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December 3, 2018 at 6:00 AM EST

Finisar Announces Second Quarter of Fiscal 2019 Financial Results

SUNNYVALE, Calif., Dec. 03, 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 second quarter of fiscal 2019, ended October 28, 2018. Finisar will not hold an earnings call, nor provide forward guidance for the third quarter of fiscal 2019, due to the previously announced proposed acquisition by II-VI Incorporated (NASDAQ: IIVI).

COMMENTARY

“I am pleased to report that revenues grew over the prior quarter and gross margins also improved over the prior quarter and were above our guidance estimate, primarily due to favorable product mix and continued focus on reducing manufacturing overhead,” said Michael Hurlston, Finisar’s Chief Executive Officer.  “In addition, we were able to accelerate the process of improving efficiencies and reducing relative operating expense levels faster than expected.  In combination, this led to increased earnings per share, exceeding the high end of our guidance range.”

FINANCIAL HIGHLIGHTS – Second Quarter Ended October 28, 2018
Summary GAAP Results Second
  First
Quarter
  Quarter
Ended
  Ended
  October 28, 2018
  July 29, 2018
  (in thousands, except per share amounts)
       
Revenues $325,423   $317,336
Gross margin  26.3%    25.4%
Operating expenses $89,788    $96,376 
Operating loss $(4,105)   $(15,691)
Operating margin  (1.3)%    (4.9)%
Net loss $(5,275)   $(18,489)
Loss per share-basic $(0.04)   $(0.16)
Loss per share-diluted $(0.04)   $(0.16)
       
Basic shares  117,284    115,867
Diluted shares  117,284    115,867
       



Summary Non-GAAP Results (a) Second
  First
Quarter 
  Quarter
Ended
  Ended
  October 28, 2018
  July 29, 2018
  (in thousands, except per share amounts)
   
   
Revenues $325,423   $317,336
Non-GAAP Gross margin  28.3%    27.5%
Non-GAAP Operating expenses $63,559   $68,311
Non-GAAP Operating income  $28,626   $18,841
Non-GAAP Operating margin  8.8%    5.9%
Non-GAAP Net income  30,600    21,297
Non-GAAP Income per share-basic $0.26   $0.18
Non-GAAP Income per share-diluted $0.26   $0.18
       
Basic shares  117,284    115,867
Diluted shares  118,290    117,191

_____________

(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.

Financial Statement Highlights for the Second Quarter of Fiscal 2019: 

  • Revenues increased by $8.1 million, or 2.5%, compared to the first quarter of fiscal 2019, as a result of increased sales of wavelength selective switches and VCSEL arrays for 3D applications.
     
  • GAAP gross margin improved from 25.4% in the first quarter to 26.3%, primarily due to favorable product mix and continued focus on reducing manufacturing overhead.

  • Non-GAAP gross margin improved from 27.5% in the first quarter to 28.3%.

  • GAAP operating expenses decreased from 30.4% of revenue in the first quarter to 27.6%, as we were able to accelerate the process of improving efficiencies and reducing relative operating expense levels faster than expected.

  • Non-GAAP operating expenses decreased from 21.5% of revenue in the first quarter to 19.5%, which is within the range of our operating model target of 18 to 20%. 

  • GAAP operating loss decreased $11.6 million, or 73.8%, compared to the first quarter.

  • Non-GAAP operating income increased $9.8 million, or 51.9%, compared to the first quarter.

  • GAAP operating margin improved from (4.9)% of revenue in the first quarter to (1.3)% due to the combination of higher revenues, better gross margins and lower operating expense levels.

  • Non-GAAP operating margin improved from 5.9% in the first quarter to 8.8%.

  • GAAP diluted earnings per share improved from $(0.16) in the first quarter to $(0.04).

  • Non-GAAP diluted earnings per share increased from $0.18 in the first quarter to $0.26.

  • Cash, cash equivalents and short-term investments increased approximately $11 million from the first quarter despite higher than typical levels of capital expenditures associated with the continued progress on our new Sherman fab for VCSEL arrays for 3D sensing applications and the construction of the third building at our Wuxi, China manufacturing site.

