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Finisar Announces Third Quarter Fiscal 2018 Financial Results

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SUNNYVALE, Calif., March 08, 2018 (GLOBE NEWSWIRE) -- Finisar Corporation (NASDAQ:FNSR), a global technology leader for subsystems and components for fiber optic communications, today announced financial results for its third fiscal quarter, ended January 28, 2018. 

COMMENTARY

"We experienced strong demand and record revenues in our third fiscal quarter for our 100G QSFP28 transceivers for datacenters as well as higher revenue for our VCSEL arrays for 3D sensing," said Michael Hurlston, Finisar's Chief Executive Officer.  "However, our overall revenues for the third fiscal quarter only grew modestly to $332.4 million, as the growth from 100G QSFP28 and VCSEL arrays was offset by decline in revenue from telecom products, as well as lower revenues from our 40G QSFP and 100G CFP and CFP2 ethernet datacom transceivers."

                     
FINANCIAL HIGHLIGHTS – Third Quarter Ended January 28, 2018        
           
Summary GAAP Results Third 
  Second
 
  Quarter
  Quarter
 
  Ended
  Ended
 
  January 28, 2018
  October 29, 2017
 
  (in thousands, except per share amounts)
 
           
Revenues $332,403              $332,205         
Gross margin 26.5%        29.0%     
Operating expenses $94,197        $86,738     
Operating income (loss) $(6,129)        $9,467     
Operating margin (1.8)%        2.8%     
Net income (loss) $(55,659)        $5,857     
Income  (loss) per share-basic $(0.49)        $0.05     
Income (loss) per share-diluted $(0.49)        $0.05     
           
Basic shares 114,209        113,960     
Diluted shares 114,209        115,443     
           
           
           
Summary Non-GAAP Results (a) Third     Second  
  Quarter
    Quarter
 
  Ended
    Ended
 
  January 28, 2018
    October 29, 2017
 
  (in thousands, except per share amounts)
 
           
Revenues $332,403        $332,205     
Non-GAAP Gross margin 28.6%        30.3%     
Non-GAAP Operating expenses $72,376        $74,643     
Non-GAAP Operating income  $22,702        $25,914     
Non-GAAP Operating margin 6.8%        7.8%     
Non-GAAP Net income    22,801        26,089     
Non-GAAP Income per share-basic $0.20        $0.23     
Non-GAAP Income per share-diluted $0.20        $0.23     
           
Basic shares 114,209        113,960     
Diluted shares 115,661        115,443     

_____________

  1. 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.

Revenue Details for the Third Quarter of Fiscal 2018: 

  • Sales of datacom products increased from $256.6 million to $266.1 million, or by $9.5 million, or 3.7%, compared to the second quarter of fiscal 2018.
     
  • Sales of telecom products decreased from $75.6 million to $66.3 million, or by $9.3 million, or (12.3)%, compared to the second quarter of fiscal 2018.

OUTLOOK

Finisar indicated that for the fourth quarter of fiscal 2018 it currently expects revenues in the range of $300 to $320 million, non-GAAP gross margin of approximately 27%-28%, non-GAAP operating margin of approximately 4%, and non-GAAP earnings per fully diluted share in the range of approximately $0.09 to $0.15.

Finisar has not provided a reconciliation of its fourth 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 third quarter and current business outlook during its regular quarterly conference call scheduled for Thursday, March 8, 2018, 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 5898449.

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 5898449 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 30 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)
         
  Jan 28, 2018 Oct 29, 2017 Jul 30, 2017 Apr 30, 2017
  (Unaudited) (Unaudited) (Unaudited)  
ASSETS        
Current assets:        
Cash and cash equivalents $ 259,023   $ 274,547   $ 278,826   $ 260,228  
Short-term held-to-maturity investments   957,267     958,216     954,026     976,595  
Accounts receivable, net   243,963     260,870     273,180     272,377  
Inventories   382,179     369,078     356,845     331,388  
Other current assets   53,023     61,517     63,629     68,269  
Total current assets   1,895,455     1,924,228     1,926,506     1,908,857  
Property, equipment and improvements, net   495,364     443,733     420,298     383,919  
Purchased intangible assets, net   9,148     10,424     11,700     13,019  
Goodwill   106,735     106,735     106,735     106,735  
Other assets   21,883     21,424     22,256     20,125  
Deferred tax assets   78,593     116,055     108,567     107,225  
Total assets $ 2,607,178   $ 2,622,599   $ 2,596,062   $ 2,539,880  
         
