SOURCE: Finisar

Finisar

March 07, 2013 16:00 ET

Finisar Announces Third Fiscal Quarter Financial Results

SUNNYVALE, CA--(Marketwire - Mar 7, 2013) - 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 27, 2013.

COMMENTARY

"I am pleased to report fiscal third quarter revenues of $238.4 million, which is $6.3 million, or 2.7%, greater than the prior quarter. Our growth in revenues came primarily from sales of 10G and 100G transceivers and transponders for datacom applications," said Jerry Rawls, Finisar's executive Chairman of the Board.

"During the quarter, we continued to invest significantly in technology and product development and made substantial progress on a number of new products for our datacom and telecom products lines. We are planning several compelling product announcements at the OFC show during the week of March 18th in Anaheim, California," said Eitan Gertel, Finisar's Chief Executive Officer.

   
FINANCIAL HIGHLIGHTS -THIRD QUARTER ENDED January 27, 2013  
   
Summary GAAP Results   Third     Second  
    Quarter     Quarter  
    Ended     Ended  
    January 27, 2013     October 28, 2012  
    (in thousands, except per share amounts)  
                 
Revenues   $ 238,351     $ 232,041  
Gross margin     28.5 %     27.5 %
Operating expenses   $ 68,841     $ 63,820  
Operating income (loss)   $ (797 )   $ 54  
Operating margin     (0.3 )%     0.0 %
Income (loss)   $ (3,407 )   $ 271  
Income (loss) per share-basic   $ (0.04 )   $ 0.00  
Income (loss) per share-diluted   $ (0.04 )   $ 0.00  
                 
Basic shares     93,097       92,780  
Diluted shares     93,097       94,735  
                 
                 
Summary Non-GAAP Results (a)   Third     Second  
    Quarter     Quarter  
    Ended     Ended  
    January 27, 2013     October 28, 2012  
    (in thousands, except per share amounts)  
                 
Revenues   $ 238,351     $ 232,041  
Gross margin     30.7 %     30.5 %
Operating expenses   $ 55,816     $ 54,846  
Operating income   $ 17,377     $ 15,838  
Operating margin     7.3 %     6.8 %
Income   $ 16,390     $ 14,205  
Income per share-basic   $ 0.18     $ 0.15  
Income per share-diluted   $ 0.17     $ 0.15  
                 
Basic shares     93,097       92,780  
Diluted shares     99,094       98,483  
                 
   
(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.
   
   

Operating Statement Highlights for the third quarter of fiscal 2013: 

  • Revenues increased to $238.4 million, an increase of $6.3 million, or 2.7%, from $232.0 million in the preceding quarter, primarily driven by growth in revenues from 10G and 100G transceivers and transponders for datacom applications.

  • Compared to the preceding quarter, the sale of products for datacom applications increased by $7.8 million, or 5.6%, and the sale of products for telecom applications decreased by $1.5 million, or (1.6)%, as the result of the impact of approximately one month of the annual telecom price reductions that typically go into effect on approximately January 1st, partially offset in the increase in unit sales including tunable XFP transceivers. 

  • Gross margin increased to 28.5% on a GAAP basis and 30.7% on a non-GAAP basis, from 27.5% and 30.5%, respectively, in the preceding quarter, primarily as a result of higher revenue levels, partially offset by the impact of one month of the annual telecom price reductions that typically go into effect on approximately January 1st.

  • GAAP operating loss increased $0.8 million to $0.8 million, or (0.3) % of revenues, compared to an operating gain of $0.05 million, or 0.0% of revenues, in the preceding quarter.

  • Non-GAAP operating income increased $1.5 million to $17.4 million, or 7.3% of revenues, compared to $15.8 million, or 6.8% of revenues, in the preceding quarter as the Company was able to hold non-GAAP operating expenses relatively flat while revenues grew.

  • Non-GAAP EBITDA increased $2.4 million to $31.1 million, or 13.1% of revenues, compared to $28.7 million, or 12.4% of revenues, in the preceding quarter.

