Finisar Corporation
Dec 8, 2016
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Finisar Announces Record Second Fiscal Quarter Revenues and Profits

SUNNYVALE, CA -- (Marketwired) -- 12/08/16 --

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 year 2017, ended October 30, 2016.

COMMENTARY

"I am pleased to announce that Finisar achieved all-time quarterly records for revenues and profits in our second quarter. Revenues were $369.9 million, an increase of $28.5 million, or 8.4% over the first quarter. This growth was primarily driven by strong demand for 100G transceivers. In addition, customer demand for wavelength selective switch and ROADM line card products was strong. Our gross margins improved significantly due to a favorable product mix and leverage achieved from our vertical integration with larger volumes. The combination of revenues being at the higher end of our guidance range with higher gross margins resulted in earnings per fully diluted share above our guidance range," said Jerry Rawls, Finisar's Chief Executive Officer.

 
FINANCIAL HIGHLIGHTS - Second Quarter Ended October 30, 2016
         
Summary GAAP Results   Second   First
Quarter   Quarter
Ended   Ended
    October 30, 2016   July 31, 2016
    (in thousands, except per share amounts)
         
Revenues   $369,863   $341,325
Gross margin   36.1%   31.7%
Operating expenses   $80,853   $79,854
Operating income   $52,828   $28,311
Operating margin   14.3%   8.3%
Net income   $48,765   $23,949
Income per share-basic   $0.44   $0.22
Income per share-diluted   $0.43   $0.22
         
Basic shares   110,407   108,820
Diluted shares   113,192   110,821
         
Summary Non-GAAP Results (a)  




Second
 






First
Quarter   Quarter
Ended   Ended
    October 30, 2016   July 31, 2016
    (in thousands, except per share amounts)
         
Revenues   $369,863   $341,325
Non-GAAP Gross margin   37.2%   33.1%
Non-GAAP Operating expenses   $69,418   $69,344
Non-GAAP Operating income   $68,250   $43,520
Non-GAAP Operating margin   18.5%   12.8%
Non-GAAP Net income   $65,154   $41,825
Non-GAAP Income per share-basic   $0.59   $0.38
Non-GAAP Income per share-diluted   $0.58   $0.38
         
Basic shares   110,407   108,820
Diluted shares   113,192   110,821
         
(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 Second Quarter of Fiscal 2017:

OUTLOOK

Finisar indicated that for the third quarter of fiscal 2017 it currently expects revenues in the range of $378 to $398 million, non-GAAP gross margin of approximately 37% to 38%, non-GAAP operating margin of approximately 18.5% to 19.5%, and non-GAAP earnings per fully diluted share in the range of approximately $0.58 to $0.64.

Finisar has not provided a reconciliation of its third 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 second quarter and current business outlook during its regular quarterly conference call scheduled for Thursday, December 8, 2016, 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 1-877-741-4239 (domestic) or 1-719-325-4771 (international) and enter conference ID 7509499.

An audio replay will be available for two weeks following the call by dialing 1-888-203-1112 (domestic) or 1-719-457-0820 (international) and then following the prompts: enter conference ID 7509499 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     Six Months Ended     Three Months Ended  
    Oct 30, 2016     Nov 01, 2015     Oct 30, 2016     Nov 01, 2015     Jul 31, 2016  
Revenues   $ 369,863     $ 321,136     $ 711,188     $ 635,166     $ 341,325  
Cost of revenues     235,192       230,610       466,829       454,757       231,637  
Impairment of long-lived assets     -       -       -       1,071       -  
Amortization of acquired developed technology     990       1,435       2,513       2,870       1,523  
Gross profit     133,681       89,091       241,846       176,468       108,165  
Gross margin     36.1 %     27.7 %     34.0 %     27.8 %     31.7 %
Operating expenses:                                        
  Research and development     53,242       50,972       104,250       103,380       51,008  
  Sales and marketing     13,367       11,897       25,230       23,099       11,863  
  General and administrative     13,576       16,186       29,891       31,394       16,315  
  Impairment of long-lived assets     -       -       -       830       -  
  Amortization of purchased intangibles     668       668       1,336       1,336       668  
    Total operating expenses     80,853       79,723       160,707       160,039       79,854  
Income from operations     52,828       9,368       81,139       16,429       28,311  
Interest income     1,021       469       1,747       834       726  
Interest expense     (3,025 )     (2,917 )     (6,011 )     (5,800 )     (2,986 )
Other income (expenses), net     795       445       736       1,326       (59 )
Income before income taxes     51,619       7,365       77,611       12,789       25,992  
Provision for income taxes     2,854       721       4,897       2,752       2,043  
Net income   $ 48,765     $ 6,644     $ 72,714     $ 10,037     $ 23,949  
                                         