LIABILITIES AND STOCKHOLDERS' EQUITY        
Current liabilities:        
Accounts payable $ 127,248   $ 152,047   $ 148,605   $ 140,568  
Accrued compensation   39,660     36,614     42,030     54,520  
Other accrued liabilities   36,947     40,130     46,648     43,697  
Deferred revenue   14,539     17,716     14,348     13,015  
Current portion of convertible notes   248,426     -     -     -  
Total current liabilities   466,820     246,507     251,631     251,800  
Long-term liabilities:        
Convertible notes   483,481     723,784     715,722     707,782  
Other non-current liabilities   16,464     17,176     17,546     17,594  
Total liabilities   966,765     987,467     984,899     977,176  
Stockholders' equity:        
Common stock   114     114     114     112  
Additional paid-in capital   2,839,701     2,814,713     2,799,118     2,784,204  
Accumulated other comprehensive income (loss)   (5,712 )   (41,664 )   (44,181 )   (57,865 )
Accumulated deficit   (1,193,690 )   (1,138,031 )   (1,143,888 )   (1,163,747 )
Total stockholders' equity   1,640,413     1,635,132     1,611,163     1,562,704  
Total liabilities and stockholders' equity $ 2,607,178   $ 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 Corporation
Consolidated Statements of Operations
 (Unaudited, in thousands, except per share data) 
           
  Three Months Ended Nine Months Ended Three Months Ended
  Jan 28, 2018 Jan 29, 2017 Jan 28, 2018 Jan 29, 2017 Oct 29, 2017
Revenues $ 332,403   $ 380,588   $ 1,006,414   $ 1,091,776   $ 332,205  
Cost of revenues   243,724     242,961     705,009     709,790     235,389  
Amortization of acquired developed technology   611     990     1,833     3,503     611  
Gross profit   88,068     136,637     299,572     378,483     96,205  
Gross margin   26.5 %   35.9 %   29.8 %   34.7 %   29.0 %
Operating expenses:          
Research and development   59,888     54,691     178,488     158,941     60,560  
Sales and marketing   11,913     13,092     36,494     38,322     12,230  
General and administrative   19,739     13,235     47,310     43,126     13,282  
Startup costs   638     -     638     -     -  
Amortization of purchased intangibles   666     713     2,039     2,049     666  
Impairment of long-lived assets   1,353     -     1,353     -     -  
Total operating expenses   94,197     81,731     266,322     242,438     86,738  
Income (loss) from operations   (6,129 )   54,906     33,250     136,045     9,467  
Interest income   3,995     1,717     11,181     3,464     3,746  
Interest expense   (9,192 )   (5,399 )   (27,336 )   (11,410 )   (9,131 )
Other income (expenses), net   (459 )   (338 )   (2,042 )   398     1,111  
Income (loss) before income taxes   (11,785 )   50,886     15,053     128,497     5,193  
Provision (benefit) for income taxes   43,874     4,499     44,996     9,396     (664 )
Net income (loss) $ (55,659 ) $ 46,387   $ (29,943 ) $ 119,101   $ 5,857  
           
Net income (loss) per share attributable to Finisar Corporation common stockholders:    
           
Basic $ (0.49 ) $ 0.42   $ (0.26 ) $ 1.08   $ 0.05  
Diluted $ (0.49 ) $ 0.40   $ (0.26 ) $ 1.05   $ 0.05  
           
Shares used in computing net income per share - basic   114,209     110,956     113,571     110,061     113,960  
Shares used in computing net income per share - diluted   114,209     114,873     113,571     113,506     115,443  
                               

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);
  • Acquisition related retention payments (non-core cash charges); and
  • Inventory write-off related to discontinued products (non-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 cash charges);
  • Acquisition related costs (non-core cash charges);
  • Amortization of purchased intangibles (non-cash charges);
  • Unclaimed property tax audit accrual (non-core benefits);
  • Impairment of long-lived assets (non-cash charges); and
  • Start-up cash costs related to our Sherman VCSEL fab until we begin commercial production.

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);
  • Other interest income (non-core benefits);
  • 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 Nine Months Ended Three Months Ended
  Jan 28, 2018 Jan 29, 2017 Jan 28, 2018 Jan 29, 2017 Oct 29, 2017
GAAP to non-GAAP reconciliation of gross profit:        
Gross profit - GAAP $ 88,068   $ 136,637   $ 299,572   $ 378,483   $ 96,205  
Gross margin - GAAP   26.5 %   35.9 %   29.8 %   34.7 %   29.0 %
Adjustments:          
Cost of revenues          
Amortization of acquired technology   611     990     1,833     3,503     611  
Duplicate facility costs during facility move   -     10     -     26     -  
Stock compensation   2,918     3,182     9,212     9,178     3,724  
Reduction in force costs   7     68     632     184     (9 )
Acquisition related retention payment   26     26     93     71     26  
Write off of discontinued product inventory   3,448     -     3,448     -     -  
Total cost of revenue adjustments   7,010     4,276     15,218     12,962     4,352  
Gross profit - non-GAAP   95,078     140,913     314,790     391,445     100,557  
Gross margin - non-GAAP   28.6 %   37.0 %   31.3 %   35.9 %   30.3 %
           
