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Finisar Announces Record Third Fiscal Quarter Revenues

SUNNYVALE, Calif., March 09, 2017 (GLOBE NEWSWIRE) -- 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 year 2017, ended January 29, 2017.

COMMENTARY

“I am pleased to announce that Finisar achieved another new all-time quarterly records for revenues and Non-GAAP profits in our third quarter. Revenues were $380.6 million, an increase of $10.7 million, or 2.9%, over the second quarter and 23.1% over the third quarter a year ago. This growth was primarily driven by strong demand for 100G transceivers. In addition, customer demand for wavelength selective switch and ROADM line card products continued to be strong,” said Jerry Rawls, Finisar’s Chief Executive Officer.

FINANCIAL HIGHLIGHTS – Third Quarter Ended January 29, 2017
Summary GAAP ResultsThird Second
Quarter Quarter
Ended Ended
January 29, 2017 October 30, 2016
(in thousands, except per share amounts)
Revenues$380,588 $369,863
Gross margin 35.9% 36.1%
Operating expenses$81,731 $80,853
Operating income$54,906 $52,828
Operating margin 14.4% 14.3%
Net income$46,387 $48,765
Income per share-basic$0.42 $0.44
Income per share-diluted$0.40 $0.43
Basic shares 110,956 110,407
Diluted shares 114,873 113,192
Summary Non-GAAP Results (a)Third Second
Quarter Quarter
Ended Ended
January 29, 2017 October 30, 2016
(in thousands, except per share amounts)
Revenues$380,588 $369,863
Non-GAAP Gross margin 37.0% 37.2%
Non-GAAP Operating expenses$70,538 $69,418
Non-GAAP Operating income $70,375 $68,250
Non-GAAP Operating margin 18.5% 18.5%
Non-GAAP Net income $67,204 $65,154
Non-GAAP Income per share-basic$0.61 $0.59
Non-GAAP Income per share-diluted$0.59 $0.58
Basic shares 110,956 110,407
Diluted shares 114,873 113,192

_____________

(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 of Finisar’s core ongoing 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 2017:

  • Revenues were $380.6 million, an increase of $10.7 million, or 2.9%, from $369.9 million in the second quarter.

  • Sales of datacom products increased by $7.3 million, or 2.8%, compared to the second quarter. This increase was due primarily to growth in demand for 100G transceivers. Sales of 100G transceivers for datacom applications increased approximately 9% compared to the second quarter, and over 110% compared to the third quarter of the prior fiscal year.

  • Sales of telecom products increased by $3.5 million, or 3.2%, compared to the second quarter. This increase was due primarily to higher sales of wavelength selective switch and ROADM line card products, primarily driven by our Chinese OEM customers.

  • GAAP gross margin was 35.9% compared to 36.1% in the second quarter.

  • Non-GAAP gross margin was 37.0% compared to 37.2% in the second quarter.

  • GAAP operating expenses were $81.7 million compared to $80.9 million in the second quarter. GAAP operating expenses as a percentage of revenue decreased to approximately 21.5% of revenue compared to 21.9% in the second quarter.
  • Non-GAAP operating expenses were $70.5 million compared to $69.4 million in the second quarter. Non-GAAP operating expenses as a percentage of revenue decreased to approximately 18.5% compared to 18.8% in the second quarter.

  • GAAP operating was 14.4% compared to 14.3% in the second quarter.

  • Non-GAAP operating margin was 18.5% compared to 18.5% in the second quarter.

  • GAAP earnings per fully diluted share was $0.40 compared to $0.43 in the second quarter.

  • Non-GAAP earnings per fully diluted share was $0.59 compared to $0.58 in the second quarter.

  • Cash, cash equivalents and short-term investments increased $588.0 million to approximately $1.2 billion at the end of the third quarter, compared to $626.3 million at the end of the second quarter. This increase was primarily due to the issuance of $575.0 million of 0.50% convertible notes due in December 2036, which yielded net proceeds of $569.3 million. Excluding those net proceeds, cash would have increased $18.7 million during the quarter.

OUTLOOK

Finisar indicated that for the fourth quarter of fiscal 2017 it currently expects revenues in the range of $360 to $380 million, non-GAAP gross margin of approximately 36%, non-GAAP operating margin of approximately 17%, and non-GAAP earnings per fully diluted share in the range of approximately $0.50 to $0.56.

