Finisar Corporation
Mar 9, 2017
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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 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 Third Quarter of Fiscal 2017: 

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:

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 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

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Source: Finisar Corporation

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