Erica Mannion - IR
Tim Jenks - Chairman, President and CEO
James D. Fay - VP and CFO
NeoPhotonics Corporation (NPTN) Q3 2011 Earnings Call November 4, 2011 8:00 AM ET
Welcome to the NeoPhotonics Third Quarter 2011 Earnings Conference Call. This call is being webcast live on the event calendar page of the Investor Relations section of NeoPhotonics’ website at http://www.neophotonics.com. 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.
Good morning. Thank you for joining us to discuss NeoPhotonics’ financial and operating results for the third quarter 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 December 31, 2011, 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 be different 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 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.
Before I turn the call over to Tim, I would like to mention that during the fourth quarter, the Company will participate in the Piper Jaffray Technology, Media and Telecom Conference in New York on November 8th, and Citi's SMID Conference in Las Vegas on November 16th.
Now, I will turn the call over to Tim Jenks, Chairman, President and CEO of NeoPhotonics. Tim…
Thank you for joining us today.
I will provide a financial and business update, discuss our recent acquisition of Santur Corporation, and talk about what we are seeing in the industry as a whole.
Revenue for the third quarter came in at $44.0 million, below our initial guidance range of $48-$53 million provided in our second quarter call and in the middle of the revised guidance that we provided on October 6th. Demand from our largest customer was significantly below our projections for the quarter, which I will discuss further.
Despite the lower than planned revenue in the quarter, we did deliver Non-GAAP gross margin above our projected range, continuing our sequential growth in gross margin. Non-GAAP gross margin increased to 27.5% in the third quarter, up from 26.2% in the second quarter. Additionally, despite lower revenue and inclusive of our “delta” research and development investment we started in the third quarter, we contained our loss per share to the projected range, reporting Non-GAAP diluted net loss per share of $0.13.
I’d like to start the discussion with a substantive overview of our relationship with Huawei Technologies. Huawei is our largest customer and among the top providers of optical network equipment globally, and for several years we have been among Huawei’s largest optical suppliers and one of its select “core partners”. Our relationship spans one-third of our product portfolio – we sell Huawei approximately 100 different products – among 18 of our 36 product families. Both parties have enjoyed a strong and prosperous relationship since 2003.
In fact, yesterday I was in Shenzhen, China, attending the Huawei annual core partner convention. At an awards ceremony last evening at Huawei’s corporate headquarters, Huawei presented its prestigious Golden Award to NeoPhotonics, as an “Excellent Core Partner”. We were honored for our role in providing innovative technology, high-quality and on-time delivery of optical modules and subsystems for high-speed, agile and access communications networks. This award is given only to companies that consistently deliver the highest performance and highest quality products that meet Huawei’s specialized requirements. We are proud that NeoPhotonics has been critical to some of the success of Huawei just as Huawei has been so pivotal in the success of NeoPhotonics. To achieve this relationship, we endeavor to work seamlessly with our customers, leveraging our engineering strength, supply chain systems, and collaborative working relationships to anticipate our customers’ needs. I believe that the Golden Core Partner award from Huawei is a testament to our innovative products and high-volume manufacturing capabilities.
Notwithstanding this excellent relationship demand for our products from our largest customer was significantly below our projections in the third quarter. This was despite the fact that we had been receiving positive comments from them regarding increasing support in their carrier customer base after a soft first half, and diminishing inventory oversupply that had been impacting the industry since the beginning of the year. To be poised to respond favorably to Huawei in the third quarter, we built inventory and shipped a good portion of this production to our hub-based, or vendor managed inventory system, or VMI. Unfortunately, though we were ready to deliver the products to meet the forecast and record revenue as projected up to the last day of the third quarter, Huawei’s demand did not materialize to our internally forecasted levels. Importantly, we do not believe that we lost share to competition, rather we believe that overall demand from Huawei’s customers was lower than planned for the period.
There are a couple of reasons for Huawei’s lower demand for our products. First, we believe that Huawei’s overall domestic business for the third quarter was soft in optical networking equipment due to reduced CapEx spending on 10G and 40G transport and metro systems in China, as well as slower-than-anticipated consumption of access products for GPON and GEPON fiber to the home, or FTTH networks. This FTTH network aspect emerged late in the quarter and was surprising to us given Huawei’s strength in national broadband deployments as well as the rapid rise in demand for these products experienced during the first half of the year, notably to support China Telecom.
