SOURCE: Finisar

Finisar Corporation

September 08, 2016 16:00 ET

Finisar Announces Record First Fiscal Quarter Revenues

SUNNYVALE, CA--(Marketwired - September 08, 2016) - 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 year 2017, ended July 31, 2016.

COMMENTARY

"I am pleased to announce that Finisar achieved record revenues for our first quarter of $341.3 million, an increase of $22.5 million, or 7.1% compared to the prior quarter. This growth was primarily driven by strong demand for 100Gb/s transceivers in CFP, CFP2, CFP4, and QSFP28 form factors. In addition, demand for wavelength selective switches was strong. Our gross margins improved significantly due to favorable product mix and leverage of our vertically integrated manufacturing infrastructure over the larger volume. The combination of revenues being at the higher end of our guidance range and better than expected gross margins resulted in earnings per fully diluted share exceeding the upper end of our guidance range," said Jerry Rawls, Finisar's Chief Executive Officer.

 
FINANCIAL HIGHLIGHTS - First Quarter Ended July 31, 2016
       
Summary GAAP Results  First  Fourth
  Quarter  Quarter
  Ended  Ended
   July 31, 2016  May 1, 2016
   (in thousands, except per share amounts)
       
Revenues  $341,325  $318,794
Gross margin  31.7%  28.4%
Operating expenses  $79,854  $76,306
Operating income  $28,311  $14,135
Operating margin  8.3%  4.4%
Net income  $23,949  $13,072
Income per share-basic  $0.22  $0.12
Income per share-diluted  $0.22  $0.12
       
Basic shares  108,820  107,612
Diluted shares  110,821  109,386
       
     
     
     
Summary Non-GAAP Results (a)  First  Fourth
  Quarter  Quarter
  Ended  Ended
   July 31, 2016  May 1, 2016
   (in thousands, except per share amounts)
       
Revenues  $341,325  $318,794
Non-GAAP Gross margin  33.1%  30.6%
Non-GAAP Operating expenses  $69,344  $66,186
Non-GAAP Operating income  $43,520  $31,239
Non-GAAP Operating margin  12.8%  9.8%
Non-GAAP Net income  $41,825  $31,824
Non-GAAP Income per share-basic  $0.38  $0.30
Non-GAAP Income per share-diluted  $0.38  $0.29
       
Basic shares  108,820  107,612
Diluted shares  110,821  109,386
       

(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 of Finisar's core ongoing 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 2017:

  • Revenues were $341.3 million, an increase of $22.5 million, or 7.1%, from $318.8 million in the preceding quarter.
  • Sales of telecom products increased by $22.0 million, or 29.0%, compared to the preceding quarter. This increase was due to higher sales of wavelength selective switches, coherent receivers, and 100G transceivers, as well as a rebound in demand for other telecom products including amplifiers and 10G transceivers, both tunable and fixed wavelength.
  • Sales of datacom products increased by $0.5 million, or 0.2%, compared to the preceding quarter, primarily driven by growth in demand for 100G transceivers including CFP, CFP2, CFP4, and QSFP28 form factors, partially offset by a decline in sales of transceivers for wireless applications and 40G transceivers. Datacom revenue, excluding transceivers for wireless applications, increased 3.1% over the preceding quarter. Sales of 100G transceivers for datacom applications increased 21.8% over the preceeding quarter, and 115.8% over the first quarter of the prior fiscal year.
  • GAAP gross margin improved to 31.7%, compared to 28.4% in the preceding quarter, primarily due to favorable product mix and the benefit of vertical integration over the larger volume.
  • Non-GAAP gross margin improved to 33.1% compared to 30.6% in the preceding quarter.
  • GAAP operating expenses were $79.9 million compared to $76.3 million in the preceding quarter. The increase was due to higher payroll taxes from the annual vesting of employee restricted stock unit grants, higher legal expenses from two patent trials completed in the quarter, and higher employee compensation levels. GAAP operating expenses as a percentage of revenue decreased to approximately 23.4% of revenue compared to 23.9% in the preceding quarter.
  • Non-GAAP operating expenses increased to $69.3 million compared to $66.2 million in the preceding quarter. Non-GAAP operating expenses as a percentage of revenue decreased to approximately 20.3% of revenue compared to 20.8% in the preceding quarter.
  • GAAP operating margin improved to 8.3% from 4.4% in the preceding quarter.
  • Non-GAAP operating margin improved to 12.8% from 9.8% in the preceding quarter.
  • GAAP earnings per fully diluted share was $0.22 compared to $0.12 in the preceding quarter, primarily due to higher revenues levels and improved gross margins.
  • Non-GAAP earnings per fully diluted share was $0.38 compared to $0.29 in the preceding quarter.
  • Cash, cash equivalents and short term investments increased $31.3 million to $593.8 million at the end of the first quarter, compared to $562.5 million at the end of the preceding quarter.

