Prospectus summary
Prospectus summary This summary highlights information contained elsewhere in this prospectus and does not contain all of the information that you should consider in making your investment decision. Before investing in our common stock, you should carefully read this entire prospectus, including our consolidated financial statements and the related notes thereto and the information set forth under the sections “Risk factors” and “Management’s discussion and analysis of financial condition and results of operations,” in each case appearing elsewhere in this prospectus.Overview
We are a leading designer and manufacturer of photonic integrated circuit, or PIC, based modules and subsystems for bandwidth-intensive, high-speed communications networks. The rapid growth of bandwidth-intensive content, including HD and 3D video, music, social networking, video conferencing and other multimedia, is driving the demand for high-bandwidth products. The demand for bandwidth capacity is further intensified by the proliferation of network-attached devices, such as smartphones, laptops, netbooks, PCs, e-readers, televisions and gaming devices, that are enabling consumers to access bandwidth-intensive content anytime and anywhere over fixed and wireless networks, including 3G, and increasingly, LTE networks.
Our products enable cost-effective, high-speed data transmission and efficient allocation of bandwidth over communications networks. We have a broad portfolio of over 300 products, including high-speed products that enable data transmission at 10Gbps, 40Gbps and 100Gbps, agility products such as ROADMs that dynamically allocate bandwidth to adjust for volatile traffic patterns, and access products that provide high-bandwidth connections to more devices and people over fixed and wireless networks.
Our innovative PIC technology utilizes proprietary design elements that provide optical functionality on a silicon chip. PIC devices integrate many more functional elements than discretely packaged components, enabling increased functionality in a small form factor while reducing packaging and interconnection costs. In addition, the cost advantages of PIC-based components are driven by the economics of semiconductor wafer mass manufacturing, where the marginal cost of producing an incremental chip is much less than that of a discrete component.
We sell our products to the leading network equipment vendors globally, including ADVA AG Optical Networking Ltd., Alcatel-Lucent SA, Ciena Corporation (including its recent acquisition of Nortel’s Metro Ethernet Networks business), Cisco Systems, Inc., FiberHome Technologies Group, ECI Telecom Ltd., Telefonaktiebolaget LM Ericsson, Fujitsu Limited, Harmonic, Inc., Huawei Technologies Co., Ltd., Mitsubishi Electric Corporation, NEC Corporation, Nokia Siemens Networks B.V. and ZTE Corporation. We refer to these companies as our Tier 1 customers. According to Infonetics Research, or Infonetics, an independent research firm, the top 12 optical network hardware vendors supplied over 90% of the worldwide market for optical network hardware in 2009. Each of these vendors is one of our Tier 1 customers. In 2009, we had revenue of $155.1 million and a net loss of $6.8 million. We have grown our revenue at a 45.1% compound annual growth rate, or CAGR, from 2005 to 2009 due to organic growth and acquisitions.
Industry background
Network traffic is continuing to experience rapid growth driven primarily by bandwidth-intensive content, such as HD and 3D video, music, social networking, video conferencing and other multimedia. This growth is intensified by the proliferation of fixed and wireless network-attached devices, and the widespread and growing use of IP-based video, including user-generated video, IPTV, streaming web video, video conferencing and mobile video, enabled by 3G and increasingly by LTE networks. These factors have contributed to the growth in network traffic and placed significant strains on existing communications networks. According to Cisco’s Visual Networking Index, global IP-based traffic is expected to grow from 14.7 petabytes per month in 2009 to 55.6 petabytes per month in 2013, representing a 39.3% CAGR.
Service providers are increasingly moving beyond their traditional markets to deliver a broad suite of converged services, including voice, video, broadband and mobile offerings. As a result, competition has increased, placing pressure on revenues, driving consolidation and creating increasingly complex networks with multiple bottlenecks. Consequently, service providers are seeking solutions that improve profitability by utilizing scalable, low-cost, high-bandwidth network architectures that deploy increased bandwidth capacity closer to end users.
Optical networking has emerged as a key technology to support the increasing demand for bandwidth capacity due to its ability to provide the speed, agility and access required by service providers. The market for high-bandwidth solutions presents a compelling opportunity for optical technology providers. According to Infonetics, global optical network hardware revenue is projected to increase from $13.4 billion in 2009 to $16.7 billion in 2013.
Existing communications networks face many challenges. Most currently available solutions consist of multiple discrete components which result in a high degree of complexity, creating challenges to cost-effectively operate with the precision and performance necessary to deliver high-speed data transmission. In addition, approaches to increase bandwidth capacity that cannot efficiently leverage existing infrastructure, or are not otherwise backward compatible, are less attractive to service providers.
Given these challenges, we believe that existing discrete optical solutions and certain alternative PIC-based solutions are sub-optimal and do not allow service providers to cost-effectively deliver scalable bandwidth capacity to their customers. We believe this provides multiple opportunities for vendors that provide PIC-based modules and subsystems that address these challenges.
