Finisar Announces Second Quarter Fiscal 2018 Financial Results

SUNNYVALE, Calif., Dec. 07, 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 second fiscal quarter, ended October 29, 2017. 

COMMENTARY

“We experienced strong demand in our second fiscal quarter for our 100G QSFP28 transceivers for datacenters,” said Jerry Rawls, Finisar’s Chief Executive Officer.  “However, our overall revenues for the second fiscal quarter were $332.2 million, a decrease of $9.6 million, or 2.8%, compared to the first quarter of fiscal 2018.  This decline was primarily due to lower revenues from our Chinese OEM customers. Also, during the second quarter, we began shipping production quantities of our VCSEL arrays for 3D sensing. In addition, after the end of the quarter, we acquired an approximately 700,000 square foot facility in Sherman, Texas.  In the second half of calendar year 2018, we expect this facility will allow us to produce VCSEL arrays using 6” wafers for both consumer and automotive applications.”

FINANCIAL HIGHLIGHTS – Second Quarter Ended October 29, 2017
 
Summary GAAP Results Second
  First
  Quarter
  Quarter
  Ended
  Ended
  October 29, 2017   July 30, 2017
  (in thousands, except per share amounts)
       
Revenues $332,205   $341,806
Gross margin 29.0%   33.7%
Operating expenses $86,738   $85,387
Operating income $9,467   $29,912
Operating margin 2.8%   8.8%
Net income $5,857   $19,859
Income per share-basic $0.05   $0.18
Income per share-diluted $0.05   $0.17
       
Basic shares 113,960   112,544
Diluted shares 115,443   115,698
       
Summary Non-GAAP Results (a) Second
  First
  Quarter
  Quarter
  Ended
  Ended
  October 29, 2017
  July 30, 2017
  (in thousands, except per share amounts)
       
Revenues $332,205   $341,806
Non-GAAP Gross margin 30.3%   34.9%
Non-GAAP Operating expenses $74,643   $73,150
Non-GAAP Operating income  $25,914   $46,005
Non-GAAP Operating margin 7.8%   13.5%
Non-GAAP Net income    26,089   45,750
Non-GAAP Income per share-basic $0.23   $0.41
Non-GAAP Income per share-diluted $0.23   $0.40
       
Basic shares 113,960   112,544
Diluted shares 115,443   115,698

_____________

(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 Second Quarter of Fiscal 2018: 

  • Sales of datacom products decreased by $1.7 million, or (0.7)%, compared to the first quarter of fiscal 2018, primarily from lower demand for 10G and below transceivers, 40G QSFP transceivers, and 100G CFP ethernet transceivers.  This was partially offset by an increase in sales of 100G QSFP28 transceivers as well as new revenues from VCSEL arrays for 3D sensing.
  • Sales of telecom products decreased by $7.9 million, or (9.5)%, compared to the first quarter of fiscal 2018, primarily driven by lower revenues from our Chinese OEM customers.
  • GAAP gross margin was 29.0% compared to 33.7% in the first quarter of fiscal 2018, primarily due to lower revenue levels, unfavorable product mix, and under-absorption of manufacturing costs at our Allen, Texas VCSEL fab. This under-absorption was primarily due to our shipping production quantities of VCSEL arrays late in the quarter.
  • Non-GAAP gross margin was 30.3% compared to 34.9% in the first quarter of fiscal 2018.
  • GAAP operating margin was 2.8% compared to 8.8% in the first quarter of fiscal 2018, primarily due to lower revenue levels and gross margins.
  • Non-GAAP operating margin was 7.8% compared to 13.5% in the first quarter of fiscal 2018.
  • GAAP income per fully diluted share was $0.05 compared to $0.17 in the first quarter of fiscal 2018, primarily due to lower revenue levels and gross margin.
  • Non-GAAP income per fully diluted share was $0.23 compared to $0.40 in the first quarter of fiscal 2018.

OUTLOOK

Finisar indicated that for the third quarter of fiscal 2018 it currently expects revenues in the range of $325 to $345 million, non-GAAP gross margin of approximately 30%-31%, non-GAAP operating margin of approximately 7.5% -8.5%, and non-GAAP earnings per fully diluted share in the range of approximately $0.21 to $0.27.

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 7, 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 61569772.

