SOURCE: Finisar

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March 05, 2015 16:00 ET

Finisar Announces Third Quarter Revenues of $306.3 Million, 3.1% Growth Over Prior Quarter

SUNNYVALE, CA--(Marketwired - March 05, 2015) - Finisar Corporation (NASDAQ: FNSR), a global technology leader for subsystems and components for fiber optic communications, today announced financial results for its third quarter of fiscal 2015, ended January 25, 2015. 

COMMENTARY
"Revenues for our third fiscal quarter were $306.3 million, an increase of $9.3 million compared to the prior quarter," said Jerry Rawls, Finisar's executive Chairman of the Board. "Revenue growth was primarily driven by the demand for 40 gigabit and 100 gigabit transceivers for datacom applications, as well as transceivers for wireless applications."

"Although our gross margins declined primarily as a result of our annual telecom price reductions and low yields on a new optical engine product, we significantly decreased our operating expenses resulting in a minimal impact to our earnings," said Eitan Gertel, Finisar's Chief Executive Officer.

  
FINANCIAL HIGHLIGHTS - THIRD QUARTER ENDED JANUARY 25, 2015 
  
Summary GAAP Results  Third   Second  
  Quarter   Quarter  
  Ended   Ended  
   January 25, 2015   October 26, 2014  
   (in thousands, except per share amounts)  
            
Revenues  $306,283   $296,981  
Gross margin   25.5 %  28.6 %
Operating expenses  $74,552   $92,180  
Operating income (loss)  $3,401   $(7,259 )
Operating margin   1.1 %  (2.4 )%
Net income (loss)  $1,678   $(11,361 )
Income per share-basic  $0.02   $(0.11 )
Income per share-diluted  $0.02   $(0.11 )
            
Basic shares   103,563    99,621  
Diluted shares   105,990    99,621  
            
Summary Non-GAAP Results (a)  Third   Second  
  Quarter   Quarter  
  Ended   Ended  
   January 25, 2015   October 26, 2014  
   (in thousands, except per share amounts)  
          
Revenues  $306,283   $296,981  
Gross margin   30.0 %  31.1 %
Operating expenses  $65,128   $67,306  
Operating income  $26,852   $24,984  
Operating margin   8.8 %  8.4 %
Net income  $26,706   $23,465  
Income per share-basic  $0.26   $0.24  
Income per share-diluted  $0.25   $0.23  
            
Basic shares   103,563    99,621  
Diluted shares   105,990    105,340  
            
(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 2015: 

  • Revenues increased to $306.3 million, up $9.3 million, or 3.1%, from $297.0 million in the preceding quarter.
  • Sales of products for datacom applications increased by $18.5 million, or 8.5%, compared to the preceding quarter, primarily driven by the demand for 40 gigabit and 100 gigabit transceivers for datacom applications, as well as transceivers for wireless applications.
  • Sales of products for telecom applications decreased by $9.2 million, or 11.3%, compared to the preceding quarter, primarily due to the impact of one month of the annual telecom price reduction that typically takes effect on January 1 and the decrease in demand for transceivers for telecom applications driven by sluggish carrier capital expenditures.
  • GAAP gross margin decreased to 25.5% from 28.6% in the preceding quarter, primarily driven by a $5.7 million non-cash charge for the impairment of long-lived assets.
  • Non-GAAP gross margin decreased to 30.0% from 31.1% in the preceding quarter primarily due to the impact of one month of the annual telecom price reduction that typically takes effect on January 1 and the impact of substantial yield loss for a new optical engine product for supercomputing applications that we started to ramp in production during the quarter.
  • GAAP operating expenses decreased $17.6 million to $74.6 million from $92.2 million in the preceding quarter, primarily from expense reduction related to resolving patent infringement litigation that occurred in the preceding quarter.
  • Non-GAAP operating expenses decreased $2.2 million to $65.1 million from $67.3 million in the preceding quarter. 
  • GAAP operating income increased $10.7 million, to $3.4 million or 1.1% of revenues, compared to an operating loss of $7.3 million or (2.4)% of revenues in the preceding quarter, primarily as the result of higher revenues and lower operating expenses.
  • Non-GAAP operating income increased $1.9 million to $26.9 million, or 8.8% of revenues, compared to $25.0 million, or 8.4% of revenues, in the preceding quarter, primarily as the result of higher revenue and lower operating expenses.
  • Cash, cash equivalents and short term investments increased $11.4 million to $488.9 million at the end of the third quarter, compared to $477.4 million at the end of the preceding quarter.

