SOURCE: Finisar

Finisar Corporation

December 08, 2016 16:00 ET

Finisar Announces Record Second Fiscal Quarter Revenues and Profits

SUNNYVALE, CA--(Marketwired - December 08, 2016) - Finisar Corporation (NASDAQ: FNSR), a global technology leader for subsystems and components for fiber optic communications, today announced financial results for its second quarter of fiscal year 2017, ended October 30, 2016.

COMMENTARY

"I am pleased to announce that Finisar achieved all-time quarterly records for revenues and profits in our second quarter. Revenues were $369.9 million, an increase of $28.5 million, or 8.4% over the first quarter. This growth was primarily driven by strong demand for 100G transceivers. In addition, customer demand for wavelength selective switch and ROADM line card products was strong. Our gross margins improved significantly due to a favorable product mix and leverage achieved from our vertical integration with larger volumes. The combination of revenues being at the higher end of our guidance range with higher gross margins resulted in earnings per fully diluted share above our guidance range," said Jerry Rawls, Finisar's Chief Executive Officer.

 
FINANCIAL HIGHLIGHTS - Second Quarter Ended October 30, 2016
     
Summary GAAP Results  Second  First
Quarter  Quarter
Ended  Ended
   October 30, 2016  July 31, 2016
   (in thousands, except per share amounts)
       
Revenues  $369,863  $341,325
Gross margin  36.1%  31.7%
Operating expenses  $80,853  $79,854
Operating income  $52,828  $28,311
Operating margin  14.3%  8.3%
Net income  $48,765  $23,949
Income per share-basic  $0.44  $0.22
Income per share-diluted  $0.43  $0.22
       
Basic shares  110,407  108,820
Diluted shares  113,192  110,821
       
Summary Non-GAAP Results (a)  




Second
 






First
Quarter  Quarter
Ended  Ended
   October 30, 2016  July 31, 2016
   (in thousands, except per share amounts)
       
Revenues  $369,863  $341,325
Non-GAAP Gross margin  37.2%  33.1%
Non-GAAP Operating expenses  $69,418  $69,344
Non-GAAP Operating income  $68,250  $43,520
Non-GAAP Operating margin  18.5%  12.8%
Non-GAAP Net income  $65,154  $41,825
Non-GAAP Income per share-basic  $0.59  $0.38
Non-GAAP Income per share-diluted  $0.58  $0.38
       
Basic shares  110,407  108,820
Diluted shares  113,192  110,821
       
(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 Second Quarter of Fiscal 2017:

  • Revenues were $369.9 million, an increase of $28.5 million, or 8.4%, from $341.3 million in the first quarter.
  • Sales of telecom products increased by $9.7 million, or 9.9%, compared to the first quarter. This increase was due primarily to higher sales of 100G transceivers, as well as wavelength selective switch and ROADM line card products.
  • Sales of datacom products increased by $18.8 million, or 7.7%, compared to the first quarter. This increase was due primarily to growth in demand for 100G transceivers. Sales of 100G transceivers for datacom applications increased approximately 30% compared to the first quarter, and more than 80% compared to the second quarter of the prior fiscal year. Sales of 40G datacom transceivers were approximately flat compared to the first quarter.
  • GAAP gross margin improved to 36.1%, compared to 31.7% in the first quarter, primarily due to favorable product mix and the operational leverage from our vertical integration.
  • Non-GAAP gross margin improved to 37.2% compared to 33.1% in the first quarter.
  • GAAP operating expenses were $80.9 million compared to $79.9 million in the first quarter. GAAP operating expenses as a percentage of revenue decreased to approximately 21.9% of revenue compared to 23.4% in the first quarter.
  • Non-GAAP operating expenses were $69.4 million compared to $69.3 million in the first quarter. Non-GAAP operating expenses as a percentage of revenue decreased to approximately 18.8% compared to 20.3% in the first quarter.
  • GAAP operating margin improved to 14.3% from 8.3% in the first quarter.
  • Non-GAAP operating margin improved to 18.5% from 12.8% in the first quarter.
  • GAAP earnings per fully diluted share was $0.43 compared to $0.22 in the first quarter, primarily due to higher revenue levels and improved gross margins.
  • Non-GAAP earnings per fully diluted share was $0.58 compared to $0.38 in the preceding quarter.
  • Cash, cash equivalents and short-term investments increased $32.5 million to $626.3 million at the end of the second quarter, compared to $593.8 million at the end of the preceding quarter.

