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June 14, 2018 at 4:01 PM EDT

Finisar Announces Fiscal 2018 Financial Results

SUNNYVALE, Calif., June 14, 2018 (GLOBE NEWSWIRE) -- Finisar Corporation (NASDAQ:FNSR), a global technology leader for subsystems and components for fiber optic communications, today announced financial results for its fourth fiscal quarter and full fiscal year, ended April 29, 2018. 

COMMENTARY

“While fiscal fourth quarter revenues were in line with the mid-point of our guidance range, gross margin was lower than expected driven by under absorption of fixed manufacturing expenses in our Allen Texas VCSEL laser fab and an increase in non-cash inventory reserves,” said Michael Hurlston, Finisar’s Chief Executive Officer.  “While we are disappointed in last quarter’s results, we do expect both revenues and gross margins will increase in our fiscal first quarter. In addition, we have begun to make changes at Finisar that I believe will not only bring more focus to our product development efforts, but will lead to better execution and efficiency, allowing the company to reduce relative expense levels.”

 
FINANCIAL HIGHLIGHTS – Fourth Quarter Ended April 29, 2018
         
Summary GAAP Results Fourth    Third 
  Quarter
  Quarter 
  Ended    Ended 
  April 29, 2018    January 28, 2018 
  (in thousands, except per share amounts)
         
Revenues $310,069     $332,403  
Gross margin 20.2 %   26.5 %
Operating expenses $89,330     $94,197  
Operating loss $(26,737 )   $(6,129 )
Operating margin (8.6 )%   (1.8 )%
Net loss $(18,344 )   $(55,659 )
Loss per share-basic $(0.16 )   $(0.49 )
Loss per share-diluted $(0.16 )   $(0.49 )
         
Basic shares 114,742     114,209  
Diluted shares 114,742     114,209  
         
Summary Non-GAAP Results (a) Fourth 
  Third
  Quarter 
  Quarter
  Ended 
  Ended
  April 29, 2018   January 28, 2018
  (in thousands, except per share amounts)
     
Revenues $310,069     $332,403  
Non-GAAP Gross margin 24.7 %   28.6 %
Non-GAAP Operating expenses $72,029     $72,375  
Non-GAAP Operating income $4,573     $22,703  
Non-GAAP Operating margin 1.5 %   6.8 %
Non-GAAP Net income 5,780     22,801  
Non-GAAP Income per share-basic $0.05     $0.20  
Non-GAAP Income per share-diluted $0.05     $0.20  
       
Basic shares 114,742     114,209  
Diluted shares 115,991     115,661  
           

_____________

(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 resultsA 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.

Revenue Details for the Fourth Quarter of Fiscal 2018: 

  • Sales of datacom products decreased from $266.1 million to $248.0 million, or by $18.1 million, or (6.8)%, compared to the third quarter of fiscal 2018, primarily due to a decline in revenues for our VCSEL laser arrays for 3D sensing applications.
     
  • Sales of telecom products decreased from $66.3 million to $62.1 million, or by $4.2 million, or (6.4)%, compared to the third quarter of fiscal 2018, primarily due to the full three-month impact of the annual telecom price reductions.
 
FINANCIAL HIGHLIGHTS – Fiscal Year Ended April 29, 2018
         
Summary GAAP Results        
  Fiscal Year
  Fiscal Year
  Ended
  Ended
  April 29, 2018   April 30, 2017
  (in thousands, except per share amounts)
         
Revenues $1,316,483     $1,449,303  
Gross margin 27.5 %   34.8 %
Operating expenses $355,652     $326,762  
Operating income $6,513     $176,884  
Operating margin 0.5 %   12.2 %
Net income (loss) $(48,287 )   $249,346  
Income (loss) per share-basic $(0.42 )   $2.26  
Income (loss) per share-diluted $(0.42 )   $2.19  
         
Basic shares 113,864     110,405  
Diluted shares 113,864     114,097  
         
Summary Non-GAAP Results (b)        
  Fiscal Year
  Fiscal Year
  Ended
  Ended
  April 29, 2018
  April 30, 2017
  (in thousands, except per share amounts)
     
Revenues $1,316,483     $1,449,303  
Non-GAAP Gross margin 29.7 %   35.9 %
Non-GAAP Operating expenses $292,197     $280,252  
Non-GAAP Operating income $99,195     $240,556  
Non-GAAP Operating margin 7.5 %   16.6 %
Non-GAAP Net income $100,420     $231,698  
Non-GAAP Income per share-basic $0.88     $2.10  
Non-GAAP Income per share-diluted $0.86     $2.03  
       
Basic shares 113,864     110,405  
Diluted shares 116,274     114,097  
           

_____________

(b) 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 resultsA 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.

