New Focus Announces Second Quarter 2003 Financial Results
Wednesday July 30, 4:17 pm ET
Company Reports Comparable Non-GAAP Net Loss on Slightly Higher Net Revenues, Lower Spending Offsets Anticipated Gross Margin Decline
SAN JOSE, Calif.--(BUSINESS WIRE)--July 30, 2003-- New Focus, Inc., (Nasdaq:NUFO - News), a leading provider of photonics and microwave solutions, today announced financial results for its second quarter ended June 29, 2003. The company reported that its non-GAAP net loss remained flat between the first and second quarters of 2003 on a slight increase in net revenues. Net revenues and net loss for the second quarter were within the company's non-GAAP financial guidance provided in April 2003. The non-GAAP operating cash outflow for the second quarter was better than the company's guidance. In line with this guidance, the company's gross margin percentage for the second quarter declined sequentially into the mid to high teens. Lower operating expenses, however, offset this gross margin decline, thus allowing the company's non-GAAP net loss to remain unchanged on a sequential basis.
Second Quarter Review:
GAAP Net Revenues:
Net revenues for the second quarter of 2003 were $6.3 million, up from $6.1 million in the first quarter of 2003 and down from $9.1 million in the second quarter of 2002. The company's guidance for second quarter net revenues was $6.0-7.0 million.
GAAP Net Loss:
Based on results prepared in accordance with generally accepted accounting principles, the company recorded a net loss for the second quarter of 2003 of $7.2 million, or $0.11 per share based on 63.3 million basic shares outstanding. The second quarter 2003 net loss included $2.1 million for impairment charges, $0.2 million for amortization of acquired intangibles, and $0.5 million for deferred stock compensation. The impairment charges included a $1.6 million downward adjustment in the carrying value of the company's unused China manufacturing facility and a $0.4 million charge attributable to the recent closure of the company's product development site in Wisconsin. The company previously impaired the value of its China facility in the first quarter of 2002 in conjunction with the decision to exit its passive optical components business. The additional $1.6 million impairment charge is based upon market conditions for real estate in the Shenzhen area of southern China.
For the first quarter of 2003 the net loss was $5.1 million, or $0.08 per share based on 63.9 million basic shares outstanding. The first quarter net loss included minimal restructuring and impairment charges, $0.2 million for amortization of acquired intangibles, and $0.5 million for deferred stock compensation.
For the second quarter of 2002 the company reported a net profit of $5.3 million, or $0.07 per share based on 76.6 million diluted shares outstanding. Diluted shares included 1.0 million option shares based on the treasury stock method. The company's second quarter 2002 results included a gain of $41.5 million from sales of the company's network tunable technology to Intel and passive optical component product line to Finisar. Second quarter 2002 results also included $19.3 million for restructuring and impairment charges, $1.3 million for amortization of acquired intangibles, and $1.0 million for deferred stock compensation.
Use and Composition of Non-GAAP Financial Information:
To supplement the company's consolidated financial statements presented in accordance with GAAP, New Focus uses non-GAAP measures for net loss, net loss per share and operating cash flow, which are adjusted from results based on GAAP as outlined below. During 2001 and 2002 the company engaged in significant restructuring activities and the company's GAAP financial statements during these periods reflected significant charges associated with these activities. The company's 2003 financial results include adjustments to previous restructuring charges but these adjustments have so far had a minimal impact on the current year's results. Additionally, all periods include charges for the amortization of acquired intangibles and deferred compensation. The company's non-GAAP adjustments are provided to enhance the user's overall understanding of the current operating and cash flow performance of our core operations. Since we have historically reported non-GAAP results to the investment community, we believe that the inclusion of non-GAAP numbers provides consistency in the company's financial reporting. The presentation of this additional information should not be considered in isolation or as a substitute for results prepared in accordance with GAAP.
The company's non-GAAP net losses exclude charges for restructuring activities, the impairment of goodwill and other acquired intangibles, the impairment of tangible assets, the amortization of acquired intangibles and deferred compensation, the write-off of acquired in-process R&D, gains on the divestiture of product lines and product technologies, and the income tax effects related to these items. Non-GAAP net losses also exclude charges related to impairment of investments associated with restructuring activities that may not be repetitive in nature. Non-GAAP net losses include amounts for net interest income, net other income/expense, and tax provisions. The company also reports a non-GAAP measure of operating cash flow that excludes net cash used in restructuring activities from the net cash used in operating activities measured in accordance with GAAP. Reconciliations between the associated GAAP and non-GAAP financial measures are provided in the financial tables accompanying this press release.