OUTLOOK

Finisar indicated that for the third quarter of fiscal 2017 it currently expects revenues in the range of $378 to $398 million, non-GAAP gross margin of approximately 37% to 38%, non-GAAP operating margin of approximately 18.5% to 19.5%, and non-GAAP earnings per fully diluted share in the range of approximately $0.58 to $0.64.

Finisar has not provided a reconciliation of its third 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 second quarter and current business outlook during its regular quarterly conference call scheduled for Thursday, December 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 1-877-741-4239 (domestic) or 1-719-325-4771 (international) and enter conference ID 7509499.

An audio replay will be available for two weeks following the call by dialing 1-888-203-1112 (domestic) or 1-719-457-0820 (international) and then following the prompts: enter conference ID 7509499 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 Statements of Operations  
(Unaudited, in thousands, except per share data)  
                      
   Three Months Ended   Six Months Ended   Three Months Ended  
   Oct 30, 2016   Nov 01, 2015   Oct 30, 2016   Nov 01, 2015   Jul 31, 2016  
Revenues  $369,863   $321,136   $711,188   $635,166   $341,325  
Cost of revenues   235,192    230,610    466,829    454,757    231,637  
Impairment of long-lived assets   -    -    -    1,071    -  
Amortization of acquired developed technology   990    1,435    2,513    2,870    1,523  
Gross profit   133,681    89,091    241,846    176,468    108,165  
Gross margin   36.1 %  27.7 %  34.0 %  27.8 %  31.7 %
Operating expenses:                          
 Research and development   53,242    50,972    104,250    103,380    51,008  
 Sales and marketing   13,367    11,897    25,230    23,099    11,863  
 General and administrative   13,576    16,186    29,891    31,394    16,315  
 Impairment of long-lived assets   -    -    -    830    -  
 Amortization of purchased intangibles   668    668    1,336    1,336    668  
  Total operating expenses   80,853    79,723    160,707    160,039    79,854  
Income from operations   52,828    9,368    81,139    16,429    28,311  
Interest income   1,021    469    1,747    834    726  
Interest expense   (3,025 )  (2,917 )  (6,011 )  (5,800 )  (2,986 )
Other income (expenses), net   795    445    736    1,326    (59 )
Income before income taxes   51,619    7,365    77,611    12,789    25,992  
Provision for income taxes   2,854    721    4,897    2,752    2,043  
Net income  $48,765   $6,644   $72,714   $10,037   $23,949  
                           
Net income per share attributable to Finisar Corporation common stockholders:                          
                           
 Basic  $0.44   $0.06   $0.66   $0.09   $0.22  
 Diluted  $0.43   $0.06   $0.65   $0.09   $0.22  
                           
Shares used in computing net income per share - basic   110,407    106,635    109,614    105,961    108,820  
Shares used in computing net income per share - diluted   113,192    107,493    112,450    108,238    110,821  
                           
                     
 
Finisar Corporation
Consolidated Balance Sheets
(in thousands)
          
