NEOPHOTONICS CORP.

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NeoPhotonics Reports Second Quarter 2021 Financial Results

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 second quarter of 2021.

“Building on our strong performance in the second quarter, we see accelerating growth in the back half of the year, driven by the initial ramp of 400ZR and related products adding to our 400G+ suite,” said Tim Jenks, Chairman and CEO of NeoPhotonics. “We are ramping our modules and component level products, including our Nano Tunable Laser, putting us in a good position to return to profitability,” concluded Mr. Jenks.

Second Quarter 2021 Summary

Revenue was $65.0 million, up 7% quarter-over-quarter and down 37% year-over-year
Gross margin was 15.2%, down from 21.9% in the prior quarter
Non-GAAP gross margin was 21.7%, down from 22.4% in the prior quarter
Net loss per share was $0.34, compared to net loss of $0.21 per share in the prior quarter
Non-GAAP net loss per share was $0.22, compared to Non-GAAP net loss of $0.15 per share in the prior quarter
Adjusted EBITDA was negative $5.4 million, down from a negative $0.7 million in the prior quarter

Non-GAAP results in the second quarter of 2021 exclude a $3.3 million end-of-life related inventory write-down, $2.3 million of stock-based compensation and $0.4 million of accelerated depreciation, amortization and other charges. 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 June 30, 2021, cash and cash equivalents, short-term investments and restricted cash totaled $95 million.

Outlook for the Quarter Ending September 30, 2021

	*GAAP*	*Non-GAAP*
*Revenue*	$76 to $84 million
*Gross Margin*	24% to 29%	25% to 30%
*Operating Expenses*	$26 to $27 million	$23 to $24 million
*Earnings per share*	($0.20) to ($0.10)	($0.10) to $0.00

The non-GAAP outlook for the third quarter of 2021 excludes the expected impact of stock-based compensation expense of approximately $3.3 million, of which $0.7 million is estimated for cost of goods sold, accelerated depreciation and amortization of $0.5 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, Tuesday, August 3, 2021 at 4:30 p.m. EDT (1:30 p.m. PDT). The call will be available, live, to interested partied by dialing 800-437-2398 or +1 313-209-6317. The Conference ID number is 5316525. 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.

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, demand for the Company’s high-speed products, 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; market growth in key countries; possible reduction in or volatility of customer orders or delays in shipments of products to customers; possible disruptions in the supply chain or in demand for the Company’s products; timing of customer drawdowns of vendor-managed inventory; potential governmental trade actions; 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/or the rate at which design wins go into production, and the rate of customer acceptance of new product introductions; potential pricing pressure that may arise from changing conditions in the industry or negotiating leverage of buyers; the discontinuance or end of life of 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; and a decline in general conditions in the telecommunications equipment industry, the cloud and datacenter 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 Reports on Form 10-K for the year ended December 31, 2020. 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
	Jun. 30, 2021			Dec. 31, 2020

ASSETS
Current assets:
Cash and cash equivalents	$	66,836		$	95,117
Short-term investments	27,672			27,669
Restricted cash	495			489
Accounts receivable, net	47,763			45,232
Inventories	44,341			46,901
Prepaid expenses and other current assets	14,307			20,173
Total current assets	201,414			235,581
Property, plant and equipment, net	59,942			66,765
Operating lease right-of-use assets	14,452			13,823
Purchased intangible assets, net	1,139			1,468
Goodwill	1,115			1,115
Other long-term assets	5,193			4,912
Total assets	$	283,255		$	323,664

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	46,648		$	43,539
Current portion of long-term debt	3,033			3,232
Accrued and other current liabilities	25,461			42,053
Total current liabilities	75,142			88,824
Long-term debt, net of current portion	27,488			30,327
Operating lease liabilities, noncurrent	14,787			14,522
Other noncurrent liabilities	8,446			9,584
Total liabilities	125,863			143,257

Stockholders’ equity:
Common stock	130			126
Additional paid-in capital	602,877			597,460
Accumulated other comprehensive income	1,423			1,735
Accumulated deficit	(447,038		)	(418,914		)
Total stockholders’ equity	157,392			180,407
Total liabilities and stockholders’ equity	$	283,255		$	323,664

NeoPhotonics Corporation
Condensed Consolidated Statements of Operations (Unaudited)
(In thousands, except percentages and per share data)