Additionally, key to understanding our revenue build during a quarter is to discuss “normalized demand.” While our VMI revenue typically builds in a relatively steady fashion on a month-by-month basis during a quarter, normalized demand for our products is not typically steady week-by-week within a month. Normalized demand on a weekly basis is generally weaker during the first week of each month within a quarter, and is generally stronger in the back half of each month. Moreover, in the first half of 2011 we experienced higher VMI demand during the last 2 weeks of the third month of each quarter. We expected that the end of the third quarter would continue along this general pattern. As noted earlier, this late quarter “pull” of our VMI inventory did not occur in the third quarter as overall demand in the last two weeks of September was exceptionally weak.
Consequently, our end of quarter VMI inventory was approximately $8.4 million, which contributed to our increase in total inventory to $35.9 million, up from $28.9 million in the second quarter. Put another way, if we had shipped about half of our vendor managed inventory as of the end of the quarter as we expected, then revenue for the third quarter would have been within our original projections.
As mentioned, we use a vendor managed inventory with some of our customers, including with Huawei. For those unfamiliar with VMI, this means that we agree to a rolling production forecast with these customers; we build to that forecast and ship the products to designated locations. These locations are typically at our customers’ production facilities or their logistics centers. While the products are located at these hubs, they remain on our balance sheet as inventory and revenue is not recognized. At the time when a customer takes a unit of product from the hub, we are notified (we call this a “pull”) and we then record revenue for that product. This system is designed to facilitate our customers’ just-in-time inventory and lead-time management. The customer is not required to pull the products from the hub in the same quarter during which the products are shipped to the hub, but are typically pulled and the hub replenished on a rolling basis. Further, in certain cases, customers are obligated to pull products in the hub if the products have been there for a specified period of time.
By supporting this model, we believe we are favorably viewed by these customers, and that we earn a larger share of the customer demand for such products. In addition, we believe that the hub model can provide us better visibility into our customers’ demand levels over time – meaning over several quarters, but, as we noted on our first quarter conference call, demand for VMI products within a quarter can occur close to the customer’s system shipment commitments, including very late within that same quarter. In such cases, we believe the existence of VMI inventory as well as a flexible manufacturing plan that allows rapid conversion of semi-finished work-in-process assemblies to finished goods can be critical to capturing volume and share with our customers.
In our second quarter conference call we said that we believed our mix of product revenue for the third quarter would be similar to what we experienced in the first half of 2011. This was generally the case, except that given the result with respect to demand from Huawei, revenue attributable to our Access products was sequentially lower from the second quarter, as I have noted, which we believe is attributable to significantly lower demand for FTTH systems during the third quarter, primarily from China domestic carriers such as China Telecom. In contrast, we continued to experience demand for our Speed and Agility products, and in particular we recorded our fourth sequential quarter of growth in our 100G coherent products.
For the third quarter, revenue attributable to our “Speed and Agility” products was approximately 36% of our total revenue, up from 32%. Revenue attributable to “Access” products was approximately 35% of total revenue, down from 43% and for our “Other Telecom” products (which are legacy products such as DWDM, Sonet and SDH devices) revenue was approximately 29% of our total, up from 25%. As Speed and Agility products generally have higher than corporate average gross margins and Access products generally have lower gross margins, the third quarter’s product mix favorably impacted our gross margins.
At a customer level, we continue to make progress diversifying our customer base.
Last quarter we said that we were starting to hear more positive comments from our customers more broadly as a response to discussions about inventory levels and overall demand, and we believed that inventory levels at some customers had normalized. In the second quarter, we experienced quarter-over-quarter growth in each of our top 10 customers other than Huawei. In the third quarter, we continued to see this growth trend, with 6 of our top 10 customers growing sequentially quarter over quarter. Moreover, our customers other than Huawei were, in aggregate, within our internal projections for the third quarter. For the quarter, Huawei comprised approximately 42% of revenue, down from 51% in the second quarter, and the remaining customers in our top 10 comprised approximately 46% of revenue. Alcatel-Lucent was our second largest customer in the third quarter, comprising approximately 10% of revenue. Generally, we were pleased with the continued progress in developing our customer diversification, and the response of our customers to our new, high speed coherent products.