OUTLOOK

The Company indicated that for the fourth quarter of fiscal 2015 it currently expects revenues in the range of $310 to $330 million, non-GAAP gross margin of approximately 30%, non-GAAP operating margin of approximately 8% to 9%, and non-GAAP earnings per diluted share in the range of approximately $0.22 to $0.28. Please note that the fourth quarter fiscal 2015 will have 14 weeks compared to 13 weeks in the preceding quarter. However, the positive benefit to revenue of the extra week will be partially offset by the impact of Chinese New Year which occurred in February. In addition, operating expenses are expected to increase primarily due to the extra week relative to the preceding quarter.

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 5, 2015, 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 877-718-5108 (domestic) or + 719-325-4773(international) and enter conference ID 3629508.

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 3629508 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  Nine Months Ended  Three Months Ended 
 January 25, 2015  January 26, 2014  January 25, 2015  January 26, 2014  October 26, 2014 
Revenues$306,283  $294,018  $930,902  $850,808  $296,981 
Cost of revenues 221,173   187,368   659,183   546,638   210,625 
Impairment of acquired developed technology and other long-lived assets 5,722   -   5,722   -   - 
Amortization of acquired developed technology 1,435   961   4,304   3,735   1,435 
Gross profit 77,953   105,689   261,693   300,435   84,921 
Gross margin 25.5%  35.9%  28.1%  35.3%  28.6%
Operating expenses:                   
 Research and development 48,782   46,734   150,972   135,223   51,184 
 Sales and marketing 10,926   10,911   34,378   35,038   11,487 
 General and administrative 14,062   14,353   57,553   38,081   28,772 
 Impairment of acquired developed technology and other long-lived assets 45   -   45   -   - 
 Amortization of purchased intangibles 737   595   2,235   1,785   737 
  Total operating expenses 74,552   72,593   245,183   210,127   92,180 
Income (loss) from operations 3,401   33,096   16,510   90,308   (7,259)
Interest income 321   335   1,275   834   342 
Interest expense (2,686)  (1,663)  (8,687)  (2,582)  (2,867)
Other income (expenses), net 2,051   (1,873)  58   (890)  33 
Income (loss) before income taxes and non-controlling interest 3,087   29,895   9,156   87,670   (9,751)
Provision for income taxes 1,409   2,827   4,596   4,816   1,610 
Income (loss) before non-controlling interest 1,678   27,068   4,560   82,854   (11,361)
Adjust for net loss attributable to non-controlling interest -   (7)  -   183   - 
Net income (loss) attributable to Finisar Corporation$1,678  $27,061  $4,560  $83,037  $(11,361)
                    
Net income (loss) per share attributable to Finisar Corporation common stockholders:                   
                    
 Basic$0.02  $0.28  $0.05  $0.87  $(0.11)
 Diluted$0.02  $0.26  $0.04  $0.82  $(0.11)
                    
Shares used in computing net income per share - basic 103,563   96,394   100,475   95,649   99,621 
Shares used in computing net income per share - diluted 105,990   104,361   103,825   103,491   99,621

 
                    
                    
                    
Finisar Corporation 
Consolidated Balance Sheets 
(in thousands) 
  