   Oct 30, 2016  Jul 31, 2016  May 1, 2016
   (Unaudited)  (Unaudited)   
ASSETS         
Current assets:         
 Cash and cash equivalents  $ 282,963  $ 280,414  $ 299,221
 Short-term held-to-maturity investments  343,319  313,389  263,255
 Accounts receivable, net  277,667  255,036  249,257
 Accounts receivable, other  49,997  43,678  44,576
 Inventories  292,439  272,592  273,291
 Prepaid expenses and other assets  17,140  18,646  18,483
  Total current assets  1,263,525  1,183,755  1,148,083
Property, equipment and improvements, net  341,563  338,918  348,613
Purchased intangible assets, net  16,339  16,197  18,388
Goodwill  106,735  106,735  106,735
Minority investments  3,893  3,974  4,051
Other assets  18,008  18,928  19,501
  Total assets  $ 1,750,063  $ 1,668,507  $ 1,645,371
          
LIABILITIES AND STOCKHOLDERS' EQUITY         
Current liabilities:         
 Accounts payable  $ 153,023  $ 136,317  $ 141,591
 Accrued compensation  45,213  36,332  36,084
 Other accrued liabilities  36,736  39,201  42,206
 Deferred revenue  17,818  16,468  13,529
  Total current liabilities  252,790  228,318  233,410
Long-term liabilities:         
 Convertible notes, net of current portion  234,679  232,016  229,393
 Other non-current liabilities  13,279  14,056  14,882
  Total liabilities  500,748  474,390  477,685
Stockholders' equity:         
 Common stock  111  110  108
 Additional paid-in capital  2,639,355  2,621,260  2,605,859
 Accumulated other comprehensive income (loss)  (49,772)  (38,109)  (25,188)
 Accumulated deficit  (1,340,379)  (1,389,144)  (1,413,093)
  Total stockholders' equity  1,249,315  1,194,117  1,167,686
Total liabilities and stockholders' equity  $ 1,750,063  $ 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 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 that 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:

  • Acquisition related costs (non-core cash charges);
  • Gain or loss on litigation settlements and resolutions and related costs (non-core cash charges or benefits); 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);
  • 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   Six Months Ended   Three Months Ended  
   Oct 30, 2016   Nov 01, 2015   Oct 30, 2016   Nov 01, 2015   Jul 31, 2016  
GAAP to non-GAAP reconciliation of gross profit:                          
Gross profit - GAAP  $133,681   $89,091   $241,846   $176,468   $108,165  
Gross margin - GAAP   36.1 %  27.7 %  34.0 %  27.8 %  31.7 %
Adjustments:                          
Cost of revenues                          
 Change in excess and obsolete inventory valuation adjustments (1)   -    2,402    -    3,832    -  
 Amortization of acquired technology   990    1,435    2,513    2,870    1,523  
 Duplicate facility costs during facility move   8    4    16    86    8  
 Stock compensation   2,949    2,922    5,996    5,614    3,047  
 Impairment of long-lived assets   -    -    -    1,282    -  
 Reduction in force costs   14    417    116    971    102  
 Acquisition related retention payment   26    28    45    93    19  
  Total cost of revenue adjustments   3,987    7,208    8,686    14,748    4,699  
Gross profit - non-GAAP   137,668    96,299    250,532    191,216    112,864  
Gross margin - non-GAAP   37.2 %  30.0 %  35.2 %  30.1 %  33.1 %
                           
