SOURCE: Finisar

Finisar

March 06, 2014 16:00 ET

Finisar Announces Sixth Consecutive Quarter of Revenue Growth

SUNNYVALE, CA--(Marketwired - Mar 6, 2014) -  Finisar Corporation (NASDAQ: FNSR), a global technology leader for subsystems and components for fiber optic communications, today announced financial results for its third fiscal quarter ended January 26, 2014. 

COMMENTARY

"I am pleased to report third quarter revenues were $294.0 million, a new all-time record for Finisar. Revenues increased by $3.3 million, or 1.1%, over the second quarter and $55.7 million, or 23.4%, over the third quarter of the prior year. Revenues grew for the sixth consecutive quarter," said Jerry Rawls, Finisar's executive Chairman of the Board.

"During the quarter, we continued to make significant strides in new product development. We are scheduled to make several important product announcements and demonstrations at the Optical Fiber Conference trade show in San Francisco next week," said Eitan Gertel, Finisar's Chief Executive Officer.

 
FINANCIAL HIGHLIGHTS - THIRD QUARTER ENDED January 26, 2014
 
Summary GAAP Results   Third     Second  
  Quarter     Quarter  
  Ended     Ended  
    January 26, 2014     October 27, 2013  
    (in thousands, except per share amounts)  
             
Revenues   $ 294,018     $ 290,722  
Gross margin     35.9 %     35.6 %
Operating expenses   $ 72,593     $ 73,264  
Operating income   $ 33,096     $ 30,109  
Operating margin     11.3 %     10.4 %
Net income   $ 27,061     $ 29,965  
Income per share-basic   $ 0.28     $ 0.31  
Income per share-diluted   $ 0.26     $ 0.29  
                 
Basic shares     96,394       95,941  
Diluted shares     104,361       103,696  
                 
Summary Non-GAAP Results (a)   Third     Second  
  Quarter     Quarter  
  Ended     Ended  
    January 26, 2014     October 27, 2013  
    (in thousands, except per share amounts)  
                 
Revenues   $ 294,018     $ 290,722  
Gross margin     37.2 %     37.1 %
Operating expenses   $ 63,209     $ 63,159  
Operating income   $ 46,295     $ 44,767  
Operating margin     15.7 %     15.4 %
Net income   $ 44,993     $ 43,767  
Income per share-basic   $ 0.47     $ 0.46  
Income per share-diluted   $ 0.44     $ 0.43  
                 
Basic shares     96,394       95,941  
Diluted shares     104,361       103,696  
                 

_____________

 (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 third quarter of fiscal 2014:

  • Revenues increased to $294.0 million, up $3.3 million, or 1.1%, from $290.7 million in the preceding quarter.
  • The sale of products for datacom applications increased by $ 6.1 million, or 3.0%, compared to the preceding quarter.
  • The sale of products for telecom applications decreased by $2.8 million, or (3.2)%, compared to the preceding quarter, primarily driven by the impact of one month of the annual price reductions for telecom products that typically take effect on January 1st.
  • GAAP gross margin increased to 35.9% from 35.6% in the preceding quarter.
  • Non-GAAP gross margin increased to 37.2% from 37.1% in the preceding quarter.
  • GAAP operating income increased $3.0 million to $33.1 million, or 11.3% of revenues, compared to $30.1 million, or 10.4% of revenues in the preceding quarter.
  • Non-GAAP operating income increased $1.5 million to $46.3 million, or 15.7% of revenues, compared to $44.8 million, or 15.4% of revenues, in the preceding quarter.  
  • Cash, cash equivalents and short term investments increased $238.2 million to $554.7 million at the end of the third quarter, compared to $316.5 million at the end of the preceding quarter, principally reflecting the net proceeds of approximately $255.0 million from a convertible debt offering completed during the quarter.
  • During the quarter, the Company announced that it entered into an agreement under which Finisar would acquire 100% of the equity interests in u2t Photonics AG for approximately $20 million in cash, subject to certain adjustments and that Finisar would also assume net debt of approximately $7 million. This transaction closed on January 31st, one week into the fourth fiscal quarter.