Non-GAAP Net Loss Results:
The non-GAAP net loss in the second quarter of 2003 was $4.4 million, or $0.07 per share based on 63.3 million basic shares outstanding. Relative to the GAAP net loss for this same quarter, the non-GAAP net loss excluded $2.8 million from operating expenses. The company's guidance for the second quarter non-GAAP net loss was $4.0-5.0 million, or $0.06-0.08 per share.
The non-GAAP net loss in the first quarter of 2003 was $4.4 million, or $0.07 per share based on 63.9 million basic shares outstanding. Relative to the GAAP net loss for this same quarter, the non-GAAP net loss excluded $0.7 million from operating expenses.
The non-GAAP net loss in the second quarter of 2002 was $14.5 million, or $0.19 per share based on 75.6 million basic shares outstanding. Relative to the GAAP net profit for this same quarter, the non-GAAP net loss excluded $21.6 million from operating expenses and $41.5 million from other income.
Commentary on Second Quarter 2003 Results:
"Our second quarter financial results tracked our guidance for the quarter. Net revenues increased slightly between the first and second quarters of 2003 as market conditions in our product sectors continued to remain sluggish. As expected, our gross margin percentage declined sequentially due to anticipated product mix shifts and certain short-term unfavorable material cost effects. The gross margin percentage for the second quarter was 17.1%, down from 21.3% in the first quarter of 2003. Tight controls on our spending, however, allowed us to completely offset this sequential gross margin decline. As a result, our non-GAAP net loss of $4.4 million for the second quarter was identical to the first quarter's non-GAAP net loss. From a cash flow standpoint, our non-GAAP operating cash outflow for the second quarter was $4.2 million, which matched the non-GAAP operating cash outflow for the first quarter of this year. This result was better than our guidance that estimated an operating cash outflow of $4.5-6.0 million for the second quarter," said Nic Pignati, chairman, president and chief executive officer of New Focus, Inc.
The company's expense structure, defined as non-GAAP operating expenses plus manufacturing spending, declined to $8.7 million in the second quarter of 2003 from $9.2 million in the first quarter of 2003. Manufacturing spending remained unchanged between the first and second quarters of 2003 at $2.3 million, while non-GAAP operating expenses decreased from $6.9 million in the first quarter to $6.4 million in the second quarter of 2003. Operating expenses for the first quarter of 2003 included $0.9 million for professional services related to a potential acquisition that was terminated. Spending in the first quarter also included reduced payroll expenses associated with a scheduled three-day shutdown of the company's operations at the beginning of the first quarter.
The company's cash and short-term investments stood at $251.9 million at the end of the second quarter of 2003, sequentially down $5.7 million from $257.6 million at the end of the first quarter. This decline included cash outflows of $1.6 million related to restructuring activities. The company's cash value per share at the end of the second quarter was $3.95, down from $4.05 at the end of first quarter of 2003.
Business Outlook:
"As evidenced by our second quarter results, market conditions within the research and semiconductor capital equipment markets have yet to show any solid signs of recovery and we expect that this market sluggishness will persist throughout the third quarter of 2003. To position us for a recovery of our markets, we are expanding our catalog offerings and pursuing OEM opportunities for our photonics products. We continue to receive design-in awards from various OEM customers, but current market conditions are limiting the near-term revenue opportunities from these wins. On the other hand, demand for our RF microwave amplifiers continues to expand at a steady pace. As a result of these trends, we expect to see only modest improvement in our product revenues between the second and third quarters of 2003. In addition to our product revenues, we expect to record in the third quarter $1.4 million in revenue for product royalties arising from the sale of our passive optical component line to Finisar last year. On an overall basis including royalty revenue, we expect that our third quarter net revenues will be in the range of $7.5-8.0 million," said Pignati.
"We expect that our gross margin percentage related to product revenues in the third quarter will remain relatively flat, or improve slightly, over the 17.1% reported in the second quarter. While we have taken actions to mitigate certain unfavorable material cost effects, these unfavorable effects will not be completely eliminated until the fourth quarter of 2003. Our overall gross margin percentage for the third quarter, including the positive effect of royalty revenues, should exceed 30%. In regard to our spending levels, non-GAAP operating expenses for the third quarter will likely be slightly below the $6.4 million in non-GAAP operating expenses for the second quarter. As a result, we expect that our non-GAAP net loss for the third quarter will be in the range of $2.5-3.5 million, or $0.04-0.06 per share based on approximately 63.5 million basic shares outstanding. Our third quarter GAAP net loss will be higher than this non-GAAP net loss by approximately $0.8 million due to anticipated expenses for restructuring and impairment activities, amortization of intangibles, and deferred compensation," said Pignati.
