SOURCE: Finisar

Finisar

December 05, 2012 16:00 ET

Finisar Announces Second Fiscal Quarter Financial Results

SUNNYVALE, CA--(Marketwire - Dec 5, 2012) - Finisar Corporation (NASDAQ: FNSR), a global technology leader for subsystems and components for fiber optic communications, today announced financial results for its second fiscal quarter ended October 28, 2012. 

COMMENTARY

"I am pleased to report fiscal second quarter revenues of $232.0 million, which is $11.5 million, or 5.2%, greater than the prior quarter. Our growth in revenues came primarily from sales of tunable XFP transceivers and wavelength selective switches, including ROADM line cards," said Jerry Rawls, Finisar's executive Chairman of the Board. "In addition, operating income increased at a faster rate than revenues because we were able to hold operating expenses relatively flat. This was accomplished in spite of the impact of a full quarter of operating expenses from operation of our RED-C subsidiary, which we acquired during the first quarter."

"During the quarter, we continued to invest significantly in technology and product development and made substantial progress on a number of new products including tunable SFP+ transceivers, 100G coherent transponders, and next generation 100G client CFP and CFP2 transponders. We expect these new products to drive our future revenue growth and market share expansion in calendar 2013 and beyond," said Eitan Gertel, Finisar's Chief Executive Officer.

   
FINANCIAL HIGHLIGHTS -SECOND QUARTER ENDED October 28, 2012  
   
Summary GAAP Results   Second     First  
    Quarter     Quarter  
    Ended     Ended  
    October 28, 2012     July 29, 2012  
    (in thousands, except per share amounts)  
                 
Revenues   $ 232,041     $ 220,526  
Gross margin     27.5 %     26.2 %
Operating expenses   $ 63,820     $ 62,994  
Operating income (loss)   $ 54     $ (5,197 )
Operating margin     0.0 %     (2.4 )%
Income (loss)   $ 271     $ (6,197 )
Income (loss) per share-basic   $ 0.00     $ (0.07 )
Income (loss) per share-diluted   $ 0.00     $ (0.07 )
                 
Basic shares     92,780       91,988  
Diluted shares     94,735       91,988  
                 
             
Summary Non-GAAP Results (a)   Second     First  
    Quarter     Quarter  
    Ended     Ended  
    October 28, 2012     July 29, 2012  
    (in thousands, except per share amounts)  
                 
Revenues   $ 232,041     $ 220,526  
Gross margin     30.5 %     30.3 %
Operating expenses   $ 54,846     $ 54,710  
Operating income   $ 15,838     $ 12,000  
Operating margin     6.8 %     5.4 %
Income   $ 14,205     $ 10,871  
Income per share-basic   $ 0.15     $ 0.12  
Income per share-diluted   $ 0.15     $ 0.12  
                 
Basic shares     92,780       91,988  
Diluted shares     98,483       94,204  
                 

_____________

(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 second quarter of fiscal 2013:

  • Revenues increased to $232.0 million, an increase of $11.5 million, or 5.2%, from $220.5 million in the preceding quarter, primarily driven by growth in revenues from tunable XFP transceivers and wavelength selective switches, including ROADM line cards.

  • Compared to the preceding quarter, the sale of products for telecom applications increased by $11.1 million, or 13.7%, and the sale of products for datacom applications increased by $0.4 million, or 0.3%. 

  • Gross margin increased to 27.5% on a GAAP basis and 30.5% on a non-GAAP basis, from 26.2% and 30.3%, respectively, in the preceding quarter, primarily as the result of higher revenue levels.

  • GAAP operating income (loss) increased $5.3 million to $54,000, or 0.0 % of revenues, compared to an operating loss of $(5.2) million, or (2.4)% of revenues, in the preceding quarter.

  • Non-GAAP operating income increased $3.8 million to $15.8 million, or 6.8% of revenues, compared to $12.0 million, or 5.4% of revenues, in the preceding quarter as the Company was able to hold operating expenses relatively flat, in spite of the impact of a full quarter of operating expenses from the operation of the Company's RED-C subsidiary which we acquired during the first quarter. 