	Three Months Ended									Six Months Ended
	Jun. 30, 2021			Mar. 31, 2021			Jun. 30, 2020			Jun. 30, 2021			Jun. 30, 2020
Revenue	$	65,010		$	60,926		$	103,171		$	125,935		$	200,572
Cost of goods sold (1)	55,135			47,587			69,669			102,721			137,344
Gross profit	9,875			13,339			33,502			23,214			63,228
Gross margin	15.2		%	21.9		%	32.5		%	18.4		%	31.5		%
Operating expenses:
Research and development (1)	15,410			13,098			13,689			28,508			25,573
Sales and marketing (1)	3,362			3,865			4,279			7,227			7,938
General and administrative (1)	7,398			7,294			8,803			14,692			15,592
Acquisition and asset sale related costs (recoveries)	(36		)	163			120			127			132
Restructuring charges	22			—			—			22			—
Total operating expenses	26,156			24,420			26,891			50,576			49,235
Income (loss) from operations	(16,281		)	(11,081		)	6,611			(27,362		)	13,993
Interest income	140			105			22			245			120
Interest expense	(220		)	(227		)	(301		)	(447		)	(679		)
Other income (expense), net	(880		)	1,143			(195		)	263			1,003
Total interest and other income (expense), net	(960		)	1,021			(474		)	61			444
Income (loss) before income taxes	(17,241		)	(10,060		)	6,137			(27,301		)	14,437
Income tax provision	(191		)	(632		)	(412		)	(823		)	(2,405		)
Net income (loss)	$	(17,432	)	$	(10,692	)	$	5,725		$	(28,124	)	$	12,032
Basic net income (loss) per share	$	(0.34	)	$	(0.21	)	$	0.12		$	(0.55	)	$	0.25
Diluted net income (loss) per share	$	(0.34	)	$	(0.21	)	$	0.11		$	(0.55	)	$	0.24
Weighted average shares used to compute basic net income (loss) per share	51,634			50,717			49,077			51,178			48,846
Weighted average shares used to compute diluted net income (loss) per share	51,634			50,717			51,661			51,178			51,124

(1) Includes stock-based compensation expense as follows for the periods presented:
Cost of goods sold	$	572		$	548		$	621		$	1,120		$	1,158
Research and development	744			862			999			1,606			1,757
Sales and marketing	261			554			738			815			1,268
General and administrative	763			1,313			1,429			2,076			2,122
Total stock-based compensation expense	$	2,340		$	3,277		$	3,787		$	5,617		$	6,305

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									Six Months Ended
	Jun. 30, 2021			Mar. 31, 2021			Jun. 30, 2020			Jun. 30, 2021			Jun. 30, 2020
NON-GAAP GROSS PROFIT:
GAAP gross profit	$	9,875		$	13,339		$	33,502		$	23,214		$	63,228
Stock-based compensation expense	572			548			621			1,120			1,158
Amortization of purchased intangible assets	153			185			184			338			368
Depreciation of acquisition-related fixed asset step-up	3			(6		)	(8		)	(3		)	(20		)
End-of-life related inventory write-down (sell-through)	3,257			(577		)	—			2,680			—
Accelerated depreciation	157			174			—			331			—
Restructuring charges	113			—			—			113			—
Non-GAAP gross profit	$	14,130		$	13,663		$	34,299		$	27,793		$	64,734
Non-GAAP gross margin as a % of revenue	21.7		%	22.4		%	33.2		%	22.1		%	32.3		%

NON-GAAP TOTAL OPERATING EXPENSES:
GAAP total operating expenses	$	26,156		$	24,420		$	26,891		$	50,576		$	49,235
Stock-based compensation expense	(1,768		)	(2,729		)	(3,166		)	(4,497		)	(5,147		)
Depreciation of acquisition-related fixed asset step-up	(21		)	(25		)	(28		)	(46		)	(57		)
Acquisition and asset sale related costs (recoveries)	36			(163		)	(120		)	(127		)	(132		)
Restructuring charges	(22		)	—			—			(22		)	—
Non-GAAP total operating expenses	$	24,381		$	21,503		$	23,577		$	45,884		$	43,899
Non-GAAP total operating expenses as a % of revenue	37.5		%	35.3		%	22.9		%	36.4		%	21.9		%