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; the risk that our pending merger with II-VI does not close, due to the failure of one or more conditions to closing; uncertainty as to the market value of the II-VI merger consideration to be paid in the merger; the risk that required governmental or stockholder approvals of the merger (including China antitrust approval) will not be obtained or that such approvals will be delayed beyond current expectations; the risk of litigation in respect of either Finisar or II-VI or the merger; disruption from the merger making it more difficult to maintain our customer, supplier, key personnel and other strategic relationships.  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 15, 2018) 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)
                   
    Oct 28, 2018     Jul 29, 2018     Apr 29, 2018    
    (Unaudited)     (Unaudited)          
ASSETS                    
Current assets:                    
  Cash and cash equivalents   $   332,138     $   326,189     $   312,257    
  Short-term investments     837,658       832,681       884,838    
  Accounts receivable, net      247,688       248,138       233,529    
  Inventories     309,500       325,846       348,527    
  Other current assets     51,232       54,863       56,001    
  Total current assets     1,778,216       1,787,717       1,835,152    
Property, equipment and improvements, net     600,972       587,203       520,849    
Purchased intangible assets, net     5,810       6,742       7,878    
Goodwill     106,735       106,735       106,735    
Other assets     12,250       25,179       31,721    
Deferred tax assets     89,202       85,873       80,850    
  Total assets   $   2,593,185     $   2,599,449     $   2,583,185    
                     
LIABILITIES AND STOCKHOLDERS' EQUITY                    
Current liabilities:                    
  Accounts payable   $   133,539     $   149,876     $   132,161    
  Accrued compensation     36,152       35,349       32,525    
  Other accrued liabilities     54,746       50,944       32,824    
  Deferred revenue     -        -        9,535    
  Current portion of convertible debt     257,067       254,150       251,278    
  Total current liabilities     481,504       490,319       458,323    
Long-term liabilities:                    
  Convertible debt, net of current portion     499,838       494,316       488,877    
  Other non-current liabilities     11,558       11,366       12,368    
  Total liabilities     992,900       996,001       959,568    
Stockholders' equity:                    
  Common stock     117       117       115    
  Additional paid-in capital     2,885,319       2,869,657       2,850,195    
  Accumulated other comprehensive loss     (57,906 )     (44,356 )     (14,659 )  
  Accumulated deficit     (1,227,245 )     (1,221,970 )     (1,212,034 )  
  Total stockholders' equity     1,600,285       1,603,448       1,623,617    
Total liabilities and stockholders' equity   $   2,593,185     $   2,599,449     $   2,583,185    
                     
  Note - Balance sheet amounts as of April 29, 2018 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
    Six Months Ended
  Three Months Ended
  Oct 28, 2018     Oct 29, 2017   Oct 28, 2018     Oct 29, 2017   Jul 29, 2018  
Revenues $   325,423     $   332,205     $   642,759     $   674,011     $   317,336  
Cost of revenues   239,244       235,389       475,399       461,285       236,155  
Amortization of acquired developed technology   496       611       992       1,222       496  
Gross profit   85,683       96,205       166,368       211,504       80,685  
Gross margin 26.3
%   29.0
%   25.9
%   31.4
%   25.4
%
Operating expenses:                        
  Research and development    52,674       60,560       115,734       118,600       63,060  
  Sales and marketing    12,427       12,230       24,907       24,581       12,480  
  General and administrative    12,832       13,282       25,475       27,571       12,643  
  Start-up costs   11,419       -        18,972       -        7,553  
  Amortization of purchased intangibles    436       666       1,076       1,373       640  
  Total operating expenses    89,788       86,738       186,164       172,125       96,376  
Income (loss) from operations   (4,105
)     9,467       (19,796
)     39,379       (15,691
)
Interest income   5,981       3,746       11,136       7,186       5,155  
Interest expense   (9,490
)     (9,131
)     (18,876
)     (18,144
)     (9,386
)
Other income (expenses), net   784       1,111       (1,005
)     (1,583
)     (1,789
)
Income (loss) before income taxes    (6,830
)     5,193       (28,541
)     26,838       (21,711
)
Provision (benefit) for income taxes   (1,555
)     (664
)     (4,777
)     1,122       (3,222
)
Net income (loss) $   (5,275 )   $   5,857     $   (23,764 )   $   25,716     $   (18,489 )
                         
Net income (loss) per share:                        
                         
Basic  $   (0.04 )   $   0.05     $   (0.20 )   $   0.23     $   (0.16 )
Diluted $   (0.04 )   $   0.05     $   (0.20 )   $   0.22     $   (0.16 )
                         
Shares used in computing net income (loss) per share - basic 117,284     113,960     116,575     113,252     115,867  
Shares used in computing net income (loss) per share - diluted 117,284     115,443     116,575     115,973     115,867  

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);
  • Stock-based compensation expense (non-cash charges);
  • Impairment of long-lived/intangible assets (non-cash charges);
  • Reduction in force costs and other restructuring charges (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);
  • Duplicate facility costs during facility move (non-core charges);
  • Acquisition related costs (non-core cash charges);
  • Litigation settlements and resolutions and related costs (non-core cash charges);
  • 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 and other miscellaneous (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 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
  Six Months Ended
  Three Months Ended
  Oct 28, 2018     Oct 29, 2017     Oct 28, 2018     Oct 29, 2017     Jul 29, 2018
 