Net income per share attributable to Finisar Corporation common stockholders:                                        
                                         
  Basic   $ 0.44     $ 0.06     $ 0.66     $ 0.09     $ 0.22  
  Diluted   $ 0.43     $ 0.06     $ 0.65     $ 0.09     $ 0.22  
                                         
Shares used in computing net income per share - basic     110,407       106,635       109,614       105,961       108,820  
Shares used in computing net income per share - diluted     113,192       107,493       112,450       108,238       110,821  
                                         
                                         
 
Finisar Corporation
Consolidated Balance Sheets
(in thousands)
             
    Oct 30, 2016   Jul 31, 2016   May 1, 2016
    (Unaudited)   (Unaudited)    
ASSETS            
Current assets:            
  Cash and cash equivalents   $ 282,963   $ 280,414   $ 299,221
  Short-term held-to-maturity investments   343,319   313,389   263,255
  Accounts receivable, net   277,667   255,036   249,257
  Accounts receivable, other   49,997   43,678   44,576
  Inventories   292,439   272,592   273,291
  Prepaid expenses and other assets   17,140   18,646   18,483
    Total current assets   1,263,525   1,183,755   1,148,083
Property, equipment and improvements, net   341,563   338,918   348,613
Purchased intangible assets, net   16,339   16,197   18,388
Goodwill   106,735   106,735   106,735
Minority investments   3,893   3,974   4,051
Other assets   18,008   18,928   19,501
    Total assets   $ 1,750,063   $ 1,668,507   $ 1,645,371
             
LIABILITIES AND STOCKHOLDERS' EQUITY            
Current liabilities:            
  Accounts payable   $ 153,023   $ 136,317   $ 141,591
  Accrued compensation   45,213   36,332   36,084
  Other accrued liabilities   36,736   39,201   42,206
  Deferred revenue   17,818   16,468   13,529
    Total current liabilities   252,790   228,318   233,410
Long-term liabilities:            
  Convertible notes, net of current portion   234,679   232,016   229,393
  Other non-current liabilities   13,279   14,056   14,882
    Total liabilities   500,748   474,390   477,685
Stockholders' equity:            
  Common stock   111   110   108
  Additional paid-in capital   2,639,355   2,621,260   2,605,859
  Accumulated other comprehensive income (loss)   (49,772)   (38,109)   (25,188)
  Accumulated deficit   (1,340,379)   (1,389,144)   (1,413,093)
    Total stockholders' equity   1,249,315   1,194,117   1,167,686
Total liabilities and stockholders' equity   $ 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:

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:

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:

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 30, 2016     Nov 01, 2015     Oct 30, 2016     Nov 01, 2015     Jul 31, 2016  
GAAP to non-GAAP reconciliation of gross profit:                                        
Gross profit - GAAP   $ 133,681     $ 89,091     $ 241,846     $ 176,468     $ 108,165  
Gross margin - GAAP     36.1 %     27.7 %     34.0 %     27.8 %     31.7 %
Adjustments:                                        
Cost of revenues                                        
  Change in excess and obsolete inventory valuation adjustments (1)     -       2,402       -       3,832       -  
  Amortization of acquired technology     990       1,435       2,513       2,870       1,523  
  Duplicate facility costs during facility move     8       4       16       86       8  
  Stock compensation     2,949       2,922       5,996       5,614       3,047  
  Impairment of long-lived assets     -       -       -       1,282       -  
  Reduction in force costs     14       417       116       971       102  
  Acquisition related retention payment     26       28       45       93       19  
    Total cost of revenue adjustments     3,987       7,208       8,686       14,748       4,699  
Gross profit - non-GAAP     137,668       96,299       250,532       191,216       112,864  
Gross margin - non-GAAP     37.2 %     30.0 %     35.2 %     30.1 %     33.1 %
                                         
