Finisar Corporation
Sep 8, 2016
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Finisar Announces Record First Fiscal Quarter Revenues

SUNNYVALE, CA -- (Marketwired) -- 09/08/16 --

Finisar Corporation (NASDAQ: FNSR), a global technology leader for subsystems and components for fiber optic communications, today announced financial results for its first quarter of fiscal year 2017, ended July 31, 2016.

COMMENTARY

"I am pleased to announce that Finisar achieved record revenues for our first quarter of $341.3 million, an increase of $22.5 million, or 7.1% compared to the prior quarter. This growth was primarily driven by strong demand for 100Gb/s transceivers in CFP, CFP2, CFP4, and QSFP28 form factors. In addition, demand for wavelength selective switches was strong. Our gross margins improved significantly due to favorable product mix and leverage of our vertically integrated manufacturing infrastructure over the larger volume. The combination of revenues being at the higher end of our guidance range and better than expected gross margins resulted in earnings per fully diluted share exceeding the upper end of our guidance range," said Jerry Rawls, Finisar's Chief Executive Officer.

 
FINANCIAL HIGHLIGHTS - First Quarter Ended July 31, 2016
         
Summary GAAP Results   First   Fourth
    Quarter   Quarter
    Ended   Ended
    July 31, 2016   May 1, 2016
    (in thousands, except per share amounts)
         
Revenues   $341,325   $318,794
Gross margin   31.7%   28.4%
Operating expenses   $79,854   $76,306
Operating income   $28,311   $14,135
Operating margin   8.3%   4.4%
Net income   $23,949   $13,072
Income per share-basic   $0.22   $0.12
Income per share-diluted   $0.22   $0.12
         
Basic shares   108,820   107,612
Diluted shares   110,821   109,386
         
         
         
         
Summary Non-GAAP Results (a)   First   Fourth
    Quarter   Quarter
    Ended   Ended
    July 31, 2016   May 1, 2016
    (in thousands, except per share amounts)
         
Revenues   $341,325   $318,794
Non-GAAP Gross margin   33.1%   30.6%
Non-GAAP Operating expenses   $69,344   $66,186
Non-GAAP Operating income   $43,520   $31,239
Non-GAAP Operating margin   12.8%   9.8%
Non-GAAP Net income   $41,825   $31,824
Non-GAAP Income per share-basic   $0.38   $0.30
Non-GAAP Income per share-diluted   $0.38   $0.29
         
Basic shares   108,820   107,612
Diluted shares   110,821   109,386
         

(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 First Quarter of Fiscal 2017:

OUTLOOK

Finisar indicated that for the second quarter of fiscal 2017 it currently expects revenues in the range of $355 to $375 million, non-GAAP gross margin of approximately 34%, non-GAAP operating margin of approximately 14.3% to 15.3%, and non-GAAP earnings per fully diluted share in the range of approximately $0.44 to $0.50.

Finisar has not provided a reconciliation of its second 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 first quarter and current business outlook during its regular quarterly conference call scheduled for Thursday, September 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 888-208-1815 (domestic) or 719-325-2291 (international) and enter conference ID 1833924.

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 1833924 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 Balance Sheets  
(in thousands)  
             
    July 31, 2016     May 1, 2016  
    (Unaudited)        
ASSETS                
Current assets:                
  Cash and cash equivalents   $ 280,414     $ 299,221  
  Short-term held-to-maturity investments     313,389       263,255  
  Accounts receivable, net     255,036       249,257  
  Accounts receivable, other     43,678       44,576  
  Inventories     272,592       273,291  
  Prepaid expenses and other assets     18,646       18,483  
    Total current assets     1,183,755       1,148,083  
Property, equipment and improvements, net     338,918       348,613  
Purchased intangible assets, net     16,197       18,388  
Goodwill     106,735       106,735  
Minority investments     3,974       4,051  
Other assets     18,928       19,501  
    Total assets   $ 1,668,507     $ 1,645,371  
                 
