SOURCE: Finisar

Finisar

September 04, 2012 16:00 ET

Finisar Announces First Fiscal Quarter Financial Results

SUNNYVALE, CA--(Marketwire - Sep 4, 2012) - Finisar Corporation (NASDAQ: FNSR), a global technology leader for subsystems and components for fiber optic communications, today announced financial results for its first fiscal quarter ended July 29, 2012. 

COMMENTARY

"As expected, our first quarter of fiscal year 2013 was challenging. This was primarily the result of sluggish macroeconomic conditions, especially in Europe, as well as the slowing of economic growth in China. Generally telecom spending throughout the world has been soft. In addition, we had two fewer shipping days in the first quarter than in the previous quarter," said Jerry Rawls, Finisar's executive Chairman of the Board. "However, I am happy to report that we expect revenue growth to resume in the second quarter. In addition, we expect to hold operating expenses relatively flat, excluding the impact of a full quarter of the RED-C acquisition. Thus, we expect operating income will grow in the second quarter."

"During the quarter, we continued to ramp a significant number of new products for both the datacom and telecom markets. We expect these new products to help drive our future revenue growth and market share expansion. During the last quarter, we acquired RED-C Optical Networks to broaden our product lines primarily for telecom applications by adding key amplification technologies," said Eitan Gertel, Finisar's Chief Executive Officer. "These technologies are considered critical for ROADM line cards and are increasingly important in cost-effectively extending the reach of transceivers and transponders, especially for 100 Gb/s and 40 Gb/s coherent transmission, and low latency networks. We expect that the integration of RED-C technology into Finisar products will enable us to offer our customers a much higher level of product integration with increased cost effectiveness. The combination should accelerate our market share growth."

   
FINANCIAL HIGHLIGHTS - FIRST QUARTER ENDED July 29, 2012  
   
Summary GAAP Results
  First Quarter Ended
July 29, 2012
    Fourth Quarter Ended
April 30, 2012
 
    (in thousands, except per share amounts)  
                 
Revenues   $ 220,526     $ 239,910  
Gross margin     26.2 %     27.3 %
Operating expenses   $ 62,994     $ 53,369  
Operating income (loss)   $ (5,197 )   $ 12,111  
Operating margin     (2.4 )%     5.0 %
Income (loss)   $ (6,197 )   $ 18,015  
Income (loss) per share-basic   $ (0.07 )   $ 0.20  
Income (loss) per share-diluted   $ (0.07 )   $ 0.19  
                 
Basic shares     91,988       91,349  
Diluted shares     91,988       98,528  
                 
                 
Summary Non-GAAP Results (a)     First Quarter Ended
July 29, 2012
      Fourth Quarter Ended
April 30, 2012
 
      (in thousands, except per share amounts)  
                 
Revenues   $ 220,526     $ 239,910  
Gross margin     30.3 %     31.4 %
Operating expenses   $ 54,710     $ 54,552  
Operating income   $ 12,000     $ 20,856  
Operating margin     5.4 %     8.7 %
Income   $ 10,871     $ 20,234  
Income per share-basic   $ 0.12     $ 0.22  
Income per share-diluted   $ 0.12     $ 0.21  
                 
Basic shares     91,988       91,349  
Diluted shares     94,204       98,528  
                 

_____________

(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 resultsA 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.

Operating Statement Highlights for the first quarter of fiscal 2013:

  • Revenues decreased to $220.5 million, down $19.4 million, or 8.1%, from $239.9 million in the preceding quarter primarily as a result of current macroeconomic conditions, especially in Europe, as well as the slowing of economic growth in China. Generally telecom spending throughout the world has been soft. In addition, there were two fewer shipping days in the first quarter than in the previous quarter.

  • Compared to the preceding quarter, the sale of products for datacom applications decreased by $6.6 million, or (4.5)%, and the sale of products for telecom applications decreased by $12.8 million, or (13.6)%. 

  • Gross margin was 26.2% on a GAAP basis and 30.3% on a non-GAAP basis, compared to 27.3% and 31.4%, respectively, in the preceding quarter primarily due to the impact of lower revenue levels relative to fixed manufacturing costs.

