Finisar Corporation
Dec 4, 2014
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Finisar Announces Second Quarter Financial Results

SUNNYVALE, CA -- (Marketwired) -- 12/04/14 -- 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 2015, ended October 26, 2014.

COMMENTARY

"Revenues for our second fiscal quarter were $297.0 million, an increase of $6.3 million compared to the second fiscal quarter of 2014, but a decrease of $30.7 million, or 9.4%, compared to the first fiscal quarter of fiscal 2015. The second quarter was challenging. During the quarter, we experienced decreased demand for telecom products compared to the prior fiscal quarter, due to sluggish carrier capital expenditures. In addition, sales of transceivers for wireless applications were soft as were sales to several datacom customers with lumpy order patterns," said Jerry Rawls, Finisar's executive Chairman of the Board.

"We remain confident in our industry leading market position and the long term growth potential for the industry. We expect revenue to grow sequentially in the third fiscal quarter, primarily driven by growth in the demand for 40 gigabit and 100 gigabit transceivers for datacom applications as well as transceivers for wireless applications," said Eitan Gertel, Finisar's Chief Executive Officer.

FINANCIAL HIGHLIGHTS - SECOND QUARTER ENDED OCTOBER 26, 2014
Summary GAAP Results Second First
Quarter Quarter
Ended Ended
October 26, 2014 July 27, 2014
(in thousands, except per share amounts)
Revenues $ 296,981 $ 327,638
Gross margin 28.6 % 30.2 %
Operating expenses $ 92,180 $ 78,451
Operating income (loss) $ (7,259 ) $ 20,368
Operating margin (2.4 )% 6.2 %
Net income (loss) $ (11,361 ) $ 14,243
Income per share-basic $ (0.11 ) $ 0.14
Income per share-diluted $ (0.11 ) $ 0.14
Basic shares 99,621 98,241
Diluted shares 99,621 106,036
Summary Non-GAAP Results (a) Second First
Quarter Quarter
Ended Ended
October 26, 2014 July 27, 2014
(in thousands, except per share amounts)
Revenues $ 296,981 $ 327,638
Gross margin 31.1 % 32.0 %
Operating expenses $ 67,306 $ 69,439
Operating income $ 24,984 $ 35,404
Operating margin 8.4 % 10.8 %
Net income $ 23,465 $ 33,332
Income per share-basic $ 0.24 $ 0.34
Income per share-diluted $ 0.23 $ 0.32
Basic shares 99,621 98,241
Diluted shares 105,340 106,036
(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 Finisar's core 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 2015:

OUTLOOK

The Company indicated that for the third quarter of fiscal 2015 it currently expects revenues in the range of $297 to $312 million, non-GAAP gross margin of approximately 31%, non-GAAP operating margin of approximately 8.4% to 9.4%, and non-GAAP earnings per diluted share in the range of approximately $0.23 to $0.27.

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 4, 2014, 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 1-800-432-7390 (domestic) or +1-913-312-1454 (international) and enter conference ID 1607677.

