SOURCE: Finisar

Finisar

September 04, 2014 16:00 ET

Finisar Announces 7% Revenue Growth Over Prior Quarter

SUNNYVALE, CA--(Marketwired - Sep 4, 2014) -  Finisar Corporation (NASDAQ: FNSR), a global technology leader for subsystems and components for fiber optic communications, today announced financial results for its first quarter of fiscal 2015, ended July 27, 2014. 

COMMENTARY

"I am pleased to report that first quarter revenues were $327.6 million, a new all-time record for Finisar. Quarterly revenues increased by $21.6 million, or 7.1%, over the fourth fiscal quarter of fiscal 2014. Quarterly revenues grew for the eighth consecutive quarter," said Jerry Rawls, Finisar's executive Chairman of the Board.

"While demand for our transceivers that address wireless applications was very strong in the first quarter, demand for these products is now expected to decrease in the second quarter. We expect the demand to return and revenues to increase sequentially for these products in the third quarter. As a result of this decrease in demand for wireless transceivers, as well as a decrease in demand for telecom products due to soft carrier spending and a decrease in demand from several datacom customers with lumpy order patterns, we expect our overall revenues to decline in the second fiscal quarter," said Eitan Gertel, Finisar's Chief Executive Officer.

 
 
FINANCIAL HIGHLIGHTS - FIRST QUARTER ENDED JULY 27, 2014
             
Summary GAAP Results   First     Fourth  
  Quarter     Quarter  
  Ended     Ended  
    July 27, 2014     April 27, 2014  
    (in thousands, except per share amounts)  
             
Revenues   $ 327,638     $ 306,025  
Gross margin     30.2 %     31.6 %
Operating expenses   $ 78,451     $ 75,457  
Operating income   $ 20,368     $ 21,107  
Operating margin     6.2 %     6.9 %
Net income   $ 14,243     $ 28,750  
Income per share-basic   $ 0.14     $ 0.30  
Income per share-diluted   $ 0.14     $ 0.28  
                 
Basic shares     98,241       96,965  
Diluted shares     106,036       105,418  
                 
Summary Non-GAAP Results (a)   First     Fourth  
  Quarter     Quarter  
  Ended     Ended  
    July 27, 2014     April 27, 2014  
    (in thousands, except per share amounts)  
                 
Revenues   $ 327,638     $ 306,025  
Gross margin     32.0 %     34.2 %
Operating expenses   $ 69,439     $ 65,931  
Operating income   $ 35,404     $ 38,882  
Operating margin     10.8 %     12.7 %
Net income   $ 33,332     $ 36,992  
Income per share-basic   $ 0.34     $ 0.38  
Income per share-diluted   $ 0.32     $ 0.36  
                 
Basic shares     98,241       96,965  
Diluted shares     106,036       105,418  
                 

_____________          

(a) In evaluating the operating performance of Finisar's business, Finisar management utilizes financial measures that exclude certain charges and credits required by U.S. generally accepted accounting principles, or GAAP, that are considered by management to be outside Finisar's core operating results. A reconciliation of Finisar's non-GAAP financial measures to the most directly comparable GAAP measures, as well as additional related information, can be found under the heading "Finisar Non-GAAP Financial Measures" below.
   

Financial Statement Highlights for the first quarter of fiscal 2015:

  • Revenues increased to $327.6 million, up $21.6 million, or 7.1%, from $306.0 million in the preceding quarter.

  • The sale of products for datacom applications increased by $18.2 million, or 8.2%, compared to the preceding quarter, primarily as the result of strong demand for our transceivers that address wireless applications.

  • The sale of products for telecom applications increased by $3.4 million, or 4.1%, compared to the preceding quarter.

  • GAAP gross margin decreased to 30.2% from 31.6% in the preceding quarter, primarily driven by less favorable product mix, primarily the result of increased sales of transceivers that address wireless applications and lower sales of our 100G ethernet transceivers, as well as an increase in depreciation as a result of an increased level of capital expenditures.

  • Non-GAAP gross margin decreased to 32.0% from 34.2% in the preceding quarter.