OUTLOOK

Without taking into account the acquisition of u2t, the Company indicated that it currently expects revenues for the fourth quarter of fiscal 2014 to be in the range of $290 to $305 million; non-GAAP gross margin of approximately 36%, non-GAAP operating margin of approximately 13.8% to 14.8%, and non-GAAP earnings per diluted share to be in the range of approximately $0.38 to $0.42.

After taking into account the acquisition of u2t, including the elimination of any intercompany revenue or expense transactions with Finisar, the Company indicated that it currently expects revenues for the fourth quarter of fiscal 2014 to be in the range of $296 to $311 million, non-GAAP gross margin of approximately 35.5%, non-GAAP operating margin of approximately 12.8% to 13.8%, and non-GAAP earnings per diluted share to be in the range of approximately $0.36 to $0.40.

The Company expects the acquisition of u2t to be accretive to non-GAAP earnings per diluted share in approximately one year as it realizes cost and other synergies over time.

CONFERENCE CALL

Finisar will discuss its financial results for the third quarter and current business outlook during its regular quarterly conference call scheduled for Thursday, March 6, 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 1-877-397-0298 (domestic) or +1-719-325-4770 (international) and enter conference ID 7659562.

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 7659562 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; 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 24, 2013) 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     Nine Months Ended     Three Months Ended  
    January 26, 2014     January 27, 2013     January 26, 2014     January 27, 2013     October 27, 2013  
Revenues   $ 294,018     $ 238,351     $ 850,808     $ 690,918     $ 290,722  
Cost of revenues     187,368       168,377       546,638       496,001       186,168  
Amortization of acquired developed technology     961       1,930       3,735       5,202       1,181  
Gross profit     105,689       68,044       300,435       189,715       103,373  
Gross margin     35.9 %     28.5 %     35.3 %     27.5 %     35.6 %
Operating expenses:                                        
  Research and development     46,734       39,725       135,223       117,514       44,959  
  Sales and marketing     10,911       10,398       35,038       31,291       12,322  
  General and administrative     14,353       12,797       38,081       39,058       15,388  
  Amortization of purchased intangibles     595       1,035       1,785       2,906       595  
  Impairment of long-lived assets     -       4,886       -       4,886       -  
    Total operating expenses     72,593       68,841       210,127       195,655       73,264  
Income (loss) from operations     33,096       (797 )     90,308       (5,940 )     30,109  
Interest income     335       186       834       544       282  
Interest expense     (1,663 )     (648 )     (2,582 )     (2,045 )     (367 )
Other income (expenses), net     (1,873 )     (275 )     (890 )     (295 )     495  
Income (loss) before income taxes and non-controlling interest     29,895       (1,534 )     87,670       (7,736 )     30,519  
Provision for income taxes     2,827       2,153       4,816       1,733       568  
Income (loss) before non-controlling interest     27,068       (3,687 )     82,854       (9,469 )     29,951  
Adjust for net (income) loss attributable to non-controlling interest     (7 )     280       183       136       14  
Net income (loss) attributable to Finisar Corporation   $ 27,061     $ (3,407 )   $ 83,037     $ (9,333 )   $ 29,965  
                                         
Net income (loss) per share attributable to Finisar Corporation common stockholders:                                        
                                         
  Basic   $ 0.28     $ (0.04 )   $ 0.87     $ (0.10 )   $ 0.31  
  Diluted   $ 0.26     $ (0.04 )   $ 0.82     $ (0.10 )   $ 0.29  
                                         
Shares used in computing net income (loss) per share - basic     96,394       93,097       95,649       92,624       95,941  
Shares used in computing net income (loss) per share - diluted     104,361       93,097       103,491       92,624       103,696  
                                         
   
Finisar Corporation  
Consolidated Balance Sheets  
(in thousands)  
                         