GAAP to non-GAAP reconciliation of operating income:                          
Operating income - GAAP   52,828    9,368    81,139    16,429    28,311  
Operating margin - GAAP   14.3 %  2.9 %  11.4 %  2.6 %  8.3 %
Adjustments:                          
Total cost of revenue adjustments   3,987    7,208    8,686    14,748    4,699  
Total operating expense adjustments                          
 Operating expenses - GAAP   80,853    79,723    160,707    160,039    79,854  
 Research and development                          
  Reduction in force costs   88    -    262    288    174  
  Duplicate facility costs during facility move   7    49    14    270    7  
  Acquisition related retention payment   32    67    64    158    32  
  Stock compensation   5,552    4,970    10,663    9,808    5,111  
  Impairment of long-lived assets   -    -    -    287    -  
 Sales and marketing                          
  Reduction in force costs   -    117    29    180    29  
  Acquisition related retention payment   -    3    -    13    -  
  Stock compensation   1,877    1,718    3,628    3,425    1,751  
 General and administrative                          
  Reduction in force costs   20    963    33    1,315    13  
  Duplicate facility costs   154    8    297    17    143  
  Acquisition related retention payment   -    -    (2 )  (5 )  (2 )
  Stock compensation   2,989    2,757    5,542    5,517    2,553  
  Acquisition related costs   2    378    33    396    31  
  Litigation settlements and resolutions and related costs   46    -    46    16    -  
 Amortization of purchased intangibles   668    668    1,336    1,336    668  
 Impairment of long-lived assets   -    -    -    587    -  
   Total operating expense adjustments   11,435    11,698    21,945    23,608    10,510  
 Operating expenses - non-GAAP   69,418    68,025    138,762    136,431    69,344  
Operating income - non-GAAP   68,250    28,274    111,770    54,785    43,520  
Operating margin - non-GAAP   18.5 %  8.8 %  15.7 %  8.6 %  12.8 %
                           
GAAP to non-GAAP reconciliation of income before income taxes:                          
Income before income taxes - GAAP   51,619    7,365    77,611    12,789    25,992  
Adjustments:                          
Total cost of revenue adjustments   3,987    7,208    8,686    14,748    4,699  
Total operating expense adjustments   11,435    11,698    21,945    23,608    10,510  
Total Interest and other adjustments                          
Non-cash imputed interest expenses on convertible debt   2,509    2,391    4,978    4,745    2,469  
Imputed interest related to restructuring   37    44    75    89    38  
Other (income) expense, net                          
 Loss (gain) on sale of assets   (17 )  85    (25 )  (100 )  (8 )
 Other miscellaneous income   -    (120 )  -    (137 )  -  
 Foreign exchange transaction (gain) or loss   (970 )  51    (999 )  (642 )  (29 )
 Amortization of debt issuance cost   154    154    308    308    154  
  Total Interest and other adjustments   1,713    2,605    4,337    4,263    2,624  
Income before income taxes - non-GAAP   68,754    28,876    112,579    55,408    43,825  
                           
GAAP to non-GAAP reconciliation of net income:                          
Net income - GAAP   48,765    6,644    72,714    10,037    23,949  
Total cost of revenue adjustments   3,987    7,208    8,686    14,748    4,699  
Total operating expense adjustments   11,435    11,698    21,945    23,608    10,510  
Total Interest and other adjustments   1,713    2,605    4,337    4,263    2,624  
Income tax provision adjustments   (746 )  (1,298 )  (703 )  (1,267 )  43  
 Total adjustments   16,389    20,213    34,265    41,352    17,876  
Net income - non-GAAP  $65,154   $26,857   $106,979   $51,389   $41,825  
                           
Non-GAAP net income for diluted earnings per share calcuation                          
Non-GAAP net income  $65,154   $26,857   $106,979   $51,389   $41,825  
Add: interest expense for dilutive convertible notes   -    -    -    -    -  
Adjusted non-GAAP income  $65,154   $26,857   $106,979   $51,389   $41,825  
                           
Basic non-GAAP income per share                          
GAAP earnings per share  $0.44   $0.06   $0.66   $0.09   $0.22  
Impact of all non-GAAP adjustments  $0.15   $0.19   $0.31   $0.39   $0.16  
Non-GAAP earnings per share  $0.59   $0.25   $0.98   $0.48   $0.38  
                           
Diluted non-GAAP income per share                          
GAAP earnings per share  $0.43   $0.06   $0.65   $0.09   $0.22  
Impact of all non-GAAP adjustments  $0.15   $0.19   $0.30   $0.38   $0.16  
Non-GAAP earnings per share  $0.58   $0.25   $0.95   $0.47   $0.38  
                           
Shares used in computing non-GAAP income per share                          
Basic   110,407    106,635    109,614    105,961    108,820  
Diluted   113,192    107,493    112,450    108,238    110,821  
                           
(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