New Focus Announces Financial Results for its Fourth Quarter and Fiscal Year 2002
Wednesday February 5, 4:17 pm ET
Company Reports Significant Reductions in its Expense Structure and Cash Outflow, Completes Repurchase of $45 Million of its Common Stock
SAN JOSE, Calif.--(BUSINESS WIRE)--Feb. 5, 2003-- New Focus, Inc., (Nasdaq:NUFO - News), a leading provider of photonics and microwave solutions, today announced financial results for its fourth quarter and fiscal year ended December 29, 2002. Net revenue, net loss and net cash outflow for the fourth quarter were within the company's pro forma financial guidance provided in October 2002. Net cash outflow, excluding the effects of restructuring and other non-recurring activities, dropped to approximately $2 million in the fourth quarter due to a 42% sequential reduction in the company's expense structure between the third and fourth quarters of 2002. The company also announced the recent completion of its $45 million share repurchase program, which resulted in the repurchase of 13.1 million common shares between late October 2002 and early February 2003. The company repurchased 8.25 million common shares for $28.5 million before the end of fiscal year 2002. The company's cash value per share increased as a result of these transactions.
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Fourth Quarter Review:
Net revenue for the fourth quarter of 2002 was $7.4 million, up from $6.7 million in the third quarter of 2002 and down from $9.4 million in the fourth quarter of 2001. The company's guidance for fourth quarter net revenue was $7-9 million, including approximately $1 million in revenue attributable to cancellation fees. The actual fourth quarter net revenue from cancellation fees was $1.2 million.
GAAP Results:
Based on results prepared in accordance with generally accepted accounting principles, the company recorded a net loss for the fourth quarter of 2002 of $9.7 million, or $0.13 per share based on 73.5 million basic shares outstanding. The fourth quarter 2002 net loss included minimal restructuring and impairment charges, $0.2 million for amortization of acquired intangibles, and $1.2 million for deferred stock compensation.
For the third quarter of 2002 the net loss was $56.5 million, or $0.74 per share based on 76.1 million basic shares outstanding. The third quarter net loss included $36.6 million for restructuring and impairment charges, $0.2 million for amortization of acquired intangibles, and $2.3 million for deferred stock compensation.
For the fourth quarter of 2001 the net loss was $79.5 million, or $1.07 per share based on 74.0 million basic shares outstanding. The fourth quarter 2001 net loss included $59.7 million for restructuring and impairment charges, $5.3 million for amortization of acquired intangibles, and $5.0 million for deferred stock compensation.
Pro Forma Results:
The pro forma net loss in the fourth quarter of 2002 was $7.6 million, or $0.10 per share based on 73.5 million basic shares outstanding. This pro forma net loss included non-operating charges totaling $3.0 million for losses related to the sale of certain securities and the partial write-down of an investment. Excluding these effects, the net loss for the fourth quarter was $4.6 million, or $0.06 per share. The company's guidance for the fourth quarter pro forma net loss, excluding inventory write-downs, order cancellation fees and one-time adjustments, was $3-5 million, or $0.04-0.07 per share.
In the third quarter of 2002 the pro forma net loss was $17.1 million, or $0.22 per share based on 76.1 million basic shares outstanding. This pro forma net loss included a favorable inventory adjustment of $0.6 million and non-operating charges totaling $6.3 million for the partial write-down of an investment and a note receivable from a former officer. Excluding the net effect of these items, the net loss for the third quarter was $11.4 million, or $0.15 per share.
In the fourth quarter of 2001 the pro forma net loss was $14.7 million, or $0.20 per share based on 74.0 million basic shares outstanding. This pro forma net loss included a charge of $0.2 million for order cancellation fees and a favorable one-time reduction of $1.5 million in company expenses. Excluding these effects, the net loss for the fourth quarter was $16.0 million, or $0.22 per share.