OUTLOOK

Finisar indicated that for the second quarter of fiscal 2017 it currently expects revenues in the range of $355 to $375 million, non-GAAP gross margin of approximately 34%, non-GAAP operating margin of approximately 14.3% to 15.3%, and non-GAAP earnings per fully diluted share in the range of approximately $0.44 to $0.50.

Finisar has not provided a reconciliation of its second quarter outlook for non-GAAP gross margin, non-GAAP operating margin and non-GAAP earnings per fully diluted share because estimates of all of the reconciling items cannot be provided without unreasonable efforts. It is difficult to reasonably provide a forward-looking estimate of certain reconciling items between such non-GAAP forward-looking measures and the comparable forward-looking GAAP measures. Certain factors that are materially significant to Finisar's ability to estimate these items are out of its control and/or cannot be reasonably predicted, including with respect to restructuring charges, litigation settlements and resolutions and related costs, and the timing of tax related adjustments. Accordingly, a reconciliation of such non-GAAP forward-looking measures to the comparable forward-looking GAAP measures are not available within a reasonable range of predictability.

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 8, 2016, 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 888-208-1815 (domestic) or 719-325-2291 (international) and enter conference ID 1833924.

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 1833924 and provide your name, affiliation, and contact number. A replay of the webcast will be available shortly after the conclusion of the call on Finisar'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; 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 17, 2016) 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 over 25 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 Balance Sheets  
(in thousands)  
          
   July 31, 2016   May 1, 2016  
   (Unaudited)      
ASSETS           
Current assets:           
 Cash and cash equivalents  $280,414   $299,221  
 Short-term held-to-maturity investments   313,389    263,255  
 Accounts receivable, net   255,036    249,257  
 Accounts receivable, other   43,678    44,576  
 Inventories   272,592    273,291  
 Prepaid expenses and other assets   18,646    18,483  
  Total current assets   1,183,755    1,148,083  
Property, equipment and improvements, net   338,918    348,613  
Purchased intangible assets, net   16,197    18,388  
Goodwill   106,735    106,735  
Minority investments   3,974    4,051  
Other assets   18,928    19,501  
  Total assets  $1,668,507   $1,645,371  
            
LIABILITIES AND STOCKHOLDERS' EQUITY           
Current liabilities:           
 Accounts payable  $136,317   $141,591  
 Accrued compensation   36,332    36,084  
 Other accrued liabilities   39,201    42,206  
 Deferred revenue   16,468    13,529  
  Total current liabilities   228,318    233,410  
Long-term liabilities:           
 Convertible notes, net of current portion   232,016    229,393  
 Other non-current liabilities   14,056    14,882  
  Total liabilities   474,390    477,685  
Stockholders' equity:           
 Common stock   110    108  
 Additional paid-in capital   2,621,260    2,605,859  
 Accumulated other comprehensive income (loss)   (38,109 )  (25,188 )
 Accumulated deficit   (1,389,144 )  (1,413,093 )
  Total stockholders' equity   1,194,117    1,167,686  
Total liabilities and stockholders' equity  $1,668,507   $1,645,371  
Note - Balance sheet amounts as of May 1, 2016 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 31, 2016   Aug 02, 2015   May 1, 2016  
Revenues  $341,325   $314,030   $318,794  
Cost of revenues   231,637    224,147    226,723  
Impairment of long-lived assets   -    1,071    -  
Amortization of acquired developed technology   1,523    1,435    1,630  
Gross profit   108,165    87,377    90,441  
Gross margin   31.7 %  27.8 %  28.4 %
Operating expenses:                
 Research and development   51,008    52,408    50,169  
 Sales and marketing   11,863    11,202    11,621  
 General and administrative   16,315    15,208    13,848  
 Impairment of long-lived assets   -    830    -  
 Amortization of purchased intangibles   668    668    668  
  Total operating expenses   79,854    80,316    76,306  
Income from operations   28,311    7,061    14,135  
Interest income   726    365    802  
Interest expense   (2,986 )  (2,883 )  (3,017 )
Other income (expenses), net   (59 )  881    (80 )
Income before income taxes   25,992    5,424    11,840  
Provision (benefit) for income taxes   2,043    2,031    (1,232 )
Net income  $23,949   $3,393   $13,072  
                 