As I have described in prior conference calls, we believe we have many “sticky” designs with our customers. Our customer engagements include roadmap coordination, design and product validation and manufacturing capacity planning and quality audits. We do not believe that our design wins or market share were materially impacted competitively in the third quarter.
Moreover, we continue to believe that end user demand is growing - for wireless, increasingly 4G and LTE; streaming video; and cloud applications and services. We believe these several demand drivers will exist for the next several years, and will help drive a multi-year upgrade cycle to high-speed wireline and wireless networks. We believe these high-speed networks will utilize coherent 40G and 100G systems, and given our leading position in that marketplace, we have a great opportunity ahead of us.
Now I would like to talk about our acquisition of Santur Corporation, which closed in October. Santur was a private company located in Fremont, California, and focused on commercializing PIC-based laser array and packaging technologies for communications networks. Prior to the acquisition, Santur had shipped approximately 400,000 active PIC-based products. Santur has approximately 140 employees in a facility that includes an indium phosphide PIC fab, labs, and engineering and administrative space. Santur’s primary assembly and test capability is provided by a contract manufacturer in Malaysia.
We believe that the acquisition enhances our leading position in PIC-based modules and subsystems for high speed networks and can further accelerate our growth in the 100G coherent and cloud computing markets.
Let me share our views of Santur’s technology, products and customers to provide context for the acquisition and possibilities for future periods as a combined organization. Santur possesses a set of innovative technologies and designs, as well as process know-how, leveraging indium phosphide as a substrate for 40G, 100G and beyond PIC-based products. By contrast, NeoPhotonics heretofore has focused on PIC products that utilize hybrid integration technologies to combine internally produced silica on silicon chips and purchased indium phosphide devices for certain advanced products. Each material has different physical properties, and can be manipulated and optimized for different applications, and each is critical for 40G and 100G coherent solutions. With Santur, we have acquired a broad-based indium phosphide capability that includes tunable lasers, arrays of lasers, indium phosphide modulators, transmitters, and components for coherent receivers.
By combining active indium phosphide PICs from Santur with our hybrid PICs, we can provide the transmit side of coherent systems as well as the receive side. We can also create highly integrated PICs that contain multiple channels of 10, 40 and 100G together. This is integration to achieve a desired system goal. Combined, the two companies complement each other’s PIC technologies and expand our spectrum of key technologies, product opportunities and materials expertise.
In addition, Santur put NeoPhotonics in the tunable laser and coherent transmitter markets and enhances our position in the client side 40G and 100G market. The combination of NeoPhotonics and Santur will allow new generations of PIC products for a wide variety of system applications. With Santur, we are expanding a powerful suite of products for coherent systems. Santur’s products are designed to provide reduced size, power consumption, and cost for a wide range of DWDM, Coherent and Client Side networking applications in 10G, 40G and 100G networks.
Santur recorded revenue of approximately $21 million for the first six months of 2011, and approximately $10 million in the third quarter. Going forward, we will report Santur’s revenue within our Speed and Agility product group. In addition, Santur adds new product families, extending the total product families to a total of 43.
There is some overlap in our respective customer bases, such as Alcatel-Lucent, Ciena as well as Huawei. Santur also brings certain data networking customers, such as Google, which can expand our total customer base. Overall, we believe that the acquisition of Santur improves our consolidated customer mix, decreases our customer concentration, and increases our exposure to data networking from a telecom focus and can provide sales synergies over time.
We are currently focused on integrating the two companies, which includes combining our respective functions, systems, and processes. We expect this process to continue through the end of the first quarter of 2012. Given that Santur’s physical presence is similar to ours and close to our facilities in Silicon Valley, we anticipate relatively smooth integration of facilities and personnel. While Santur has not been profitable historically, we believe that as a combined entity, we can grow the business and manage expenses to drive Santur’s operations to contribute to earnings. Though it is early in our integration process, we currently expect that Santur’s operations would contribute to earnings in 5 to 7 quarters.