Balance Sheet Highlights for the third quarter of fiscal 2013:

  • Cash and cash equivalents totaled $265.5 million at the end of the third quarter, compared to $262.4 million at the end of the preceding quarter.

  • At the end of the third 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 fourth quarter of fiscal 2013 to be in the range of $235 to $250 million; GAAP operating margin to be approximately 2%; non-GAAP operating margin to be approximately 7%; and non-GAAP earnings per diluted share to be in the range of approximately $0.15 to $0.19.

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 7, 2013, 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 1-888-417-8533 (domestic) or (719) 457-2697 (international) and enter conference ID 4484284.

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 4484284 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 Balance Sheets  
(in thousands)  
                         
    January 27, 2013     October 28, 2012     July 29, 2012     April 30, 2012  
    (Unaudited)     (Unaudited)     (Unaudited)        
ASSETS                                
Current assets:                                
  Cash and cash equivalents   $ 265,454     $ 262,432     $ 220,409     $ 234,544  
  Accounts receivable, net     155,502       155,949       179,441       167,760  
  Accounts receivable, other     10,843       15,240       14,972       21,004  
  Inventories     202,123       203,554       208,168       218,432  
  Prepaid expenses     22,875       25,183       24,430       25,482  
    Total current assets     656,797       662,358       647,420       667,222  
Property, equipment and improvements, net     192,381       173,284       165,837       163,817  
Purchased intangible assets, net     45,823       53,300       43,049       45,177  
Goodwill     91,551       91,098       97,994       81,431  
Minority investments     884       884       884       884  
Other assets     7,321       7,263       7,393       10,896  
    Total assets   $ 994,757     $ 988,187     $ 962,577     $ 969,427  
                                 
LIABILITIES AND STOCKHOLDERS' EQUITY                                
Current liabilities:                                
  Accounts payable   $ 67,264     $ 72,844     $ 71,295     $ 72,339  
  Accrued compensation     28,436       27,901       22,210       27,090  
  Other accrued liabilities     31,901       22,774       21,456       20,871  
  Deferred revenue     9,760       7,868       9,775       8,970  
  Current portion of long-term debt     -       -       -       3,150  
    Total current liabilities     137,361       131,387       124,736       132,420  
Long-term liabilities:                                
  Convertible notes, net of current portion     40,015       40,015       40,015       40,015  
  Other non-current liabilities     14,078       21,171       16,274       15,175  
  Deferred tax liabilities     2,512       2,459       2,433       1,972  
    Total liabilities     193,966       195,032       183,458       189,582  
Stockholders' equity:                                
  Common stock     93       93       93       91  
  Additional paid-in capital     2,341,448       2,330,683       2,321,064       2,309,219  
  Accumulated other comprehensive income     26,904       26,346       22,356       28,720  
  Accumulated deficit     (1,575,839 )     (1,572,432 )     (1,572,703 )     (1,566,506 )
    Finisar Corporation stockholders' equity     792,606       784,690       770,810       771,524  
  Non-controlling interest     8,185       8,465       8,309       8,321  
    Total stockholders' equity     800,791       793,155       779,119       779,845  
Total liabilities and stockholders' equity   $ 994,757     $ 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 Corporation  
Consolidated Statements of Operations  
(Unaudited, in thousands, except per share data)  
                               