  • GAAP operating expenses increased to $78.5 million from $75.5 million in the preceding quarter, primarily from the impact of the full quarter operating expenses associated with the acquisition of u2t Photonics AG which closed during our fiscal fourth quarter, the acquisition of LightSmyth which occurred during the fiscal first quarter, the employer portion of payroll taxes associated with the annual vesting of RSUs which occurs every June and higher legal expenses associated with multiple current ongoing patent litigations.

  • Non-GAAP operating expenses increased to $69.4 million from $65.9 million in the preceding quarter. 

  • GAAP operating income decreased $0.7 million to $20.4 million or 6.2% of revenues, compared to $21.1 million or 6.9% of revenues in the preceding quarter, primarily as the result of lower gross margins and higher operating expenses.

  • Non-GAAP operating income decreased $3.5 million to $35.4 million, or 10.8% of revenues, compared to $38.9 million, or 12.7% of revenues, in the preceding quarter.  

  • Cash, cash equivalents and short term investments decreased $15.6 million to $497.4 million at the end of the first quarter, compared to $513.0 million at the end of the preceding quarter, primarily as the result of capital expenditures of $44.2 million, increased inventory of $10.4 million, increased accounts receivables of $6.3 million and a reduction in accrued compensation of $10.3 million primarily due to the payment of fiscal year end cash bonuses.

  • During the quarter, Finisar completed the acquisition of LightSmyth Technologies, Inc. of Eugene Oregon, a pioneer in the use of semiconductor manufacturing tools to produce differentiated, high performance and cost-effective grating products. LightSmyth previously was a supplier of grating products for Finisar's WSS and ROADM products. This acquisition further advances Finisar's vertical integration strategy.

OUTLOOK

The Company indicated that for the second quarter of fiscal 2015 it currently expects revenues in the range of $305 to $320 million, non-GAAP gross margin of approximately 31% to 32%, non-GAAP operating margin of approximately 8.5% to 9.5%, and non-GAAP earnings per diluted share in the range of approximately $0.23 to $0.27.

CONFERENCE CALL

Finisar will discuss its financial results for the first quarter and current business outlook during its regular quarterly conference call scheduled for Thursday, September 4, 2014, at 2:00 pm PT (5:00 pm ET). To listen to the call you may connect through the Finisar investor relations page at http://investor.finisar.com/ or dial 1-888-299-7205 (domestic) or +1-719-325-3210 (international) and enter conference ID 7685228.

An audio replay will be available for two weeks following the call by dialing 1-888-203-1112 (domestic) or +1-719-457-0820 and then following the prompts: enter conference ID 7685228 and provide your name, affiliation, and contact number. A replay of the webcast will be available shortly after the conclusion of the call on the Company's website until the next regularly scheduled earnings conference call.

SAFE HARBOR UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995

This press release contains forward-looking statement concerning Finisar's expected financial performance. These statements are forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements are based on our current expectations, estimates, assumptions and projections about our business and industry, and the markets and customers we serve, and they are subject to numerous risks and uncertainties that may cause these forward-looking statements to be inaccurate. Finisar assumes no obligation to update any such forward-looking statements. Forward-looking statements involve risks and uncertainties which could cause actual results to differ materially from those projected. Examples of such risks include those associated with: the uncertainty of customer demand for Finisar's products; the rapidly evolving markets for Finisar's products and uncertainty regarding the development of these markets; Finisar's historical dependence on sales to a limited number of customers and fluctuations in the mix of products and customers in any period; ongoing new product development and introduction of new and enhanced products; the challenges of rapid growth followed by periods of contraction; intensive competition; and the uncertainty of achieving anticipated cost savings and synergies in connection with the recently completed u2t acquisition. Further information regarding these and other risks relating to Finisar's business is set forth in Finisar's annual report on Form 10-K (filed June 26, 2014) and quarterly SEC filings.

ABOUT FINISAR

Finisar Corporation (NASDAQ: FNSR) is a global technology leader for fiber optic subsystems and components that enable high-speed voice, video and data communications for telecommunications, networking, storage, wireless, and cable TV applications. For 25 years, Finisar has provided critical optics technologies to system manufacturers to meet the increasing demands for network bandwidth. Finisar is headquartered in Sunnyvale, California, USA with R&D, manufacturing sites, and sales offices worldwide. For additional information, visit www.finisar.com.