  • Non-GAAP EBITDA increased $3.9 million to $28.7 million, or 12.4% of revenues, compared to $24.9 million, or 11.3% of revenues, in the preceding quarter. 

Balance Sheet Highlights for the second quarter of fiscal 2013:

  • Cash and cash equivalents totaled $262.4 million at the end of the second quarter, compared to $220.5 million at the end of the preceding quarter.

  • At the end of the second 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 third quarter of fiscal 2013 to be in the range of $230 to $245 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 6.5% to 8.0%; and non-GAAP earnings per diluted share to be in the range of approximately $0.14 to $0.18.

CONFERENCE CALL

Finisar will discuss its financial results for the second quarter and current business outlook during its regular quarterly conference call scheduled for Wednesday, December 5, 2012, at 2:00 pm PST (5:00 pm EST). To listen to the call you may connect through the Finisar investor relations page at http://investor.finisar.com/ or dial 1-888-516-2377 (domestic) or (719) 457-2637 (international) and enter conference ID 7734918.

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 7734918 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  
                               
    Three Months Ended     Six Months Ended     Three Months Ended  
    October 28, 2012     October 30, 2011     October 28, 2012     October 30, 2011     July 29, 2012  
    (Unaudited)  
    ( in thousands, except per share data)  
Revenues   $ 232,041     $ 241,489     $ 452,567     $ 469,715     $ 220,526  
Cost of revenues     166,167       169,571       327,624       329,794       161,457  
Amortization of acquired developed technology     2,000       1,637       3,272       3,159       1,272  
Gross profit     63,874       70,281       121,671       136,762       57,797  
Gross margin     27.5 %     29.1 %     26.9 %     29.1 %     26.2 %
Operating expenses:                                        
  Research and development     39,620       36,707       77,789       72,103       38,169  
  Sales and marketing     10,219       10,125       20,893       19,711       10,674  
  General and administrative     12,919       13,773       26,261       27,725       13,342  
  Amortization of purchased intangibles     1,062       859       1,871       1,638       809  
  Restructuring recoveries     -       -       -       (322 )     -  
    Total operating expenses     63,820       61,464       126,814       120,855       62,994  
Income (loss) from operations     54       8,817       (5,143 )     15,907       (5,197 )
Interest income     162       100       358       260       196  
Interest expense     (750 )     (1,138 )     (1,397 )     (2,049 )     (647 )
Loss on debt extinguishment     -       -       -       (419 )     -  
Other income (expenses), net     (101 )     (140 )     (20 )     4,523       81  
Income (loss) before income taxes and non-controlling interest     (635 )     7,639       (6,202 )     18,222       (5,567 )
Provision (benefits) for income taxes     (1,062 )     1,369       (420 )     1,917       642  
Income (loss) before non-controlling interest     427       6,270       (5,782 )     16,305       (6,209 )
Adjust for net income (loss) attributable to non-controlling interest     (156 )     (343 )     (144 )     (236 )     12  
Net income (loss) attributable to Finisar Corporation   $ 271     $ 5,927     $ (5,926 )   $ 16,069     $ (6,197 )
                                         
Net income (loss) per share attributable to Finisar Corporation common stockholders:                                        
                                         
  Basic   $ 0.00     $ 0.07     $ (0.06 )   $ 0.18     $ (0.07 )
  Diluted   $ 0.00     $ 0.06     $ (0.06 )   $ 0.17     $ (0.07 )
                                         
Shares used in computing net income (loss) per share - basic     92,780       90,715       92,386       90,470       91,988  
Shares used in computing net income (loss) per share - diluted     94,735       93,599       92,386       93,712       91,988  
   
   
Finisar Corporation  
Consolidated Balance Sheets  
(in thousands)  
                   