LIABILITIES AND STOCKHOLDERS' EQUITY                
Current liabilities:                
  Accounts payable   $ 136,317     $ 141,591  
  Accrued compensation     36,332       36,084  
  Other accrued liabilities     39,201       42,206  
  Deferred revenue     16,468       13,529  
    Total current liabilities     228,318       233,410  
Long-term liabilities:                
  Convertible notes, net of current portion     232,016       229,393  
  Other non-current liabilities     14,056       14,882  
    Total liabilities     474,390       477,685  
Stockholders' equity:                
  Common stock     110       108  
  Additional paid-in capital     2,621,260       2,605,859  
  Accumulated other comprehensive income (loss)     (38,109 )     (25,188 )
  Accumulated deficit     (1,389,144 )     (1,413,093 )
    Total stockholders' equity     1,194,117       1,167,686  
Total liabilities and stockholders' equity   $ 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 Corporation 
Consolidated Statements of Operations 
(Unaudited, in thousands, except per share data) 
       
    Three Months Ended  
    July 31, 2016     Aug 02, 2015     May 1, 2016  
Revenues   $ 341,325     $ 314,030     $ 318,794  
Cost of revenues     231,637       224,147       226,723  
Impairment of long-lived assets     -       1,071       -  
Amortization of acquired developed technology     1,523       1,435       1,630  
Gross profit     108,165       87,377       90,441  
Gross margin     31.7 %     27.8 %     28.4 %
Operating expenses:                        
  Research and development     51,008       52,408       50,169  
  Sales and marketing     11,863       11,202       11,621  
  General and administrative     16,315       15,208       13,848  
  Impairment of long-lived assets     -       830       -  
  Amortization of purchased intangibles     668       668       668  
    Total operating expenses     79,854       80,316       76,306  
Income from operations     28,311       7,061       14,135  
Interest income     726       365       802  
Interest expense     (2,986 )     (2,883 )     (3,017 )
Other income (expenses), net     (59 )     881       (80 )
Income before income taxes     25,992       5,424       11,840  
Provision (benefit) for income taxes     2,043       2,031       (1,232 )
Net income   $ 23,949     $ 3,393     $ 13,072  
                         
Net income per share attributable to Finisar Corporation common stockholders:                        
  Basic   $ 0.22     $ 0.03     $ 0.12  
  Diluted   $ 0.22     $ 0.03     $ 0.12  
                         
Shares used in computing net income per share - basic     108,820       105,286       107,612  
Shares used in computing net income per share - diluted     110,821       108,107       109,386  
                         

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 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:

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  
    July 31, 2016     Aug 02, 2015     May 1, 2016  
GAAP to non-GAAP reconciliation of gross profit:                        
Gross profit - GAAP   $ 108,165     $ 87,377     $ 90,441  
Gross margin - GAAP     31.7 %     27.8 %     28.4 %
Adjustments:                        
Cost of revenues                        
  Change in excess and obsolete inventory valuation adjustments (1)             1,430       2,102  
  Amortization of acquired technology     1,523       1,435       1,630  
  Duplicate facility costs during facility move     8       82       8  
  Stock compensation     3,047       2,692       2,847  
  Impairment of long-lived assets     -       1,282       -  
  Reduction in force costs     102       554       369  
  Acquisition related retention payment     19       65       28  
    Total cost of revenue adjustments     4,699       7,540       6,984  
Gross profit - non-GAAP     112,864       94,917       97,425  
Gross margin - non-GAAP     33.1 %     30.2 %     30.6 %
                         