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 61569772and 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 16, 2017) 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   Six Months Ended   Three Months Ended
  Oct 29, 2017   Oct 30, 2016   Oct 29, 2017   Oct 30, 2016   Jul 30, 2017
Revenues $ 332,205     $ 369,863     $ 674,011     $ 711,188     $ 341,806  
Cost of revenues   235,389       235,192       461,285       466,829       225,896  
Amortization of acquired developed technology   611       990       1,222       2,513       611  
Gross profit   96,205       133,681       211,504       241,846       115,299  
Gross margin   29.0%       36.1%       31.4%       34.0%       33.7%  
Operating expenses:                  
Research and development   60,560       53,242       118,600       104,250       58,040  
Sales and marketing   12,230       13,367       24,581       25,230       12,351  
General and administrative   13,282       13,576       27,571       29,891       14,289  
Amortization of purchased intangibles   666       668       1,373       1,336       707  
Total operating expenses   86,738       80,853       172,125       160,707       85,387  
Income from operations   9,467       52,828       39,379       81,139       29,912  
Interest income   3,746       1,021       7,186       1,747       3,440  
Interest expense   (9,131 )     (3,025 )     (18,144 )     (6,011 )     (9,013 )
Other expenses   1,111       795       (1,583 )     736       (2,694 )
Income before income taxes   5,193       51,619       26,838       77,611       21,645  
Provision (benefit) for income taxes   (664 )     2,854       1,122       4,897       1,786  
Net income $ 5,857     $ 48,765     $ 25,716     $ 72,714     $ 19,859  
                   
Net income per share attributable to Finisar Corporation common stockholders:                  
                   
Basic $ 0.05     $ 0.44     $ 0.23     $ 0.66     $ 0.18  
Diluted $ 0.05     $ 0.43     $ 0.22     $ 0.65     $ 0.17  
                   
Shares used in computing net income per share – basic   113,960       110,407       113,252       109,614       112,544  
Shares used in computing net income per share – diluted   115,443       113,192       115,973       112,450       115,698  
                   

Finisar Corporation
Consolidated Balance Sheets
 (in thousands)
               
    Oct 29, 2017   Jul 30, 2017   Apr 30, 2017  
    (Unaudited)   (Unaudited)      
ASSETS              
Current assets:              
Cash and cash equivalents   $ 274,547     $ 278,826     $ 260,228    
Short-term held-to-maturity investments     958,216       954,026       976,595    
Accounts receivable, net     260,870       273,180       272,377    
Inventories     369,078       356,845       331,388    
Other current assets     61,517       63,629       68,269    
Total current assets     1,924,228       1,926,506       1,908,857    
Property, equipment and improvements, net     443,733       420,298       383,919    
Purchased intangible assets, net     10,424       11,700       13,019    
Goodwill     106,735       106,735       106,735    
Minority investments     606       605       3,161    
Other assets     20,818       21,651       16,964    
Deferred tax assets     116,055       108,567       107,225    
Total assets   $ 2,622,599     $ 2,596,062     $ 2,539,880    
               
LIABILITIES AND STOCKHOLDERS’ EQUITY              
Current liabilities:              
Accounts payable   $ 152,047     $ 148,605     $ 140,568    
Accrued compensation     36,614       42,030       54,520    
Other accrued liabilities     40,130       46,648       43,697    
Deferred revenue     17,716       14,348       13,015    
Total current liabilities     246,507       251,631       251,800    
Long-term liabilities:              
Convertible notes     723,784       715,722       707,782    
Other non-current liabilities     17,176       17,546       17,594    
Total liabilities     987,467       984,899       977,176    
Stockholders’ equity:              
Common stock     114       114       112    
Additional paid-in capital     2,814,713       2,799,118       2,784,204    
Accumulated other comprehensive income (loss)     (41,664 )     (44,181 )     (57,865 )  
Accumulated deficit     (1,138,031 )     (1,143,888 )     (1,163,747 )  
Total stockholders’ equity     1,635,132       1,611,163       1,562,704    
Total liabilities and stockholders’ equity   $ 2,622,599     $ 2,596,062     $ 2,539,880    
               
Note – Balance sheet amounts as of April 30, 2017 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:

  • 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);
  • 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:

  • Litigation settlements and resolutions and related costs (non-core charges);
  • Acquisition related costs (non-core cash charge) 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);
  • Loss (gain) related to minority investment (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.

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
  Oct 29, 2017   Oct 30, 2016   Oct 29, 2017   Oct 30, 2016   Jul 30, 2017
GAAP to non-GAAP reconciliation of gross profit:                  
Gross profit – GAAP $ 96,205     $ 133,681     $ 211,504     $ 241,846     $ 115,299  
Gross margin – GAAP   29.0%       36.1%       31.4%       34.0%       33.7%  
Adjustments:                  
Cost of revenues                  
Amortization of acquired technology   611       990       1,222       2,513       611  
Duplicate facility costs during facility move         8             16        
Stock compensation   3,724       2,949       6,294       5,996       2,570  
Reduction in force costs   (9 )     14       625       116       634  
Acquisition related retention payment   26       26       67       45       41  
Total cost of revenue adjustments   4,352       3,987       8,208       8,686       3,856  
Gross profit – non-GAAP   100,557       137,668       219,712       250,532       119,155  
Gross margin – non-GAAP   30.3%       37.2%       32.6%       35.2%       34.9%  
                   
