NeoPhotonics' CEO Discusses Q4 2011 Results - Earnings Call Transcript (Prepared Comments)

NeoPhotonics Corporation ( NPTN)

Q4 2011 & Full Year 2011 Earnings Call

February 14, 2012, 5:00 PM ET


Tim Jenks - Chairman, President and CEO

JD Fay – CFO

Erica Mannion - Investor Relations



Welcome to the NeoPhotonics 2011 Fourth Quarter and Year End Conference Call. This call is being webcast live on the event calendar page of the Investor Relations section of NeoPhotonics’ website at This call is property of NeoPhotonics and any recording, reproduction or transmission of this call without the expressed written consent of NeoPhotonics is strictly prohibited. As a reminder, today’s call is being recorded. You may listen to a webcast replay of this call by going to the event calendar page of the Investor Relations section of NeoPhotonics’ website. I would now like to turn the call over to Erica Mannion, Investor Relations for NeoPhotonics.

Erica Mannion

Good afternoon. Thank you for joining us to discuss NeoPhotonics’ financial and operating results for the fourth quarter and full year of 2011. With me today are Tim Jenks, Chairman, President and CEO and JD Fay, CFO.

The call today contains forward-looking statements that involve risks and uncertainties. These include statements related to NeoPhotonics’ business outlook for the quarter ending March 31, 2012, future periods and industry trends, as well as forward-looking statements that we may make in response to questions. Forward-looking statements are generally indicated by words such as “would”, “believe”, “should”, “expect”, “outlook”, “estimate,” “anticipate”, “forecast” and similar expressions that look toward future events or performance.

Actual results may differ materially from forward-looking statements. Factors that could cause results to differ materially from these statements include those described in today’s press release as well as those detailed in the section entitled "Risk Factors" of the company’s Quarterly Report on Form 10-Q most recently filed with the SEC. NeoPhotonics cautions you not to place undue reliance on forward-looking statements, and that these statements speak only as of the date they are made.

In addition, non-GAAP financial measures will be discussed today. Please visit the Investor Relations section of the NeoPhotonics Web site for a copy of the company’s press release, which contains an explanation of these non-GAAP financial measures as well as a reconciliation to the comparable GAAP measures.

NeoPhotonics will be presenting at the 24th Annual Roth Conference in Laguna Niguel, California on March 12th, and at the Harris & Harris “Meet the Portfolio Day” in New York City on March 13th.

Now, I will turn the call over to Tim Jenks, CEO of NeoPhotonics.


Tim Jenks

Thank you for joining us today.

I will provide a financial and business update, discuss progress in our business, update you on our acquisition of Santur Corporation, which we completed during the fourth quarter, and then talk about what we are seeing in the industry as a whole.

NeoPhotonics delivered record revenue for the fourth quarter of 2011 at $57.2 million, significantly above our projected range of $45-$50 million provided in our third quarter conference call. We experienced increased demand across most of our business and in fact, some areas saw demand considerably strengthened. Moreover for NeoPhotonics, as a vertically integrated supplier of optical modules and subsystems, we are not at all dependent on partners in Thailand for any part of our supply chain. Thus, we represent an independent supply chain to our customers, and the flooding in Thailand did not have any direct adverse impact on our ability to produce products. Instead of seeing an anticipated slowing with our customers due to their other suppliers being impacted by flooding in Thailand, we experienced an increase in demand from some customers seeking additional supply. This incrementally positive effect was more notable for 10G products and tunable laser products, both of which are in our Speed and Agility product group. Further, demand from our largest customer was relatively strong in the fourth quarter and well above third quarter demand, though as is often the case this demand was not flat across the quarter, but was stronger in the latter part of the quarter.

We delivered Non-GAAP gross margin above our projected range. Non-GAAP gross margin was 23.5% in the fourth quarter, compared to our projected range of 19-21% following the Santur acquisition and inclusive of the effects of annual price negotiations that were completed during the fourth quarter. Reflecting our higher revenue and higher than expected margin, and inclusive of our “delta” research and development investment we started in the third quarter, we reported Non-GAAP loss per share from continuing operations of $0.26 compared to our projected range of a loss of $0.30 to $0.40.

Broadly speaking, NeoPhotonics’ core business is in providing photonic integrated circuit, or PIC, based modules and subsystems for bandwidth-intensive, high-speed communications networks. Our products enable cost-effective, high-speed data transmission and efficient allocation of bandwidth over these networks. We sell our products to the leading network equipment vendors globally.

I’d like to begin our business discussion with an overview of our relationship with Huawei Technologies. As many of you know, Huawei is our largest customer and is among the top providers of optical network equipment globally. We sell Huawei approximately 100 different products – more than half of our 41 product families, inclusive of our newly-acquired former Santur products. We are one of Huawei’s select “core partners.” During the fourth quarter, Huawei presented us with its prestigious Golden Award as an “Excellent Core Partner” for our contributions as a supplier of innovative technology, high-quality and on-time delivery of optical modules and subsystems for high-speed, agile and access communications networks. We are proud that NeoPhotonics has been critical to some of the success of Huawei just as Huawei has been pivotal in the success of NeoPhotonics. I believe that the Golden Award from Huawei is a testament to our innovative and high-quality products and high-volume manufacturing capabilities.

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