  • GAAP operating income (loss) decreased $17.3 million to $(5.2) million, or (2.4)% of revenues, compared to $12.1 million of operating income, or 5.0% of revenues, in the preceding quarter.

  • Non-GAAP operating income decreased $8.9million to $12.0 million, or 5.4% of revenues, compared to $20.9 million, or 8.7% of revenues, in the preceding quarter primarily due to lower revenue levels.

  • Non-GAAP EBITDA decreased $9.3 million to $24.9 million, or 11.3% of revenues, compared to $34.2 million, or 14.2% of revenues, in the preceding quarter. 

Balance Sheet Highlights for the first quarter of fiscal 2013:

  • Cash and cash equivalents totaled $220.4 million at the end of the first quarter, compared to $234.5 million at the end of the preceding quarter.

  • During the first quarter, Finisar completed the acquisition of RED-C Optical Networks Inc. for a total of $23.7 million in initial cash consideration.

  • During the first quarter, Finisar repaid the remaining outstanding debt balance of $3.2 million at our Ignis subsidiary.

  • At the end of the first quarter, Finisar had approximately $40.0 million in principal amount of convertible notes outstanding with a conversion price of $10.675 per share. 

OUTLOOK

The Company currently expects revenues for the second quarter of fiscal 2013 to be in the range of $225 to $240 million; GAAP operating margin to in the range of approximately 0.0% to 1.5%; non-GAAP operating margin to be in the range of approximately 5.7% to 7.2% and non-GAAP earnings per diluted share to be in the range of approximately $0.12 to $0.16.

CONFERENCE CALL

Finisar will discuss its financial results for the first quarter and current business outlook during its regular quarterly conference call scheduled for Tuesday, September 4, 2012, at 2:00 pm PDT (5:00 pm EDT). To listen to the call you may connect through the Finisar investor relations page at http://investor.finisar.com/ or dial 1-866-293-8969 (domestic) or (913) 312-0671 (international) and enter conference ID 2107413.

An audio replay will be available for two weeks following the call by dialing 1-888-203-1112 (domestic) or (719) 457-0820 and then following the prompts: enter conference ID 2107413 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

The statements contained in this press release that are not purely historical are forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended. All forward-looking statements included in this press release are based upon information available to Finisar as of the date hereof, and 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; challenges related to the integration of the recently completed RED-C acquisition; the challenges of rapid growth followed by periods of contraction; and intensive competition. 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 29, 2012) 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 more than 20 years, Finisar has provided critical optics technologies to system manufacturers to meet the increasing demands for network bandwidth and storage. 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 Statements of Operations  
(in thousands, except per share data)  
                   
    Three Months Ended  
    July 29, 2012     July 31, 2011     April 30, 2012  
    (Unaudited)  
Revenues   $ 220,526     $ 228,226     $ 239,910  
Cost of revenues     161,457       160,223       172,915  
Amortization of acquired developed technology     1,272       1,522       1,515  
Gross profit     57,797       66,481       65,480  
Gross margin     26.2 %     29.1 %     27.3 %
Operating expenses:                        
  Research and development     38,169       35,396       37,430  
  Sales and marketing     10,674       9,586       10,114  
  General and administrative     13,342       13,952       4,928  
  Amortization of purchased intangibles     809       779       897  
  Restructuring recoveries     -       (322 )     -  
    Total operating expenses     62,994       59,391       53,369  
Income (loss) from operations     (5,197 )     7,090       12,111  
Interest income     196       160       662  
Interest expense     (647 )     (911 )     (805 )
Loss on debt extinguishment     -       (419 )     -  
Other income, net     81       4,663       4,587  
Income (loss) before income taxes and non-controlling interest     (5,567 )     10,583       16,555  
Provision for income taxes     642       548       (787 )
Income (loss) before non-controlling interest     (6,209 )     10,035       17,342  
Adjust for net loss attributable to non-controlling interest     12       107       673  
Net income (loss) attributable to Finisar Corporation   $ (6,197 )   $ 10,142     $ 18,015  
                         
Net income (loss) per share attributable to Finisar Corporation common stockholders:                        
                         
  Basic   $ (0.07 )   $ 0.11     $ 0.20  
  Diluted   $ (0.07 )   $ 0.11     $ 0.19  
                         