    October 28, 2011     July 29, 2012     April 30, 2012  
    (Unaudited)     (Unaudited)        
ASSETS                        
Current assets:                        
  Cash and cash equivalents   $ 262,432     $ 220,409     $ 234,544  
  Accounts receivable, net     155,949       179,441       167,760  
  Accounts receivable, other     15,240       14,972       21,004  
  Inventories     203,554       208,168       218,432  
  Prepaid expenses     25,183       24,430       25,482  
    Total current assets     662,358       647,420       667,222  
Property, equipment and improvements, net     173,284       165,837       163,817  
Purchased intangible assets, net     53,300       43,049       45,177  
Goodwill     91,098       97,994       81,431  
Minority investments     884       884       884  
Other assets     7,263       7,393       10,896  
    Total assets   $ 988,187     $ 962,577     $ 969,427  
                         
LIABILITIES AND STOCKHOLDERS' EQUITY                        
Current liabilities:                        
  Accounts payable   $ 72,844     $ 71,295     $ 72,339  
  Accrued compensation     27,901       22,210       27,090  
  Other accrued liabilities     22,774       21,456       20,871  
  Deferred revenue     7,868       9,775       8,970  
  Current portion of long-term debt     -       -       3,150  
    Total current liabilities     131,387       124,736       132,420  
Long-term liabilities:                        
  Convertible notes, net of current portion     40,015       40,015       40,015  
  Other non-current liabilities     21,171       16,274       15,175  
  Deferred tax liabilities     2,459       2,433       1,972  
    Total liabilities     195,032       183,458       189,582  
Stockholders' equity:                        
  Common stock     93       93       91  
  Additional paid-in capital     2,330,683       2,321,064       2,309,219  
  Accumulated other comprehensive income     26,346       22,356       28,720  
  Accumulated deficit     (1,572,432 )     (1,572,703 )     (1,566,506 )
    Finisar Corporation stockholders' equity     784,690       770,810       771,524  
  Non-controlling interest     8,465       8,309       8,321  
    Total stockholders' equity     793,155       779,119       779,845  
Total liabilities and stockholders' equity   $ 988,187     $ 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);
  • 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);
  • 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 charges and benefits).

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 related to restructuring (non-cash charges);
  • 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);
  • Loss related to minority and equity method investments (non-cash charges);
  • Dollar denominated foreign exchange transaction losses (gains) (non-cash charges or benefits);
  • Other miscellaneous expenses (income) (non-recurring charges or benefits);
  • 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  
                               
    Three Months Ended     Six Months Ended     Three Months Ended  
    October 28, 2012     October 30, 2011     October 28, 2012     October 30, 2011     July 29, 2012  
    (Unaudited)  
    ( in thousands, except per share data)  
GAAP to non-GAAP reconciliation of gross profit:                                        
Gross profit - GAAP   $ 63,874     $ 70,281     $ 121,671     $ 136,762     $ 57,797  
Gross margin - GAAP     27.5 %     29.1 %     26.9 %     29.1 %     26.2 %
Adjustments:                                        
Cost of revenues                                        
  Change in excess and obsolete inventory reserve     2,003       2,521       6,869       3,611       4,866  
  Amortization of acquired technology     2,000       1,637       3,272       3,159       1,272  
  Stock compensation     1,876       1,687       3,362       3,546       1,486  
  Acquisition method accounting adjustment for sale of acquired inventory     722       1,229       1,363       -       641  
  Flood-related expense     -       -       -       3,083       -  
  Reduction in force costs     136       49       784       601       648  
  Acquisition related retention payment     73       -       73       -       -  
    Total cost of revenue adjustments     6,810       7,123       15,723       14,000       8,913  
Gross profit - non-GAAP     70,684       77,404       137,394       150,762       66,710  
Gross margin - non-GAAP     30.5 %     32.1 %     30.4 %     32.1 %     30.3 %
                                         