Finisar has not provided a reconciliation of its fourth quarter outlook for non-GAAP gross margin, non-GAAP operating margin and non-GAAP earnings per fully diluted share because estimates of all of the reconciling items cannot be provided without unreasonable efforts. It is difficult to reasonably provide a forward-looking estimate of certain reconciling items between such non-GAAP forward-looking measures and the comparable forward-looking GAAP measures. Certain factors that are materially significant to Finisar’s ability to estimate these items are out of its control and/or cannot be reasonably predicted, including with respect to restructuring charges, litigation settlements and resolutions and related costs, and the timing of tax related adjustments. Accordingly, a reconciliation of such non-GAAP forward-looking measures to the comparable forward-looking GAAP measures are not available within a reasonable range of predictability.

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 9, 2017, 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 1-855-473-9088 (domestic) or 1-720-405-0995 (international) and enter conference ID 59806101.

An audio replay will be available for two weeks following the call by dialing 1-855-859-2056 (domestic) or 1-404-537-3406 (international) and then following the prompts: enter conference ID 59806101 and provide your name, affiliation, and contact number. A replay of the webcast will be available shortly after the conclusion of the call on Finisar’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; 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 17, 2016) 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 over 25 years, Finisar has provided critical optics technologies to system manufacturers to meet the increasing demands for network bandwidth and storage. Finisar is headquartered in Sunnyvale, California, USA with R&D, manufacturing sites, and sales offices worldwide. For additional information, visit www.finisar.com.

FINISAR FINANCIAL STATEMENTS

The following financial tables are presented in accordance with GAAP.

Finisar Corporation
Consolidated Statements of Operations
(Unaudited, in thousands, except per share data)
Three Months Ended Nine Months Ended Three Months Ended
Jan 29, 2017 Jan 31, 2016 Jan 29, 2017 Jan 31, 2016 Oct 30, 2016
Revenues$380,588 $309,206 $1,091,776 $944,372 $369,863
Cost of revenues 242,961 219,836 709,790 674,593 235,192
Impairment of long-lived assets - - - 1,071 -
Amortization of acquired developed technology 990 1,630 3,503 4,500 990
Gross profit 136,637 87,740 378,483 264,208 133,681
Gross margin 35.9% 28.4% 34.7% 28.0% 36.1%
Operating expenses:
Research and development 54,691 49,840 158,941 153,220 53,242
Sales and marketing 13,092 11,899 38,322 34,998 13,367
General and administrative 13,235 14,875 43,126 46,269 13,576
Impairment of long-lived assets - - - 830 -
Amortization of purchased intangibles 713 668 2,049 2,004 668
Total operating expenses 81,731 77,282 242,438 237,321 80,853
Income from operations 54,906 10,458 136,045 26,887 52,828
Interest income 1,717 709 3,464 1,543 1,021
Interest expense (5,399) (2,933) (11,410) (8,733) (3,025)
Other income (expenses), net (338) 1,968 398 3,294 795
Income before income taxes 50,886 10,202 128,497 22,991 51,619
Provision for income taxes 4,499 (1,882) 9,396 870 2,854
Net income$46,387 $12,084 $119,101 $22,121 $48,765
Net income per share attributable to Finisar Corporation common stockholders:
Basic$0.42 $0.11 $1.08 $0.21 $0.44
Diluted$0.40 $0.11 $1.05 $0.20 $0.43
Shares used in computing net income per share - basic 110,956 107,180 110,061 106,367 110,407
Shares used in computing net income per share - diluted 114,873 108,128 113,506 108,488 113,192