Shares used in computing net income (loss) per share - basic     91,988       90,221       91,349  
Shares used in computing net income (loss) per share - diluted     91,988       93,527       98,528  
   
   
Finisar Corporation  
Consolidated Balance Sheets  
(in thousands)  
             
    July 29, 2012     April 30, 2012  
    (Unaudited)        
ASSETS                
Current assets:                
  Cash and cash equivalents   $ 220,409     $ 234,544  
  Accounts receivable, net     179,441       167,760  
  Accounts receivable, other     14,972       21,004  
  Inventories     208,168       218,432  
  Prepaid expenses     24,430       25,482  
    Total current assets     647,420       667,222  
Property, equipment and improvements, net     165,837       163,817  
Purchased intangible assets, net     43,049       45,177  
Goodwill     97,994       81,431  
Minority investments     884       884  
Other assets     7,393       10,896  
    Total assets   $ 962,577     $ 969,427  
                 
LIABILITIES AND STOCKHOLDERS' EQUITY                
Current liabilities:                
  Accounts payable   $ 71,295     $ 72,339  
  Accrued compensation     22,210       27,090  
  Other accrued liabilities     21,456       20,871  
  Deferred revenue     9,775       8,970  
  Current portion of long-term debt     -       3,150  
    Total current liabilities     124,736       132,420  
Long-term liabilities:                
  Convertible notes, net of current portion     40,015       40,015  
  Other non-current liabilities     16,274       15,175  
  Deferred tax liabilities     2,433       1,972  
    Total liabilities     183,458       189,582  
Stockholders' equity:                
  Common stock     93       91  
  Additional paid-in capital     2,321,064       2,309,219  
  Accumulated other comprehensive income     22,356       28,720  
  Accumulated deficit     (1,572,703 )     (1,566,506 )
    Finisar Corporation stockholders' equity     770,810       771,524  
  Non-controlling interest     8,309       8,321  
    Total stockholders' equity     779,119       779,845  
Total liabilities and stockholders' equity   $ 962,577     $ 969,427  
                 
Note - Balance sheet amounts as of April 30, 2012 are derived from the audited consolidated financial statements as of the date.  
   

FINISAR NON-GAAP FINANCIAL MEASURES

In addition to reporting financial results in accordance with U.S. generally accepted accounting principles, or GAAP, Finisar provides 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);
  • Acquisition method accounting adjustment for sale of acquired inventory (non-cash charges);
  • Expense related to recent flooding in Thailand (non-recurring charges); and
  • Reduction in force costs (non-recurring cash 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);
  • Shareholder class action and derivative litigation costs (non-recurring cash expenses associated with the derivative litigation related to our historical stock option granting practices and related to the class action and derivative litigation related to our March 8, 2011 earnings announcement);
  • Acquisition related costs (non-recurring cash charges);
  • Amortization of purchased intangibles (non-cash charges); and
  • Restructuring costs and recoveries (non-recurring cash charges).

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

  • Interest income on legal settlements and resolutions (non-recurring benefits)
  • Gains and losses on sales of assets (non-recurring or non-cash losses and cash gains related to the periodic disposal of assets no longer required for current activities);
  • Dollar denominated foreign exchange transaction losses (gains) (non-cash charges or benefits);
  • Gain on fair value re-measurement of contingent consideration liability (non-recurring benefits);
  • Other miscellaneous expenses (income) (non-recurring charges or benefits);
  • Loss related to minority and equity method investments (non-cash charges);
  • Debt extinguishment loss (non-recurring charges);
  • Fair value re-measurement of equity investment (non-cash gain from re-measurement of value of prior investment in an investee); and
  • Differences between cash payable for income taxes and the provision for income taxes in accordance with GAAP, less discrete items.

In calculating non-GAAP income per share in this release, we have included the shares issuable upon conversion of our outstanding convertible notes and excluded the interest expenses associated with such notes in such periods where such treatment is dilutive to non-GAAP income (loss) per share.