GAAP to non-GAAP reconciliation of operating income:                                        
Operating income (loss) - GAAP     54       8,817       (5,143 )     15,907       (5,197 )
Operating margin - GAAP     0.0 %     3.7 %     -1.1 %     3.4 %     -2.4 %
Adjustments:                                        
Total cost of revenue adjustments     6,810       7,123       15,723       14,000       8,913  
Research and development                                        
  Reduction in force costs     -       73       177       73       177  
  Acquisition related retention payment     222       -       222       -       -  
  Stock compensation     3,353       2,274       6,339       4,635       2,986  
Sales and marketing                                        
  Acquisition related retention payment     20       -       20       -       -  
  Stock compensation     1,002       767       2,079       1,631       1,077  
General and administrative                                        
  Reduction in force costs     54       865       69       963       15  
  Acquisition related retention payment     253       -       253       -       -  
  Stock compensation     2,956       1,945       5,785       3,953       2,829  
  Acquisition related costs     96       209       421       1,298       325  
  Litigation settlements and resolutions and related costs     (10 )     (8 )     13       92       23  
  Shareholder class action and derivative litigation costs     (34 )     635       9       635       43  
Amortization of purchased intangibles     1,062       859       1,871       1,638       809  
Restructuring recoveries     -       -       -       (322 )     -  
    Total cost of revenue and operating expense adjustments     15,784       14,742       32,981       28,596       17,197  
Operating income - non-GAAP     15,838       23,559       27,838       44,503       12,000  
Operating margin - non-GAAP     6.8 %     9.8 %     6.2 %     9.5 %     5.4 %
                                         
GAAP to non-GAAP reconciliation of income attributable to Finisar Corporation:                                        
Income (loss) attributable to Finisar Corporation - GAAP     271       5,927       (5,926 )     16,069       (6,197 )
Adjustments:                                        
Total cost of revenue and operating expense adjustments     15,784       14,742       32,981       28,596       17,197  
Imputed interest related to restructuring     164       396       226       466       62  
Other (income) expense, net                                        
  Loss (gain) on sale of assets     (170 )     221       (189 )     222       (19 )
  Loss related to minority and equity method investments     -       -       -       619       -  
  Other miscellaneous income     -       250       (160 )     250       (160 )
  Foreign exchange transaction loss (gain)     (607 )     (494 )     (611 )     (642 )     (4 )
  Debt extinguishment loss     573       -       573       419       -  
  Fair value remeasurement of equity investment     -       -       -       (5,429 )     -  
Provision for income taxes                                        
  Income tax provision adjustments     (1,810 )     495       (1,818 )     495       (8 )
Total adjustments     13,934       15,610       31,002       24,996       17,068  
Net income attributable to Finisar Corporation - non-GAAP     14,205       21,537       25,076       41,065       10,871  
                                         
Non-GAAP income attributable to Finisar Corporation   $ 14,205     $ 21,537     $ 25,076     $ 41,065     $ 10,871  
Add: interest expense for dilutive convertible notes     539       539       -       1,078       -  
Adjusted non-GAAP income attributable to Finisar Corporation   $ 14,744     $ 22,076     $ 25,076     $ 42,143     $ 10,871  
                                         
Non-GAAP income per share attributable to Finisar Corporation common stockholders                                        
  Basic   $ 0.15     $ 0.24     $ 0.27     $ 0.45     $ 0.12  
  Diluted   $ 0.15     $ 0.23     $ 0.26     $ 0.43     $ 0.12  
Shares used in computing non-GAAP income per share attributable to Finisar Corporation common stockholders                                        
  Basic     92,780       90,715       92,386       90,470       91,988  
  Diluted     98,483       97,347       94,780       97,460       94,204  
                                         
Non-GAAP EBITDA                                        
Non-GAAP income attributable to Finisar Corporation   $ 14,205     $ 21,537     $ 25,076     $ 41,065     $ 10,871  
Depreciation expense     13,106       10,995       25,817       21,590       12,711  
Amortization     237       208       473       416       236  
Interest expense     424       642       813       1,323       389  
Income tax expense     748       874       1,398       1,422       650  
Non-GAAP EBITDA   $ 28,720     $ 34,256     $ 53,577     $ 65,816     $ 24,857  
                                         

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