14,620
Current portion of long-term debt 5,000 5,000
Accrued and other current liabilities 22,323 18,299
Current liabilities held-for-sale   -     1,681  
 
Total current liabilities 76,104 77,199
 
Long-term debt, net of current portion 18,417 22,166
Deferred income tax liabilities 650 927
Other noncurrent liabilities   1,720     3,103  
 
Total liabilities   96,891     103,395  
 
Redeemable common stock 5,000 -
 
Stockholders' equity:
Common stock 76 62
Additional paid-in capital 431,730 392,792
Accumulated other comprehensive income 11,215 11,353
Accumulated deficit   (245,094 )   (230,553 )
Total stockholders' equity   197,927     173,654  
 
Total liabilities, redeemable common stock and stockholders' equity $ 299,818   $ 277,049  
 
 
NeoPhotonics Corporation
Reconciliation of Consolidated GAAP Financial Measures to Non-GAAP Financial Measures (Unaudited)
(In thousands, except percentages, share and per share data)
     
Three Months Ended
Sep. 30, Jun. 30, Sep. 30,
  2012     2012     2011  
 
NON-GAAP GROSS PROFIT:
GAAP gross profit 20,616 15,605 12,021
Stock-based compensation expense 228 136 (133 )
Amortization of purchased intangible assets 616 616 7
Amortization of acquisition-related fixed asset step-up 243 259 -
Acquisition-related costs   40     70     -  
Non-GAAP gross profit $ 21,743   $ 16,686   $ 11,895  
Non-GAAP gross margin (% of revenue) 32.9 % 26.5 % 27.8 %
 
NON-GAAP INCOME (LOSS) FROM CONTINUING OPERATIONS:
GAAP income (loss) from continuing operations 723 (3,656 ) (4,165 )
Stock-based compensation expense 1,282 1,009 480
Amortization of purchased intangible assets 937 937 111
Amortization of acquisition-related fixed asset step-up 386 420 -
Acquisition-related costs 240 858 336
Restructuring charges 2 27 -
Fair value adjustment to contingent consideration (850 ) (1,303 ) -
Income tax effect of Non-GAAP adjustments   (67 )   (31 )   (6 )
Non-GAAP income (loss) from continuing operations $ 2,653   $ (1,739 ) $ (3,244 )
 
ADJUSTED EBITDA:
GAAP income (loss) from continuing operations 723 (3,656 ) (4,165 )
Stock-based compensation expense 1,282 1,009 480
Amortization of purchased intangible assets 937 937 111
Amortization of acquisition-related fixed asset step-up 386 420 -
Acquisition-related costs 240 858 336
Restructuring charges 2 27 -
Fair value adjustment to contingent consideration (850 ) (1,303 ) -
Interest (income) expense, net (12 ) - (24 )
Provision for income taxes 571 377 258
Depreciation expense   3,151     3,117     2,514  
Adjusted EBITDA $ 6,430   $ 1,786   $ (490 )
 
NON-GAAP DILUTED INCOME (LOSS) PER SHARE FROM CONTINUING OPERATIONS:
GAAP diluted income (loss) per share from continuing operations $ 0.02   $ (0.13 ) $ (0.17 )
 
Non-GAAP diluted income (loss) per share from continuing operations $ 0.08   $ (0.06 ) $ (0.13 )
 
SHARES USED TO COMPUTE NON-GAAP DILUTED INCOME (LOSS) PER SHARE FROM CONTINUING OPERATIONS:
Shares used to compute GAAP diluted income (loss) per share from continuing operations   30,611,304     28,402,929     24,744,417  
Shares used to compute non-GAAP diluted income (loss) per share from continuing operations   31,393,431     28,402,929     24,744,417  

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