SOURCE: Finisar

Finisar

December 04, 2014 16:00 ET

Finisar Announces Second Quarter Financial Results

SUNNYVALE, CA--(Marketwired - Dec 4, 2014) - 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 2015, ended October 26, 2014. 

COMMENTARY

"Revenues for our second fiscal quarter were $297.0 million, an increase of $6.3 million compared to the second fiscal quarter of 2014, but a decrease of $30.7 million, or 9.4%, compared to the first fiscal quarter of fiscal 2015. The second quarter was challenging. During the quarter, we experienced decreased demand for telecom products compared to the prior fiscal quarter, due to sluggish carrier capital expenditures. In addition, sales of transceivers for wireless applications were soft as were sales to several datacom customers with lumpy order patterns," said Jerry Rawls, Finisar's executive Chairman of the Board.

"We remain confident in our industry leading market position and the long term growth potential for the industry. We expect revenue to grow sequentially in the third fiscal quarter, primarily driven by growth in the demand for 40 gigabit and 100 gigabit transceivers for datacom applications as well as transceivers for wireless applications," said Eitan Gertel, Finisar's Chief Executive Officer.

   
FINANCIAL HIGHLIGHTS - SECOND QUARTER ENDED OCTOBER 26, 2014  
   
Summary GAAP Results   Second     First  
    Quarter     Quarter  
    Ended     Ended  
    October 26, 2014     July 27, 2014  
    (in thousands, except per share amounts)  
                 
Revenues   $ 296,981     $ 327,638  
Gross margin     28.6 %     30.2 %
Operating expenses   $ 92,180     $ 78,451  
Operating income (loss)   $ (7,259 )   $ 20,368  
Operating margin     (2.4 )%     6.2 %
Net income (loss)   $ (11,361 )   $ 14,243  
Income per share-basic   $ (0.11 )   $ 0.14  
Income per share-diluted   $ (0.11 )   $ 0.14  
                 
Basic shares     99,621       98,241  
Diluted shares     99,621       106,036  
             
Summary Non-GAAP Results (a)   Second     First  
    Quarter     Quarter  
    Ended     Ended  
    October 26, 2014     July 27, 2014  
    (in thousands, except per share amounts)  
                 
Revenues   $ 296,981     $ 327,638  
Gross margin     31.1 %     32.0 %
Operating expenses   $ 67,306     $ 69,439  
Operating income   $ 24,984     $ 35,404  
Operating margin     8.4 %     10.8 %
Net income   $ 23,465     $ 33,332  
Income per share-basic   $ 0.24     $ 0.34  
Income per share-diluted   $ 0.23     $ 0.32  
                 
Basic shares     99,621       98,241  
Diluted shares     105,340       106,036  
                 
(a) In evaluating the operating performance of Finisar's business, Finisar management utilizes financial measures that exclude certain charges and credits required by U.S. generally accepted accounting principles, or GAAP, that are considered by management to be outside Finisar's core operating results. A reconciliation of Finisar's non-GAAP financial measures to the most directly comparable GAAP measures, as well as additional related information, can be found under the heading "Finisar Non-GAAP Financial Measures" below.
   

Financial Statement Highlights for the Second Quarter of Fiscal 2015:

  • Revenues decreased to $297.0 million, down $30.7 million, or 9.4%, from $327.6 million in the preceding quarter.

  • Sales of products for datacom applications decreased by $25.3 million, or 10.5%, compared to the preceding quarter, primarily due to a decrease in sales of transceivers for wireless applications and a decrease in orders from several datacom customers with lumpy order patterns.

  • Sales of products for telecom applications decreased by $5.3 million, or 6.2%, compared to the preceding quarter, primarily due to the decrease in demand for transceivers for telecom applications driven by sluggish carrier capital expenditures.

  • GAAP gross margin decreased to 28.6% from 30.2% in the preceding quarter, primarily driven by decreased revenue levels and an increase in depreciation.

  • Non-GAAP gross margin decreased to 31.1% from 32.0% in the preceding quarter.

  • GAAP operating expenses increased $13.7 million to $92.2million from $78.5 million in the preceding quarter, primarily from expenses related to resolving a pending litigation alleging patent infringement.

  • Non-GAAP operating expenses decreased $2.1 million to $67.3 million from $69.4 million in the preceding quarter. 

  • GAAP operating income decreased $27.6 million, to an operating loss $7.3 million or (2.4)% of revenues, compared to $20.4 million or 6.2% of revenues in the preceding quarter, primarily as the result of lower revenue levels and gross margins, and higher expenses related to resolving a pending litigation alleging patent infringement.