GAAP to non-GAAP reconciliation of gross profit:                            
Gross profit - GAAP $   85,683     $   96,205     $   166,368     $   211,504     $   80,685  
Gross margin - GAAP 26.3 %   29.0 %   25.9 %   31.4 %   25.4 %
Adjustments:                            
Cost of revenues                            
  Amortization of acquired technology   496       611       992       1,222       496  
  Stock compensation   3,493       3,724       7,299       6,294       3,806  
  Impairment of long-lived/intangible assets   17       -        17       -        -   
  Reduction in force costs   1,659       (9     2,141       625       482  
  Acquisition related retention payment   21       26       33       67       12  
  Write off of discontinued product inventory   816       -        2,487       -        1,671  
  Total cost of revenues adjustments   6,502       4,352       12,969       8,208       6,467  
Gross profit - non-GAAP   92,185       100,557       179,337       219,712       87,152  
Gross margin - non-GAAP 28.3 %   30.3
  27.9
  32.6
  27.5
    -              -              -   
GAAP to non-GAAP reconciliation of operating income (loss):                            
Operating income (loss) - GAAP   (4,105     9,467       (19,796     39,379       (15,691 )
Operating margin - GAAP -1.3 %   2.8   -3.1   5.8   -4.9
Adjustments:                            
Total cost of revenues adjustments   6,502       4,352       12,969       8,208       6,467  
Total operating expense adjustments                            
  Operating expenses - GAAP   89,788       86,738       186,164       172,125       96,376  
  Research and development                            
  Reduction in force costs and other restructuring   972       22       7,996       115       7,024  
  Acquisition related retention payment   17       32       46       64       29  
  Stock compensation   5,962       6,147       12,137       12,229       6,175  
  Discontinued product service fees   608       -        921       -        313  
  Sales and marketing                            
  Reduction in force costs   282       -        684       (12     402  
  Acquisition related retention payment   -        -        -        (2     -   
  Stock compensation   2,021       2,039       4,167       4,083       2,146  
  General and administrative                            
  Reduction in force costs and other restructuring   257       150       776       370       519  
  Stock compensation   3,202       2,999       6,219       6,068       3,017  
  Acquisition related costs   997       40       995       44       (2
  Litigation settlements and resolutions and related costs    25       -        88       -        63  
  Amortization of purchased intangibles   436       666       1,076       1,373       640  
  Startup costs   11,419       -        18,972       -        7,553  
  Impairment of long-lived assets/intangible assets   31       -        217       -        186  
  Total operating expense adjustments 26,229     12,095     54,294     24,332     28,065  
  Operating expenses - non-GAAP 63,559     74,643     131,870     147,793     68,311  
Operating income - non-GAAP 28,626     25,914     47,467     71,919     18,841  
Operating margin - non-GAAP 8.8 %   7.8   7.4   10.7   5.9
                             
GAAP to non-GAAP reconciliation of income (loss) before income taxes:                            
Income (loss) before income taxes - GAAP   (6,830     5,193       (28,541     26,838       (21,711
Adjustments:                            
Total cost of revenues adjustments   6,502       4,352       12,969       8,208       6,467  
Total operating expense adjustments   26,229       12,095       54,294       24,332       28,065  
Non-cash imputed interest expenses on convertible debt   8,054       7,676       15,981       15,231       7,927  
Imputed interest related to restructuring   18       28       38       58       20  
Other (income) expense, net                            
  (Gain) / loss on sale of assets and other miscellaneous   (50)       38       (127     (79)       (77 )
  Loss related to impairment of minority investments   399       -        399       2,347       -   
  Foreign exchange transaction (gain) or loss    (1,307     (1,478     614       (1,016     1,921  
  Amortization of debt issuance cost   385       385       770       770       385  
  Total interest and other adjustments   7,499       6,649       17,675       17,311       10,176  
Income before income taxes - non-GAAP 33,400     28,289     56,397     76,689     22,997  
                             
GAAP to non-GAAP reconciliation of net income (loss):                            
Net income (loss) - GAAP   (5,275     5,857       (23,764     25,716       (18,489
Total cost of revenues adjustments   6,502       4,352       12,969       8,208       6,467  
Total operating expense adjustments   26,229       12,095       54,294       24,332       28,065  
Total interest and other adjustments 7,499       6,649     17,675       17,311     10,176  
Income tax provision adjustments   (4,355 )     (2,864     (9,277     (3,728  )     (4,922 )
  Total adjustments   35,875       20,232       75,661       46,123       39,786  
Net income - non-GAAP $   30,600     $   26,089     $   51,897     $   71,839     $   21,297  
                             