I’d like to now provide an update on our progress in product development and releases during the quarter. We recently announced sample availability of two new products: first, we announced our 40G high-speed transceiver module for cloud and data center applications. The new pluggable transceiver is designed to meet increasing bandwidth demand in today’s data centers. Compared to a traditional 10G approach, the new module transmits four times the data over single mode fiber at distances up to 10 kilometers.
Second, we announced our first extended reach transceiver module for 10G PON applications in an XFP form factor. By being backward compatible, the new product is designed to enable carriers to leverage investments in existing infrastructure while upgrading their fiber optic broadband access networks from 2.5G and below data rates up to 10Gb data rates. We believe this is an important trend in Access networks that will continue, particularly in the geographies with existing deployed fiber plant. Both of these products are being tested by customers, the feedback thus far has been positive, and we look forward to securing design wins and moving into production for revenue.
Also during the quarter, we announced new additions to our SFP+ product suite. These additions strengthen our existing portfolio of SFP+ transceivers for a variety of applications, including 10G Ethernet. The products are designed to support the environmental impact initiatives of carriers and reduce the power consumption and carbon footprint of their broadband networks.
On the last quarterly conference call we said that we intended to make a “delta” investment in research and development above our historical norms to further leverage our PIC technology platform in to next-generation network opportunities in switching and high speed devices. We stated that we expected to spend approximately $1 million per quarter on this initiative.
As part of this effort, we increased staffing at our design center in Wuhan, China, an area known as “Optics Valley”. Our facility is located near several universities and we continue to hire. We have not yet reached the $1 million level of delta spending as of the end of the quarter – it was approximately $0.7 million – yet we are pleased with our progress to date. We have formulated an approach to a new switching product for use in coherent networks that we plan to move forward from design to first article fabrication in the coming quarters.
We also opened a design and sourcing office in Tokyo, Japan, to support high speed network module design and sourcing for next generation systems.
With the acquisition of Santur, we are reviewing our combined research and development programs and roadmaps. We plan to complete the review during the fourth quarter. As a result, we will then define savings to the “delta” investment initiative, and we intend to provide updates on the initiative in future periods.
Finally, we are expanding our production capacity in China. We signed a real estate lease for a facility in Dongguan, Guangdong province, which is approximately 45 minutes’ drive from our existing facility in Shenzhen. This 80,000 square foot factory will be facilitized in phases. When completed, we expect capital expenditures to be approximately $9 million over the next 5-7 quarters, and we have capitalized the project with $3 million for the first phase. We are planning for the facility to become operational during 2012.
Before I turn to our outlook for the fourth quarter, I want to comment on the flooding in Thailand. The situation has been dire for the Thai people and their economy. For our industry, a number of companies use contract manufacturing partners in Thailand, including Fabrinet. Fabrinet and some of its customers have reported production stoppages in the last few weeks. For NeoPhotonics, we are a vertically integrated supplier of optical modules and systems, and we do not currently use Fabrinet for production. Further, we are not at all dependent on Thai suppliers for our components or raw materials. Thus, we represent an independent supply chain and the flooding does not directly impact our ability to produce our products.
From a revenue perspective, since our products are used in our customers’ systems, and given that a good portion of our industry uses contract manufacturers in Thailand, we believe our customers use parts from Thailand in the same systems with our products. Thus, to the extent that our customers’ third party supply chains are impacted by the flooding, then it is likely that our customers may ask us to reduce shipments pending alternative sourcing of affected parts. We have not experienced such an impact to demand as of today, but we are monitoring the situation, which is very dynamic, and we are working with our customers to stay current. Accordingly, while the situation is changing rapidly, we have factored our view of the conditions into our forecasts for the fourth quarter. Finally, my thoughts are with the people of Thailand as they continue to battle with the impact of the floodwaters.
Now turning to our outlook for the fourth quarter.
We continue to believe we are in a strong position today given our design win and market share awards previously earned with our Tier 1 and other customers. However, I would characterize the overall current environment as relatively soft, with lower than projected demand in China; and uncertainty in the macro-economic environments in Europe and the U.S.; moderating spending as carriers, and consequently, network equipment manufacturers, remain cautious. Additionally, we believe that the impact from the flooding in Thailand has disrupted the optical supply chain, which we expect will directly affect our customers and thus can indirectly push our shipment volume lower in the near term.
