Finisar Corporation
Mar 5, 2015
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Finisar Announces Third Quarter Revenues of $306.3 Million, 3.1% Growth Over Prior Quarter

SUNNYVALE, CA -- (Marketwired) -- 03/05/15 --

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 2015, ended January 25, 2015

COMMENTARY
"Revenues for our third fiscal quarter were $306.3 million, an increase of $9.3 million compared to the prior quarter," said Jerry Rawls, Finisar's executive Chairman of the Board. "Revenue growth was primarily driven by the demand for 40 gigabit and 100 gigabit transceivers for datacom applications, as well as transceivers for wireless applications."

"Although our gross margins declined primarily as a result of our annual telecom price reductions and low yields on a new optical engine product, we significantly decreased our operating expenses resulting in a minimal impact to our earnings," said Eitan Gertel, Finisar's Chief Executive Officer.

   
FINANCIAL HIGHLIGHTS - THIRD QUARTER ENDED JANUARY 25, 2015  
   
Summary GAAP Results   Third     Second  
    Quarter     Quarter  
    Ended     Ended  
    January 25, 2015     October 26, 2014  
    (in thousands, except per share amounts)  
                 
Revenues   $ 306,283     $ 296,981  
Gross margin     25.5 %     28.6 %
Operating expenses   $ 74,552     $ 92,180  
Operating income (loss)   $ 3,401     $ (7,259 )
Operating margin     1.1 %     (2.4 )%
Net income (loss)   $ 1,678     $ (11,361 )
Income per share-basic   $ 0.02     $ (0.11 )
Income per share-diluted   $ 0.02     $ (0.11 )
                 
Basic shares     103,563       99,621  
Diluted shares     105,990       99,621  
                 
Summary Non-GAAP Results (a)   Third     Second  
    Quarter     Quarter  
    Ended     Ended  
    January 25, 2015     October 26, 2014  
    (in thousands, except per share amounts)  
             
Revenues   $ 306,283     $ 296,981  
Gross margin     30.0 %     31.1 %
Operating expenses   $ 65,128     $ 67,306  
Operating income   $ 26,852     $ 24,984  
Operating margin     8.8 %     8.4 %
Net income   $ 26,706     $ 23,465  
Income per share-basic   $ 0.26     $ 0.24  
Income per share-diluted   $ 0.25     $ 0.23  
                 
Basic shares     103,563       99,621  
Diluted shares     105,990       105,340  
                 
(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 Third Quarter of Fiscal 2015: 

OUTLOOK

The Company indicated that for the fourth quarter of fiscal 2015 it currently expects revenues in the range of $310 to $330 million, non-GAAP gross margin of approximately 30%, non-GAAP operating margin of approximately 8% to 9%, and non-GAAP earnings per diluted share in the range of approximately $0.22 to $0.28. Please note that the fourth quarter fiscal 2015 will have 14 weeks compared to 13 weeks in the preceding quarter. However, the positive benefit to revenue of the extra week will be partially offset by the impact of Chinese New Year which occurred in February. In addition, operating expenses are expected to increase primarily due to the extra week relative to the preceding quarter.

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 5, 2015, 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 877-718-5108 (domestic) or + 719-325-4773(international) and enter conference ID 3629508.

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 3629508 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     Nine Months Ended     Three Months Ended  
  January 25, 2015     January 26, 2014     January 25, 2015     January 26, 2014     October 26, 2014  
Revenues $ 306,283     $ 294,018     $ 930,902     $ 850,808     $ 296,981  
Cost of revenues   221,173       187,368       659,183       546,638       210,625  
Impairment of acquired developed technology and other long-lived assets   5,722       -       5,722       -       -  
Amortization of acquired developed technology   1,435       961       4,304       3,735       1,435  
Gross profit   77,953       105,689       261,693       300,435       84,921  
Gross margin   25.5 %     35.9 %     28.1 %     35.3 %     28.6 %
Operating expenses:                                      
  Research and development   48,782       46,734       150,972       135,223       51,184  
  Sales and marketing   10,926       10,911       34,378       35,038       11,487  
  General and administrative   14,062       14,353       57,553       38,081       28,772  
  Impairment of acquired developed technology and other long-lived assets   45       -       45       -       -  
  Amortization of purchased intangibles   737       595       2,235       1,785       737  
    Total operating expenses   74,552       72,593       245,183       210,127       92,180  
Income (loss) from operations   3,401       33,096       16,510       90,308       (7,259 )
Interest income   321       335       1,275       834       342  
Interest expense   (2,686 )     (1,663 )     (8,687 )     (2,582 )     (2,867 )
Other income (expenses), net   2,051       (1,873 )     58       (890 )     33  
Income (loss) before income taxes and non-controlling interest   3,087       29,895       9,156       87,670       (9,751 )
Provision for income taxes   1,409       2,827       4,596       4,816       1,610  
Income (loss) before non-controlling interest   1,678       27,068       4,560       82,854       (11,361 )
Adjust for net loss attributable to non-controlling interest   -       (7 )     -       183       -  
Net income (loss) attributable to Finisar Corporation $ 1,678     $ 27,061     $ 4,560     $ 83,037     $ (11,361 )
                                       