  • Non-GAAP operating income decreased $10.4 million to $25.0 million, or 8.4% of revenues, compared to $35.4 million, or 10.8% of revenues, in the preceding quarter, primarily as the result of lower revenue levels and gross margins.  

  • Cash, cash equivalents and short term investments decreased $20.0 million to $477.4 million at the end of the second quarter, compared to $497.4 million at the end of the preceding quarter, primarily as the result of capital expenditures of $28.4 million, increased inventory of $14.7 million and legal settlement-related expenses of approximately $13.7 million.

OUTLOOK

The Company indicated that for the third quarter of fiscal 2015 it currently expects revenues in the range of $297 to $312 million, non-GAAP gross margin of approximately 31%, non-GAAP operating margin of approximately 8.4% to 9.4%, and non-GAAP earnings per diluted share in the range of approximately $0.23 to $0.27.

CONFERENCE CALL

Finisar will discuss its financial results for the second quarter and current business outlook during its regular quarterly conference call scheduled for Thursday, December 4, 2014, at 2:00 pm PT (5:00 pm ET). To listen to the call you may connect through the Finisar investor relations page at http://investor.finisar.com/ or dial 1-800-432-7390 (domestic) or +1-913-312-1454 (international) and enter conference ID 1607677.

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 1607677 and provide your name, affiliation, and contact number. A replay of the webcast will be available shortly after the conclusion of the call on the Company's website until the next regularly scheduled earnings conference call.

SAFE HARBOR UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995

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

ABOUT FINISAR

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

FINISAR FINANCIAL STATEMENTS The following financial tables are presented in accordance with GAAP.

   
Finisar Corporation  
Consolidated Statements of Operations  
(Unaudited, in thousands, except per share data)  
                             
  Three Months Ended     Six Months Ended     Three Months Ended  
  October 26, 2014     October 27, 2013     October 26, 2014     October 27, 2013     July 27, 2014  
Revenues $ 296,981     $ 290,722     $ 624,619     $ 556,790     $ 327,638  
Cost of revenues   210,625       186,168       438,010       359,270       227,385  
Amortization of acquired developed technology   1,435       1,181       2,869       2,774       1,434  
Gross profit   84,921       103,373       183,740       194,746       98,819  
Gross margin   28.6 %     35.6 %     29.4 %     35.0 %     30.2 %
Operating expenses:                                      
  Research and development   51,184       44,959       102,190       88,489       51,006  
  Sales and marketing   11,487       12,322       23,452       24,127       11,965  
  General and administrative   28,772       15,388       43,491       23,728       14,719  
  Amortization of purchased intangibles   737       595       1,498       1,190       761  
    Total operating expenses   92,180       73,264       170,631       137,534       78,451  
Income (loss) from operations   (7,259 )     30,109       13,109       57,212       20,368  
Interest income   342       282       954       499       612  
Interest expense   (2,867 )     (367 )     (6,001 )     (919 )     (3,134 )
Other income (expenses), net   33       495       (1,993 )     983       (2,026 )
Income (loss) before income taxes and non-controlling interest   (9,751 )     30,519       6,069       57,775       15,820  
Provision for income taxes   1,610       568       3,187       1,989       1,577  
Income (loss) before non-controlling interest   (11,361 )     29,951       2,882       55,786       14,243  
Adjust for net loss attributable to non-controlling interest   -       14       -       190       -  
Net income (loss) attributable to Finisar Corporation $ (11,361 )   $ 29,965     $ 2,882     $ 55,976     $ 14,243  
                                       
Net income (loss) per share attributable to Finisar Corporation common stockholders:                                      
                                       
  Basic $ (0.11 )   $ 0.31     $ 0.03     $ 0.59     $ 0.14  
  Diluted $ (0.11 )   $ 0.29     $ 0.03     $ 0.56     $ 0.14  
                                       
Shares used in computing net income per share - basic   99,621       95,941       98,931       95,275       98,241  
Shares used in computing net income per share - diluted   99,621       103,696       102,390       102,771       106,036  
                                       
                                       
                                       
Finisar Corporation  
Consolidated Balance Sheets  
(in thousands)  
                 