Revenue Details for Fiscal 2018: 

  • Sales of products for datacom applications decreased by $12.8 million, or (1.2)%, compared to the preceding year, primarily due to lower demand from our Chinese OEM customers.

  • Sales of products for telecom applications decreased by $120.0 million, or (29.5)%, compared to the preceding year primarily due to lower demand from our Chinese OEM customers.

OUTLOOK

Finisar indicated that for the first quarter of fiscal 2019 it currently expects revenues in the range of $305 to $325 million, non-GAAP gross margin of approximately 26%-27%, non-GAAP operating margin of approximately 4-5%, and non-GAAP earnings per fully diluted share in the range of approximately $0.10 to $0.16.

Finisar has not provided a reconciliation of its first 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 fourth quarter and full fiscal 2018 and current business outlook during its regular quarterly conference call scheduled for June 14, 2018, 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 3799557.

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 3799557 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 16, 2017) and quarterly SEC filings.

ABOUT FINISAR

Finisar Corporation (NASDAQ:FNSR) is a global technology leader in optical communications, providing components and subsystems to networking equipment manufacturers, data center operators, telecom service providers, consumer electronics and automotive companies.  Founded in 1988, Finisar designs products that meet the increasing demands for network bandwidth, data storage and 3D sensing subsystems. The company is headquartered in Sunnyvale, California, USA with R&D, manufacturing sites, and sales offices worldwide. Visit our website at www.finisar.com.

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

                     
Finisar Corporation
Consolidated Balance Sheets 
 (in thousands)
                     
    Apr 29, 2018   Jan 28, 2018   Oct 29, 2017   Jul 30, 2017   Apr 30, 2017
    (Unaudited)   (Unaudited)   (Unaudited)   (Unaudited)    
ASSETS                    
Current assets:                    
Cash and cash equivalents   $ 312,257     $ 259,023     $ 274,547     $ 278,826     $ 260,228  
Short-term held-to-maturity investments     884,838       957,267       958,216       954,026       976,595  
Accounts receivable, net     233,529       243,963       260,870       273,180       272,377  
Inventories     348,527       382,179       369,078       356,845       331,388  
Other current assets     56,001       53,023       61,517       63,629       68,269  
Total current assets     1,835,152       1,895,455       1,924,228       1,926,506       1,908,857  
Property, equipment and improvements, net     520,849       495,364       443,733       420,298       383,919  
Purchased intangible assets, net     7,878       9,148       10,424       11,700       13,019  
Goodwill     106,735       106,735       106,735       106,735       106,735  
Other assets     31,721       21,883       21,424       22,256       20,125  
Deferred tax assets     80,850       78,593       116,055       108,567       107,225  
Total assets   $ 2,583,185     $ 2,607,178     $ 2,622,599     $ 2,596,062     $ 2,539,880  
                     
LIABILITIES AND STOCKHOLDERS' EQUITY                    
Current liabilities:                    
Accounts payable   $ 132,161     $ 127,248     $ 152,047     $ 148,605     $ 140,568  
Accrued compensation     32,525       39,660       36,614       42,030       54,520  
Other accrued liabilities     32,824       36,947       40,130       46,648       43,697  
Deferred revenue     9,535       14,539       17,716       14,348       13,015  
Current portion of convertible notes     251,278       248,426       -       -       -  
Total current liabilities     458,323       466,820       246,507       251,631       251,800  
Long-term liabilities:                    
Convertible notes     488,877       483,481       723,784       715,722       707,782  
Other non-current liabilities     12,368       16,464       17,176       17,546       17,594  
Total liabilities     959,568       966,765       987,467       984,899       977,176  
Stockholders' equity:                    
Common stock     115       114       114       114       112  
Additional paid-in capital     2,850,195       2,839,701       2,814,713       2,799,118       2,784,204  
Accumulated other comprehensive income (loss)     (14,659 )     (5,712 )     (41,664 )     (44,181 )     (57,865 )
Accumulated deficit     (1,212,034 )     (1,193,690 )     (1,138,031 )     (1,143,888 )     (1,163,747 )
Total stockholders' equity     1,623,617       1,640,413       1,635,132       1,611,163       1,562,704  
Total liabilities and stockholders' equity   $ 2,583,185     $ 2,607,178     $ 2,622,599     $ 2,596,062     $ 2,539,880  
                     
Note - Balance sheet amounts as of April 30, 2017 are derived from the audited consolidated financial statements as of that date.
                     