Finisar Corporation
Consolidated Balance Sheets
(in thousands)
Jan 29, 2017 Oct 30, 2016 Jul 31, 2016 May 1, 2016
(Unaudited) (Unaudited) (Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $240,593 $282,963 $280,414 $299,221
Short-term held-to-maturity investments 973,675 343,319 313,389 263,255
Accounts receivable, net 280,098 277,667 255,036 249,257
Accounts receivable, other 58,498 49,997 43,678 44,576
Inventories 312,271 292,439 272,592 273,291
Prepaid expenses and other assets 20,526 17,140 18,646 18,483
Total current assets 1,885,661 1,263,525 1,183,755 1,148,083
Property, equipment and improvements, net 357,039 341,563 338,918 348,613
Purchased intangible assets, net 14,638 16,339 16,197 18,388
Goodwill 106,735 106,735 106,735 106,735
Minority investments 3,322 3,893 3,974 4,051
Other assets 24,275 18,008 18,928 19,501
Total assets $2,391,670 $1,750,063 $1,668,507 $1,645,371
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $155,916 $153,023 $136,317 $141,591
Accrued compensation 50,640 45,213 36,332 36,084
Other accrued liabilities 43,081 36,736 39,201 42,206
Deferred revenue 14,965 17,818 16,468 13,529
Total current liabilities 264,602 252,790 228,318 233,410
Long-term liabilities:
Convertible notes 699,903 234,679 232,016 229,393
Other non-current liabilities 12,594 13,279 14,056 14,882
Total liabilities 977,099 500,748 474,390 477,685
Stockholders' equity:
Common stock 111 111 110 108
Additional paid-in capital 2,768,396 2,639,355 2,621,260 2,605,859
Accumulated other comprehensive income (loss) (59,944) (49,772) (38,109) (25,188)
Accumulated deficit (1,293,992) (1,340,379) (1,389,144) (1,413,093)
Total stockholders' equity 1,414,571 1,249,315 1,194,117 1,167,686
Total liabilities and stockholders' equity $2,391,670 $1,750,063 $1,668,507 $1,645,371
Note - Balance sheet amounts as of May 1, 2016 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, non-GAAP income and non-GAAP net income per share. These non-GAAP financial measures are supplemental information regarding Finisar’s operating performance on a non-GAAP basis that excludes certain gains, losses and charges of a non-cash nature or that occur relatively infrequently and/or that management considers to be outside of our ongoing core operating results. Management believes that tracking non-GAAP gross profit, non-GAAP operating income, non-GAAP net income and non-GAAP net income per share provides management and the investment community with valuable insight into our ongoing core current operations, our ability to generate cash and the underlying business trends that 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);
  • Amortization of acquired technology (non-cash charges related to technology obtained in acquisitions);
  • Duplicate facility costs during facility move (non-core cash charges);
  • Stock-based compensation expense (non-cash charges);
  • Impairment of long-lived assets (non-cash charges);
  • Reduction in force costs (non-core cash charges); and
  • Acquisition related retention payments (non-core 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:

  • Acquisition related costs (non-core cash charges);
  • Gain or loss on litigation settlements and resolutions and related costs (non-core cash charges or benefits);
  • Unclaimed property tax audit accrual (non-core charges and benefits); 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:

  • Other interest income (non-core cash benefits);
  • 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-cash losses and cash gains related to the periodic disposal of assets no longer required for current activities);
  • Loss (gain) related to minority investment (non-core charges or benefits);
  • Other miscellaneous expenses (income) (non-core charges or benefits);
  • Dollar denominated foreign exchange transaction losses (gains) (non-cash charges or benefits); and
  • Amortization of debt issuance costs (non-cash charges).

In addition, in this release we have adjusted non-GAAP income and non-GAAP income per share for the difference between GAAP income taxes and non-GAAP income taxes.