  October 26, 2014     July 27, 2014     April 27, 2014  
  (Unaudited)     (Unaudited)        
ASSETS                
Current assets:                      
  Cash and cash equivalents $ 186,952     $ 287,455     $ 303,101  
  Short-term held-to-maturity investments   290,478       209,927       209,922  
  Accounts receivable, net   213,721       231,312       225,020  
  Accounts receivable, other   34,573       41,595       33,749  
  Inventories   284,789       270,122       259,759  
  Prepaid expenses and other assets   38,065       38,582       33,022  
    Total current assets   1,048,578       1,078,993       1,064,573  
Property, equipment and improvements, net   306,331       301,020       273,328  
Purchased intangible assets, net   31,508       33,680       34,141  
Goodwill   106,735       106,735       106,115  
Minority investments   2,547       2,317       2,117  
Other assets   22,528       20,907       17,272  
    Total assets $ 1,518,227     $ 1,543,652     $ 1,497,546  
                       
LIABILITIES AND STOCKHOLDERS' EQUITY                      
Current liabilities:                      
  Accounts payable $ 113,235     $ 143,224     $ 119,439  
  Accrued compensation   35,354       28,215       38,541  
  Other accrued liabilities   33,529       27,568       31,533  
  Deferred revenue   12,358       16,872       16,659  
  Short term debt   187       247       243  
  Current portion of convertible notes   36,665       40,015       40,015  
    Total current liabilities   231,328       256,141       246,430  
Long-term liabilities:                      
  Convertible notes, net of current portion   216,775       214,496       212,253  
  Other non-current liabilities   24,900       24,042       22,804  
    Total liabilities   473,003       494,679       481,487  
Stockholders' equity:                      
  Common stock   100       100       97  
  Additional paid-in capital   2,485,133       2,469,687       2,456,110  
  Accumulated other comprehensive income   17,282       25,116       20,025  
  Accumulated deficit   (1,457,291 )     (1,445,930 )     (1,460,173 )
    Total stockholders' equity   1,045,224       1,048,973       1,016,059  
Total liabilities and stockholders' equity $ 1,518,227     $ 1,543,652     $ 1,497,546  
                       
Note - Balance sheet amounts as of April 27, 2014 are derived from the audited consolidated financial statements as of the date.  
   

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

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

  • 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);
  • Duplicate facilities costs during facilities move (non-recurring charges)
  • Stock-based compensation expense (non-cash charges);
  • Abandonment of fix assets (non-cash charges);
  • Reduction in force costs (non-recurring cash charges); and
  • Acquisition related retention payments (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 in this release:

  • Gain or loss on litigation settlements and resolutions and related costs (non-recurring cash charges or benefits);
  • Gain on fair value re-measurement of contingent consideration (non-cash benefit);
  • Employee and employer tax liabilities related to the 2006 special investigation into our historical stock option granting practices (non-recurring cash charges);
  • 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); 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-recurring and/or non-cash losses and gains related to the periodic disposal of assets no longer required for current activities);
  • Gains and losses related to minority investments (non-cash or non-recurring benefits or charges);
  • Other miscellaneous expenses (income) (non-recurring charges or benefits);
  • Dollar denominated foreign exchange transaction losses (gains) (non-cash charges or benefits);
  • Amortization of debt issuance costs (non-cash charges);
  • Non-controlling interest non-GAAP adjustment (non-cash and/or non-recurring charges or benefits attributable to the non-controlling interest in majority-controlled subsidiaries); and
  • Differences between cash payable for income taxes and the provision for income taxes in accordance with GAAP, less discrete items.

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

   
Finisar Corporation  
Reconciliation of Results of Operations under GAAP and non-GAAP  
(Unaudited, in thousands, except per share data)  
                             
  Three Months Ended     Six Months Ended     Three Months Ended  
  October 26, 2014     October 27, 2013     October 26, 2014     October 27, 2013     July 27, 2014  
GAAP to non-GAAP reconciliation of gross profit:                                      
Gross profit - GAAP $ 84,921     $ 103,373     $ 183,740     $ 194,746     $ 98,819  
Gross margin - GAAP   28.6 %     35.6 %     29.4 %     35.0 %     30.2 %
Adjustments:                                      
Cost of revenues                                      
  Change in excess and obsolete inventory reserve   2,048       1,199       3,769       (329 )     1,721  
  Amortization of acquired technology   1,435       1,181       2,869       2,774       1,434  
  Duplicate facility costs during facility move   766       -       766       -       -  
  Stock compensation   2,588       2,056       4,864       3,833       2,276  
  Abandonment of fixed assets   124       -       124       -       -  
  Reduction in force costs   319       47       794       70       475  
  Acquisition related retention payment   89       70       207       132       118  
    Total cost of revenue adjustments   7,369       4,553       13,393       6,480       6,024  
Gross profit - non-GAAP   92,290       107,926       197,133       201,226       104,843  
Gross margin - non-GAAP   31.1 %     37.1 %     31.6 %     36.1 %     32.0 %
                                       