Net income (loss) per share attributable to Finisar Corporation common stockholders:                                      
                                       
  Basic $ 0.02     $ 0.28     $ 0.05     $ 0.87     $ (0.11 )
  Diluted $ 0.02     $ 0.26     $ 0.04     $ 0.82     $ (0.11 )
                                       
Shares used in computing net income per share - basic   103,563       96,394       100,475       95,649       99,621  
Shares used in computing net income per share - diluted   105,990       104,361       103,825       103,491       99,621

 
                                       
                                       
                                       
Finisar Corporation  
Consolidated Balance Sheets  
(in thousands)  
   
  January 25, 2015     October 26, 2014     July 27, 2014     April 27, 2014  
  (Unaudited)     (Unaudited)     (Unaudited)        
ASSETS                              
Current assets:                              
  Cash and cash equivalents $ 198,344     $ 186,952     $ 287,455     $ 303,101  
  Short-term held-to-maturity investments   290,520       290,478       209,927       209,922  
  Accounts receivable, net   210,116       213,721       231,312       225,020  
  Accounts receivable, other   41,540       34,573       41,595       33,749  
  Inventories   277,862       284,789       270,122       259,759  
  Prepaid expenses and other assets   37,265       38,065       38,582       33,022  
    Total current assets   1,055,647       1,048,578       1,078,993       1,064,573  
Property, equipment and improvements, net   304,547       306,331       301,020       273,328  
Purchased intangible assets, net   29,336       31,508       33,680       34,141  
Goodwill   106,735       106,735       106,735       106,115  
Minority investments   2,647       2,547       2,317       2,117  
Other assets   22,444       22,528       20,907       17,272  
    Total assets $ 1,521,356     $ 1,518,227     $ 1,543,652     $ 1,497,546  
                               
LIABILITIES AND STOCKHOLDERS' EQUITY                              
Current liabilities:                              
  Accounts payable $ 123,895     $ 113,235     $ 143,224     $ 119,439  
  Accrued compensation   30,632       35,354       28,215       38,541  
  Other accrued liabilities   31,854       33,529       27,568       31,533  
  Deferred revenue   11,240       12,358       16,872       16,659  
  Short term debt   175       187       247       243  
  Current portion of convertible notes           36,665       40,015       40,015  
    Total current liabilities   197,796       231,328       256,141       246,430  
Long-term liabilities:                              
  Convertible notes, net of current portion   219,072       216,775       214,496       212,253  
  Other non-current liabilities   24,184       24,900       24,042       22,804  
    Total liabilities   441,052       473,003       494,679       481,487  
Stockholders' equity:                              
  Common stock   104       100       100       97  
  Additional paid-in capital   2,537,231       2,485,133       2,469,687       2,456,110  
  Accumulated other comprehensive income   (1,418 )     17,282       25,116       20,025  
  Accumulated deficit   (1,455,613 )     (1,457,291 )     (1,445,930 )     (1,460,173 )
    Total stockholders' equity   1,080,304       1,045,224       1,048,973       1,016,059  
Total liabilities and stockholders' equity $ 1,521,356     $ 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     Nine Months Ended     Three Months Ended  
  January 25, 2015     January 26, 2014     January 25, 2015     January 26, 2014     October 26, 2014  
GAAP to non-GAAP reconciliation of gross profit:                                      
Gross profit - GAAP $ 77,953     $ 105,689     $ 261,693     $ 300,435     $ 84,921  
Gross margin - GAAP   25.5 %     35.9 %     28.1 %     35.3 %     28.6 %
Adjustments:                                      
Cost of revenues                                      
  Change in excess and obsolete inventory reserve   3,772       384       7,541       55       2,048  
  Amortization of acquired technology   1,435       961       4,304       3,735       1,435  
  Duplicate facility costs during facility move   6               772               766  
  Stock compensation   2,660       2,374       7,524       6,207       2,588  
  Abandonment of fixed assets   -       -       124       -       124  
  Impairment of long-lived assets   5,722       -       5,722       -       -  
  Reduction in force costs   371       34       1,165       104       319  
  Acquisition related retention payment   61       62       268       194       89  
    Total cost of revenue adjustments   14,027       3,815       27,420       10,295       7,369  
Gross profit - non-GAAP   91,980       109,504       289,113       310,730       92,290  
Gross margin - non-GAAP   30.0 %     37.2 %     31.1 %     36.5 %     31.1 %
                                       