FINISAR FINANCIAL STATEMENTS

The following financial tables are presented in accordance with GAAP.

   
   
Finisar Corporation  
Consolidated Balance Sheets  
(in thousands)  
             
    July 27, 2014     April 27, 2014  
    (Unaudited)        
ASSETS            
Current assets:                
  Cash and cash equivalents   $ 287,455     $ 303,101  
  Short-term held-to-maturity investments     209,927       209,922  
  Accounts receivable, net     231,312       225,020  
  Accounts receivable, other     41,595       33,749  
  Inventories     270,122       259,759  
  Prepaid expenses and other assets     38,582       33,022  
    Total current assets     1,078,993       1,064,573  
Property, equipment and improvements, net     301,020       273,328  
Purchased intangible assets, net     33,680       34,141  
Goodwill     106,735       106,115  
Minority investments     2,317       2,117  
Other assets     20,907       17,272  
    Total assets   $ 1,543,652     $ 1,497,546  
                 
LIABILITIES AND STOCKHOLDERS' EQUITY            
Current liabilities:                
  Accounts payable   $ 143,224     $ 119,439  
  Accrued compensation     28,215       38,541  
  Other accrued liabilities     27,568       31,533  
  Deferred revenue     16,872       16,659  
  Short term debt     247       243  
  Current portion of convertible notes     40,015       40,015  
    Total current liabilities     256,141       246,430  
Long-term liabilities:                
  Convertible notes, net of current portion     214,496       212,253  
  Other non-current liabilities     24,042       22,804  
    Total liabilities     494,679       481,487  
Stockholders' equity:                
  Common stock     100       97  
  Additional paid-in capital     2,469,687       2,456,110  
  Accumulated other comprehensive income     25,116       20,025  
  Accumulated deficit     (1,445,930 )     (1,460,173 )
    Total stockholders' equity     1,048,973       1,016,059  
Total liabilities and stockholders' equity   $ 1,543,652     $ 1,497,546  
                 

Note - Balance sheet amounts as of April 27, 2014 are derived from the audited consolidated financial statements as of the date.

   
   
Finisar Corporation  
Consolidated Statements of Operations  
(Unaudited, in thousands, except per share data)  
                   
    Three Months Ended  
    July 27, 2014     July 28, 2013     April 27, 2014  
Revenues   $ 327,638     $ 266,068     $ 306,025  
Cost of revenues     227,385       173,102       208,135  
Amortization of acquired developed technology     1,434       1,593       1,326  
Gross profit     98,819       91,373       96,564  
Gross margin     30.2 %     34.3 %     31.6 %
Operating expenses:                        
  Research and development     51,006       43,530       48,132  
  Sales and marketing     11,965       11,805       11,509  
  General and administrative     14,719       8,340       15,133  
  Amortization of purchased intangibles     761       595       683  
    Total operating expenses     78,451       64,270       75,457  
Income from operations     20,368       27,103       21,107  
Interest income     612       217       485  
Interest expense     (3,134 )     (552 )     (2,965 )
Other income (expenses), net     (2,026 )     488       8,124  
Income before income taxes and non-controlling interest     15,820       27,256       26,751  
Provision (benefits) for income taxes     1,577       1,421       (1,932 )
Income before non-controlling interest     14,243       25,835       28,683  
Adjust for net loss attributable to non-controlling interest     -       176       67  
Net income attributable to Finisar Corporation   $ 14,243     $ 26,011     $ 28,750  
                         
Net income per share attributable to Finisar Corporation common stockholders:                        
                         
  Basic   $ 0.14     $ 0.27     $ 0.30  
  Diluted   $ 0.14     $ 0.26     $ 0.28  
                         
Shares used in computing net income per share - basic     98,241       94,609       96,965  
Shares used in computing net income per share - diluted     106,036       101,125       105,418  
                         