Non-GAAP net income for diluted earnings per share calculation                            
Net income - non-GAAP $   30,600     $   26,089     $   51,897     $   71,839     $   21,297  
Add: interest expense for dilutive convertible notes   -        -        -        -        -   
Adjusted net income - non-GAAP $   30,600     $   26,089     $   51,897     $   71,839     $   21,297  
                             
Basic non-GAAP income per share                             
GAAP earnings per share $   (0.04 )   $   0.05     $   (0.20   $   0.23     $   (0.16
Impact of all non-GAAP adjustments $   0.30     $   0.18     $   0.65     $   0.40     $   0.34  
Non-GAAP earnings per share $   0.26     $   0.23     $   0.45     $   0.63     $   0.18  
                             
Diluted non-GAAP income per share                             
GAAP earnings per share $   (0.04   $   0.05     $   (0.20   $   0.22     $   (0.16
Impact of all non-GAAP adjustments $   0.30     $   0.18     $   0.64     $   0.40     $   0.34  
Non-GAAP earnings per share $   0.26     $   0.23     $   0.44     $   0.62     $   0.18  
                             
Shares used in computing non-GAAP income per share                            
Basic  117,284     113,960     116,575     113,252     115,867  
Diluted 118,290     115,443     117,954     115,973     117,191  

Finisar-F

Investor Contact:  Press contact:
Kurt Adzema    Victoria McDonald
Chief Financial Officer  Director, Corporate Communications
408-542-5050 or Investor.relations@finisar.com 408-542-4261


Additional Information and Where to Find It

In connection with the proposed acquisition of Finisar Corporation (the “Company”) by II-VI Incorporation (“Parent”) pursuant to the terms of an Agreement and Plan of Merger by and among the Company, Parent and Mutation Merger Sub Inc. (“Merger Subsidiary”), Parent will file with the Securities and Exchange Commission (the “SEC”) a Registration Statement on Form S-4 (the “Form S-4”) that will contain a proxy statement of the Company and a proxy statement and prospectus of Parent, which joint proxy statement/prospectus will be mailed or otherwise disseminated to the Company’s stockholders when it becomes available.  Investors are urged to read the joint proxy statement/prospectus (including all amendments and supplements) because they will contain important information.  Investors may obtain free copies of the joint proxy statement/prospectus when it becomes available, as well as other filings containing information about the Company and Parent, without charge, at the SEC’s Internet site (http://www.sec.gov). Copies of these documents may also be obtained for free from the companies’ web sites at www.finisar.com and www.ii-vi.com.

Participants in Solicitation

The Company, Parent and their respective officers and directors may be deemed to be participants in the solicitation of proxies from the stockholders of the Company in connection with the proposed transaction.  Information about the Company’s executive officers and directors is set forth in its Annual Report on Form 10-K, which was filed with the SEC on June 15, 2018, and the proxy statement for its 2018 annual meeting of stockholders, which was filed with the SEC on July 26, 2018. Investors may obtain more detailed information regarding the direct and indirect interests of Parent, the Company and their respective executive officers and directors in the acquisition by reading the preliminary and definitive joint proxy statement/prospectus regarding the transaction, which will be filed with the SEC.

Forward Looking Statements

This written communication contains forward-looking statements that involve risks and uncertainties concerning Parent’s proposed acquisition of the Company, the Company’s expected financial performance, as well as the Company’s strategic and operational plans. Actual events or results may differ materially from those described in this written communication due to a number of risks and uncertainties. The potential risks and uncertainties include, among others, the possibility that the Company may be unable to obtain required stockholder approval or that other conditions to closing the transaction may not be satisfied, such that the transaction will not close or that the closing may be delayed; the reaction of customers to the transaction; general economic conditions; the transaction may involve unexpected costs, liabilities or delays; risks that the transaction disrupts current plans and operations of the parties to the transaction; the ability to recognize the benefits of the transaction; the amount of the costs, fees, expenses and charges related to the transaction and the actual terms of any financings that will be obtained for the transaction; the outcome of any legal proceedings related to the transaction; the occurrence of any event, change or other circumstances that could give rise to the termination of the transaction agreement.  In addition, please refer to the documents that the Company files with the SEC on Forms 10-K, 10-Q and 8-K. The filings by the Company identify and address other important factors that could cause its financial and operational results to differ materially from those contained in the forward-looking statements set forth in this written communication. All forward-looking statements speak only as of the date of this written communication or, in the case of any document incorporated by reference, the date of that document. The Company is under no duty to update any of the forward-looking statements after the date of this written communication to conform to actual results.

 

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Source: Finisar Corporation