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
Jan 29, 2017 Jan 31, 2016 Jan 29, 2017 Jan 31, 2016 Oct 30, 2016
GAAP to non-GAAP reconciliation of gross profit:
Gross profit - GAAP$136,637 $87,740 $378,483 $264,208 $133,681
Gross margin - GAAP 35.9% 28.4% 34.7% 28.0% 36.1%
Adjustments:
Cost of revenues
Change in excess and obsolete inventory valuation adjustments (1) - 1,293 - 5,125 -
Amortization of acquired technology 990 1,630 3,503 4,500 990
Duplicate facility costs during facility move 10 7 26 93 8
Stock compensation 3,182 2,539 9,178 8,153 2,949
Impairment of long-lived assets - - - 1,282 -
Reduction in force costs 68 364 184 1,335 14
Acquisition related retention payment 26 28 71 121 26
Total cost of revenue adjustments 4,276 5,861 12,962 20,609 3,987
Gross profit - non-GAAP 140,913 93,601 391,445 284,817 137,668
Gross margin - non-GAAP 37.0% 30.3% 35.9% 30.2% 37.2%
GAAP to non-GAAP reconciliation of operating income:
Operating income - GAAP 54,906 10,458 136,045 26,887 52,828
Operating margin - GAAP 14.4% 3.4% 12.5% 2.8% 14.3%
Adjustments:
Total cost of revenue adjustments 4,276 5,861 12,962 20,609 3,987
Total operating expense adjustments
Operating expenses - GAAP 81,731 77,282 242,438 237,321 80,853
Research and development
Reduction in force costs 30 230 292 518 88
Duplicate facility costs during facility move 10 7 24 277 7
Acquisition related retention payment 32 32 96 190 32
Stock compensation 5,461 4,723 16,124 14,531 5,552
Impairment of long-lived assets - - - 287 -
Sales and marketing
Reduction in force costs - 44 29 224 -
Acquisition related retention payment - 2 - 15 -
Stock compensation 1,921 1,713 5,549 5,138 1,877
General and administrative
Reduction in force costs 20 39 53 1,354 20
Duplicate facility costs 168 150 465 167 154
Acquisition related retention payment - - (2) (5) -
Stock compensation 2,807 2,343 8,349 7,860 2,989
Acquisition related costs 21 39 54 435 2
Litigation settlements and resolutions and related costs 47 - 93 16 46
Unclaimed property tax audit accrual (37) - (37) - -
Amortization of purchased intangibles 713 668 2,049 2,004 668
Impairment of long-lived assets - - - 587 -
Total operating expense adjustments 11,193 9,990 33,138 33,598 11,435
Operating expenses - non-GAAP 70,538 67,292 209,300 203,723 69,418
Operating income - non-GAAP 70,375 26,309 182,145 81,094 68,250
Operating margin - non-GAAP 18.5% 8.5% 16.7% 8.6% 18.5%
GAAP to non-GAAP reconciliation of income before income taxes:
Income before income taxes - GAAP 50,886 10,202 128,497 22,991 51,619
Adjustments:
Total cost of revenue adjustments 4,276 5,861 12,962 20,609 3,987
Total operating expense adjustments 11,193 9,990 33,138 33,598 11,435
Other interest income - (113) - (113) -
Non-cash imputed interest expenses on convertible debt 4,464 2,411 9,442 7,156 2,509
Imputed interest related to restructuring 34 42 109 131 37
Other (income) expense, net
Loss (gain) on sale of assets 35 (644) 10 (744) (17)
Loss related to minority investments 643 - 643 - -
Other miscellaneous income (280) (1,503) (280) (1,640) -
Foreign exchange transaction (gain) or loss (204) 1,205 (1,203) 563 (970)
Amortization of debt issuance cost 257 154 565 462 154
Total Interest and other adjustments 4,949 1,552 9,286 5,815 1,713
Income before income taxes - non-GAAP 71,304 27,605 183,883 83,013 68,754
GAAP to non-GAAP reconciliation of net income:
Net income - GAAP 46,387 12,084 119,101 22,121 48,765
Total cost of revenue adjustments 4,276 5,861 12,962 20,609 3,987
Total operating expense adjustments 11,193 9,990 33,138 33,598 11,435
Total Interest and other adjustments 4,949 1,552 9,286 5,815 1,713
Income tax provision adjustments 399 (2,883) (304) (4,150) (746)
Total adjustments 20,817 14,520 55,082 55,872 16,389
Net income - non-GAAP$67,204 $26,604 $174,183 $77,993 $65,154
Non-GAAP net income for diluted earnings per share calculation
Non-GAAP net income$67,204 $26,604 $174,183 $77,993 $65,154
Add: interest expense for dilutive convertible notes - - - - -
Adjusted non-GAAP income$67,204 $26,604 $174,183 $77,993 $65,154
Basic non-GAAP income per share
GAAP earnings per share$0.42 $0.11 $1.08 $0.21 $0.44
Impact of all non-GAAP adjustments$0.19 $0.14 $0.50 $0.52 $0.15
Non-GAAP earnings per share$0.61 $0.25 $1.58 $0.73 $0.59
Diluted non-GAAP income per share
GAAP earnings per share$0.40 $0.11 $1.05 $0.20 $0.43
Impact of all non-GAAP adjustments$0.19 $0.14 $0.48 $0.52 $0.15
Non-GAAP earnings per share$0.59 $0.25 $1.53 $0.72 $0.58
Shares used in computing non-GAAP income per share
Basic 110,956 107,180 110,061 106,367 110,407
Diluted 114,873 108,128 113,506 108,488 113,192
(1) Non-GAAP adjustment no longer made effective fiscal 2017.

Finisar-F

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

Source:Finisar Corporation