FINISAR NON-GAAP FINANCIAL MEASURES

In addition to reporting financial results in accordance with U.S. generally accepted accounting principles, or GAAP, Finisar provides the following financial measures defined as non-GAAP financial measures by the Securities and Exchange Commissions: non-GAAP gross profit, non-GAAP operating income and non-GAAP income per share. These non-GAAP financial measures are supplemental information regarding the Company's operating performance on a non-GAAP basis that excludes certain gains, losses and charges of a non-cash nature or which occur relatively infrequently and which management considers to be outside our core operating results. Some of these non-GAAP measures also exclude the ongoing impact of historical business decisions made in different business and economic environments. Management believes that tracking non-GAAP gross profit, non-GAAP income from operations, non-GAAP net income and non-GAAP net income per share provides management and the investment community with valuable insight into our current operations, our ability to generate cash and the underlying business trends which are affecting our performance. These non-GAAP measures are used by both management and our Board of Directors, along with the comparable GAAP information, in evaluating our current performance and planning our future business activities. In particular, management finds it useful to exclude non-cash charges in order to better correlate our operating activities with our ability to generate cash from operations and to exclude certain cash charges as a means of more accurately predicting our liquidity requirements. We believe that these non-GAAP measures, when used in conjunction with our GAAP financial information, also allow investors to better evaluate our financial performance in comparison to other periods and to other companies in our industry.

In calculating non-GAAP gross profit in this release, we have excluded the following items from cost of revenues in applicable periods:

  • Changes in excess and obsolete inventory reserve (predominantly non-cash charges or non-cash benefits);
  • Amortization of acquired technology (non-cash charges related to technology obtained in acquisitions);
  • Stock-based compensation expense (non-cash charges);
  • Impairment of acquired developed technology and other long-lived assets (non-cash charges);
  • Acquisition method accounting adjustment for sale of acquired inventory (non-cash charges);
  • Reduction in force costs (non-recurring cash charges); and
  • Acquisition related retention payments (non-recurring charges). 

In calculating non-GAAP operating income in this release, we have excluded the same items to the extent they are classified as operating expenses, and have also excluded the following items in applicable periods:

  • Gain or loss on litigation settlements and resolutions and related costs (non-recurring cash charges or benefits);
  • Gain on fair value re-measurement of contingent consideration (non-cash benefit);
  • Acquisition related costs (non-recurring cash charges); and
  • Amortization of purchased intangibles (non-cash charges).

In calculating non-GAAP income and non-GAAP income per share in this release, we have also excluded the following items in applicable periods:

  • Imputed interest expenses on convertible debt (non-cash charges);
  • Imputed interest related to restructuring (non-cash charges);
  • Gains and losses on sales of assets (non-recurring and/or non-cash losses and gains related to the periodic disposal of assets no longer required for current activities);
  • Gains and losses related to minority investments (non-cash or non-recurring benefits or charges);
  • Other miscellaneous expenses (income) (non-recurring charges or benefits);
  • Dollar denominated foreign exchange transaction losses (gains) (non-cash charges or benefits);
  • Amortization of debt issuance costs (non-cash charges);
  • Non-controlling interest non-GAAP adjustment (non-cash and/or non-recurring charges or benefits attributable to the non-controlling interest in majority-controlled subsidiaries); and
  • Differences between cash payable for income taxes and the provision for income taxes in accordance with GAAP, less discrete items.

A reconciliation of this non-GAAP financial information to the corresponding GAAP information is set forth below:

   
   
Finisar Corporation  
Reconciliation of Results of Operations under GAAP and non-GAAP  
(Unaudited, in thousands, except per share data)  
                   
    Three Months Ended  
    July 27, 2014     July 28, 2013     April 27, 2014  
GAAP to non-GAAP reconciliation of gross profit:                        
Gross profit - GAAP   $ 98,819     $ 91,373     $ 96,564  
Gross margin - GAAP     30.2 %     34.3 %     31.6 %
Adjustments:                        
Cost of revenues                        
  Change in excess and obsolete inventory reserve     1,721       (1,528 )     3,384  
  Amortization of acquired technology     1,434       1,593       1,326  
  Stock compensation     2,276       1,777       2,531  
  Acquisition method accounting adjustment for sale of acquired inventory     -       -       822  
  Reduction in force costs     475       23       124  
  Acquisition related retention payment     118       62       62  
    Total cost of revenue adjustments     6,024       1,927       8,249  
Gross profit - non-GAAP     104,843       93,300       104,813  
Gross margin - non-GAAP     32.0 %     35.1 %     34.2 %
                         