Based on this outlook for net revenues and non-GAAP net loss as well as the timing for certain payments, the company is targeting a non-GAAP operating cash outflow for the third quarter of approximately $3.0-4.0 million. Achievement of this goal remains highly dependent on the realization of planned expenses, the attainment of planned revenue, and the actual timing of cash inflows and outflows. Cash outflows associated with restructuring activities, which we expect to be approximately $2.0 million in the third quarter, are not included in the non-GAAP operating cash flow estimate for the third quarter.
"In order to improve our gross margin performance, we will continue to focus attention on our manufacturing efficiencies. We will also continue to challenge our overall expense structure during 2003. As one step in this direction, we closed our Wisconsin product development site last week. In addition to the $0.4 million impairment charge recorded in the second quarter, we will record restructuring charges of approximately $0.2 million in our third quarter GAAP results associated with this action. Our near-term goal is to minimize our quarterly net loss and cash burn rates as we wait for the recovery in our served markets. We will also continue to evaluate the advantages of possible business combinations from a strategic perspective," said Pignati.
Forward-Looking Statements:
This press release, and in particular the material in the section labeled "Business Outlook," contains predictions, estimates and other forward-looking statements regarding the general trends in the company's fiscal 2003 quarterly revenues, gross margins and spending rates, the revenue outlook for the third quarter of 2003, the product and overall gross margin percentages for the third quarter of 2003, operating expenses for the third quarter of 2003, the projected non-GAAP net loss for the third quarter of 2003, the projected non-GAAP cash outflow for the third quarter of 2003, projected restructuring expenses in the third quarter of 2003, and the projected steady increase in demand for our RF microwave amplifiers. These statements are subject to risks and uncertainties and actual results may differ materially from any future performance suggested. The risks and uncertainties include the difficulty of forecasting anticipated revenues due to weakness and uncertainties related to general economic conditions and overall demand within the company's markets and among its current and prospective customers; the high sensitivity of the size of the company's net loss to its level of revenue due to the company's fixed cost structure arising from the complexity of its business; the ability to improve margin performance through more efficient use of direct labor and direct material as well as better absorption of manufacturing overhead; the difficulty of achieving further cost reductions without jeopardizing product development schedules, delivery schedules, product quality, and regulatory compliance; and the ability to successfully develop and introduce new products. Additionally, if we cannot expand our business through organic growth and/or strategic business combinations, we will be unable to achieve profitability, measured on a non-GAAP basis, in a timely manner.
Other risk factors that may affect the company's financial performance are listed in the company's various reports on file with the SEC, including its fiscal year 2002 annual report on Form 10-K and its quarterly report on Form 10-Q for the first quarter of 2003. New Focus undertakes no obligation to publicly release any revisions to these forward-looking statements, which may be made to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events.
About New Focus:
New Focus develops and manufactures innovative photonics and microwave solutions for the semiconductor, industrial, defense and telecommunications markets. New Focus' product portfolio includes tunable lasers for test and measurement applications, advanced photonics tools, and high-speed RF microwave amplifiers. Founded in 1990, the company remains a leader in the development of advanced optical products for the commercial and research marketplaces. The company is headquartered in San Jose, California.
For more information about New Focus visit the company's Internet home page at newfocus.com, call our Investor Relations Department at 408-919-2736, or e-mail us at investor@newfocus.com.
NEW FOCUS, INC.