An audio replay will be available for two weeks following the call by dialing 1-888-203-1112 (domestic) or +1-719-457-0820 and then following the prompts: enter conference ID 1607677 and provide your name, affiliation, and contact number. A replay of the webcast will be available shortly after the conclusion of the call on the Company'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; intensive competition; and the uncertainty of achieving anticipated cost savings and synergies in connection with the recently completed u2t acquisition. 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 26, 2014) 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 25 years, Finisar has provided critical optics technologies to system manufacturers to meet the increasing demands for network bandwidth. 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
October 26, 2014 October 27, 2013 October 26, 2014 October 27, 2013 July 27, 2014
Revenues $ 296,981 $ 290,722 $ 624,619 $ 556,790 $ 327,638
Cost of revenues 210,625 186,168 438,010 359,270 227,385
Amortization of acquired developed technology 1,435 1,181 2,869 2,774 1,434
Gross profit 84,921 103,373 183,740 194,746 98,819
Gross margin 28.6 % 35.6 % 29.4 % 35.0 % 30.2 %
Operating expenses:
Research and development 51,184 44,959 102,190 88,489 51,006
Sales and marketing 11,487 12,322 23,452 24,127 11,965
General and administrative 28,772 15,388 43,491 23,728 14,719
Amortization of purchased intangibles 737 595 1,498 1,190 761
Total operating expenses 92,180 73,264 170,631 137,534 78,451
Income (loss) from operations (7,259 ) 30,109 13,109 57,212 20,368
Interest income 342 282 954 499 612
Interest expense (2,867 ) (367 ) (6,001 ) (919 ) (3,134 )
Other income (expenses), net 33 495 (1,993 ) 983 (2,026 )
Income (loss) before income taxes and non-controlling interest (9,751 ) 30,519 6,069 57,775 15,820
Provision for income taxes 1,610 568 3,187 1,989 1,577
Income (loss) before non-controlling interest (11,361 ) 29,951 2,882 55,786 14,243
Adjust for net loss attributable to non-controlling interest - 14 - 190 -
Net income (loss) attributable to Finisar Corporation $ (11,361 ) $ 29,965 $ 2,882 $ 55,976 $ 14,243
Net income (loss) per share attributable to Finisar Corporation common stockholders:
Basic $ (0.11 ) $ 0.31 $ 0.03 $ 0.59 $ 0.14
Diluted $ (0.11 ) $ 0.29 $ 0.03 $ 0.56 $ 0.14
Shares used in computing net income per share - basic 99,621 95,941 98,931 95,275 98,241
Shares used in computing net income per share - diluted 99,621 103,696 102,390 102,771 106,036
Finisar Corporation
Consolidated Balance Sheets
(in thousands)
October 26, 2014 July 27, 2014 April 27, 2014
(Unaudited) (Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 186,952 $ 287,455 $ 303,101
Short-term held-to-maturity investments 290,478 209,927 209,922
Accounts receivable, net 213,721 231,312 225,020
Accounts receivable, other 34,573 41,595 33,749
Inventories 284,789 270,122 259,759
Prepaid expenses and other assets 38,065 38,582 33,022
Total current assets 1,048,578 1,078,993 1,064,573
Property, equipment and improvements, net 306,331 301,020 273,328
Purchased intangible assets, net 31,508 33,680 34,141
Goodwill 106,735 106,735 106,115
Minority investments 2,547 2,317 2,117
Other assets 22,528 20,907 17,272
Total assets $ 1,518,227 $ 1,543,652 $ 1,497,546
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 113,235 $ 143,224 $ 119,439
Accrued compensation 35,354 28,215 38,541
Other accrued liabilities 33,529 27,568 31,533
Deferred revenue 12,358 16,872 16,659
Short term debt 187 247 243
Current portion of convertible notes 36,665 40,015 40,015
Total current liabilities 231,328 256,141 246,430
Long-term liabilities:
Convertible notes, net of current portion 216,775 214,496 212,253
Other non-current liabilities 24,900 24,042 22,804
Total liabilities 473,003 494,679 481,487
Stockholders' equity:
Common stock 100 100 97
Additional paid-in capital 2,485,133 2,469,687 2,456,110
Accumulated other comprehensive income 17,282 25,116 20,025
Accumulated deficit (1,457,291 ) (1,445,930 ) (1,460,173 )
Total stockholders' equity 1,045,224 1,048,973 1,016,059
Total liabilities and stockholders' equity $ 1,518,227 $ 1,543,652 $ 1,497,546
Note - Balance sheet amounts as of April 27, 2014 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 and non-GAAP income per share. These non-GAAP financial measures are supplemental information regarding the Company's operating performance on a non-GAAP basis that excludes certain gains, losses and charges of a non-cash nature or which occur relatively infrequently and which management considers to be outside our core operating results. Some of these non-GAAP measures also exclude the ongoing impact of historical business decisions made in different business and economic environments. Management believes that tracking non-GAAP gross profit, non-GAAP income from operations, non-GAAP net income and non-GAAP net income per share provides management and the investment community with valuable insight into our current operations, our ability to generate cash and the underlying business trends which 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:

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
October 26, 2014 October 27, 2013 October 26, 2014 October 27, 2013 July 27, 2014
GAAP to non-GAAP reconciliation of gross profit:
Gross profit - GAAP $ 84,921 $ 103,373 $ 183,740 $ 194,746 $ 98,819
Gross margin - GAAP 28.6 % 35.6 % 29.4 % 35.0 % 30.2 %
Adjustments:
Cost of revenues
Change in excess and obsolete inventory reserve 2,048 1,199 3,769 (329 ) 1,721
Amortization of acquired technology 1,435 1,181 2,869 2,774 1,434
Duplicate facility costs during facility move 766 - 766 - -
Stock compensation 2,588 2,056 4,864 3,833 2,276
Abandonment of fixed assets 124 - 124 - -
Reduction in force costs 319 47 794 70 475
Acquisition related retention payment 89 70 207 132 118
Total cost of revenue adjustments 7,369 4,553 13,393 6,480 6,024
Gross profit - non-GAAP 92,290 107,926 197,133 201,226 104,843
Gross margin - non-GAAP 31.1 % 37.1 % 31.6 % 36.1 % 32.0 %
GAAP to non-GAAP reconciliation of operating income:
Operating income (loss) - GAAP (7,259 ) 30,109 13,109 57,212 20,368
Operating margin - GAAP -2.4 % 10.4 % 2.1 % 10.3 % 6.2 %
Adjustments:
Total cost of revenue adjustments 7,369 4,553 13,393 6,480 6,024
Research and development
Reduction in force costs 353 16 685 28 332
Duplicate facility costs during facility move 767 - 767 - -
Acquisition related retention payment 166 190 359 381 193
Stock compensation 4,727 4,069 9,163 7,594 4,436
Sales and marketing
Acquisition related retention payment 9 17 29 34 20
Stock compensation 1,625 1,382 3,154 2,566 1,529
General and administrative
Reduction in force costs 59 173 54 240 (5 )
Duplicate facility costs 116 - 116 - -
Acquisition related retention payment (55 ) 830 (39 ) 1,047 16
Stock compensation 2,617 2,663 5,429 5,086 2,812
Payroll taxes related to options investigation 17 - 17 - -
Acquisition related costs 8 124 238 349 230
Litigation settlements and resolutions and related costs 13,728 - 12,416 5 (1,312 )
Shareholder class action and derivative litigation costs - 46 - (5,048 ) -
Amortization of purchased intangibles 737 595 1,498 1,190 761
Total cost of revenue and operating expense adjustments 32,243 14,658 47,279 19,952 15,036
Operating income - non-GAAP 24,984 44,767 60,388 77,164 35,404
Operating margin - non-GAAP 8.4 % 15.4 % 9.7 % 13.9 % 10.8 %
GAAP to non-GAAP reconciliation of income attributable to Finisar Corporation:
Net income (loss) attributable to Finisar Corporation - GAAP (11,361 ) 29,965 2,882 55,976 14,243
Adjustments:
Total cost of revenue and operating expense adjustments 32,243 14,658 47,279 19,952 15,036
Non-cash imputed interest expenses on convertible debt 2,279 56 4,522 113 2,243
Imputed interest related to restructuring 50 101 51
Other (income) expense, net
Loss (gain) on sale of assets (27 ) 5 211 (105 ) 238
Gain related to minority investments - - - (743 ) -
Other miscellaneous income (10 ) (2 ) (11 ) (2 ) (1 )
Foreign exchange transaction (gain) or loss 327 (208 ) 2,318 359 1,991
Amortization of debt issuance cost 154 - 308 - 154
Provision for income taxes
Income tax provision adjustments (190 ) (832 ) (813 ) (706 ) (623 )
Non-controlling interest non-GAAP adjustment - 125 - 192 -
Total adjustments 34,826 13,802 53,915 19,060 19,089
Net income attributable to Finisar Corporation - non-GAAP $ 23,465 $ 43,767 $ 56,797 $ 75,036 $ 33,332
Non-GAAP income attributable to Finisar Corporation $ 23,465 $ 43,767 $ 56,797 $ 75,036 $ 33,332
Add: interest expense for dilutive convertible notes 533 539 1,072 1,078 539
Adjusted non-GAAP income attributable to Finisar Corporation $ 23,998 $ 44,306 $ 57,869 $ 76,114 $ 33,871
Non-GAAP income per share attributable to Finisar Corporation common stockholders
Basic $ 0.24 $ 0.46 $ 0.57 $ 0.79 $ 0.34
Diluted $ 0.23 $ 0.43 $ 0.55 $ 0.74 $ 0.32
Shares used in computing non-GAAP income per share attributable to Finisar Corporation common stockholders
Basic 99,621 95,941 98,931 95,275 98,241
Diluted 105,340 103,696 106,133 102,771 106,036
Non-GAAP EBITDA
Non-GAAP income attributable to Finisar Corporation $ 23,465 $ 43,767 $ 56,797 $ 75,036 $ 33,332
Depreciation expense 20,915 14,621 40,563 28,548 19,648
Amortization 33 94 72 188 39
Interest expense 196 29 424 307 228
Income tax expense 1,800 1,400 4,000 2,695 2,200
Non-GAAP EBITDA $ 46,409 $ 59,911 $ 101,856 $ 106,774 $ 55,447

Finisar-F

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

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

Source: Finisar

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