"We realized several important goals in the fourth quarter. First, we reduced our quarterly expense structure, defined as operating expenses plus manufacturing overhead, to our targeted level of $10 million. Our expense structure in the fourth quarter totaled $9.6 million, down sharply from $16.5 million in the third quarter of 2002 due to the consolidation of almost all of our operations into a single facility. Second, cash outflow for the fourth quarter, excluding outflows related to restructuring activities and our share repurchase program as well as inflows from certain non-recurring transactions, was $2.2 million and in line with our guidance for an outflow of $2-4 million. From outflows of over $30 million per quarter in mid-2001 and approximately $10 million per quarter in the first three quarters of 2002, this reduction in our quarterly cash burn rate represents a substantial achievement. Due to solid execution of our restructuring program, New Focus is now firmly positioned to move forward with its operational and strategic plans," said Nic Pignati, chairman, president and chief executive officer of New Focus, Inc.
The company's cash and short-term investments stood at $279.4 million at the end of the fourth quarter of 2002, down $27.8 million from $307.2 million at the end of the third quarter of 2002. During the fourth quarter the company repurchased $28.5 million of its common shares at a discount to the then-existing cash value per share. As a result of these purchases and lower outstanding share count, the company's cash value per share was $4.09 at year-end, up from $4.02 per share at the end of third quarter. Capital expenditures in the fourth quarter of 2002 remained low at $0.2 million.
"Product revenues at $6.2 million declined approximately 7% between the third and fourth quarters, reflecting continuing weakness in our served markets. As expected, we realized $1.2 million in revenue from cancellation fees. In regard to our bottom line performance, our pro forma net loss, measured without inventory and non-operating adjustments, narrowed to $4.6 million in the fourth quarter from $11.4 million in the third quarter. This significant improvement was made possible by the sharp decline in our quarterly expense structure. Additionally, our pro forma gross margin edged into positive territory for the first time since mid-2001, improving to a positive 5.9% from a negative 45.5% in the third quarter of 2002. Our gross margin performance should show further improvement throughout 2003 as we continue to improve manufacturing efficiencies," said Pignati.
Fiscal Year Results:
Net revenue for the twelve months ended December 29, 2002 was $33.4 million, a significant reduction from $92.6 million in net revenue for the twelve months ended December 30, 2001. The decline in net revenue was attributable to the collapse of the telecommunications market and the company's decision to exit certain product lines associated with this industry.
GAAP Results:
Based on results prepared in accordance with generally accepted accounting principles, the net loss for fiscal 2002 was $104.8 million, or $1.40 per share based on 75.1 million basic shares outstanding. The fiscal year 2002 net loss included a gain of $41.3 million from the sale of the company's network tunable technology to Intel and the sale of the company's passive optical component product line to Finisar. The fiscal year net loss also included $79.9 million for restructuring and impairment charges, $3.0 million for amortization of acquired intangibles, and $8.0 million for deferred stock compensation. The restructuring and impairment charges for fiscal 2002 reflected $52.0 million for the impairment of tangible assets, $5.0 for severance payments related to work force reductions, and $22.9 million for facility closure costs.
The net loss for the twelve months of 2001 was $495.4 million, or $6.78 per share based on 73.0 million basic shares outstanding. The fiscal year 2001 net loss included $307.1 million for restructuring and impairment charges, $54.5 million for amortization of acquired intangibles, $13.4 million for the write-off of acquired in-process R&D, and $58.1 million for deferred stock compensation. The restructuring and impairment charges for fiscal 2001 reflected $289.3 million for the impairment of goodwill and other intangible assets, $8.1 million for the impairment of tangible assets, $7.1 million for severance payments related to work force reductions, and $2.6 million for facility closure costs.