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  
(in thousands, except per share data)  
                   
    Three Months Ended  
    July 29, 2012     July 31, 2011     April 30, 2012  
    (Unaudited)  
GAAP to non-GAAP reconciliation of gross profit:                        
Gross profit - GAAP   $ 57,797     $ 66,481     $ 65,480  
Gross margin - GAAP     26.2 %     29.1 %     27.3 %
Adjustments:                        
Cost of revenues                        
  Change in excess and obsolete inventory reserve     4,866       1,090       5,027  
  Amortization of acquired technology     1,272       1,522       1,515  
  Stock compensation     1,486       1,859       1,139  
  Acquisition method accounting adjustment for sale of acquired inventory     641       1,854       963  
  Flood-related expense     -       -       1,222  
  Reduction in force costs     648       552       62  
    Total cost of revenue adjustments     8,913       6,877       9,928  
Gross profit - non-GAAP     66,710       73,358       75,408  
Gross margin - non-GAAP     30.3 %     32.1 %     31.4 %
                         
GAAP to non-GAAP reconciliation of operating income:                        
Operating income (loss) - GAAP     (5,197 )     7,090       12,111  
Operating margin - GAAP     -2.4 %     3.1 %     5.0 %
Adjustments:                        
Total cost of revenue adjustments     8,913       6,877       9,928  
Research and development                        
  Reduction in force costs     177       -       35  
  Stock compensation     2,986       2,361       2,288  
Sales and marketing                        
  Reduction in force costs     -       -       36  
  Stock compensation     1,077       864       727  
General and administrative                        
  Reduction in force costs     15       98       41  
  Stock compensation     2,829       2,008       1,768  
  Acquisition related costs     325       1,089       -  
  Litigation settlements and resolutions and related costs     23       100       (7,422 )
  Shareholder class action and derivative litigation costs     43       -       447  
Amortization of purchased intangibles     809       779       897  
Restructuring recoveries     -       (322 )     -  
    Total cost of revenue and operating expense adjustments     17,197       13,854       8,745  
Operating income - non-GAAP     12,000       20,944       20,856  
Operating margin - non-GAAP     5.4 %     9.2 %     8.7 %
                         
GAAP to non-GAAP reconciliation of income attributable to Finisar Corporation:                        
Income (loss) attributable to Finisar Corporation - GAAP     (6,197 )     10,142       18,015  
Adjustments:                        
Total cost of revenue and operating expense adjustments     17,197       13,854       8,745  
Interest income from legal settlement     -       -       (434 )
Imputed interest related to restructuring     62       70       133  
Other (income) expense, net                        
  Loss (gain) on sale of assets     (19 )     1       3  
  Loss related to minority and equity method investments     -       619       -  
  Gain on fair value remeasurement of contingent consideration liability     -       -       (4,853 )
  Other miscellaneous income     (160 )     -       (424 )
  Foreign exchange transaction loss (gain)     (4 )     (148 )     506  
  Debt extinguishment loss     -       419       -  
  Fair value remeasurement of equity investment     -       (5,429 )     (3 )
Provision for income taxes                        
  Income tax provision adjustments     (8 )     -       (1,454 )
Total adjustments     17,068       9,386       2,219  
Net income attributable to Finisar Corporation - non-GAAP     10,871       19,528       20,234  
                         
Non-GAAP income attributable to Finisar Corporation   $ 10,871     $ 19,528     $ 20,234  
Add: interest expense for dilutive convertible notes     -       539       539  
Adjusted non-GAAP income attributable to Finisar Corporation   $ 10,871     $ 20,067     $ 20,773  
                         
Non-GAAP income per share attributable to Finisar Corporation common stockholders                        
  Basic   $ 0.12     $ 0.22     $ 0.22  
  Diluted   $ 0.12     $ 0.21     $ 0.21  
Shares used in computing non-GAAP income per share attributable to Finisar Corporation common stockholders                        
  Basic     91,988       90,221       91,349  
  Diluted     94,204       97,275       98,528  
                         
Non-GAAP EBITDA                        
Non-GAAP income attributable to Finisar Corporation   $ 10,871     $ 19,528     $ 20,234  
Depreciation expense     12,711       10,595       12,583  
Amortization     236       208       227  
Interest expense     389       681       444  
Income tax expense     650       548       667  
Non-GAAP EBITDA   $ 24,857     $ 31,560     $ 34,155  

Contact Information

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

    Press contact:
    Victoria McDonald
    Sr. Manager, Corporate Communications
    408-542-4261