GAAP Condensed Consolidated Statements of Operations
(In thousands, except per share data)
(Unaudited)
Three Months Ended Six Months Ended
-------------------------- -------------------
Jun 29, Mar 30, Jun 30, Jun 29, Jun 30,
2003 2003 2002 2003 2002
----------------------------------------------
Net revenues $6,251 $6,138 $9,114 $12,389 $19,210
Cost of net revenues 5,184 4,833 12,899 10,017 26,820
-------- -------- -------- --------- ---------
Gross profit (loss) 1,067 1,305 (3,785) 2,372 (7,610)
17.1% 21.3% (41.5)% 19.1% (39.6)%
Operating expenses:
Research and
development, net 2,355 2,171 6,517 4,526 13,879
Sales and marketing 1,504 1,520 2,312 3,024 4,890
General and
administrative 2,572 3,177 4,289 5,749 8,191
Amortization of
goodwill and other
intangibles 173 173 1,323 346 2,669
Impairment of goodwill
and other intangibles -- -- 7,692 -- 7,692
Restructuring and
impairment charges 2,118 36 11,596 2,154 35,618
Amortization of
deferred compensation 476 527 1,032 1,003 4,474
-------- -------- -------- --------- ---------
Total operating
expenses 9,198 7,604 34,761 16,802 77,413
-------- -------- -------- --------- ---------
Operating loss (8,131) (6,299) (38,546) (14,430) (85,023)
(130.1)% (102.6)% (422.9)% (116.5)% (442.6)%
Interest income, net 937 1,182 2,291 2,119 4,820
Other income, net 11 19 41,594 30 41,562
-------- -------- -------- --------- ---------
Income (loss) before
provision for income
taxes (7,183) (5,098) 5,339 (12,281) (38,641)
Provision for income
taxes -- -- -- -- --
-------- -------- -------- --------- ---------
Net income (loss) $(7,183) $(5,098) $5,339 $(12,281) $(38,641)
======== ======== ======== ========= =========
(114.9)% (83.1)% 58.6% (99.1)% (201.2)%
Basic and diluted net
income (loss) per
share $(0.11) $(0.08) $0.07 $(0.19) $(0.51)
======== ======== ======== ========= =========
Shares used to compute
basic net income (loss)
per share 63,262 63,928 75,608 63,594 75,463
======== ======== ======== ========= =========
Shares used to compute
diluted net income
(loss) per share 63,262 63,928 76,627 63,594 75,463
======== ======== ======== ========= =========
NEW FOCUS, INC.
Non-GAAP Condensed Consolidated Statements of Operations
(In thousands, except per share data)
(Unaudited)
Three Months Ended Six Months Ended
--------------------------- -------------------
Jun 29, Mar 30, Jun 30, Jun 29, Jun 30,
2003 2003 2002 2003 2002
-----------------------------------------------
Net revenues $ 6,251 $ 6,138 $ 9,114 $12,389 $ 19,210
Cost of net revenues 5,184 4,833 12,899 10,017 26,820
-------- -------- --------- --------- ---------
Gross profit (loss) 1,067 1,305 (3,785) 2,372 (7,610)
17.1% 21.3% (41.5)% 19.1% (39.6)%
Operating expenses:
Research and
development, net 2,355 2,171 6,517 4,526 13,879
Sales and marketing 1,504 1,520 2,312 3,024 4,890
General and
administrative 2,572 3,177 4,289 5,749 8,191
-------- -------- --------- --------- ---------
Total operating
expenses 6,431 6,868 13,118 13,299 26,960
-------- -------- --------- --------- ---------
Operating loss (5,364) (5,563) (16,903) (10,927) (34,570)
(85.8)% (90.6)% (185.5)% (88.2)% (180.0)%
Interest income, net 937 1,182 2,291 2,119 4,820
Other income, net 11 19 62 30 30
-------- -------- --------- --------- ---------
Loss before provision
for income taxes (4,416) (4,362) (14,550) (8,778) (29,720)
Provision for income
taxes -- -- -- -- --
-------- -------- --------- --------- ---------
Non-GAAP net loss $(4,416) $(4,362) $(14,550) $(8,778) $(29,720)
======== ======== ========= ========= =========
(70.6)% (71.1)% (159.6)% (70.9)% (154.7)%
Basic and diluted net
loss per share $ (0.07) $ (0.07) $ (0.19) $(0.14) $ (0.39)
======== ======== ========= ========= =========
Shares used to compute
basic and diluted net
loss per share 63,262 63,928 75,608 63,594 75,463
======== ======== ========= ========= =========
Reconciliation of
Non-GAAP net loss to
GAAP net loss:
Non-GAAP net loss $(4,416) $(4,362) $(14,550) $(8,778) $(29,720)
Add:
Operating expenses
Amortization of
goodwill and
other intangibles (173) (173) (1,323) (346) (2,669)
Impairment of
goodwill and
other intangibles -- -- (7,692) -- (7,692)
Restructuring and
impairment charges (2,118) (36) (11,596) (2,154) (35,618)
Amortization of
deferred
compensation (476) (527) (1,032) (1,003) (4,474)
Other income, net
Gain from
divestitures -- -- 41,532 -- 41,532
Provision for income
taxes -- -- -- -- --
-------- -------- --------- --------- ---------
GAAP net income
(loss) $(7,183) $(5,098) $5,339 $(12,281) $(38,641)
======== ======== ========= ========= =========
Reconciliation of
Non-GAAP other income,
net to GAAP other
income, net:
Non-GAAP other income,
net $11 $19 $62 $30 $30
Gain on divestiture -- -- 41,532 -- 41,532
-------- -------- --------- --------- ---------
GAAP other income, net $11 $19 $41,594 $30 $41,562
======== ======== ========= ========= =========
NEW FOCUS, INC.