    January 26, 2014     October 27, 2013     July 28, 2013     April 28, 2013  
    (Unaudited)     (Unaudited)     (Unaudited)        
ASSETS                                
Current assets:                                
  Cash and cash equivalents   $ 374,902     $ 316,488     $ 288,433     $ 289,076  
  Short-term held-to-maturity investments     179,847       -       -       -  
  Accounts receivable, net     195,442       186,486       171,823       149,612  
  Accounts receivable, other     24,274       25,890       34,386       16,538  
  Inventories     247,126       231,235       207,029       200,670  
  Prepaid expenses     22,764       20,902       19,533       18,402  
    Total current assets     1,044,355       781,001       721,204       674,298  
Property, equipment and improvements, net     247,394       231,022       213,044       201,442  
Purchased intangible assets, net     21,976       23,587       25,416       30,457  
Goodwill     90,986       90,986       90,986       90,986  
Minority investments     2,041       1,841       1,711       884  
Other assets     21,034       16,946       12,954       9,780  
    Total assets   $ 1,427,786     $ 1,145,383     $ 1,065,315     $ 1,007,847  
                                 
LIABILITIES AND STOCKHOLDERS' EQUITY                                
Current liabilities:                                
  Accounts payable   $ 96,723     $ 98,220     $ 90,488     $ 77,630  
  Accrued compensation     46,402       48,182       32,001       31,492  
  Other accrued liabilities     26,370       32,943       31,542       23,533  
  Deferred revenue     15,620       14,235       12,582       9,182  
  Short term debt     4,230       4,700       -       -  
  Current portion of convertible notes     40,015       40,015       -       -  
    Total current liabilities     229,360       238,295       166,613       141,837  
Long-term liabilities:                                
  Convertible notes, net of current portion     210,029       -       40,015       40,015  
  Other non-current liabilities     11,680       12,756       12,908       13,480  
    Total liabilities     451,069       251,051       219,536       195,332  
Stockholders' equity:                                
  Common stock     97       96       96       94  
  Additional paid-in capital     2,440,849       2,377,198       2,363,514       2,350,146  
  Accumulated other comprehensive income     18,980       27,315       22,397       28,525  
  Accumulated deficit     (1,488,923 )     (1,515,984 )     (1,545,949 )     (1,571,960 )
    Finisar Corporation stockholders' equity     971,003       888,625       840,058       806,805  
  Non-controlling interest     5,714       5,707       5,721       5,710  
    Total stockholders' equity     976,717       894,332       845,779       812,515  
Total liabilities and stockholders' equity   $ 1,427,786     $ 1,145,383     $ 1,065,315     $ 1,007,847  
                                 
Note - Balance sheet amounts as of April 28, 2013 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);
  • 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);
  • Impairment of long-lived assets (non-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:

  • 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);
  • 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);
  • Debt extinguishment loss (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     Nine Months Ended     Three Months Ended  
    January 26, 2014     January 27, 2013     January 26, 2014     January 27, 2013     October 27, 2013  
GAAP to non-GAAP reconciliation of gross profit:                                        
Gross profit - GAAP   $ 105,689     $ 68,044     $ 300,435     $ 189,715     $ 103,373  
Gross margin - GAAP     35.9 %     28.5 %     35.3 %     27.5 %     35.6 %
Adjustments:                                        
Cost of revenues                                        
  Change in excess and obsolete inventory reserve     384       989       55       7,858       1,199  
  Amortization of acquired technology     961       1,930       3,735       5,202       1,181  
  Stock compensation     2,374       2,140       6,207       5,502       2,056  
  Acquisition method accounting adjustment for sale of acquired inventory     -       -       -       1,363       -  
  Reduction in force costs     34       17       104       801       47  
  Acquisition related retention payment     62       73       194       146       70  
    Total cost of revenue adjustments     3,815       5,149       10,295       20,872       4,553  
Gross profit - non-GAAP     109,504       73,193       310,730       210,587       107,926  
Gross margin - non-GAAP     37.2 %     30.7 %     36.5 %     30.5 %     37.1 %
                                         