NON-GAAP OPERATING INCOME (LOSS):
GAAP income (loss) from operations	$	(16,281	)	$	(11,081	)	$	6,661		$	(27,362	)	$	13,993
Stock-based compensation expense	2,340			3,277			3,787			5,617			6,305
Amortization of purchased intangible assets	153			185			184			338			368
Depreciation of acquisition-related fixed asset step-up	24			19			20			43			37
Acquisition and asset sale related costs (recoveries)	(36		)	163			120			127			132
End-of-life related inventory write-down (sell-through)	3,257			(577		)	—			2,680			—
Accelerated depreciation	157			174			—			331			—
Restructuring charges	135			—			—			135			—
Non-GAAP income (loss) from operations	$	(10,251	)	$	(7,840	)	$	10,772		$	(18,091	)	$	20,835
Non-GAAP operating margin as a % of revenue	(15.8		)%	(12.9		)%	10.4		%	(14.4		)%	10.4		%

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									Six Months Ended
	Jun. 30, 2021			Mar. 31, 2021			Jun. 30, 2020			Jun. 30, 2021			Jun. 30, 2020
NON-GAAP NET INCOME (LOSS):
GAAP net income (loss)	$	(17,433	)	$	(10,692	)	$	5,725		$	(28,124	)	$	12,032
Stock-based compensation expense	2,340			3,277			3,787			5,617			6,305
Amortization of purchased intangible assets	153			185			184			338			368
Depreciation of acquisition-related fixed asset step-up	24			19			20			43			37
Acquisition and asset sale related costs (recoveries)	(36		)	163			120			127			132
End-of-life related inventory write-down (sell-through)	3,257			(577		)	—			2,680			—
Accelerated depreciation	157			174			—			331			—
Restructuring charges	135			—			—			135			—
Income tax effect of Non-GAAP adjustments	(17		)	(2		)	(1,160		)	(19		)	(1,134		)
Non-GAAP net income (loss)	$	(11,420	)	$	(7,453	)	$	8,676		$	(18,872	)	$	17,740
Non-GAAP net income (loss) as a % of revenue	(17.6		)%	(12.2		)%	8.4		%	(15.0		)%	8.8		%

ADJUSTED EBITDA:
GAAP net income (loss)	$	(17,433	)	$	(10,692	)	$	5,725		$	(28,124	)	$	12,032
Stock-based compensation expense	2,340			3,277			3,787			5,617			6,305
Amortization of purchased intangible assets	153			185			184			338			368
Depreciation of acquisition-related fixed asset step-up	24			19			20			43			37
Acquisition and asset sale related costs (recoveries)	(36		)	163			120			127			132
End-of-life related inventory write-down (sell-through)	3,257			(577		)	—			2,680			—
Accelerated depreciation	157			174			—			331			—
Restructuring charges	135			—			—			135			—
Interest expense, net	80			122			279			202			559
Income tax provision	191			632			412			823			2,405
Depreciation expense	5,771			6,003			6,414			11,774			12,887
Adjusted EBITDA	$	(5,361	)	$	(694	)	$	16,941		$	(6,054	)	$	34,725
Adjusted EBITDA as a % of revenue	(8.2		)%	(1.1		)%	16.4		%	(4.8		)%	17.3		%

BASIC AND DILUTED NET INCOME (LOSS) PER SHARE:
GAAP basic net income (loss) per share	$	(0.34	)	$	(0.21	)	$	0.12		$	(0.55	)	$	0.25
GAAP diluted net income (loss) per share	$	(0.34	)	$	(0.21	)	$	0.11		$	(0.55	)	$	0.24
Non-GAAP basic net income (loss) per share	$	(0.22	)	$	(0.15	)	$	0.18		$	(0.37	)	$	0.36
Non-GAAP diluted net income (loss) per share	$	(0.22	)	$	(0.15	)	$	0.16		$	(0.37	)	$	0.33

SHARES USED TO COMPUTE GAAP AND NON-GAAP BASIC NET INCOME (LOSS) PER SHARE	51,634			50,717			49,077			51,178			48,846
SHARES USED TO COMPUTE GAAP DILUTED NET INCOME (LOSS) PER SHARE	51,634			50,717			51,661			51,178			51,124
SHARES USED TO COMPUTE NON-GAAP DILUTED NET INCOME (LOSS) PER SHARE	51,634			50,717			54,303			51,178			53,338

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