GAAP to non-GAAP reconciliation of operating income:        
Operating income (loss) - GAAP   (6,129 )   54,906     33,250     136,045     9,467  
Operating margin - GAAP   -1.8 %   14.4 %   3.3 %   12.5 %   2.8 %
Adjustments:          
Total cost of revenue adjustments   7,010     4,276     15,218     12,962     4,352  
Total operating expense adjustments          
Operating expenses - GAAP   94,197     81,731     266,322     242,438     86,738  
Research and development          
Reduction in force costs   792     30     907     292     22  
Duplicate facility costs during facility move   -     10     -     24     -  
Acquisition related retention payment   44     32     108     96     32  
Stock compensation   6,073     5,461     18,302     16,124     6,147  
Sales and marketing          
Reduction in force costs   -     -     (12 )   29     -  
Acquisition related retention payment   -     -     (2 )   -     -  
Stock compensation   1,892     1,921     5,975     5,549     2,039  
General and administrative          
Reduction in force costs   341     20     391     53     13  
Duplicate facility costs during facility move   119     168     439     465     137  
Acquisition related retention payment   -     -     -     (2 )   -  
Stock compensation   9,888     2,807     15,956     8,349     2,999  
Acquisition related costs   (25 )   21     19     54     40  
Litigation settlements and resolutions and related costs   -     47     -     93     -  
Unclaimed property tax audit accrual   -     (37 )   -     (37 )   -  
Amortization of purchased intangibles   666     713     2,039     2,049     666  
Startup costs   638     -     638     -     -  
Impairment of long-lived assets   1,394     -     1,394     -     -  
Total operating expense adjustments   21,822     11,193     46,154     33,138     12,095  
Operating expenses - non-GAAP   72,375     70,538     220,168     209,300     74,643  
Operating income - non-GAAP   22,703     70,375     94,622     182,145     25,914  
Operating margin - non-GAAP   6.8 %   18.5 %   9.4 %   16.7 %   7.8 %
           
GAAP to non-GAAP reconciliation of income before income taxes:          
Income (loss) before income taxes - GAAP   (11,785 )   50,886     15,053     128,497     5,193  
Adjustments:          
Total cost of revenue adjustments   7,010     4,276     15,218     12,962     4,352  
Total operating expense adjustments   21,822     11,193     46,154     33,138     12,095  
Other interest income   (14 )   -     (14 )   -     -  
Non-cash imputed interest expenses on convertible debt   7,739     4,464     22,970     9,442     7,676  
Imputed interest related to restructuring   25     34     83     109     28  
Other (income) expense, net          
Loss (gain) on sale of assets   (79 )   (245 )   (158 )   (270 )   38  
Loss related to impairment of minority investments   -     643     2,347     643     -  
Foreign exchange transaction (gain) or loss   698     (204 )   (318 )   (1,203 )   (1,478 )
Amortization of  debt issuance cost   385     257     1,155     565     385  
Total Interest and other adjustments   8,754     4,949     26,065     9,286     6,649  
Income before income taxes - non-GAAP   25,801     71,304     102,490     183,883     28,289  
           
GAAP to non-GAAP reconciliation of net income:          
Net income (loss) - GAAP   (55,659 )   46,387     (29,943 )   119,101     5,857  
Total cost of revenue adjustments   7,010     4,276     15,218     12,962     4,352  
Total operating expense adjustments   21,822     11,193     46,154     33,138     12,095  
Total Interest and other adjustments   8,754     4,949     26,065     9,286     6,649  
Income tax provision adjustments   40,874     399     37,146     (304 )   (2,864 )
Total adjustments   78,460     20,817     124,583     55,082     20,232  
Net income - non-GAAP $ 22,801   $ 67,204   $ 94,640   $ 174,183   $ 26,089  
           
Basic non-GAAP income per share           
GAAP earnings per share $ (0.49 ) $ 0.42   $ (0.26 ) $ 1.08   $ 0.05  
Impact of all non-GAAP adjustments $ 0.69   $ 0.19   $ 1.09   $ 0.50   $ 0.18  
Non-GAAP earnings per share $ 0.20   $ 0.61   $ 0.83   $ 1.58   $ 0.23  
           
Diluted non-GAAP income per share           
GAAP earnings per share $ (0.49 ) $ 0.40   $ (0.26 ) $ 1.05   $ 0.05  
Impact of all non-GAAP adjustments $ 0.69   $ 0.19   $ 1.07   $ 0.48   $ 0.18  
Non-GAAP earnings per share $ 0.20   $ 0.59   $ 0.81   $ 1.53   $ 0.23  
           
Shares used in computing non-GAAP income per share          
Basic   114,209     110,956     113,571     110,061     113,960  
Diluted   115,661     114,873     116,138     113,506     115,443  
                               

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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