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Finisar Announces First Quarter Fiscal 2018 Financial Results

SUNNYVALE, Calif., Sept. 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 first fiscal quarter, ended July 30, 2017. 

/EIN News/ -- COMMENTARY

“We experienced strong demand in our first fiscal quarter for our 100G QSFP28 transceivers for datacenter applications,” said Jerry Rawls, Finisar’s Chief Executive Officer.  “However, our overall revenues for our first fiscal quarter were $341.8 million, a decrease of $15.7 million, or 4.4%, compared to the fourth quarter of fiscal 2017. This decrease resulted primarily from a decline in telecom revenues as well as a decrease in 10G and below datacom transceivers.”  

FINANCIAL HIGHLIGHTS – First Quarter Ended July 30, 2017  
   
Summary GAAP Results   First             Fourth  
    Quarter             Quarter  
    Ended             Ended  
    July 30, 2017             April 30, 2017  
  (in thousands, except per share amounts)
                     
Revenues $341,806           $357,527  
Gross margin   33.7%             35.0%  
Operating expenses $85,387           $84,324  
Operating income $29,912           $40,839  
Operating margin   8.8%             11.4%  
Net income $19,859           $130,245  
Income per share-basic $0.18           $1.17  
Income per share-diluted $0.17           $1.13  
                 
Basic shares   112,544             111,438  
Diluted shares   115,698             115,242  
                 
Summary Non-GAAP Results (a)   First             Fourth  
    Quarter             Quarter  
    Ended             Ended  
    July 30, 2017             April 30, 2017  
  (in thousands, except per share amounts)
                 
Revenues $341,806           $357,527  
Non-GAAP Gross margin   34.9%             36.2%  
Non-GAAP Operating expenses $73,150           $70,952  
Non-GAAP Operating income  $46,005           $58,411  
Non-GAAP Operating margin   13.5%             16.3%  
Non-GAAP Net income    45,750           $57,515  
Non-GAAP Income per share-basic $0.41           $0.52  
Non-GAAP Income per share-diluted $0.40           $0.50  
                 
Basic shares   112,544             111,438  
Diluted shares   115,698             115,242  

_____________

(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 First Quarter of Fiscal 2018: 

  • Sales of datacom products decreased by $8.4 million, or (3.1)%, compared to the fourth quarter of fiscal 2017, as a result of lower demand for our datacom products, primarily our 10G and below transceivers, partially offset by  an increase in sales of 100G QSFP28 transceivers for datacom applications.
     
  • Sales of telecom products decreased by $7.4 million, or (8.1)%, compared to the fourth quarter of fiscal 2017.

  • GAAP gross margin was 33.7% compared to 35.0% in the fourth quarter of fiscal 2017, primarily due to lower revenue levels.

  • Non-GAAP gross margin was 34.9% compared to 36.2% in the fourth quarter of fiscal 2017.

  • GAAP operating margin was 8.8% compared to 11.4% in the fourth quarter of fiscal 2017, primarily due to lower revenue levels.

  • Non-GAAP operating margin was 13.5% compared to 16.3% in the fourth quarter of fiscal 2017.

  • GAAP income per fully diluted share was $0.17 compared to $1.13 in the fourth quarter of fiscal 2017. In the fourth quarter of fiscal 2017, the Company realized a non-cash benefit of $103.3 million to the GAAP income tax provision due to the release of a significant portion of its valuation allowance against certain U.S. deferred tax assets.

  • Non-GAAP income per fully diluted share was $0.40 compared to $0.50 in the fourth quarter of fiscal 2017, primarily due to lower revenue levels.

OUTLOOK

Finisar indicated that for the second quarter of fiscal 2018 it currently expects revenues in the range of $322 to $342 million, non-GAAP gross margin of approximately 33%-34%, non-GAAP operating margin of approximately 10% -11%, and non-GAAP earnings per fully diluted share in the range of approximately $0.27 to $0.33.

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 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 61562686.

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 61562686 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 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
  Jul 30, 2017   July 31, 2016   Apr 30, 2017
Revenues $ 341,806     $ 341,325     $ 357,527  
Cost of revenues   225,896       231,637       231,374  
Amortization of acquired developed technology   611       1,523       990  
Gross profit   115,299       108,165       125,163  
Gross margin   33.7%       31.7%       35.0%  
Operating expenses:          
Research and development   58,040       51,008       58,973  
Sales and marketing   12,351       11,863       12,322  
General and administrative   14,289       16,315       12,316  
Amortization of purchased intangibles   707       668       713  
Total operating expenses   85,387       79,854       84,324  
Income from operations   29,912       28,311       40,839  
Interest income   3,440       726       3,299  
Interest expense   (9,013 )     (2,986 )     (8,953 )
Other expenses   (2,694 )     (59 )     (488 )
Income before income taxes   21,645       25,992       34,697  
Provision (benefit) for income taxes   1,786       2,043       (95,548 )
Net income $ 19,859     $ 23,949     $ 130,245  
           
Net income per share attributable to Finisar Corporation common stockholders:          
           
Basic $ 0.18     $ 0.22     $ 1.17  
Diluted $ 0.17     $ 0.22     $ 1.13  
           
Shares used in computing net income per share - basic   112,544       108,820       111,438  
Shares used in computing net income per share - diluted   115,698       110,821       115,242  
           


Finisar Corporation
Consolidated Balance Sheets
 (in thousands)
           