The company recently determined that it had overstated deferred stock compensation expenses for prior quarters ended March 31, 2002, June 30, 2002 and September 29, 2002. These overstatements related to the accounting for non-cash deferred stock compensation expenses associated with terminated employees. Compared to the previously reported deferred stock compensation expenses, the adjusted deferred stock compensation expenses were lower by approximately $2.5 million in the first quarter of 2002, $3.1 million in the second quarter of 2002 and $1.0 million in the third quarter of 2002. Relative to previously reported results, the adjusted GAAP net income for the second quarter of 2002 increased and the adjusted GAAP net losses for the first and third quarters of 2002 decreased due to the lower deferred compensation expenses. A reconciliation of the company's results for these periods is provided in the financial statements attached to this release. The company also determined that its deferred stock compensation expenses for the fiscal years ended 2000 and 2001 were overstated but by amounts that were immaterial to the financial results for those periods.
Pro Forma Results:
On a pro forma basis, the net loss for fiscal 2002 was $54.4 million, or $0.72 per share based on 75.1 million basic shares outstanding. This pro forma net loss included charges of $1.6 million for inventory write-downs and $9.3 million for non-operating charges including losses related to the sale of certain securities, partial write-downs of certain investments and partial write-down of a note receivable from a former officer. Excluding these charges, the net loss for fiscal 2002 was $43.5 million, or $0.58 per share, on net revenue of $33.4 million.
The pro forma net loss for the twelve months of 2001 was $83.1 million, or $1.14 per share based on 73.0 million basic shares outstanding. This pro forma net loss included $36.7 million for inventory write-downs and related charges as well as a favorable one-time reduction of $1.5 million in company expenses. Excluding these items, the net loss for fiscal 2001 was $47.9 million, or $0.66 per share, on net revenue of $92.6 million.
Business Outlook:
"Near-term improvement in our financial results remains dependent on general economic conditions and, in particular, a recovery in the research and semiconductor markets. Since these markets remain sluggish, we expect limited improvement in our quarterly revenues during the first half of 2003. We continue to pursue OEM opportunities using our photonics technology and are actively sampling prototype products for different market applications. We are planning for higher quarterly net revenues during the second half of 2003, in part, based upon winning production contracts for some of these new OEM products. Supported by an increasing volume of orders, revenues for our high-speed RF products for defense applications should show gradual improvement during the year. Additionally, any recovery in the research and semiconductor markets in the second half would likely increase revenue from our photonics tools products," said Pignati.
"Despite our belief in these general trends, forecasting financial performance beyond the immediate quarter remains quite difficult. For the first quarter of 2003 we currently expect that net revenue will be in the range of $6-8 million. In the fourth quarter our net revenue, excluding revenue from non-recurring cancellation fees, was $6.2 million. Our expense structure in the first quarter should remain flat, or possibly decline, relative to the $9.6 million spending level of the fourth quarter. At these projected revenue and expense structure levels, our pro forma net loss in the first quarter will likely be $3-5 million, or $0.05-0.08 per share, based on a lower weighted average share count of approximately 64.5 million shares due to our share repurchases," said Pignati.
Based on this outlook for net revenue and net loss, the company is targeting a net cash outflow for the first quarter of approximately $4-6 million. Cash outflows associated with restructuring activities, which should consume approximately $2 million in the first quarter, are not included in this estimate. 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.
"Throughout 2003 we will be striving to improve our operating performance by continuously challenging our expense structure and our manufacturing efficiencies while we aggressively pursue revenue opportunities. Additionally, we continue to look for strategic combinations that will strengthen our position in the application of photonics and microwave technologies," said Pignati.
Composition of Pro Forma Results:
The company's pro forma 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 sale of product lines and product technologies, and the income tax effects related to these items. Pro forma losses, however, include charges related to inventory write-downs, order cancellation charges, relocation expenses and other charges that may not be repetitive in nature. The company separately identifies the magnitude of such charges. Pro forma net losses include amounts for net interest income and tax provisions.