Net income per share attributable to Finisar Corporation common stockholders:                
 Basic  $0.22   $0.03   $0.12  
 Diluted  $0.22   $0.03   $0.12  
                 
Shares used in computing net income per share - basic   108,820    105,286    107,612  
Shares used in computing net income per share - diluted   110,821    108,107    109,386  
             

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 Commission: non-GAAP gross profit, non-GAAP operating income, non-GAAP income and non-GAAP net income per share. These non-GAAP financial measures are supplemental information regarding Finisar's operating performance on a non-GAAP basis that excludes certain gains, losses and charges of a non-cash nature or that occur relatively infrequently and/or that management considers to be outside of our ongoing core operating results. Management believes that tracking non-GAAP gross profit, non-GAAP operating income, non-GAAP net income and non-GAAP net income per share provides management and the investment community with valuable insight into our ongoing core 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 in this release:

  • Changes in excess and obsolete inventory reserve (predominantly non-cash charges);
  • Amortization of acquired technology (non-cash charges related to technology obtained in acquisitions);
  • Duplicate facility costs during facility move (non-core cash charges);
  • Stock-based compensation expense (non-cash charges);
  • Impairment of long-lived assets (non-cash charges);
  • Reduction in force costs (non-core cash charges); and
  • Acquisition related retention payments (non-core 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 in this release:

  • Gain or loss on litigation settlements and resolutions and related costs (non-core cash charges or benefits);
  • Shareholder class action and derivative litigation costs (non-core cash charges 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-core cash charges);
  • Unclaimed property tax audit accrual (non-core 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 in this release:

  • Imputed interest expenses on convertible debt (non-cash charges);
  • Imputed interest related to restructuring (non-cash charges);
  • Other interest income (non-core benefits);
  • Gains and losses on sales of assets (non-cash losses and cash gains related to the periodic disposal of assets no longer required for current activities);
  • Other miscellaneous expenses (income) (non-core charges or benefits);
  • Dollar denominated foreign exchange transaction losses (gains) (non-cash charges or benefits); and
  • Amortization of debt issuance costs (non-cash charges).

In addition, in this release we have adjusted non-GAAP income and non-GAAP income per share for the difference between GAAP income taxes and non-GAAP income taxes.

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 31, 2016   Aug 02, 2015   May 1, 2016  
GAAP to non-GAAP reconciliation of gross profit:                
Gross profit - GAAP  $108,165   $87,377   $90,441  
Gross margin - GAAP   31.7 %  27.8 %  28.4 %
Adjustments:                
Cost of revenues                
 Change in excess and obsolete inventory valuation adjustments (1)        1,430    2,102  
 Amortization of acquired technology   1,523    1,435    1,630  
 Duplicate facility costs during facility move   8    82    8  
 Stock compensation   3,047    2,692    2,847  
 Impairment of long-lived assets   -    1,282    -  
 Reduction in force costs   102    554    369  
 Acquisition related retention payment   19    65    28  
  Total cost of revenue adjustments   4,699    7,540    6,984  
Gross profit - non-GAAP   112,864    94,917    97,425  
Gross margin - non-GAAP   33.1 %  30.2 %  30.6 %
                 