Condensed Consolidated Balance Sheets
(Unaudited, in thousands)
Jun 29, Dec 29,
2003 2002
--------- ---------
ASSETS
Current Assets:
Cash, cash equivalents and
short-term investments $251,900 $279,358
Trade accounts receivable, net 2,561 3,048
Inventories 3,326 3,122
Other current assets 3,374 3,480
--------- ---------
Total current assets 261,161 289,008
Asset held for sale, net 13,757 15,675
Property and equipment, net 5,393 7,392
Intangibles, net 1,048 1,394
Other assets 3,879 3,895
--------- ---------
Total assets $285,238 $317,364
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 1,301 $ 1,522
Accrued expenses 6,144 7,453
Restructuring liabilities 6,205 6,534
--------- ---------
Total current liabilities 13,650 15,509
Long-term portion of restructuring
accrual 12,148 14,854
Deferred rent 440 447
Stockholders' equity 259,000 286,554
--------- ---------
Total liabilities and
stockholders' equity $285,238 $317,364
========= =========
NEW FOCUS, INC.
Condensed Consolidated Statements of Cash Flow
(In thousands)
(Unaudited)
Three Months Ended Six Months Ended
-------------------- ------------------
Jun 29, Mar 30, Jun 29,
2003 2003 2003
--------- --------- ---------
Operating Activities
GAAP Net Loss $(7,183) $(5,098) $(12,281)
Adjustments to reconcile
net loss to net cash used
in operating activities:
Depreciation and
amortization 696 717 1,413
Restructuring and
impairment charges 2,009 74 2,083
Amortization of goodwill
and other intangibles 173 173 346
Amortization of deferred
compensation 476 527 1,003
Other non-cash changes (9) 2 (7)
Net change in operating
assets and liabilities (2,022) (1,932) (3,954)
--------- --------- ---------
Net cash used in
operating activities (5,860) (5,537) (11,397)
Investing Activities
Net sales of
available-for-sale
investments 28,089 9,691 37,780
Acquisition of property,
plant and equipment (121) (59) (180)
Proceeds from sales of
property, plant and
equipment 379 -- 379
Change in investments and
other assets (14) 30 16
--------- --------- ---------
Net cash provided by
investing activities 28,333 9,662 37,995
Financing Activities
Proceeds from issuance of
common stock 62 574 636
Repurchase of common stock
in the open market -- (16,595) (16,595)
--------- --------- ---------
Net cash provided by
(used in) financing
activities 62 (16,021) (15,959)
--------- --------- ---------
Increase (decrease) in cash
and cash equivalents 22,535 (11,896) 10,639
Cash and cash equivalents
at beginning of period 166,534 178,430 178,430
--------- --------- ---------
Cash and cash equivalents
at end of period $189,069 $166,534 $189,069
========= ========= =========
Reconciliation of GAAP net
cash used in operating
activities to Non-GAAP net
cash used in operating
activities:
GAAP net cash used in
operating activities $ (5,860) $ (5,537) (11,397)
Restructuring liabilities
at end of the period 18,353 19,888 18,353
Minus: Restructuring and
impairment charges
reflected in the P&L 2,118 36 2,154
Plus: Non-cash
restructuring and
impairment charges 2,009 74 2,083
Plus: In-kind reduction in
restructuring
liabilities -- 168 168
Minus: Restructuring
liabilities at
beginning of the
period 19,888 21,388 21,388
--------- --------- ---------
Net cash used in
restructuring
activities (1,644) (1,294) (2,938)
--------- --------- ---------
Non-GAAP net cash used
in operating activities $ (4,216) $ (4,243) $ (8,459)
========= ========= =========
Contact:
New Focus, Inc.
William L. Potts, Jr., 408-919-5384 (CFO)
Source: New Focus, Inc. |