GAAP to non-GAAP reconciliation of operating income:                                      
Operating income (loss) - GAAP   (7,259 )     30,109       13,109       57,212       20,368  
Operating margin - GAAP   -2.4 %     10.4 %     2.1 %     10.3 %     6.2 %
Adjustments:                                      
Total cost of revenue adjustments   7,369       4,553       13,393       6,480       6,024  
Research and development                                      
  Reduction in force costs   353       16       685       28       332  
  Duplicate facility costs during facility move   767       -       767       -       -  
  Acquisition related retention payment   166       190       359       381       193  
    Stock compensation   4,727       4,069       9,163       7,594       4,436  
Sales and marketing                                      
  Acquisition related retention payment   9       17       29       34       20  
  Stock compensation   1,625       1,382       3,154       2,566       1,529  
General and administrative                                      
  Reduction in force costs   59       173       54       240       (5 )
  Duplicate facility costs   116       -       116       -       -  
  Acquisition related retention payment   (55 )     830       (39 )     1,047       16  
  Stock compensation   2,617       2,663       5,429       5,086       2,812  
  Payroll taxes related to options investigation   17       -       17       -       -  
  Acquisition related costs   8       124       238       349       230  
  Litigation settlements and resolutions and related costs   13,728       -       12,416       5       (1,312 )
  Shareholder class action and derivative litigation costs   -       46       -       (5,048 )     -  
Amortization of purchased intangibles   737       595       1,498       1,190       761  
    Total cost of revenue and operating expense adjustments   32,243       14,658       47,279       19,952       15,036  
Operating income - non-GAAP   24,984       44,767       60,388       77,164       35,404  
Operating margin - non-GAAP   8.4 %     15.4 %     9.7 %     13.9 %     10.8 %
                                       
GAAP to non-GAAP reconciliation of income attributable to Finisar Corporation:                                      
Net income (loss) attributable to Finisar Corporation - GAAP   (11,361 )     29,965       2,882       55,976       14,243  
Adjustments:                                      
Total cost of revenue and operating expense adjustments   32,243       14,658       47,279       19,952       15,036  
Non-cash imputed interest expenses on convertible debt   2,279       56       4,522       113       2,243  
Imputed interest related to restructuring   50               101               51  
Other (income) expense, net                                      
  Loss (gain) on sale of assets   (27 )     5       211       (105 )     238  
  Gain related to minority investments   -       -       -       (743 )     -  
  Other miscellaneous income   (10 )     (2 )     (11 )     (2 )     (1 )
  Foreign exchange transaction (gain) or loss   327       (208 )     2,318       359       1,991  
  Amortization of debt issuance cost   154       -       308       -       154  
Provision for income taxes                                      
  Income tax provision adjustments   (190 )     (832 )     (813 )     (706 )     (623 )
Non-controlling interest non-GAAP adjustment   -       125       -       192       -  
Total adjustments   34,826       13,802       53,915       19,060       19,089  
Net income attributable to Finisar Corporation - non-GAAP $ 23,465     $ 43,767     $ 56,797     $ 75,036     $ 33,332  
                                       
Non-GAAP income attributable to Finisar Corporation $ 23,465     $ 43,767     $ 56,797     $ 75,036     $ 33,332  
Add: interest expense for dilutive convertible notes   533       539       1,072       1,078       539  
Adjusted non-GAAP income attributable to Finisar Corporation $ 23,998     $ 44,306     $ 57,869     $ 76,114     $ 33,871  
                                       
Non-GAAP income per share attributable to Finisar Corporation common stockholders                                      
  Basic $ 0.24     $ 0.46     $ 0.57     $ 0.79     $ 0.34  
  Diluted $ 0.23     $ 0.43     $ 0.55     $ 0.74     $ 0.32  
Shares used in computing non-GAAP income per share attributable to Finisar Corporation common stockholders                                      
  Basic   99,621       95,941       98,931       95,275       98,241  
  Diluted   105,340       103,696       106,133       102,771       106,036  
                                       
Non-GAAP EBITDA                                      
Non-GAAP income attributable to Finisar Corporation $ 23,465     $ 43,767     $ 56,797     $ 75,036     $ 33,332  
Depreciation expense   20,915       14,621       40,563       28,548       19,648  
Amortization   33       94       72       188       39  
Interest expense   196       29       424       307       228  
Income tax expense   1,800       1,400       4,000       2,695       2,200  
Non-GAAP EBITDA $ 46,409     $ 59,911     $ 101,856     $ 106,774     $ 55,447  
                                       

Finisar-F

Contact Information

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

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