                   
Finisar Corporation
Consolidated Statements of Operations
 (Unaudited, in thousands, except per share data) 
                   
  Three Months Ended
  Twelve Months Ended
  Three Months Ended
  Apr 29, 2018   Apr 30, 2017   Apr 29, 2018   Apr 30, 2017   Jan 28, 2018
Revenues $ 310,069     $ 357,527     $ 1,316,483     $ 1,449,303     $ 332,403  
Cost of revenues   246,501       231,374       951,510       941,164       243,724  
Amortization of acquired developed technology   604       990       2,437       4,493       611  
Impairment of long-lived assets   371       -       371       -       -  
Gross profit   62,593       125,163       362,165       503,646       88,068  
Gross margin   20.2 %     35.0 %     27.5 %     34.8 %     26.5 %
Operating expenses:                  
Research and development   60,520       58,973       239,008       217,914       59,888  
Sales and marketing   12,530       12,322       49,024       50,644       11,913  
General and administrative   12,207       12,316       59,517       55,442       19,739  
Startup costs   2,897       -       3,535       -       638  
Amortization of purchased intangibles   666       713       2,705       2,762       666  
Impairment of long-lived assets   510       -       1,863       -       1,353  
Total operating expenses   89,330       84,324       355,652       326,762       94,197  
Income (loss) from operations   (26,737 )     40,839       6,513       176,884       (6,129 )
Interest income   4,904       3,299       16,085       6,763       3,995  
Interest expense   (9,322 )     (8,953 )     (36,658 )     (20,363 )     (9,192 )
Other income (expenses), net   1,097       (488 )     (945 )     (90 )     (459 )
Income (loss) before income taxes   (30,058 )     34,697       (15,005 )     163,194       (11,785 )
Provision (benefit) for income taxes   (11,714 )     (95,548 )     33,282       (86,152 )     43,874  
Net income (loss) $ (18,344 )   $ 130,245     $ (48,287 )   $ 249,346     $ (55,659 )
                   
Net income (loss) per share attributable to Finisar Corporation common stockholders:                  
                   
Basic $ (0.16 )   $ 1.17     $ (0.42 )   $ 2.26     $ (0.49 )
Diluted $ (0.16 )   $ 1.13     $ (0.42 )   $ 2.19     $ (0.49 )
                   
Shares used in computing net income per share - basic   114,742       111,438       113,864       110,405       114,209  
Shares used in computing net income per share - diluted   114,742       115,242       113,864       114,097       114,209  
                   

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:

  • 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/intangible assets (non-cash charges);
  • Reduction in force costs (non-core cash charges);
  • Acquisition related retention payments (non-core cash charges); and
  • Inventory write-off related to discontinued products (non-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:

  • Discontinued product services fee (non-core cash charges);
  • Acquisition related costs (non-core cash charges);
  • Litigation settlements and resolutions and related costs (non-core cash charges);
  • Unclaimed property tax audit accrual (non-core benefits);
  • Amortization of purchased intangibles (non-cash charges); and
  • Start-up cash costs related to our Sherman VCSEL fab until we begin commercial production.

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);
  • Other interest income (non-core benefits);
  • 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);
  • 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.

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
  Twelve Months Ended
  Three Months Ended
  Apr 29, 2018   Apr 30, 2017   Apr 29, 2018   Apr 30, 2017   Jan 28, 2018
GAAP to non-GAAP reconciliation of gross profit:                  
Gross profit - GAAP $ 62,593     $ 125,163     $ 362,165     $ 503,646     $ 88,068  
Gross margin - GAAP   20.2 %     35.0 %     27.5 %     34.8 %     26.5 %
Adjustments:                  
Cost of revenues                  
Amortization of acquired technology   604       990       2,437       4,493       611  
Duplicate facility costs during facility move   -       10       -       36       -  
Stock compensation   3,453       3,071       12,665       12,249       2,918  
Impairment of long-lived/intangible assets   371       -       371       -       -  
Reduction in force costs   556       103       1,188       287       7  
Acquisition related retention payment   30       26       123       97       26  
Write off of discontinued product inventory   8,995       -       12,443       -       3,448  
Total cost of revenues adjustments   14,009       4,200       29,227       17,162       7,010  
Gross profit - non-GAAP   76,602       129,363       391,392       520,808       95,078  
Gross margin - non-GAAP   24.7 %     36.2 %     29.7 %     35.9 %     28.6 %
                   