  January 25, 2015   October 26, 2014   July 27, 2014   April 27, 2014  
  (Unaudited)   (Unaudited)   (Unaudited)      
ASSETS                    
Current assets:                    
 Cash and cash equivalents $198,344   $186,952   $287,455   $303,101  
 Short-term held-to-maturity investments  290,520    290,478    209,927    209,922  
 Accounts receivable, net  210,116    213,721    231,312    225,020  
 Accounts receivable, other  41,540    34,573    41,595    33,749  
 Inventories  277,862    284,789    270,122    259,759  
 Prepaid expenses and other assets  37,265    38,065    38,582    33,022  
  Total current assets  1,055,647    1,048,578    1,078,993    1,064,573  
Property, equipment and improvements, net  304,547    306,331    301,020    273,328  
Purchased intangible assets, net  29,336    31,508    33,680    34,141  
Goodwill  106,735    106,735    106,735    106,115  
Minority investments  2,647    2,547    2,317    2,117  
Other assets  22,444    22,528    20,907    17,272  
  Total assets $1,521,356   $1,518,227   $1,543,652   $1,497,546  
                     
LIABILITIES AND STOCKHOLDERS' EQUITY                    
Current liabilities:                    
 Accounts payable $123,895   $113,235   $143,224   $119,439  
 Accrued compensation  30,632    35,354    28,215    38,541  
 Other accrued liabilities  31,854    33,529    27,568    31,533  
 Deferred revenue  11,240    12,358    16,872    16,659  
 Short term debt  175    187    247    243  
 Current portion of convertible notes       36,665    40,015    40,015  
  Total current liabilities  197,796    231,328    256,141    246,430  
Long-term liabilities:                    
 Convertible notes, net of current portion  219,072    216,775    214,496    212,253  
 Other non-current liabilities  24,184    24,900    24,042    22,804  
  Total liabilities  441,052    473,003    494,679    481,487  
Stockholders' equity:                    
 Common stock  104    100    100    97  
 Additional paid-in capital  2,537,231    2,485,133    2,469,687    2,456,110  
 Accumulated other comprehensive income  (1,418 )  17,282    25,116    20,025  
 Accumulated deficit  (1,455,613 )  (1,457,291 )  (1,445,930 )  (1,460,173 )
  Total stockholders' equity  1,080,304    1,045,224    1,048,973    1,016,059  
Total liabilities and stockholders' equity $1,521,356   $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 cash charges)
  • Stock-based compensation expense (non-cash charges);
  • Abandonment of fix assets (non-cash charges);
  • Impairment of long-lived assets (non-recurring 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);
  • 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 charges 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   Nine Months Ended   Three Months Ended  
  January 25, 2015   January 26, 2014   January 25, 2015   January 26, 2014   October 26, 2014  
GAAP to non-GAAP reconciliation of gross profit:                         
Gross profit - GAAP $77,953   $105,689   $261,693   $300,435   $84,921  
Gross margin - GAAP  25.5 %  35.9 %  28.1 %  35.3 %  28.6 %
Adjustments:                         
Cost of revenues                         
 Change in excess and obsolete inventory reserve  3,772    384    7,541    55    2,048  
 Amortization of acquired technology  1,435    961    4,304    3,735    1,435  
 Duplicate facility costs during facility move  6         772         766  
 Stock compensation  2,660    2,374    7,524    6,207    2,588  
 Abandonment of fixed assets  -    -    124    -    124  
 Impairment of long-lived assets  5,722    -    5,722    -    -  
 Reduction in force costs  371    34    1,165    104    319  
 Acquisition related retention payment  61    62    268    194    89  
  Total cost of revenue adjustments  14,027    3,815    27,420    10,295    7,369  
Gross profit - non-GAAP  91,980    109,504    289,113    310,730    92,290  
Gross margin - non-GAAP  30.0 %  37.2 %  31.1 %  36.5 %  31.1 %
                          