GAAP to non-GAAP reconciliation of operating income:                                        
Operating income - GAAP     52,828       9,368       81,139       16,429       28,311  
Operating margin - GAAP     14.3 %     2.9 %     11.4 %     2.6 %     8.3 %
Adjustments:                                        
Total cost of revenue adjustments     3,987       7,208       8,686       14,748       4,699  
Total operating expense adjustments                                        
  Operating expenses - GAAP     80,853       79,723       160,707       160,039       79,854  
  Research and development                                        
    Reduction in force costs     88       -       262       288       174  
    Duplicate facility costs during facility move     7       49       14       270       7  
    Acquisition related retention payment     32       67       64       158       32  
    Stock compensation     5,552       4,970       10,663       9,808       5,111  
    Impairment of long-lived assets     -       -       -       287       -  
  Sales and marketing                                        
    Reduction in force costs     -       117       29       180       29  
    Acquisition related retention payment     -       3       -       13       -  
    Stock compensation     1,877       1,718       3,628       3,425       1,751  
  General and administrative                                        
    Reduction in force costs     20       963       33       1,315       13  
    Duplicate facility costs     154       8       297       17       143  
    Acquisition related retention payment     -       -       (2 )     (5 )     (2 )
    Stock compensation     2,989       2,757       5,542       5,517       2,553  
    Acquisition related costs     2       378       33       396       31  
    Litigation settlements and resolutions and related costs     46       -       46       16       -  
  Amortization of purchased intangibles     668       668       1,336       1,336       668  
  Impairment of long-lived assets     -       -       -       587       -  
      Total operating expense adjustments     11,435       11,698       21,945       23,608       10,510  
  Operating expenses - non-GAAP     69,418       68,025       138,762       136,431       69,344  
Operating income - non-GAAP     68,250       28,274       111,770       54,785       43,520  
Operating margin - non-GAAP     18.5 %     8.8 %     15.7 %     8.6 %     12.8 %
                                         
GAAP to non-GAAP reconciliation of income before income taxes:                                        
Income before income taxes - GAAP     51,619       7,365       77,611       12,789       25,992  
Adjustments:                                        
Total cost of revenue adjustments     3,987       7,208       8,686       14,748       4,699  
Total operating expense adjustments     11,435       11,698       21,945       23,608       10,510  
Total Interest and other adjustments                                        
Non-cash imputed interest expenses on convertible debt     2,509       2,391       4,978       4,745       2,469  
Imputed interest related to restructuring     37       44       75       89       38  
Other (income) expense, net                                        
  Loss (gain) on sale of assets     (17 )     85       (25 )     (100 )     (8 )
  Other miscellaneous income     -       (120 )     -       (137 )     -  
  Foreign exchange transaction (gain) or loss     (970 )     51       (999 )     (642 )     (29 )
  Amortization of debt issuance cost     154       154       308       308       154  
    Total Interest and other adjustments     1,713       2,605       4,337       4,263       2,624  
Income before income taxes - non-GAAP     68,754       28,876       112,579       55,408       43,825  
                                         
GAAP to non-GAAP reconciliation of net income:                                        
Net income - GAAP     48,765       6,644       72,714       10,037       23,949  
Total cost of revenue adjustments     3,987       7,208       8,686       14,748       4,699  
Total operating expense adjustments     11,435       11,698       21,945       23,608       10,510  
Total Interest and other adjustments     1,713       2,605       4,337       4,263       2,624  
Income tax provision adjustments     (746 )     (1,298 )     (703 )     (1,267 )     43  
  Total adjustments     16,389       20,213       34,265       41,352       17,876  
Net income - non-GAAP   $ 65,154     $ 26,857     $ 106,979     $ 51,389     $ 41,825  
                                         
Non-GAAP net income for diluted earnings per share calcuation                                        
Non-GAAP net income   $ 65,154     $ 26,857     $ 106,979     $ 51,389     $ 41,825  
Add: interest expense for dilutive convertible notes     -       -       -       -       -  
Adjusted non-GAAP income   $ 65,154     $ 26,857     $ 106,979     $ 51,389     $ 41,825  
                                         
Basic non-GAAP income per share                                        
GAAP earnings per share   $ 0.44     $ 0.06     $ 0.66     $ 0.09     $ 0.22  
Impact of all non-GAAP adjustments   $ 0.15     $ 0.19     $ 0.31     $ 0.39     $ 0.16  
Non-GAAP earnings per share   $ 0.59     $ 0.25     $ 0.98     $ 0.48     $ 0.38  
                                         
Diluted non-GAAP income per share                                        
GAAP earnings per share   $ 0.43     $ 0.06     $ 0.65     $ 0.09     $ 0.22  
Impact of all non-GAAP adjustments   $ 0.15     $ 0.19     $ 0.30     $ 0.38     $ 0.16  
Non-GAAP earnings per share   $ 0.58     $ 0.25     $ 0.95     $ 0.47     $ 0.38  
                                         
Shares used in computing non-GAAP income per share                                        
Basic     110,407       106,635       109,614       105,961       108,820  
Diluted     113,192       107,493       112,450       108,238       110,821  
                                         
(1) Non-GAAP adjustment no longer made effective fiscal 2017.                    
                     

Finisar-F

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

Press contact:
Victoria McDonald
Director, Corporate Communications
408-542-4261

Source: Finisar

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