GAAP to non-GAAP reconciliation of operating income:                                        
Operating income (loss) - GAAP     33,096       (797 )     90,308       (5,940 )     30,109  
Operating margin - GAAP     11.3 %     -0.3 %     10.6 %     -0.9 %     10.4 %
Adjustments:                                        
Total cost of revenue adjustments     3,815       5,149       10,295       20,872       4,553  
Research and development                                        
  Reduction in force costs     -       11       28       188       16  
  Acquisition related retention payment     190       213       571       435       190  
  Stock compensation     3,995       2,601       11,589       8,940       4,069  
Sales and marketing                                        
  Acquisition related retention payment     17       17       51       37       17  
  Stock compensation     1,369       885       3,935       2,964       1,382  
General and administrative                                        
  Reduction in force costs     (82 )     25       158       94       173  
  Acquisition related retention payment     (11 )     223       1,036       476       830  
  Stock compensation     2,618       2,218       7,704       8,003       2,663  
  Acquisition related costs     591       731       940       1,152       124  
  Litigation settlements and resolutions and related costs     5       -       10       13       -  
  Shareholder class action and derivative litigation costs     97       180       (4,951 )     189       46  
Amortization of purchased intangibles     595       1,035       1,785       2,906       595  
Impairment of long-lived assets     -       4,886       -       4,886       -  
    Total cost of revenue and operating expense adjustments     13,199       18,174       33,151       51,155       14,658  
Operating income - non-GAAP     46,295       17,377       123,459       45,215       44,767  
Operating margin - non-GAAP     15.7 %     7.3 %     14.5 %     6.5 %     15.4 %
                                         
GAAP to non-GAAP reconciliation of income attributable to Finisar Corporation:                                        
Net income (loss) attributable to Finisar Corporation - GAAP     27,061       (3,407 )     83,037       (9,333 )     29,965  
Adjustments:                                        
Total cost of revenue and operating expense adjustments     13,199       18,174       33,151       51,155       14,658  
Non-cash imputed interest expenses on convertible debt     927       -       927       -       -  
Imputed interest related to restructuring     54       148       167       374       56  
Other (income) expense, net                                        
  Loss (gain) on sale of assets     (30 )     38       (135 )     (151 )     5  
  Gain related to minority investments     -       -       (743 )     -       -  
  Other miscellaneous income     (3 )     (101 )     (5 )     (261 )     (2 )
  Foreign exchange transaction (gain) or loss     2,200       431       2,559       (180 )     (208 )
  Amortization of debt issuance cost     76       -       76       -       -  
  Debt extinguishment loss     -       -       -       573       -  
Provision for income taxes                                        
  Income tax provision adjustments     1,327       1,107       621       (711 )     (832 )
Non-controlling interest non-GAAP adjustment     182       -       374       -       125  
Total adjustments     17,932       19,797       36,992       50,799       13,802  
Net income attributable to Finisar Corporation - non-GAAP   $ 44,993     $ 16,390     $ 120,029     $ 41,466     $ 43,767  
                                         
Non-GAAP income attributable to Finisar Corporation   $ 44,993     $ 16,390     $ 120,029     $ 41,466     $ 43,767  
Add: interest expense for dilutive convertible notes     539       539       1,617       1,618       539  
Adjusted non-GAAP income attributable to Finisar Corporation   $ 45,532     $ 16,929     $ 121,646     $ 43,084     $ 44,306  
                                         
Non-GAAP income per share attributable to Finisar Corporation common stockholders                                        
  Basic   $ 0.47     $ 0.18     $ 1.25     $ 0.45     $ 0.46  
  Diluted   $ 0.44     $ 0.17     $ 1.18     $ 0.44     $ 0.43  
Shares used in computing non-GAAP income per share attributable to Finisar Corporation common stockholders                                        
  Basic     96,394       93,097       95,649       92,624       95,941  
  Diluted     104,361       99,094       103,491       98,891       103,696  
                                         
Non-GAAP EBITDA                                        
Non-GAAP income attributable to Finisar Corporation   $ 44,993     $ 16,390     $ 120,029     $ 41,466     $ 43,767  
Depreciation expense     15,960       13,306       44,508       39,123       14,621  
Amortization     94       86       282       559       94  
Interest expense     347       314       654       1,127       29  
Income tax expense     1,500       1,046       4,195       2,444       1,400  
Non-GAAP EBITDA   $ 62,894     $ 31,142     $ 169,668     $ 84,719     $ 59,911  
                                         

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