GAAP to non-GAAP reconciliation of operating income:                        
Operating income - GAAP     20,368       27,103       21,107  
Operating margin - GAAP     6.2 %     10.2 %     6.9 %
Adjustments:                        
Total cost of revenue adjustments     6,024       1,927       8,249  
Research and development                        
  Reduction in force costs     332       12       -  
  Acquisition related retention payment     193       191       190  
  Stock compensation     4,436       3,525       4,056  
Sales and marketing                        
  Acquisition related retention payment     20       17       17  
  Stock compensation     1,529       1,184       1,406  
General and administrative                        
  Reduction in force costs     (5 )     67       69  
  Acquisition related retention payment     16       217       8  
  Stock compensation     2,812       2,423       2,525  
  Acquisition related costs     230       225       567  
  Litigation settlements and resolutions and related costs     (1,312 )     5       5  
  Gain on fair value remeasurement of contingent consideration liability     -       (5,094 )     -  
Amortization of purchased intangibles     761       595       683  
    Total cost of revenue and operating expense adjustments     15,036       5,294       17,775  
Operating income - non-GAAP     35,404       32,397       38,882  
Operating margin - non-GAAP     10.8 %     12.2 %     12.7 %
                         
GAAP to non-GAAP reconciliation of income attributable to Finisar Corporation:                        
Net income attributable to Finisar Corporation - GAAP     14,243       26,011       28,750  
Adjustments:                        
Total cost of revenue and operating expense adjustments     15,036       5,294       17,775  
Non-cash imputed interest expenses on convertible debt     2,243       -       2,225  
Imputed interest related to restructuring     51       57       53  
Other (income) expense, net                        
  Loss (gain) on sale of assets     238       (110 )     (8,156 )
  Gain related to minority investments     -       (743 )     -  
  Other miscellaneous income     (1 )     -       -  
  Foreign exchange transaction (gain) or loss     1,991       567       (69 )
  Amortization of debt issuance cost     154       -       155  
Provision for income taxes                        
  Income tax provision adjustments     (623 )     126       (3,737 )
Non-controlling interest non-GAAP adjustment     -       67       (4 )
Total adjustments     19,089       5,258       8,242  
Net income attributable to Finisar Corporation - non-GAAP   $ 33,332     $ 31,269     $ 36,992  
                         
Non-GAAP income attributable to Finisar Corporation   $ 33,332     $ 31,269     $ 36,992  
Add: interest expense for dilutive convertible notes     539       539       539  
Adjusted non-GAAP income attributable to Finisar Corporation   $ 33,871     $ 31,808     $ 37,531  
                         
Non-GAAP income per share attributable to Finisar Corporation common stockholders                        
  Basic   $ 0.34     $ 0.33     $ 0.38  
  Diluted   $ 0.32     $ 0.31     $ 0.36  
Shares used in computing non-GAAP income per share attributable to Finisar Corporation common stockholders                        
  Basic     98,241       94,609       96,965  
  Diluted     106,036       101,125       105,418  
                         
Non-GAAP EBITDA                        
Non-GAAP income attributable to Finisar Corporation   $ 33,332     $ 31,269     $ 36,992  
Depreciation expense     19,648       13,927       17,518  
Amortization     39       94       94  
Interest expense     228       278       202  
Income tax expense     2,200       1,295       1,805  
Non-GAAP EBITDA   $ 55,447     $ 46,863     $ 56,611  
                         

Finisar-F

Contact Information

  • Investor Contact:
    Kurt Adzema
    Chief Financial Officer
    408-542-5050
    Investor.relations@finisar.com

    Press contact:
    Victoria McDonald
    Director, Corporate Communications
    408-542-4261