GAAP to non-GAAP reconciliation of operating income (loss):                  
Operating income (loss) - GAAP   (26,737 )     40,839       6,513       176,884       (6,129 )
Operating margin - GAAP   -8.6 %     11.4 %     0.5 %     12.2 %     -1.8 %
Adjustments:                  
Total cost of revenues adjustments   14,009       4,200       29,227       17,162       7,010  
Total operating expense adjustments                  
Operating expenses - GAAP   89,330       84,324       355,652       326,762       94,197  
Research and development                  
Reduction in force costs   1,505       46       2,412       338       792  
Duplicate facility costs during facility move   -       10       -       34       -  
Acquisition related retention payment   32       32       140       128       44  
Stock compensation   6,034       5,613       24,336       21,737       6,073  
Impairment of long-lived assets   -       2,387       -       2,387       -  
Discontinued product service fees   185       -       185       -       -  
Sales and marketing                  
Reduction in force costs   335       19       323       48       -  
Acquisition related retention payment   -       2       (2 )     2       -  
Stock compensation   1,956       1,889       7,931       7,438       1,892  
General and administrative                  
Reduction in force costs   145       5       536       58       341  
Duplicate facility costs during facility move   129       176       568       641       119  
Acquisition related retention payment   -       -       -       (2 )     -  
Stock compensation   2,233       2,823       18,189       11,172       9,888  
Acquisition related costs   127       (343 )     146       (289 )     (25 )
Litigation settlements and resolutions and related costs   551       -       551       93       -  
Unclaimed property tax audit accrual   -       -       -       (37 )     -  
Amortization of purchased intangibles   666       713       2,705       2,762       666  
Startup costs   2,897       -       3,535       -       638  
Impairment of long-lived assets/intangible assets   506       -       1,900       -       1,394  
Total operating expense adjustments   17,301       13,372       63,455       46,510       21,822  
Operating expenses - non-GAAP   72,029       70,952       292,197       280,252       72,375  
Operating income - non-GAAP   4,573       58,411       99,195       240,556       22,703  
Operating margin - non-GAAP   1.5 %     16.3 %     7.5 %     16.6 %     6.8 %
                   
GAAP to non-GAAP reconciliation of income (loss) before income taxes:                  
Income (loss) before income taxes - GAAP   (30,058 )     34,697       (15,005 )     163,194       (11,785 )
Adjustments:                  
Total cost of revenues adjustments   14,009       4,200       29,227       17,162       7,010  
Total operating expense adjustments   17,301       13,372       63,455       46,510       21,822  
Other interest income   -       -       (14 )     -       (14 )
Non-cash imputed interest expenses on convertible debt   7,863       7,494       30,833       16,936       7,739  
Imputed interest related to restructuring   23       32       106       141       25  
Other (income) expense, net                  
Loss (gain) on sale of assets   (157 )     9       (315 )     (261 )     (79 )
Loss related to impairment of minority investments   -       -       2,347       643       -  
Foreign exchange transaction (gain) or loss   (936 )     326       (1,254 )     (877 )     698  
Amortization of  debt issuance cost   385       385       1,540       950       385  
Total interest and other adjustments   7,178       8,246       33,243       17,532       8,754  
Income before income taxes - non-GAAP   8,430       60,515       110,920       244,398       25,801  
                   
GAAP to non-GAAP reconciliation of net income (loss):                  
Net income (loss) - GAAP   (18,344 )     130,245       (48,287 )     249,346       (55,659 )
Total cost of revenues adjustments   14,009       4,200       29,227       17,162       7,010  
Total operating expense adjustments   17,301       13,372       63,455       46,510       21,822  
Total interest and other adjustments   7,178       8,246       33,243       17,532       8,754  
Income tax provision adjustments   (14,364 )     (98,548 )     22,782       (98,852 )     40,874  
Total adjustments   24,124       (72,730 )     148,707       (17,648 )     78,460  
Net income - non-GAAP $ 5,780     $ 57,515     $ 100,420     $ 231,698     $ 22,801  
                   
Basic non-GAAP income per share                   
GAAP earnings per share $ (0.16 )   $ 1.17     $ (0.42 )   $ 2.26     $ (0.49 )
Impact of all non-GAAP adjustments $ 0.21     $ (0.65 )   $ 1.30     $ (0.16 )   $ 0.69  
Non-GAAP earnings per share $ 0.05     $ 0.52     $ 0.88     $ 2.10     $ 0.20  
                   
Diluted non-GAAP income per share                   
GAAP earnings per share $ (0.16 )   $ 1.13     $ (0.42 )   $ 2.19     $ (0.49 )
Impact of all non-GAAP adjustments $ 0.21     $ (0.63 )   $ 1.28     $ (0.16 )   $ 0.69  
Non-GAAP earnings per share $ 0.05     $ 0.50     $ 0.86     $ 2.03     $ 0.20  
                   
Shares used in computing non-GAAP income per share                  
Basic   114,742       111,438       113,864       110,405       114,209  
Diluted   115,991       115,242       116,274       114,097       115,661  
                   

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

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Source: Finisar Corporation