    Three Months Ended     Nine Months Ended     Three Months Ended  
    January 27, 2013     January 29, 2012     January 27, 2013     January 29, 2012     October 28, 2012  
Revenues   $ 238,351     $ 242,954     $ 690,918     $ 712,669     $ 232,041  
Cost of revenues     168,377       170,215       496,001       500,009       166,167  
Amortization of acquired developed technology     1,930       1,637       5,202       4,796       2,000  
Gross profit     68,044       71,102       189,715       207,864       63,874  
Gross margin     28.5 %     29.3 %     27.5 %     29.2 %     27.5 %
Operating expenses:                                        
  Research and development     39,725       36,470       117,514       108,573       39,620  
  Sales and marketing     10,398       10,599       31,291       30,310       10,219  
  General and administrative     12,797       11,766       39,058       39,491       12,919  
  Amortization of purchased intangibles     1,035       959       2,906       2,597       1,062  
  Impairment of long-lived assets     4,886       -       4,886       -       -  
  Restructuring recoveries     -       -       -       (322 )     -  
    Total operating expenses     68,841       59,794       195,655       180,649       63,820  
Income (loss) from operations     (797 )     11,308       (5,940 )     27,215       54  
Interest income     186       151       544       411       162  
Interest expense     (648 )     (862 )     (2,045 )     (2,911 )     (750 )
Loss on debt extinguishment     -       -       -       (419 )     -  
Other income (expenses), net     (275 )     (355 )     (295 )     4,168       (101 )
Income (loss) before income taxes and non-controlling interest     (1,534 )     10,242       (7,736 )     28,464       (635 )
Provision (benefits) for income taxes     2,153       875       1,733       2,792       (1,062 )
Income (loss) before non-controlling interest     (3,687 )     9,367       (9,469 )     25,672       427  
Adjust for net (income) loss attributable to non-controlling interest     280       (458 )     136       (694 )     (156 )
Net income (loss) attributable to Finisar Corporation   $ (3,407 )   $ 8,909     $ (9,333 )   $ 24,978     $ 271  
                                         
Net income (loss) per share attributable to Finisar Corporation common stockholders:                                        
                                         
  Basic   $ (0.04 )   $ 0.10     $ (0.10 )   $ 0.28     $ 0.00  
  Diluted   $ (0.04 )   $ 0.09     $ (0.10 )   $ 0.27     $ 0.00  
                                         
Shares used in computing net income (loss) per share - basic     93,097       91,001       92,624       90,644       92,780  
Shares used in computing net income (loss) per share - diluted     93,097       94,032       92,624       93,904       94,735  
                                         
                                         

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);
  • Impairment of long-lived assets (non-cash charges)
  • 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  
(Unaudited, in thousands, except per share data)  
                               
    Three Months Ended     Nine Months Ended     Three Months Ended  
    January 27, 2013     January 29, 2012     January 27, 2013     January 29, 2012     October 28, 2012  
GAAP to non-GAAP reconciliation of gross profit:                                        
Gross profit - GAAP   $ 68,044     $ 71,102     $ 189,715     $ 207,864     $ 63,874  
Gross margin - GAAP     28.5 %     29.3 %     27.5 %     29.2 %     27.5 %
Adjustments:                                        
Cost of revenues                                        
  Change in excess and obsolete inventory reserve     989       1,732       7,858       5,343       2,003  
  Amortization of acquired technology     1,930       1,637       5,202       4,796       2,000  
  Stock compensation     2,140       1,596       5,502       5,142       1,876  
  Acquisition method accounting adjustment for sale of acquired inventory     -       952       1,363       4,035       722  
  Reduction in force costs     17       243       801       844       136  
  Acquisition related retention payment     73       -       146       -       73  
    Total cost of revenue adjustments     5,149       6,160       20,872       20,160       6,810  
Gross profit - non-GAAP     73,193       77,262       210,587       228,024       70,684  
Gross margin - non-GAAP     30.7 %     31.8 %     30.5 %     32.0 %     30.5 %
                                         