GAAP to non-GAAP reconciliation of operating income:                                      
Operating income (loss) - GAAP   3,401       33,096       16,510       90,308       (7,259 )
Operating margin - GAAP   1.1 %     11.3 %     1.8 %     10.6 %     -2.4 %
Adjustments:                                      
Total cost of revenue adjustments   14,027       3,815       27,420       10,295       7,369  
Research and development                                      
  Reduction in force costs   23       -       708       28       353  
  Duplicate facility costs during facility move   99       -       866       -       767  
  Acquisition related retention payment   132       190       491       571       166  
  Stock compensation   4,669       3,995       13,832       11,589       4,727  
Sales and marketing                                      
  Acquisition related retention payment   9       17       38       51       9  
  Stock compensation   1,600       1,369       4,754       3,935       1,625  
General and administrative                                      
  Reduction in force costs   49       (82 )     103       158       59  
  Duplicate facility costs   36       -       152       -       116  
  Acquisition related retention payment   7       (11 )     (32 )     1,036       (55 )
  Stock compensation   2,654       2,618       8,083       7,704       2,617  
  Payroll taxes related to options investigation   -       -       17       -       17  
  Acquisition related costs   36       591       274       940       8  
  Litigation settlements and resolutions and related costs   (662 )     5       11,754       10       13,728  
  Shareholder class action and derivative litigation costs   (10 )     97       (10 )     (4,951 )     -  
Amortization of purchased intangibles   737       595       2,235       1,785       737  
Impairment of long-lived assets   45       -       45       -       -  
    Total cost of revenue and operating expense adjustments   23,451       13,199       70,730       33,151       32,243  
Operating income - non-GAAP   26,852       46,295       87,240       123,459       24,984  
Operating margin - non-GAAP   8.8 %     15.7 %     9.4 %     14.5 %     8.4 %
                                       
GAAP to non-GAAP reconciliation of income attributable to Finisar Corporation:                                      
Net income (loss) attributable to Finisar Corporation - GAAP   1,678       27,061       4,560       83,037       (11,361 )
Adjustments:                                      
Total cost of revenue and operating expense adjustments   23,451       13,199       70,730       33,151       32,243  
Non-cash imputed interest expenses on convertible debt   2,297       927       6,819       927       2,279  
Imputed interest related to restructuring   48       54       149       167       50  
Other (income) expense, net                                      
  Loss (gain) on sale of assets   31       (30 )     242       (135 )     (27 )
  Gain related to minority investments   -       -       -       (743 )     -  
  Other miscellaneous income   (167 )     (3 )     (178 )     (5 )     (10 )
  Foreign exchange transaction (gain) or loss   (338 )     2,200       1,980       2,559       327  
  Amortization of debt issuance cost   154       76       462       76       154  
Provision for income taxes                                      
  Income tax provision adjustments   (448 )     1,327       (1,261 )     621       (190 )
Non-controlling interest non-GAAP adjustment   -       182       -       374       -  
Total adjustments   25,028       17,932       78,943       36,992       34,826  
Net income attributable to Finisar Corporation - non-GAAP $ 26,706     $ 44,993     $ 83,503     $ 120,029     $ 23,465  
                                       
Non-GAAP income attributable to Finisar Corporation $ 26,706     $ 44,993     $ 83,503     $ 120,029     $ 23,465  
Add: interest expense for dilutive convertible notes   -       539       1,072       1,617       533  
Adjusted non-GAAP income attributable to Finisar Corporation $ 26,706     $ 45,532     $ 84,575     $ 121,646     $ 23,998  
                                       
Non-GAAP income per share attributable to Finisar Corporation common stockholders                                      
  Basic $ 0.26     $ 0.47     $ 0.83     $ 1.25     $ 0.24  
  Diluted $ 0.25     $ 0.44     $ 0.80     $ 1.18     $ 0.23  
Shares used in computing non-GAAP income per share attributable to Finisar Corporation common stockholders                                      
  Basic   103,563       96,394       100,475       95,649       99,621  
  Diluted   105,990       104,361       106,339       103,491       105,340  
                                       
Non-GAAP EBITDA                                      
Non-GAAP income attributable to Finisar Corporation $ 26,706     $ 44,993     $ 83,503     $ 120,029     $ 23,465  
Depreciation expense   21,371       15,960       61,934       44,508       20,915  
Amortization   -       94       72       282       33  
Interest expense   20       347       444       654       196  
Income tax expense   1,857       1,500       5,857       4,195       1,800  
Non-GAAP EBITDA $ 49,954     $ 62,894     $ 151,810     $ 169,668     $ 46,409  
                                       

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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