GAAP to non-GAAP reconciliation of operating income:                
Operating income - GAAP   28,311    7,061    14,135  
Operating margin - GAAP   8.3 %  2.2 %  4.4 %
Adjustments:                
Total cost of revenue adjustments   4,699    7,540    6,984  
Total operating expense adjustments                
 Operating expenses - GAAP   79,854    80,316    76,306  
  Research and development                
  Reduction in force costs   174    288    386  
  Duplicate facility costs during facility move   7    221    7  
  Acquisition related retention payment   32    91    32  
  Stock compensation   5,111    4,838    4,855  
  Impairment of long-lived assets   -    287    -  
 Sales and marketing                
  Reduction in force costs   29    63    1  
  Acquisition related retention payment   -    10    -  
  Stock compensation   1,751    1,707    1,747  
 General and administrative                
  Reduction in force costs   13    352    49  
  Duplicate facility costs   143    9    24  
  Acquisition related retention payment   (2 )  (5 )  4  
  Stock compensation   2,553    2,760    2,381  
  Acquisition related costs   31    18    (1 )
  Litigation settlements and resolutions and related costs   -    16    1  
  Shareholder class action and derivative litigation costs   -    -    (184 )
  Unclaimed property tax audit accrual   -    -    150  
 Amortization of purchased intangibles   668    668    668  
 Impairment of long-lived assets   -    587    -  
   Total operating expense adjustments   10,510    11,910    10,120  
 Operating expenses - non-GAAP   69,344    68,406    66,186  
Operating income - non-GAAP   43,520    26,511    31,239  
Operating margin - non-GAAP   12.8 %  8.4 %  9.8 %
                 
GAAP to non-GAAP reconciliation of income before income taxes:                
Income before income taxes - GAAP   25,992    5,424    11,840  
Adjustments:                
Total cost of revenue adjustments   4,699    7,540    6,984  
Total operating expense adjustments   10,510    11,910    10,120  
Total Interest and other adjustments                
Other interest income   -    -    (6 )
Non-cash imputed interest expenses on convertible debt   2,469    2,354    2,449  
Imputed interest related to restructuring   38    45    40  
Other (income) expense, net                
 Loss (gain) on sale of assets   (8 )  (185 )  165  
 Other miscellaneous income   -    (17 )  (184 )
 Foreign exchange transaction (gain) or loss   (29 )  (693 )  362  
 Amortization of debt issuance cost   154    154    154  
  Total Interest and other adjustments   2,624    1,658    2,980  
Income before income taxes - non-GAAP   43,825    26,532    31,924  
                 
GAAP to non-GAAP reconciliation of net income:                
Net income - GAAP   23,949    3,393    13,072  
Total cost of revenue adjustments   4,699    7,540    6,984  
Total operating expense adjustments   10,510    11,910    10,120  
Total Interest and other adjustments   2,624    1,658    2,980  
Income tax provision adjustments   43    31    (1,332 )
  Total adjustments   17,876    21,139    18,752  
Net income - non-GAAP  $41,825   $24,532   $31,824  
                 
Non-GAAP net income for diluted earnings per share calcuation                
Non-GAAP net income  $41,825   $24,532   $31,824  
Add: interest expense for dilutive convertible notes   -    -    -  
Adjusted non-GAAP income  $41,825   $24,532   $31,824  
                 
Basic non-GAAP income per share                
 GAAP earnings per share  $0.22   $0.03   $0.12  
 Impact of all non-GAAP adjustments  $0.16   $0.20   $0.18  
 Non-GAAP earnings per share  $0.38   $0.23   $0.30  
                 
Diluted non-GAAP income per share                
 GAAP earnings per share  $0.22   $0.03   $0.12  
 Impact of all non-GAAP adjustments  $0.16   $0.20   $0.17  
 Non-GAAP earnings per share  $0.38   $0.23   $0.29  
                 
Shares used in computing non-GAAP income per share                
 Basic   108,820    105,286    107,612  
 Diluted   110,821    108,107    109,386  
 (1) Non-GAAP adjustment no longer made effective fiscal 2017.

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