GAAP to non-GAAP reconciliation of operating income:                                        
Operating income (loss) - GAAP     (797 )     11,308       (5,940 )     27,215       54  
Operating margin - GAAP     -0.3 %     4.7 %     -0.9 %     3.8 %     0.0 %
Adjustments:                                        
Total cost of revenue adjustments     5,149       6,160       20,872       20,160       6,810  
Research and development                                        
  Reduction in force costs     11       693       188       766       -  
  Acquisition related retention payment     213       -       435       -       222  
  Stock compensation     2,601       2,200       8,940       6,835       3,353  
Sales and marketing                                        
  Acquisition related retention payment     17       -       37       -       20  
  Stock compensation     885       747       2,964       2,378       1,002  
General and administrative                                        
  Reduction in force costs     25       51       94       1,014       54  
  Acquisition related retention payment     223       -       476       -       253  
  Stock compensation     2,218       1,746       8,003       5,699       2,956  
  Acquisition related costs     731       304       1,152       1,602       96  
  Litigation settlements and resolutions and related costs     -       (185 )     13       (93 )     (10 )
  Shareholder class action and derivative litigation costs     180       (10 )     189       625       (34 )
Amortization of purchased intangibles     1,035       959       2,906       2,597       1,062  
Impairment of long-lived assets     4,886       -       4,886       -       -  
Restructuring recoveries     -       -       -       (322 )     -  
    Total cost of revenue and operating expense adjustments     18,174       12,665       51,155       41,261       15,784  
Operating income - non-GAAP     17,377       23,973       45,215       68,476       15,838  
Operating margin - non-GAAP     7.3 %     9.9 %     6.5 %     9.6 %     6.8 %
                                         
GAAP to non-GAAP reconciliation of income attributable to Finisar Corporation:                                        
Income (loss) attributable to Finisar Corporation - GAAP     (3,407 )     8,909       (9,333 )     24,978       271  
Adjustments:                                        
Total cost of revenue and operating expense adjustments     18,174       12,665       51,155       41,261       15,784  
Imputed interest related to restructuring     148       206       374       672       164  
Other (income) expense, net                                        
  Loss (gain) on sale of assets     38       (229 )     (151 )     (7 )     (170 )
  Loss related to minority and equity method investments     -       -       -       619       -  
  Other miscellaneous income     (101 )     351       (261 )     601       -  
  Foreign exchange transaction loss (gain)     431       362       (180 )     (280 )     (607 )
  Debt extinguishment loss     -       -       573       419       573  
  Fair value remeasurement of equity investment     -       -       -       (5,429 )     -  
Provision for income taxes                                        
  Income tax provision adjustments     1,107       (386 )     (711 )     109       (1,810 )
Total adjustments     19,797       12,969       50,799       37,965       13,934  
Net income attributable to Finisar Corporation - non-GAAP     16,390       21,878       41,466       62,943       14,205  
                                         
Non-GAAP income attributable to Finisar Corporation   $ 16,390     $ 21,878     $ 41,466     $ 62,943     $ 14,205  
Add: interest expense for dilutive convertible notes     539       539       1,618       1,617       539  
Adjusted non-GAAP income attributable to Finisar Corporation   $ 16,929     $ 22,417     $ 43,084     $ 64,560     $ 14,744  
                                         
Non-GAAP income per share attributable to Finisar Corporation common stockholders                                        
  Basic   $ 0.18     $ 0.24     $ 0.45     $ 0.69     $ 0.15  
  Diluted   $ 0.17     $ 0.23     $ 0.44     $ 0.66     $ 0.15  
Shares used in computing non-GAAP income per share attributable to Finisar Corporation common stockholders                                        
  Basic     93,097       91,001       92,624       90,644       92,780  
  Diluted     99,094       97,781       98,891       97,652       98,483  
                                         
Non-GAAP EBITDA                                        
Non-GAAP income attributable to Finisar Corporation   $ 16,390     $ 21,878     $ 41,466     $ 62,943     $ 14,205  
Depreciation expense     13,306       11,388       39,123       32,978       13,106  
Amortization     86       208       559       624       237  
Interest expense     314       505       1,127       1,828       424  
Income tax expense     1,046       1,261       2,444       2,683       748  
Non-GAAP EBITDA   $ 31,142     $ 35,240     $ 84,719     $ 101,056     $ 28,720  
                                         
                                         

Contact Information

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

    Press contact:
    Victoria McDonald
    Sr. Manager, Corporate Communications
    408-542-4261