We believe the inventory over-supply issue that characterized the industry at the beginning of this year has played out; we do not believe that oversupply will continue to materially impact the industry in the fourth quarter. Nevertheless, we do not expect a “snap back” in demand because our experience is that demand that is pushed to the future does not generally have a cumulating effect on top of the next quarter’s more natural demand. At this point I’ll turn the call over to JD to take you through our third quarter financial performance and fourth quarter guidance. JD…
Thank you Tim and good morning.
For the third quarter of 2011, revenue was $44.0 million, a decrease of $8.1 million, or 16%, from $52.1 million in the second quarter of 2011, and a decrease of $3.2 million, or 7%, from $47.1 million in the third quarter of 2010. Gross margin for the third quarter of 2011 was 27.7%. Non-GAAP gross margin for the third quarter was 27.5%, an increase compared to the previous quarter’s Non-GAAP gross margin of 26.2%.
Non-GAAP gross margin for the third quarter excludes amortization of purchased intangibles of $0.01 million and a stock-based compensation credit of $0.1 million, primarily as the result of the impact of the decline in our stock price on stock appreciation rights that are revalued each quarter.
Net loss for the third quarter of 2011 was $4.1 million, which compares to net income of $13.6 million in the prior quarter and net income of $0.1 million in the third quarter of 2010. Diluted net loss per share for the third quarter was $0.17.
Non-GAAP net loss for the third quarter was $3.2 million, as compared to net income that was SLIGHLTY POSITIVE in the second quarter and net income of $1.2 million in third quarter of 2010. Non-GAAP diluted net loss per share for the third quarter was $0.13, as compared to zero cents in the prior quarter and net income per share of $0.07 for the third quarter of 2010.
Non-GAAP net loss and Non-GAAP diluted net loss per share for the third quarter of 2011 excludes amortization of purchased intangibles of $0.1 million, stock-based compensation expense of $0.5 million, acquisition-related costs of $0.3 million relating to the acquisition of Santur Corporation, and the income tax effects of these adjustments.
Adjusted EBITDA in the third quarter of 2011 was a loss of $0.4 million, down from a positive $3.0 million in the prior quarter and $4.0 million in the third quarter of 2010. The quarterly decline in Adjusted EBITDA was primarily due to the decline in net income to a loss in the third quarter.
Total operating expense in the third quarter was $16.2 million, or 37% of revenue, as compared to $13.8 million in the prior quarter, or 26% of revenue, and compared to $13.5 million in the third quarter of 2010, or 29% of revenue.
For the third quarter, the breakdown of operating expenses is: research and development was $7.2 million, which was up from $6.5 million in the second quarter as we invested in switching and high speed devices per Tim’s earlier comments; sales and marketing was $3.0 million, which was up from $2.3 million, primarily due to higher trade show and overhead expenses; general and administrative was $6.0 million, up from $4.7 million in the second quarter, primarily due to expenses related to the acquisition of Santur and increased professional fees as we continue to invest in public company compliance infrastructure; and amortization of purchased intangibles was $0.1 million. Also included in operating expenses for the third quarter is $0.6 million of stock-based compensation expense, up from $0.1 million in the second quarter.
Moving to the balance sheet, our cash and short term investments for the quarter ending September 30, 2011 was $103.4 million. This is down $4.1 million from the second quarter, which included $28.2 million of cash in marketable securities with maturities greater than one year and shown as long-term on the balance sheet in the second quarter.
With regard to cash flow, in the third quarter of 2011, we generated $1.3 million of cash from operations. Our capital expenditures were approximately $3.3 million in the quarter, bringing total capital expenditures for the first nine months of this year to approximately $8.4 million. Also in the quarter we repaid a line of credit that was due in China of approximately $2.5 million. As of the end of the third quarter, we had approximately $1.5 million in debt remaining outstanding in China, which is due to be repaid in the fourth quarter.
With respect to the acquisition of Santur, we paid approximately $38.4 million in cash, plus approximately $3.7 million to repay Santur’s net debt. The agreement includes an earn-out provision according to which we could pay up to $7.5 million additional cash contingent on the financial performance of Santur products in 2012. This means in any calendar quarter of 2012, if the gross profit generated by Santur products exceeds $3 million, we will pay additional cash equal to 75% of the amount above $3 million, up to a maximum for all periods of $7.5 million.
