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:
- Revenues were $369.9 million, an increase of $28.5 million, or 8.4%, from $341.3 million in the first quarter.
- Sales of telecom products increased by $9.7 million, or 9.9%, compared to the first quarter. This increase was due primarily to higher sales of 100G transceivers, as well as wavelength selective switch and ROADM line card products.
- Sales of datacom products increased by $18.8 million, or 7.7%, compared to the first quarter. This increase was due primarily to growth in demand for 100G transceivers. Sales of 100G transceivers for datacom applications increased approximately 30% compared to the first quarter, and more than 80% compared to the second quarter of the prior fiscal year. Sales of 40G datacom transceivers were approximately flat compared to the first quarter.
- GAAP gross margin improved to 36.1%, compared to 31.7% in the first quarter, primarily due to favorable product mix and the operational leverage from our vertical integration.
- Non-GAAP gross margin improved to 37.2% compared to 33.1% in the first quarter.
- GAAP operating expenses were $80.9 million compared to $79.9 million in the first quarter. GAAP operating expenses as a percentage of revenue decreased to approximately 21.9% of revenue compared to 23.4% in the first quarter.
- Non-GAAP operating expenses were $69.4 million compared to $69.3 million in the first quarter. Non-GAAP operating expenses as a percentage of revenue decreased to approximately 18.8% compared to 20.3% in the first quarter.
- GAAP operating margin improved to 14.3% from 8.3% in the first quarter.
- Non-GAAP operating margin improved to 18.5% from 12.8% in the first quarter.
- GAAP earnings per fully diluted share was $0.43 compared to $0.22 in the first quarter, primarily due to higher revenue levels and improved gross margins.
- Non-GAAP earnings per fully diluted share was $0.58 compared to $0.38 in the preceding quarter.
- Cash, cash equivalents and short-term investments increased $32.5 million to $626.3 million at the end of the second quarter, compared to $593.8 million at the end of the preceding quarter.
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
Three Months Ended Six Months Ended Ended
-------------------- -------------------- ---------
Oct 30, Nov 01, Oct 30, Nov 01, Jul 31,
2016 2015 2016 2015 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:
- Changes in excess and obsolete inventory reserve (predominantly non-cash charges);
- Amortization of acquired technology (non-cash charges related to technology obtained in acquisitions);
- Duplicate facility costs during facility move (non-core cash charges);
- Stock-based compensation expense (non-cash charges);
- Impairment of long-lived assets (non-cash charges);
- Reduction in force costs (non-core cash charges); and
- Acquisition related retention payments (non-core cash charges).
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:
- Acquisition related costs (non-core cash charges);
- Gain or loss on litigation settlements and resolutions and related costs (non-core cash charges or benefits); and
- Amortization of purchased intangibles (non-cash charges).
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:
- Imputed interest expenses on convertible debt (non-cash charges);
- Imputed interest related to restructuring (non-cash charges);
- Gains and losses on sales of assets (non-cash losses and cash gains related to the periodic disposal of assets no longer required for current activities);
- Other miscellaneous expenses (income) (non-core charges or benefits);
- Dollar denominated foreign exchange transaction losses (gains) (non-cash charges or benefits); and
- Amortization of debt issuance costs (non-cash charges).
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
Three Months Ended Six Months Ended Ended
-------------------- -------------------- ---------
Oct 30, Nov 01, Oct 30, Nov 01, Jul 31,
2016 2015 2016 2015 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 [email protected] Press contact:Victoria McDonaldDirector, Corporate Communications408-542-4261
Source: Finisar