GAAP to non-GAAP reconciliation of operating income:                        
Operating income - GAAP     28,311       7,061       14,135  
Operating margin - GAAP     8.3 %     2.2 %     4.4 %
Adjustments:                        
Total cost of revenue adjustments     4,699       7,540       6,984  
Total operating expense adjustments                        
  Operating expenses - GAAP     79,854       80,316       76,306  
    Research and development                        
    Reduction in force costs     174       288       386  
    Duplicate facility costs during facility move     7       221       7  
    Acquisition related retention payment     32       91       32  
    Stock compensation     5,111       4,838       4,855  
    Impairment of long-lived assets     -       287       -  
  Sales and marketing                        
    Reduction in force costs     29       63       1  
    Acquisition related retention payment     -       10       -  
    Stock compensation     1,751       1,707       1,747  
  General and administrative                        
    Reduction in force costs     13       352       49  
    Duplicate facility costs     143       9       24  
    Acquisition related retention payment     (2 )     (5 )     4  
    Stock compensation     2,553       2,760       2,381  
    Acquisition related costs     31       18       (1 )
    Litigation settlements and resolutions and related costs     -       16       1  
    Shareholder class action and derivative litigation costs     -       -       (184 )
    Unclaimed property tax audit accrual     -       -       150  
  Amortization of purchased intangibles     668       668       668  
  Impairment of long-lived assets     -       587       -  
      Total operating expense adjustments     10,510       11,910       10,120  
  Operating expenses - non-GAAP     69,344       68,406       66,186  
Operating income - non-GAAP     43,520       26,511       31,239  
Operating margin - non-GAAP     12.8 %     8.4 %     9.8 %
                         
GAAP to non-GAAP reconciliation of income before income taxes:                        
Income before income taxes - GAAP     25,992       5,424       11,840  
Adjustments:                        
Total cost of revenue adjustments     4,699       7,540       6,984  
Total operating expense adjustments     10,510       11,910       10,120  
Total Interest and other adjustments                        
Other interest income     -       -       (6 )
Non-cash imputed interest expenses on convertible debt     2,469       2,354       2,449  
Imputed interest related to restructuring     38       45       40  
Other (income) expense, net                        
  Loss (gain) on sale of assets     (8 )     (185 )     165  
  Other miscellaneous income     -       (17 )     (184 )
  Foreign exchange transaction (gain) or loss     (29 )     (693 )     362  
  Amortization of debt issuance cost     154       154       154  
    Total Interest and other adjustments     2,624       1,658       2,980  
Income before income taxes - non-GAAP     43,825       26,532       31,924  
                         
GAAP to non-GAAP reconciliation of net income:                        
Net income - GAAP     23,949       3,393       13,072  
Total cost of revenue adjustments     4,699       7,540       6,984  
Total operating expense adjustments     10,510       11,910       10,120  
Total Interest and other adjustments     2,624       1,658       2,980  
Income tax provision adjustments     43       31       (1,332 )
    Total adjustments     17,876       21,139       18,752  
Net income - non-GAAP   $ 41,825     $ 24,532     $ 31,824  
                         
Non-GAAP net income for diluted earnings per share calcuation                        
Non-GAAP net income   $ 41,825     $ 24,532     $ 31,824  
Add: interest expense for dilutive convertible notes     -       -       -  
Adjusted non-GAAP income   $ 41,825     $ 24,532     $ 31,824  
                         
Basic non-GAAP income per share                        
  GAAP earnings per share   $ 0.22     $ 0.03     $ 0.12  
  Impact of all non-GAAP adjustments   $ 0.16     $ 0.20     $ 0.18  
  Non-GAAP earnings per share   $ 0.38     $ 0.23     $ 0.30  
                         
Diluted non-GAAP income per share                        
  GAAP earnings per share   $ 0.22     $ 0.03     $ 0.12  
  Impact of all non-GAAP adjustments   $ 0.16     $ 0.20     $ 0.17  
  Non-GAAP earnings per share   $ 0.38     $ 0.23     $ 0.29  
                         
Shares used in computing non-GAAP income per share                        
  Basic     108,820       105,286       107,612  
  Diluted     110,821       108,107       109,386  
 (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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