Also, with respect to cash commitments arising from the Santur transaction, Santur had entered into employment agreements with some of its employees prior to the acquisition. These agreements provide for the payment of approximately $2.0 million in cash in 2012, which we will recognize as compensation expense in our consolidated income statement over the next three quarters.
Finally, in connection with the Santur acquisition, we amended our loan and security agreement with Comerica Bank. We increased the capacity of the facility to $35 million, and drew $28 million in October, which is comprised of $20 million as a term loan expiring in September 2015 and $8 million under the revolving line of credit expiring in September 2014. Accordingly, the net cash outflow relating to the Santur acquisition was approximately $14.2 million.
Accounts receivable at September 30 was $58.2 million, a decrease from $70.7 million, or 18%, from the end of the prior quarter. As we discussed on our prior conference call, the higher balance as of the end of the second quarter was primarily due to timing differences with the end of the second quarter occurring in the middle of the standard payment cycle for some customers, and we then noted that we had received timely payments of approximately $13 million in the first week in July. As of the end of the third quarter, days sales outstanding rose to 132 days from 117 days in the prior quarter. Days sales outstanding increased due to the lower revenue.
Now, I will provide our outlook for the fourth quarter of 2011.
Our outlook for the fourth quarter includes expectations relating to the uncertainty in the timing of a return to growth relating to our largest customer; the potential impact of the flooding in Thailand on our customers, and thus on demand for our products; the muted outlook for the industry given macro-economic uncertainties in the key regions, notably Europe, North America and China; and the seasonality of our business.
As a reminder, our business is typically seasonally lower in the fourth and first calendar quarters, as we negotiate and implement market share and pricing awards for the bulk of our expected demand for 2012 in the fourth quarter. Also, we generally experience seasonality in the fourth quarter because our production facilities and those of some of our customers are closed for holidays in the U.S. and China, which means fewer working days and an associated impact to overhead recoveries and margin compression.
Our projections also include our view of the impact of Santur revenue and costs beginning in the middle of October. Accordingly, we currently anticipate revenue for the fourth quarter to be in the range of $45 million to $50 million. This projection includes expectations for revenue from Santur products of approximately $5 million to $6 million.
Non-GAAP gross margin for the fourth quarter is currently anticipated to be between 19% and 22%. As noted, this projection reflects expectations for the gross margin from Santur revenue, which is below our corporate average today, and, on a consolidated basis, is dependent on overhead recoveries on fewer working days in the quarter, volume and product mix. Generally, we believe our mix of product revenue for the fourth quarter will be similar to what we have experienced in the first 9 months of 2011, plus a modest increase in Speed & Agility as a percent of the total reflecting the addition of Santur’s revenue.
We currently anticipate Non-GAAP diluted net loss per share to be between $0.30 and $0.40. The Non-GAAP outlook for the fourth quarter of 2011 excludes the expected amortization of intangibles of approximately $1.3 million, the anticipated impact of stock-based compensation expense of approximately $1.1 million, of which $0.2 million is estimated to relate to gross margin, and acquisition-related costs of approximately $1.4 million relating to the Santur acquisition.
The intangibles amortization, which is higher than we have experienced in prior quarters this year, reflects our preliminary estimate of the value of intangibles relating to the Santur acquisition. The purchase accounting for the acquisition is in process, thus the amortization of intangibles expectation provided today can vary materially.
The share count assumption used to estimate fourth quarter non-GAAP diluted net loss per share is approximately 25 million. This estimate can change based on stock and option activity in the period.
This concludes our formal comments for the third quarter conference call. Now I will ask the operator to open up the line for questions.
Tim Jenks (Closing comments)
Thank you for joining us today.
While we were disappointed by our third quarter revenue results, we remain excited about the market opportunity that lies in front of us. There is a desire and a need for faster, better access, in faster and more agile networks – in our view, these are the drivers of growth for the industry and NeoPhotonics.
Before we conclude, I would like to thank our shareholders for their time today and their continued interest in our company, our customers and our employees for their dedication. We look forward to updating you on our progress on our next call.
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