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 first quarter of 2003, the expense structure for the first quarter of 2003, the projected pro forma net loss for the first quarter of 2003, the projected cash outflow for the first quarter of 2003, and the potential for growth in certain of the company's target markets. 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, and the difficulty of achieving further cost reductions without jeopardizing product development schedules, delivery schedules, product quality, and regulatory compliance. Furthermore, any unforeseen delays in the introduction of new products may limit our ability to increase revenues. We also may experience difficulty in gaining customer acceptance of our new products and in generating future revenue from new products commensurate with prior investments in research and development activities. Additionally, if we cannot effectively execute on our expansion into potential new markets and our acquisition and partnering strategies, we will be unable to achieve profitability, measured on a pro forma basis, in a timely manner. In addition, our acquisition and partnering strategy is subject to inherent risks associated with the potential integration of additional operations, the extent of management time and attention required, and related costs and expenses associated with the execution of this strategy.
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 2001 annual report on Form 10-K and its quarterly report on Form 10-Q for the third quarter of fiscal year 2002. 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, RF amplifiers and high speed opto-electronic devices. 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.
Condensed Consolidated Statements of Operations
(In thousands, except per share data)
(Unaudited)
Three Months Ended Twelve months ended
--------------------------------------------------
Dec 29, Sept 29, Dec 30, Dec 29, Dec 30,
2002 2002 2001 2002 2001
--------------------------------------------------
Net revenues $7,435 $6,743 $9,390 $33,388 $92,639
Cost of net
revenues 6,996 9,811 13,331 43,627 112,004
-------- --------- --------- ---------- ----------
Gross profit
(loss) 439 (3,068) (3,941) (10,239) (19,365)
5.9% (45.5)% (42.0)% (30.7)% (20.9)%
Operating
expenses:
Research and
development, net 2,350 4,249 8,172 20,478 48,824
Sales and
marketing 1,500 1,837 2,210 8,227 10,191
General and
administrative 2,682 3,688 3,212 14,561 20,855
Restructuring
charges 18 36,597 11,986 79,925 17,770
Amortization of
acquired
intangibles 162 183 5,305 3,014 67,859
Impairment of
goodwill and
intangibles - - 47,733 - 289,308
Deferred stock
compensation 1,207 2,331 4,985 8,012 58,132
-------- --------- --------- ---------- ----------
7,919 48,885 83,603 134,217 512,939
-------- --------- --------- ---------- ----------
Loss from
operations (7,480) (51,953) (87,544) (144,456) (532,304)
(100.6)% (770.5)% (932.3)% (432.7)% (574.6)%
Interest and other
income (expense),
net (1,536) (4,501) 3,040 40,345 16,880
-------- --------- --------- ---------- ----------
Income (loss) before
provision (benefit)
for income taxes (9,016) (56,454) (84,504) (104,111) (515,424)
Provision (benefit)
for income taxes 700 - (5,000) 700 (20,000)
-------- --------- --------- ---------- ----------
Net income (loss) $(9,716) $(56,454) $(79,504) $(104,811) $(495,424)
======== ========= ========= ========== ==========
(130.7)% (837.2)% (846.7)% (313.9)% (534.8)%
Basic and diluted
net income (loss)
per share $(0.13) $(0.74) $(1.07) $(1.40) $(6.78)
======== ========= ========= ========== ==========
Shares used to
compute basic and
diluted net loss
per share 73,502 76,112 74,018 75,105 73,045
======== ========= ========= ========== ==========
Net Income (Loss) and Net Income (Loss) per Share Revision to
Quarterly Financial Results for Deferred Stock Compensation Adjustment
Q1 2002 Q2 2002 Q3 2002
-------- --------- ---------
Net income (loss) as reported (46,436) 2,254 (57,500)
Net income (loss) as adjusted (43,980) 5,339 (56,454)
Basic and diluted net income (loss)
per share as reported (0.62) 0.03 (0.76)
Basic and diluted net income (loss)
per share as adjusted (0.58) 0.07 (0.74)
NEW FOCUS, INC.