    Jul 30, 2017   Apr 30, 2017  
    (Unaudited)      
ASSETS          
Current assets:          
Cash and cash equivalents   $ 278,826     $ 260,228    
Short-term held-to-maturity investments     954,026       976,595    
Accounts receivable, net     273,180       272,377    
Inventories     356,845       331,388    
Other current assets     63,629       68,269    
Total current assets     1,926,506       1,908,857    
Property, equipment and improvements, net     420,298       383,919    
Purchased intangible assets, net     11,700       13,019    
Goodwill     106,735       106,735    
Minority investments     605       3,161    
Other assets     21,651       16,964    
Deferred tax assets     108,567       107,225    
Total assets   $ 2,596,062     $ 2,539,880    
           
LIABILITIES AND STOCKHOLDERS' EQUITY          
Current liabilities:          
Accounts payable   $ 148,605     $ 140,568    
Accrued compensation     42,030       54,520    
Other accrued liabilities     46,648       43,697    
Deferred revenue     14,348       13,015    
Total current liabilities     251,631       251,800    
Long-term liabilities:          
Convertible notes     715,722       707,782    
Other non-current liabilities     17,546       17,594    
Total liabilities     984,899       977,176    
Stockholders' equity:          
Common stock     114       112    
Additional paid-in capital     2,799,118       2,784,204    
Accumulated other comprehensive income (loss)     (44,181 )     (57,865 )  
Accumulated deficit     (1,143,888 )     (1,163,747 )  
Total stockholders' equity     1,611,163       1,562,704    
Total liabilities and stockholders' equity   $ 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:

  • Impairment of long-lived/other assets (non-cash 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);
  • 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.

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   Three Months Ended
  Jul 30, 2017   July 31, 2016   Apr 30, 2017
GAAP to non-GAAP reconciliation of gross profit:          
Gross profit - GAAP $ 115,299     $ 108,165     $ 125,163  
Gross margin - GAAP   33.7%       31.7%       35.0%  
Adjustments:          
Cost of revenues          
Amortization of acquired technology   611       1,523       990  
Duplicate facility costs during facility move   -       8       10  
Stock compensation   2,570       3,047       3,071  
Reduction in force costs   634       102       103  
Acquisition related retention payment   41       19       26  
Total cost of revenue adjustments   3,856       4,699       4,200  
Gross profit - non-GAAP   119,155       112,864       129,363  
Gross margin - non-GAAP   34.9%       33.1%       36.2%  
           
GAAP to non-GAAP reconciliation of operating income:          
Operating income - GAAP   29,912       28,311       40,839  
Operating margin - GAAP   8.8%       8.3%       11.4%  
Adjustments:          
Total cost of revenue adjustments   3,856       4,699       4,200  
Total operating expense adjustments          
Operating expenses - GAAP   85,387       79,854       84,324  
Research and development          
Reduction in force costs   93       174       46  
Duplicate facility costs during facility move   -       7       10  
Acquisition related retention payment   32       32       32  
Stock compensation   6,082       5,111       5,613  
Impairment of long-lived/other assets   -       -       2,387  
Sales and marketing          
Reduction in force costs   (12 )     29       19  
Acquisition related retention payment   (2 )     -       2  
Stock compensation   2,044       1,751       1,889  
General and administrative          
Reduction in force costs   37       13       5  
Duplicate facility costs during facility move   183       143       176  
Acquisition related retention payment   -       (2 )     -  
Stock compensation   3,069       2,553       2,823  
Acquisition related costs   4       31       (343 )
Amortization of purchased intangibles   707       668       713  
Total operating expense adjustments   12,237       10,510       13,372  
Operating expenses - non-GAAP   73,150       69,344       70,952  
Operating income - non-GAAP   46,005       43,520       58,411  
Operating margin - non-GAAP   13.5%       12.8%       16.3%  
           
GAAP to non-GAAP reconciliation of income before income taxes:          
Income before income taxes - GAAP   21,645       25,992       34,697  
Adjustments:          
Total cost of revenue adjustments   3,856       4,699       4,200  
Total operating expense adjustments   12,237       10,510       13,372  
Non-cash imputed interest expenses on convertible debt   7,555       2,469       7,494  
Imputed interest related to restructuring   30       38       32  
Other (income) expense, net          
Loss (gain) on sale of assets   (113 )     (8 )     124  
Loss related to impairment of minority investments   2,347       -       -  
Other miscellaneous income   (4 )     -       (115 )
Foreign exchange transaction (gain) or loss   463       (29 )     326  
Amortization of  debt issuance cost   385       154       385  
Total Interest and other adjustments   10,663       2,624       8,246  
Income before income taxes - non-GAAP   48,401       43,825       60,515  
           
GAAP to non-GAAP reconciliation of net income:          
Net income - GAAP   19,859       23,949       130,245  
Total cost of revenue adjustments   3,856       4,699       4,200  
Total operating expense adjustments   12,237       10,510       13,372  
Total Interest and other adjustments   10,663       2,624       8,246  
Income tax provision adjustments   (865 )     43       (98,548 )
Total adjustments   25,891       17,876       (72,730 )
Net income - non-GAAP $ 45,750     $ 41,825     $ 57,515  
           
Basic non-GAAP income per share          
GAAP earnings per share $ 0.18     $ 0.22     $ 1.17  
Impact of all non-GAAP adjustments $ 0.23     $ 0.16     $ (0.65 )
Non-GAAP earnings per share $ 0.41     $ 0.38     $ 0.52  
           
Diluted non-GAAP income per share          
GAAP earnings per share $ 0.17     $ 0.22     $ 1.13  
Impact of all non-GAAP adjustments $ 0.23     $ 0.16     $ (0.63 )
Non-GAAP earnings per share $ 0.40     $ 0.38     $ 0.50  
           
Shares used in computing non-GAAP income per share          
Basic   112,544       108,820       111,438  
Diluted   115,698       110,821       115,242  
           

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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