GAAP to non-GAAP reconciliation of operating income:                         
Operating income (loss) - GAAP  3,401    33,096    16,510    90,308    (7,259 )
Operating margin - GAAP  1.1 %  11.3 %  1.8 %  10.6 %  -2.4 %
Adjustments:                         
Total cost of revenue adjustments  14,027    3,815    27,420    10,295    7,369  
Research and development                         
 Reduction in force costs  23    -    708    28    353  
 Duplicate facility costs during facility move  99    -    866    -    767  
 Acquisition related retention payment  132    190    491    571    166  
 Stock compensation  4,669    3,995    13,832    11,589    4,727  
Sales and marketing                         
 Acquisition related retention payment  9    17    38    51    9  
 Stock compensation  1,600    1,369    4,754    3,935    1,625  
General and administrative                         
 Reduction in force costs  49    (82 )  103    158    59  
 Duplicate facility costs  36    -    152    -    116  
 Acquisition related retention payment  7    (11 )  (32 )  1,036    (55 )
 Stock compensation  2,654    2,618    8,083    7,704    2,617  
 Payroll taxes related to options investigation  -    -    17    -    17  
 Acquisition related costs  36    591    274    940    8  
 Litigation settlements and resolutions and related costs  (662 )  5    11,754    10    13,728  
 Shareholder class action and derivative litigation costs  (10 )  97    (10 )  (4,951 )  -  
Amortization of purchased intangibles  737    595    2,235    1,785    737  
Impairment of long-lived assets  45    -    45    -    -  
  Total cost of revenue and operating expense adjustments  23,451    13,199    70,730    33,151    32,243  
Operating income - non-GAAP  26,852    46,295    87,240    123,459    24,984  
Operating margin - non-GAAP  8.8 %  15.7 %  9.4 %  14.5 %  8.4 %
                          
GAAP to non-GAAP reconciliation of income attributable to Finisar Corporation:                         
Net income (loss) attributable to Finisar Corporation - GAAP  1,678    27,061    4,560    83,037    (11,361 )
Adjustments:                         
Total cost of revenue and operating expense adjustments  23,451    13,199    70,730    33,151    32,243  
Non-cash imputed interest expenses on convertible debt  2,297    927    6,819    927    2,279  
Imputed interest related to restructuring  48    54    149    167    50  
Other (income) expense, net                         
 Loss (gain) on sale of assets  31    (30 )  242    (135 )  (27 )
 Gain related to minority investments  -    -    -    (743 )  -  
 Other miscellaneous income  (167 )  (3 )  (178 )  (5 )  (10 )
 Foreign exchange transaction (gain) or loss  (338 )  2,200    1,980    2,559    327  
 Amortization of debt issuance cost  154    76    462    76    154  
Provision for income taxes                         
 Income tax provision adjustments  (448 )  1,327    (1,261 )  621    (190 )
Non-controlling interest non-GAAP adjustment  -    182    -    374    -  
Total adjustments  25,028    17,932    78,943    36,992    34,826  
Net income attributable to Finisar Corporation - non-GAAP $26,706   $44,993   $83,503   $120,029   $23,465  
                          
Non-GAAP income attributable to Finisar Corporation $26,706   $44,993   $83,503   $120,029   $23,465  
Add: interest expense for dilutive convertible notes  -    539    1,072    1,617    533  
Adjusted non-GAAP income attributable to Finisar Corporation $26,706   $45,532   $84,575   $121,646   $23,998  
                          
Non-GAAP income per share attributable to Finisar Corporation common stockholders                         
 Basic $0.26   $0.47   $0.83   $1.25   $0.24  
 Diluted $0.25   $0.44   $0.80   $1.18   $0.23  
Shares used in computing non-GAAP income per share attributable to Finisar Corporation common stockholders                         
 Basic  103,563    96,394    100,475    95,649    99,621  
 Diluted  105,990    104,361    106,339    103,491    105,340  
                          
Non-GAAP EBITDA                         
Non-GAAP income attributable to Finisar Corporation $26,706   $44,993   $83,503   $120,029   $23,465  
Depreciation expense  21,371    15,960    61,934    44,508    20,915  
Amortization  -    94    72    282    33  
Interest expense  20    347    444    654    196  
Income tax expense  1,857    1,500    5,857    4,195    1,800  
Non-GAAP EBITDA $49,954   $62,894   $151,810   $169,668   $46,409  
                    

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