Pro Forma Condensed Consolidated Statements of Operations
(In thousands, except per share data)
(Unaudited)
Three Months Ended Twelve months ended
---------------------------- ---------------------
Dec 29, Sept 29, Dec 30, Dec 29, Dec 30,
2002 2002 2001 2002 2001
--------------------------------------------------
Net revenues $7,435 $6,743 $9,390 $33,388 $92,639
Cost of net
revenues 6,996 9,811 13,331 43,627 112,004
-------- --------- --------- ---------- ----------
Gross profit (loss) 439 (3,068) (3,941) (10,239) (19,365)
5.9% (45.5)% (42.0)% (30.7)% (20.9)%
Operating expenses:
Research and
development, net 2,350 4,249 8,172 20,478 48,824
Sales and
marketing 1,500 1,837 2,210 8,227 10,191
General and
administrative 2,682 3,688 3,212 14,561 20,855
-------- --------- --------- ---------- ----------
Total operating
expenses 6,532 9,774 13,594 43,266 79,870
-------- --------- --------- ---------- ----------
Loss from operations (6,093) (12,842) (17,535) (53,505) (99,235)
(82.0)% (190.4)% (186.7)% (160.3)% (107.1)%
Interest and other
income (expense),
net (1,556) (4,232) 3,040 (938) 16,880
-------- --------- --------- ---------- ----------
Loss before
provision (benefit)
for income taxes (7,649) (17,074) (14,495) (54,443) (82,355)
Provision (benefit)
for income taxes - - 175 - 700
-------- --------- --------- ---------- ----------
Net loss $(7,649) $(17,074) $(14,670) $(54,443) $(83,055)
======== ========= ========= ========== ==========
(102.9)% (253.2)% (156.2)% (163.1)% (89.7)%
Basic and diluted
net loss per share $(0.10) $(0.22) $(0.20) $(0.72) $(1.14)
======== ========= ========= ========== ==========
Shares used to
compute basic and
diluted net
loss per share 73,502 76,112 74,018 75,105 73,045
======== ========= ========= ========== ==========
Pro Forma
Reconciliation to
GAAP:
Pro Forma loss $(7,649) $(17,074) $(14,670) $(54,443) $(83,055)
Impairment,
restructuring and
other charges (18) (36,597) (59,719) (79,925) (307,078)
Amortization of
acquired
intangibles (162) (183) (5,305) (3,014) (67,859)
Deferred stock
compensation (1,207) (2,331) (4,985) (8,012) (58,132)
Gain/(loss) from
divestitures 20 (269) - 41,283 -
Benefit (provision)
for income taxes (700) - 5,175 (700) 20,700
-------- --------- --------- ---------- ----------
Net income (loss) $(9,716) $(56,454) $(79,504) $(104,811) $(495,424)
======== ========= ========= ========== ==========
NEW FOCUS, INC.
Condensed Consolidated Balance Sheets
(Unaudited, in thousands)
Dec 29, Dec 30,
2002 2001
--------- ---------
ASSETS
Current Assets:
Cash, cash equivalents and short-term
investments $279,358 $294,655
Trade accounts receivable, net 3,048 5,025
Inventories 3,122 9,240
Other current assets 3,480 8,857
--------- ---------
Total current assets 289,008 317,777
Property and equipment, net 23,067 88,066
Intangibles, net 1,394 12,294
Other assets 3,895 11,587
--------- ---------
Total assets $317,364 429,724
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $1,522 $2,438
Accrued expenses 7,453 10,821
Restructuring liabilities 6,534 4,736
Deferred research and development funding -- 1,775
Current portion of long-term debt -- 109
--------- ---------
Total current liabilities 15,509 19,879
Long-term portion of restructuring accrual 14,854 220
Long-term debt, less current portion -- 7
Deferred rent 447 1,508
Stockholders' equity 286,554 408,110
--------- ---------
Total liabilities and
stockholders' equity $317,364 429,724
========= =========
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Contact:
New Focus
William L. Potts, Jr., 408/919-5384
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Source: New Focus |