Our solutions
The key benefits of our solutions include:
Our strengths
Our key competitive strengths include the following:
Our strategy
Our goal is to become the leading global supplier of high-performance optical technologies that enable the speed, agility and access required to support the rapid growth in traffic over communications networks. Key elements of our strategy include:
Risk factors
Our business is subject to numerous risks and uncertainties, such as those highlighted in the section titled “Risk factors” immediately following this prospectus summary, including:
Corporate information
We changed our name to NeoPhotonics Corporation in 2002 after having been incorporated as NanoGram Corporation in October 1996 in the State of Delaware. Our principal executive offices are located at 2911 Zanker Road, San Jose, California 95134, USA, and our telephone number is +1 (408) 232-9200. Our website address is www.neophotonics.com. Information contained on our website is not incorporated by reference into this prospectus, and you should not consider information contained on our website to be part of this prospectus or in deciding whether to purchase shares of our common stock.
Our name is a registered trademark of NeoPhotonics Corporation. This prospectus contains additional trade names and trademarks of ours and of other companies.
The offering
The number of shares of our common stock to be outstanding after this offering are based on shares of our common stock outstanding, on a pro forma basis as of December 31, 2009, assuming the exercise of 199,960 stock warrants with a weighted average exercise price of $0.72 per share into an equal number of shares of common stock and the conversion of all outstanding shares of our preferred stock (other than our Series X preferred stock) into an aggregate of 165,990,598 shares of common stock on a 1-for-1 basis and, in the case of our Series X preferred stock, into an aggregate of shares of common stock on a -for- basis, which conversion ratio is based on an assumed initial public offering price of $ per share, the midpoint of the price range set forth on the cover of this prospectus, based on a predetermined formula whereby the number of shares of common stock issued to the holders of Series X preferred stock shall be the quotient obtained by (i) dividing the total number of shares of Series X preferred stock multiplied by $100.00 by (ii) 50% of the price per share at which shares of common stock are sold to the public, and excludes:
From January 1, 2010 to March 31, 2010, we note the following:
Unless otherwise indicated, all information in this prospectus assumes:
None of the information contained in this prospectus has been adjusted to reflect a -for- reverse stock split that we intend to effect prior to the completion of this offering.
Summary consolidated financial data
The following summary consolidated financial data should be read together with our consolidated financial statements and related notes and “Management’s discussion and analysis of financial condition and results of operations” appearing elsewhere in this prospectus. The actual consolidated statements of operations data for the years ended December 31, 2007, 2008 and 2009 are derived from our consolidated financial statements appearing elsewhere in this prospectus. The actual consolidated summary balance sheet data as of December 31, 2009 are derived from our consolidated financial statements appearing elsewhere in this prospectus. Our historical results are not necessarily indicative of the results to be expected in any future period.
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Non-GAAP financial measures
The following table reflects the reconciliation of U.S. GAAP financial measures to non-GAAP financial measures:
We believe that the use of non-GAAP income (loss) from operations, non-GAAP net income (loss) and adjusted earnings before interest, taxes, depreciation and amortization, or adjusted EBITDA, are helpful for an investor determining whether to invest in our common stock. In computing our non-GAAP financial measures, we exclude certain items included under U.S. GAAP. Non-GAAP income (loss) from operations and non-GAAP net income (loss) exclude the amortization of purchased intangible assets, stock-based compensation expense, asset impairment charges and restructuring charges. Adjusted EBITDA excludes these same items and, additionally, it excludes interest (income) expense, net, provision for (benefit from) income taxes and depreciation expense.
We believe that excluding amortization of purchased intangible assets, stock-based compensation expense, asset impairment charges and restructuring charges helps investors compare our operating performance with our results in prior periods. We believe that it is appropriate to exclude these items as they are not necessarily indicative of ongoing operating performance and, therefore, limit comparability between periods and between us and similar companies. We believe adjusted EBITDA is useful to investors because it is frequently used by securities analysts, investors and other interested parties in the evaluation of companies in our industry. In addition, we believe that adjusted EBITDA is useful in evaluating our operating performance compared to that of other companies in our industry because the calculation of adjusted EBITDA generally eliminates the effects of financing and income taxes and the accounting effects of capital spending and acquisitions, which items may vary for different companies for reasons unrelated to overall operating performance. We use these non-GAAP financial measures to evaluate the operating performance of our business and aid in the period-to-period comparability. We also use the non-GAAP financial measures for planning and forecasting and measuring results against the forecast and in certain cases for bonus targets for certain of our employees. Using several measures to evaluate the business allows us and investors to (1) assess our relative performance against our competitors and (2) ultimately monitor our capacity to generate returns for our stockholders. See “Management’s discussion and analysis of financial condition and results of operations—Key metrics.”