GAAP to non-GAAP reconciliation of operating income:                  
Operating income – GAAP   9,467       52,828       39,379       81,139       29,912  
Operating margin – GAAP   2.8%       14.3%       5.8%       11.4%       8.8%  
Adjustments:                  
Total cost of revenue adjustments   4,352       3,987       8,208       8,686       3,856  
Total operating expense adjustments                  
Operating expenses – GAAP   86,738       80,853       172,125       160,707       85,387  
Research and development                  
Reduction in force costs   22       88       115       262       93  
Duplicate facility costs during facility move         7             14        
Acquisition related retention payment   32       32       64       64       32  
Stock compensation   6,147       5,552       12,229       10,663       6,082  
Sales and marketing                  
Reduction in force costs               (12 )     29       (12 )
Acquisition related retention payment               (2 )           (2 )
Stock compensation   2,039       1,877       4,083       3,628       2,044  
General and administrative                  
Reduction in force costs   13       20       50       33       37  
Duplicate facility costs during facility move   137       154       320       297       183  
Acquisition related retention payment                     (2 )      
Stock compensation   2,999       2,989       6,068       5,542       3,069  
Acquisition related costs   40       2       44       33       4  
Litigation settlements and resolutions and related costs         46             46        
Amortization of purchased intangibles   666       668       1,373       1,336       707  
Total operating expense adjustments   12,095       11,435       24,332       21,945       12,237  
Operating expenses – non-GAAP   74,643       69,418       147,793       138,762       73,150  
Operating income – non-GAAP   25,914       68,250       71,919       111,770       46,005  
Operating margin – non-GAAP   7.8%       18.5%       10.7%       15.7%       13.5%  
                   
GAAP to non-GAAP reconciliation of income before income taxes:                  
Income before income taxes – GAAP   5,193       51,619       26,838       77,611       21,645  
Adjustments:                  
Total cost of revenue adjustments   4,352       3,987       8,208       8,686       3,856  
Total operating expense adjustments   12,095       11,435       24,332       21,945       12,237  
Non-cash imputed interest expenses on convertible debt   7,676       2,509       15,231       4,978       7,555  
Imputed interest related to restructuring   28       37       58       75       30  
Other (income) expense, net                  
Loss (gain) on assets   38       (17 )     (79 )     (25 )     (117 )
Loss related to impairment of minority investments               2,347             2,347  
Foreign exchange transaction (gain) or loss   (1,478 )     (970 )     (1,016 )     (999 )     463  
Amortization of  debt issuance cost   385       154       770       308       385  
Total Interest and other adjustments   6,649       1,713       17,311       4,337       10,663  
Income before income taxes – non-GAAP   28,289       68,754       76,689       112,579       48,401  
                   
GAAP to non-GAAP reconciliation of net income:                  
Net income – GAAP   5,857       48,765       25,716       72,714       19,859  
Total cost of revenue adjustments   4,352       3,987       8,208       8,686       3,856  
Total operating expense adjustments   12,095       11,435       24,332       21,945       12,237  
Total Interest and other adjustments   6,649       1,713       17,311       4,337       10,663  
Income tax provision adjustments   (2,864 )     (746 )     (3,728 )     (703 )     (865 )
Total adjustments   20,232       16,389       46,123       34,265       25,891  
Net income – non-GAAP $ 26,089     $ 65,154     $ 71,839     $ 106,979     $ 45,750  
                   
Basic non-GAAP income per share                  
GAAP earnings per share $ 0.05     $ 0.44     $ 0.23     $ 0.66     $ 0.18  
Impact of all non-GAAP adjustments $ 0.18     $ 0.15     $ 0.40     $ 0.32     $ 0.23  
Non-GAAP earnings per share $ 0.23     $ 0.59     $ 0.63     $ 0.98     $ 0.41  
                   
Diluted non-GAAP income per share                  
GAAP earnings per share $ 0.05     $ 0.43     $ 0.22     $ 0.65     $ 0.17  
Impact of all non-GAAP adjustments $ 0.18     $ 0.15     $ 0.40     $ 0.30     $ 0.23  
Non-GAAP earnings per share $ 0.23     $ 0.58     $ 0.62     $ 0.95     $ 0.40  
                   
Shares used in computing non-GAAP income per share                  
Basic   113,960       110,407       113,252       109,614       112,544  
Diluted   115,443       113,192       115,973       112,450       115,698  

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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